My retirement investing strategy is focused on getting to a point where work can become optional as quickly as possible. Some would call this retirement. My thinking is that you never know what life is going to throw at you and by being financially independent at least it gives you choices.
To enable this to occur I do two things. Firstly, I live extremely frugally except occasionally I will also enjoying myself on a specific I consciously choose. Secondly, I always pay myself first. What this means is that as soon as my salary enters my account my retirement investing allocation is immediately moved to the appropriate location and I force myself to live on the remainder. If this means beans on toast at the end of the month then so be it. It would be so easy to spend first and then save later. However my thought is that there would be unlikely to be anything left to save at the end of the month as companies today have made it so easy to spend. I can really see how people get into this trap.
Additionally as pay rises are given (unfortunately usually only inflation matching) I always try and allocate this extra to my retirement strategy rather than increasing my standard of living. This means where I live is not as ‘nice’ as where my peers live, my television is not as large and I eat at home more but that’s the choice I have made in exchange for financial independence in the future.
Even where I am today, while not having yet reached retirement, I am happy knowing that if I lost my job tomorrow I would be ok. It’s amazing how liberating this is.
So what does this mean in terms of retirement savings per month? You hear about people saving 10 to 15%. If you save only this amount it’s going to be a long time before you get the retirement option. In my instance the UK government will take 23% (income tax and national insurance) and I will spend 17% on day to day living. This means I am left with about 60% of my earnings going to my retirement investing strategy. I am serious about financial independence and I intend to keep this up until I reach my goals. With a fair wind this is about 7 years away.
7 years is a short period of time meaning most of my final retirement pot will come from direct savings rather than the compound interest effect. If you are prepared to wait a lot longer for financial independence then compound interest may have time to work its magic meaning potentially less direct contribution from you.