Retirement planning
step-by-step guide

When your working years come to an end and your employer is no longer subsidising things like healthcare, phone bills, and wellness memberships, how much will you really need to cover everything in retirement? Conventional wisdom says you’ll need roughly 70-80% of what you currently earn or spend. Research shows most of us are unaware of this and consequently unprepared - highlighting why retirement planning is important.

According to Forbes, about 10,000 baby boomers in the USA reach retirement age every day. 25% of them have no retirement savings. And this problem is not unique to the USA. There’s a projected $400 trillion global retirement savings gap by 2050. These figures underline the importance of retirement planning - without a solid financial strategy, many retirees risk outliving their savings.

Why planning for retirement is important: it ensures you make the most of your earning years as an international professional so you can achieve your ideal future, for you and your family. Careful preparation gives you financial security, peace of mind, and the freedom to enjoy your retirement on your terms.

Read more

1. The Surprising Key to Longevity in Retirement

2. The Importance of Timing in Retirement Planning

3. Planning Your Retirement Withdrawals

The answer is "no", it’s never too late to start your retirement planning. No matter your age, taking action now can help secure your own financial future and the future of your loved ones. But when to start planning for retirement does have different implications and requirements depending on your stage of life.

Age 21-35

Starting your retirement planning in this age range means that your investments will have plenty of time to mature. Investing sooner will help you reap more benefits from compounding. Compound interest works best when you have time on your side - it allows your income to self-generate more income through interest over time. This means the overall amount you need to invest is smaller compared to starting later in life.

Age 36-50

These mid-life years, if planned correctly, can be the best saving and interest-earning years, making a considerable impact on your retirement planning. If you're wondering, "is 45 too late to start saving for retirement?", the answer is no - but it does require a more strategic approach.

At this stage, people often have a higher income, allowing them to invest larger amounts. Compounding truly starts to gain traction as you add to your savings in this phase. Having the right financial planner to advise you on investment opportunities, risks, and taxes is vital to protecting your wealth while you're accumulating it.

Life insurance coverage for you and your family is also crucial in this phase, as it can protect you from unforeseen life events or 'lifequakes' that could potentially derail or hinder your retirement plan.

Age 50-65

By the time you reach this phase of life, you can take advantage of several financial changes. Long-term debts, such as mortgages, may be paid off, and your salary may be at an all-time high. This allows you to save an even greater proportion of your income.

For those considering their retirement options, a common question we hear is, "can I retire at 55 with 1 million pounds?" The answer depends on various factors, including your lifestyle goals, expenses, and investment strategy. Working with a financial planner can help determine whether you're on track.

Finally, ensuring you're covered with long-term care insurance helps protect your wealth from unforeseen medical conditions or loss of employment - key aspects of late retirement planning that can safeguard your financial future.

Retirement planning for international professionals like yourself needs a holistic approach that not only helps you identify where you currently stand, but clearly states how you can reach your comfortable, and financially-secure retirement early. Think about these retirement planning steps:

1. Identifying your retirement goals

People often associate retirement with money. Of course money is a major part of it, but retirement is mainly about living life on your own terms. It’s extremely important to identify what you want to achieve and what makes you happy before you start working towards it.

Different people have different priorities. Understanding what you truly desire in order to feel satisfaction, is key to a happy retirement.

Retirement planning helps you to take a step back and narrow down your goals, so you can make the right financial decisions that secure that ideal future for you and your family.

2. Analysing your current financial position

Cash flow modelling can help you answer this question. This means working with a financial planner to understand your current spending patterns and how much is needed to support your current lifestyle and your desired lifestyle for the future. Its about answering the question - 'how much is enough?'. This is known as lifestyle financial planning.

Analysing your current financial position will also help you plan out how you can increase your savings and how much money you can start investing. This is one of the key steps in returement planning. 

3. Understanding your income sources

Retirement income can come from different sources. The tax implications of each of these income sources needs to be considered and altered accordingly.

Over what time period and by what percent will you use this income is equally important, and determining this in advance will help you protect your retirement income.

