Wealth Check: 'I want to retire at 40. Am I deluded?'

Nick Eddy, 27, is originally from Victoria, Australia and has been living in London for less than a year. He is a civil engineer and has been working in construction management for the 2012 Olympic Games for the past four years. Nick doesn't have an investment portfolio, but has ambitious financial goals: he would like to retire by 40 and live off his investment interest. He aims to save at least £13,000 a year and earn a 15 per cent return from his portfolio. Are Nick's financial goals realistic?

Case notes

Income: Nick earns £46,700 a year.
Monthly outgoings: £808 in tax, £2,000 in living expenses including rent. He spends £3,000 a year on holidays, which translates to £250 a month on average.
Savings: approximately £10,000; he saves an additional £1,300 pa.
Pension: £10,000 in an Australian pension plan.
Debt: A £10,000 government student loan.
Mortgage: none; currently renting in London.

Three independent financial advisers help Nick with his concerns: Alex Pegley of Calculis Limited, Dennis Hall of Yellowtail Financial Planning Limited, and Duncan Glassey of Wealthflow LLP.

Investment

The advisors all agree that Nick's dream to retire by 40 and live off investments is unrealistic – "pie in the sky", according to Glassey.

Nick would need a portfolio of between £600,000 and £800,000 to retire at 40 in today's terms. With inflation, assumed to be at 3 per cent, this would be nearer to £1.15m in 13 years' time. If Nick's salary rises at 3 per cent (the current rate of inflation) he would be earning £64,000 a year by the time he is 40. To amass £1.15m in 13 years he would need to save significantly more than £13,000 per annum: "In excess of £30,000 annually, ignoring taxes – so this isn't feasible," explains Hall.

What's more, even a high-risk approach to investments would struggle to yield 15 per cent growth over 13 years in developed markets. Realistically, Nick can expect an annual investment return of between 8 to 10 per cent with a mildly aggressive approach.

If Nick were to save £13,000 a year, and assuming an investment return of 7 per cent, he would have generated £250,762.89 by the age of 40, which would provide him with £7,500 a year. This is well short of Nick's goals. Glassey advises Nick to have a "reality check" regarding his long-term finances. The advisers also warn that Nick's current circumstances may change before he is 40. He could speculate on property, get married or have children, all of which would affect his ability to invest.

However, Nick can still create an effective high-risk investment portfolio. "Diversification should be Nick's watchword, so that not all of his eggs are in one basket," says Glassey. Pegley recommends a balance of high-risk investments in both developed and developing world economies, and believes that Nick is in a perfect position to take advantage of the recession: "By investing wisely now, he has the opportunity to buy quality assets at bargain prices." However, Pegley warns that many companies will not survive the recession, "so using the services of expert fund managers is more critical than ever". He advises against buying a tracker fund, because Nick would be buying bad companies as well as good.

Pension

Nick only intends to stay in the UK for the next three years and already has a pension plan in Australia. Glassey therefore advises against setting up a UK pension plan and encourages Nick to focus on building a large cash reserve while he works here. A pension plan in England could be a financial minefield, liable to taxation in both the UK and Australia, if it wasn't transferred correctly.

Retirement

One way Nick could retire at 40 would be to buy and sell a business, says Glassey. He thinks that retirement by 40 is unlikely for a paid employee without share options or an equity stake in their employer. However, he warns against the rose-tinted expectations of retirement: "For most people, an enjoyable leisure-filled retirement is at worst a dangerous illusion." Instead, he encourages Nick to find a job that he can enjoy beyond the age of 40, perhaps one at which he can work flexible hours or part-time, "allowing him to enjoy life beyond work".

Savings

Nick should make use of his annual ISA allowance while in the UK. He can invest £3,600 per tax year in a Cash ISA and a further £3,600 in a Stocks and Shares ISA. Before returning to Australia, he should take advice so he is not taxed on profits.

It could also help Nick to reduce his monthly outgoings. As Glassey says: "It is not how much Nick earns but how much he manages to keep that will determine his financial future".

Debt

Nick's only debt is his student loan, which he should avoid repaying early and should regard as "a low-cost government loan in the short term," says Glassey.

For a free financial check-up, write to Wealth Check, The Independent, 191 Marsh Wall, London E14 9RS; or email wealthcheck@independent.co.uk

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

Suggested Topics
News
people
Arts and Entertainment
Joel Edgerton, John Turturro and Christian Bale in Exodus: Gods and Kings
film Ridley Scott reveals truth behind casting decisions of Exodus
News
people
Sport
footballArsenal 2 Borussia Dortmund 0: And they can still top the group
PROMOTED VIDEO
Arts and Entertainment
An unseen image of Kurt Cobain at home featured in the film 'Kurt Cobain: Montage of Heck'
filmThe singers widow and former bandmates have approved project
News
Andy Murray with his girlfriend of nine years, Kim Sears who he has got engaged to
peopleWimbledon champion announces engagement to girlfriend Kim Sears
Arts and Entertainment
Jake Quickenden and Edwina Currie are joining the I'm A Celebrity...Get