4. Investment planning

Investment done right can help you speed up your financial journey and reach your retirement goals early. But it's important to consider the risks involved in these investments.

High risk investments, market volatility and inflation could have a negative impact on your portfolio and consequently on your retirement savings. Planning your investment portfolio based on your appetite for risk and getting expert guidance from a regulated financial planner is one of the key steps involved in your retirement planning process.

5. Planning for unforeseen life events

Life is a beautiful journey, but unforeseen health issues can come up at any time and hinder your financial plans. These life events can eat into your retirement savings and throw you back by years financially.

Planning for such life events and making sure that you have the best, long-term insurance plans in place that can get you and your family safely out of these storms is another important step in your retirement planning process.

6. Managing your retirement income

During your working years, you get used to getting your pay cheque every month. But what happens when you retire?

An investment strategy that was once a good fit for you, may not be the most profitable one for you after a few years. Identifying different retirement income opportunities and managing them with constant monitoring is a vital part of your retirement planning process.

7. Continuous monitoring of retirement assets

Creating a retirement budget and then constantly monitoring your financial position and making required changes is an on-going part of retirement planning. This continuous monitoring helps you identify where you are deviating from the plan and rectify it before it’s too late.

A good financial planner will help you stay on track to achieve your ideal future.

Retirement planning as a senior international professional comes with it's own unique opportunities and challenges. Firstly, the low tax environment offers incredible wealth-growing potential, especially when coupled with the 'wealth accumulation window' that many senior professionals find themselves in.

But without any mandatory pension schemes in the UAE, taking personal responsibility for your retirement is crucial. Wise counsel from a fiduciary financial planner can help navigate the complexities of family wealth as an expatriate while maximising the advantages of your unique 'wealth accumulation window' for long-term financial security.

Step 1

In how many years from now would you like to be financially free to retire?

5, 10, 20 years?

Write down your number.

Step 2

How much money would you like to live on annually, once you’re financially free?

If you plan to live modestly, or in a low-cost country, your number might be relatively small – e.g., £20,000 pa.

If you have lavish tastes, or a desire to live in a high cost country, obviously your number will be bigger – e.g., £100,000 pa.

Write down your number.

As you plan for your financial future, you may have questions like, "is £500,000 enough to retire?" The answer depends on various factors, including your lifestyle, location, and investment strategy. Careful financial planning will help determine if this amount aligns with your long-term goals. Let's go to the next step.

Step 3

Do you own property other than your main residence? (If not, skip to Step 4)

Rental income from property is an inflation buster – because rent rises in line with inflation.

So…

If you own rental property, how much rental revenue per year could be generated from your property today, if it was mortgage free?

Write down that amount.

Then deduct 10% for periods of potential vacancy, and deduct your estimated annual maintenance costs as well.

What number are you left with?

For example – if you own 2 mortgage-free properties each generating £700 pcm in rent after all costs and vacancy considerations, you have an inflation proofed monthly income of £1,400, and an annual inflation proofed income of £16,800.

Write down your number.

Step 4

What’s your annual shortfall?

When you answered Step 2 above, you wrote down how much you’d like to live on annually to be financially free. If you have rental income, would it be enough to cover the entire amount you want to live on?

If not, what’s your shortfall?

For example, if you want to live on £100,000 and you earn £16,800 from property, your annual shortfall is £83,200.

Write your number down.

Inflation, inflation, inflation.

Of course, unless income from property holdings covers everything you need to be financially free, your annual shortfall will actually be much higher than the number you’ve just generated.

Why?

Because of inflation…

Step 5

What's your post-inflation income?

With the cost of living rising, many people are asking, "how much will I need to retire in 2050?" Predicting future retirement needs means considering inflation, purchasing power, investment growth, and lifestyle choices. We can help you calculate these figures and build a strategy that keeps you on track for your flourishing future.

Here’s how to calculate your own post-inflation income gap. Click here to open our compound interest calculator.

What’s your number?

This is the annual amount of income you want to achieve to enjoy financial freedom when you retire.

Step 7

How much do you need to be saving and investing to hit your portfolio goal size?

Visit this compound interest calculator.

Enter the amount of money you have already saved or invested towards retirement in the Initial Balance field.

Enter 7% in the Annual Interest Rate field (annual average stock market return).

Enter the number of years into the Calculation Period field.

Enter the amount of money you are saving or could save in the Regular Monthly field and ensure you set it to deposit.

Assuming you wish to increase deposits in line with inflation, tick Increase Deposits Yearly With Inflation, and set the rate to 3.5% and the Compound Interval to Yearly.

Calculate…

Are you on track?

For our example, if we had a base amount of £100,000 already saved towards retirement, invested £2,000 a month for 20 years, assuming a rate of growth of 7% and increasing annual deposits by a 3.5% inflation rate, we’d be on track!

Step 8

You can play around with some of the numbers – but not all of the numbers…

You can’t change your age today, meaning if you’re set on retiring in a specific number of years, that limits how long you have to save, and how long your wealth has to grow.

And you can’t change the amount you’ve already saved and invested.

But there’s plenty of good news…

Firstly, evidence shows that in the early years of retirement, retirees are more inclined to travel and enjoy financial freedom than later in life. Therefore, your requirement for such a large annual sum could alter downwards, meaning you may need less to retire comfortably than you thought.

One of the most important responsibilities of a financial planner is to help you with a retirement spending strategy as part of your broader retirement lifestyle planning.

In financial terms, retirement is known as the decumulation, or drawdown, phase.

The decumulation phase is extremely important. If you think about all of the questions to answer: “How much can I spend? When do I take it? How do I take it? Which buckets do I take it out of? How do I manage my tax impact?” All of this makes this phase much more complicated than the accumulation phase.

There's been a great deal of research into creating a plan for retirement to meet desired future income goals in recent years, and Vanguard is one of the companies at the forefront of what is sometimes referred to as the 'science of retirement'.

For a long time, we didn’t give much thought to what retirement spending looked like because we didn’t really have to. Most people were covered by a DB plan, state pension, or private pension.

People weren’t expected to provide for their own retirement to the extent that they are today.

Garrett Harbron, an expert on retirement strategy at Vanguard Asset Management, says this is being compounded by the fact that the baby boomers are retiring, so we have more people retiring each year - and people are living longer. The concept of a 40-year retirement 30 years ago was completely foreign. Today, it’s very much a reality, making it more important than ever to understand how to plan your retirement lifestyle effectively.

Traditionally, when planning a client’s retirement spending, many planners have relied on the so-called 4% rule. That means the amount the client takes out of their portfolio each year is fixed at 4% of its value on retirement, with adjustments for annual inflation.

There’s been a lot of debate around whether the 4% rule is still valid. Based on Vanguard's research, at least in the UK, we feel like it is. When Vanguard runs numbers and simulations for the 4% rule and measures it against an 85% portfolio success rate - that’s over 10,000 simulations - the portfolio has money left after 30 years. 85% of the time, they found that the maximum sustainable spending rate is actually 4.17%, slightly over the 4% mark.

So, the 4% rule is still valid. But there are alternatives which may suit you better. However, bear in mind that retirement lifestyle planning is a highly specialised field, and it pays to ask a professional financial planner to explain the options to you.

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1. Retirement withdrawal plan

1. The traditional way to generate income in retirement is to invest in an income paying equity fund, or portfolio of funds. These funds will invest into dividend-paying companies. These dividends are either paid into the fund, which is then able to produce an income, or paid out as cash to your pension.

2. Another method of generating income in retirement is through investing in a bond fund or portfolio of bond funds. These operate in a similar manner as an equity fund, except rather than owning company shares, the fund owns debt issued by governments, nations and companies. The issuer pays the fund a set rate for lending it money, which generates an income. 

For help managing your money in retirement, speak to a financial consultant.

What if we told you, that for people with 40 years until retirement, £10 million is the amount they should be aiming to save

That’s a lot of money, by anyone’s standards.

But inflation means £10 million may just about cover a comfortable retirement. £1 million will have the same spending power as £306,000 today. £10 million will equal £3,060,000.

Over the course of that retirement – it will shrink again.

Often, retirees don’t consider the impact of inflation on their income. Over the course of your 10, 15 or even 30-40-year retirement planning, the value of each pound in real terms will fall.

This is because the price of most goods and services will rise. You may be wondering what interest rate to use for retirement planning.

Well, an average inflation rate of 3%, would mean a £500,000 portfolio, after just 10 years, would be worth £375,000 – 25% less than at retirement.

Factoring in inflation is therefore crucial.

Growth ensures your portfolio remains of sufficient size to produce the yield you require, as you will also likely be taking an income from this portfolio.

Here's an example of the effect inflation can have on your retirement. Mr Jones is a self-made businessman who’s always been sensible and saved hard into his pension, which has grown to £500,000. He sold his business at the age of 55.

He is afraid of investing his money and losing it, so he leaves his £500,000 pension in cash. As he wants to use his pension pot as an income, he decides not to take a 25% tax free lump sum, leaving the entire £500,000 available for an income.

He decides then to take an annual income of £17,500. However, assuming a 3% rate of inflation, after just five years he will have eaten away £100,000 worth of his pension.

At this rate, he will have used up his entire pension pot before his 80th birthday and will certainly leave nothing for his family after he dies. If he had taken his 25% tax free lump sum, as most people do, he would use up his pension well before his 75th birthday.

Your company’s pension plan will not be sufficient to fund your retirement.

One of our clients had a rude wake-up call. He was a senior executive at an oil and gas company (earning a lucrative salary with benefits) who expected a large pay-out from his company’s pension plan. 45% of his final salary to be exact.

However, on his last working day, the company broke the news – they had shifted pensions based on final salaries at retirement age to cheaper ones based on a ‘career average’ salary. 

The pay-out he looked forward to was slashed by 25%. He needed to make urgent decisions as he didn’t have the benefit of time on his side. So, he downsized his villa to a humble 2-bedroom apartment and sold his luxury car, placing the earnings from both into a low-cost index fund.

The tropical holiday he planned for himself and his wife was temporarily put on hold.

Now, slowly able to rebuild his wealth, he makes sure others learn from his mistakes – especially his adult children.

He says:

“Don’t rely on your company’s pension scheme. Always have a separate investment that can bridge any possible savings gap.”

There’s quite a lot to understand before you start looking around for the best funds for your money:

1. Risk

When it comes to investing it’s broadly correct to say that the more risk you’re willing to expose your money to, the higher the return you could potentially enjoy. Likewise, the lower the risk you’re willing to tolerate, the less significant the gains you may potentially enjoy.

It’s really important to understand your own personal appetite for risk.

At the most extreme end of the scale there are investments where your money is not guaranteed, but where you could enjoy unlimited gains.

At the safest end of the scale your investment and returns are guaranteed, but the returns are going to be small.

Your unique appetite for risk is one of the most important things for a professional financial planner to know. This can be done by a comprehensive analysis of your current financial position.

If you’re unsure about your own tolerance for risk get in touch with us and one of our professional financial planners will help you turn your lifestyle into numbers and understand what you need to get and keep the life you want.

2. Asset classes

There are all sorts of different asset classes such as cash, bonds, property, shares and commodities. It’s important to know about the choice available and the pros and cons associated with each.

We have a guide to help you better understand these different asset classes. 

4. Sectors

Just as there are different asset classes so there are different sectors to choose from. In investing terms a sector is an industrial area of the economy in which companies provide a similar product or service.

An example of a sector is the defensive sector, which would include companies that are thought to be safer in a falling market such as utilities and healthcare firms. Another example is the growth sector, which tends to do well in a rising market. Companies in this sector could include technology or manufacturing firms. 

4. Markets

Should you invest in an established market or an emerging market? It’s important to understand the pros and cons of each choice and which nations are considered to fall into each market. 

5. How your money is actually spent

Some of your money will be spent on the actual investment, but some will be allocated to cover fees and charges. Generally, the more complex the fund and the more actively it is managed the higher the costs. Understanding the fee structure of any investment path you choose is critical – you don’t want to be overcharged compared to the potential gains you could enjoy. 

Fees and costs are necessary but if they are too high they can erode the value of your overall investment. Regulated advisers and fund managers are always transparent about their costs. You need to ensure that what you’re going to be charged is reasonable for what you’re gaining. 

6. Exit strategy

Before you even commit to investing your money you need to have an exit strategy! The best laid plans sometimes change. Can you access your money if you need to? What are the consequences of accessing your money? Some funds lock you in for a specific term and you cannot access your funds until the end of the term without significant financial penalty.

Understand what you’re committing to – and never ever forget you should ideally have enough in cash deposits to cover about 3 months’ worth of essential outgoings.

Investing should be boring.

Ideally, you should set up the right portfolio for you and your goals together with your financial planner – and then leave it alone.

You should spend less time worrying about your financial future and more time doing things you actually love.

Successful investing comes down to six principles:

1. Accept the price 
2. Beware of market gurus 
3. Control your costs 
4. Spread your risk 
5. Be disciplined 
6. Stay balanced

For even better investment results, a systematic investment approach backed by years of Nobel prize-winning research is one of the best strategies for growing and protecting retirement savings.

Our science-based approach is grounded in economic theory and backed by decades of leading academic research. While other investment managers have access to the same research, it’s the interpretation and application that sets our funds apart. It’s about identifying what works for investors and what can bring them far greater success by capturing the key ‘dimensions’ that exist in the marketplace.

Systematic investing encourages investors to stay disciplined, maintain a long-term investment horizon and diversify globally – three things everyone can control. These behaviours/actions will allow investors to take full advantage of time in the markets and is the ideal investment strategy in retirement planning. 

While some people aim to retire early, there are others who want to retire overseas. It’s an understatement to say that there’s a lot to think about when planning to retire abroad, it's easy to get confused and bogged down by it.

We wanted to give you some clarity by covering the 5 main categories you need to consider while planning to retire abroad. These include lifestyle, health, money, pensions and property because we know from our own experience that these are the core areas of concern to the majority of us who are planning our new lives overseas. 

1. Lifestyle

Getting and keeping the life you desire is the most important goal to bear in mind while planning for your retirement. Understanding whether this lifestyle you have built for you and your family can be enjoyed in the country you're planning to retire in, and the financial implications of the same is vital to your future financial well-being. 

Consider whether you want to fully integrate into this new life. Most importantly, you need a professional financial planner to turn your life into numbers to ensure that the cost of living there does not exceed your retirement savings so you can achieve your ideal future.

2. Health

Your overall health and well-being and that of your loved one's should always be a primary consideration in your retirement planning process, no matter which country you plan to retire in. Consider how you can protect yourself through a comprehensive insurance plan. 

Looking into access to carers or at-home medical or welfare support in your new nation, in the event you need it in the future, could also help you plan better for unforeseen future life events.

3. Money

When you move abroad, at least semi-permanently, you become known as an expat. And for the majority of expats you also become non-resident for tax purposes in your old home nation – it’s at this point in time that the expat advantage exists for you to embrace.

Understanding how to make the most of this advantage can help you protect your wealth. 

Having a professional financial planner by your side will not only help you retire early, but can help you make moves like this more swiftly. All while protecting your wealth and the life you have worked so hard to build. 

4. Pensions

If you have a British pension pot and you’re retiring abroad you have the potential to enjoy even greater investment freedom. You may also be able to transfer your pension into an HMRC-recognised overseas pension scheme. Consider whether your move to retire abroad has any tax implications on your withdrawals or benefits. The key is in understanding where there are double taxation agreements in place, and where retirement income specifically, or foreign sourced income, is taxed at a favourable rate.

With very careful planning you may be able to retire abroad and enjoy your British pension at a significantly reduced rate of tax. You have to select the right country and abide by all qualification rules however – and you should take expert advice before making any decisions.

5. Property

If you want to avoid common risks, take your time to get to know a place by renting a property there first. Learn the local language and then take your time to ask, enquire, explore and observe everything you need to regarding the property market. Chances are, if you finally do buy a property, you will pay less for more, and get an overall better and safer deal. 

No other country has a property market as fickle as Britain. While the British market is protected by laws and regulations, it is also a market that booms and busts regularly. Elsewhere in the world there can be regulations and blocks in place, in the form of taxation for example, to deliberately take heat out of a market and prevent this damaging cycle. This can also prevent you making any profit on property bought there however, making it all the more essential to think it through thoroughly so it does not have a negative impact on your retirement plan.

A regulated life financial planner can help plan your finances around your goal to retire abroad and handle the drudgery so you can focus on the things you love.

Your retirement savings have taken you a lifetime to build and, while you may still want to invest, you cannot afford to lose significant sums of money.

You will not get another chance to build your pension savings. There are unscrupulous salespeople out there who are more than happy to take your cash and to invest it into high risk, high commission funds, which often fail.

The only winners in these cases are the salespeople who are paid vast commissions and will then disappear as soon as there is trouble. When thinking about the best retirement investment strategy for you, make sure you discuss your attitude to risk with your financial planner.

There are three big considerations you must take into account when crafting an effective investment strategy for retirement:

Mr and Mrs Smith moved to Spain around six years ago with £152,858 in savings to see them through to retirement. They bought a property and set up a small B&B business. In addition to their savings, Mr Smith had a UK pension worth around £425,000, with which he planned to fund their income in retirement.

While in Spain, they were contacted by a financial adviser and took his advice to transfer Mr Smith’s pension into a QROPS to allow “more investment freedom”. So far, so good.

They were in a strong position, with enough to comfortably retire on. Their pension commencement lump sum would have been enough to clear the business mortgage on the property. 

With minimal ongoing costs, they would only need an income of around £15,000 per year to live a comfortable retirement, which the remaining pension pot would have easily provided.

However, their financial adviser had his own retirement in mind. He found it easy to persuade them that a series of structured products was the right way to invest their money. Headline features like ‘capital protection’ and ‘quarterly income paying’ on these products make them sound low risk, as does the fact that they’re underwritten by large well-known banks.

The structured products performed badly. Some of them were linked to individual stocks which plummeted in value, while others were linked to assets such as gold which also fell significantly in value.

Despite the adviser’s promise of capital protection and income payments, the Smiths lost 60% of the value of their pension savings. As a result, their dreams are in tatters and they have had to push their retirement plans back several years as they return to work in the UK to replenish their savings. 

While the decision to transfer into a QROPS is sound enough, extra care needs to be taken as to what your ‘adviser’ invests your cash into.

Mr Jones is a self-made businessman with an independent retail store and has always been sensible and saved hard into his pension, which has grown to £500,000. 

He sold his business at the age of 55, after repaying his mortgage and other outstanding debts. He is afraid of investing his money and losing it, so he leaves his £500,000 pension in cash.

As he wants to use his pension pot as an income, he decides not to take a 25% tax free lump sum, leaving the entire £500,000 available for an income. He decides then to take an annual income of £17,500. 

However, assuming a 3% rate of inflation, after just five years he will have eaten away £100,000 worth of his pension. At this rate, he will have used up his entire pension pot before his 80th birthday and will certainly leave nothing for his family after he dies. 

If he had taken his 25% tax free lump sum, as most people do, he would use up his pension well before his 75th birthday.

Take note: If he invested his money, even cautiously, it would mean he could have helped to protect his pension from the effects of inflation, as a 4% return would have seen him comfortably past his 85th birthday.

Need for life cover in retirement

No one likes to think about mortality. But the reality is harsh and unavoidable. It can be even harsher for those you leave behind.

Life is a wonderful contradiction. On the one hand, everyone is living longer than ever. On the other hand, more people are dying from accidental deaths, heart diseases and strokes (and from a younger age too).

Most of us have car insurance for the likelihood of an accident, theft or breakdown taking place; home insurance to cover the material goods held dear; and medical insurance that protects us during illness.

But if you die prematurely without adequate life cover in place, what would happen to your loved ones? Life cover protects your loved ones so your children can finish college if you’re not around to pay for it and your family can maintain their standard of living without your regular income.

It’s vital to plan for any, and all, eventualities. It’s also important to know that different countries have different laws pertaining to deaths and dues. Loans, fines and credit cards usually need to be paid by surviving family members.

Investments, estates and trusts have long approval processes, meaning it could be months or years before your loved ones are able to access what’s inevitably theirs.

These financial burdens can be avoided. Or, in the very least, alleviated. Today, your premiums are the cheapest they’ll ever be because, right now, you’re at your youngest. 

As you get older, the expected premiums increase every year. So, the earlier you start a protection plan, the less it will cost you on a monthly or annual basis.

Simply by taking action today, you can secure your loved ones’ financial well-being.

In the event of your death, they’ll receive a lump sum to help pay for expenses and maintain their standard of living.

Many of us procrastinate sometimes – even the most productive people, apparently! 

But when it comes to saving for retirement, procrastinating is not advised. Early birds don’t just get the worm - they get five star buffets for almost no effort.

The real cost of procrastination calculated...

Let’s illustrate the cost of procrastination with a story of three fictional couples.

In each case, these couples have always earned the same as the typical UK household.

For example, based on data from the Office for National Statistics they had £6,444 of disposable income per head in 1977. In 1982, they had £7,435 of disposable income per head. By 1987, they had £8,565…

These couples are all the same age…

The key difference between them is, they didn’t all begin to save for their retirements at exactly the same time.

In 1977, Sam and Kate were 25 years old. They decided to save £175 per month (£2,100 per year). It would have represented 16.29% of their annual income.

They bought low-cost mutual funds, putting 70 percent of their money in stocks, 30 percent in bonds.

The couple’s funds matched the returns of each respective market. In other words, and for the sake of this illustration only, their stock market mutual funds matched the S&P 500. Their bond market funds matched the performance of a broad US government bond index.

But Sam and Kate were lazy!

As their income increased, they didn’t increase what they invested. They just continued to add the same £175 per month.

By 1982, their income had increased to £14,870 per year. As a result, their investment of £175 per month no longer represented 16.29 percent of their income. It was now just 14.12 percent.

By 2007, that same £175 per month represented a paltry 7.47 percent of what they earned.

By 2007, the other 2 couples were investing a lot more money than Sam and Kate. 

But that didn’t matter. These 2 early birds still soared higher.

According to portfoliovisualizer.com, they would have had about £1 million by the time they were 65 years old without ever increasing the monthly amount they invested.

David and Sarah live next door to Sam and Kate. They didn’t start to invest until they were 35 years old. They invested £600 a month (£7,200 per year) in 1987.

It represented 42.03 percent of their disposable income – ouch.

But, by scrimping so hard, by the time they were 65 years old, they also had about a million pounds. 

David and Sarah had to save much more than Sam and Kate. As a result, they weren’t able to spend as much of their income on the finer things in life.

When Sam and Kate asked David and Sarah to join them for a South African safari, they couldn’t afford it. Their monthly retirement savings ate up far too much of their income.

However, at least they were doing much better than Chris and Becky!

This couple only began their retirement planning when they were 45 years old.

At age 65, they also had a £1 million portfolio - but to reach that goal, they had become slaves to their savings. The couple saved a whopping £1,800 a month (£21,600 a year).

Such savings represented 92.79 %of their disposable annual income. That’s why, to reach their retirement goal, they had to rent out their home and live in their car!

Of course, these are just fictional examples. But the numbers are real! We used actual investment returns between January 1977 and July 2017.

The lesson here is massive – yet simple!

If you procrastinate about your retirement planning and start to invest later, you’ll have to save a lot more money to reach your ideal future.

For example, Sam and Kate began to invest in 1977. They would have saved a total of about £84,000 to amass £1 million.

David and Sarah started to invest 10 years later. They would have invested about £216,000 to reach a £1 million portfolio.

Chris and Sarah didn’t invest until they were 45 years old. As a result, they had to save about £432,000 to reach their million-pound milestone by age sixty-five.

If they had started to invest ten years later (at age 55) they wouldn’t have reached that goal – even if they had invested every single penny they earned!

We are not saying you need £1 million to retire. But just to show you the power of investing early and the pain of procrastination.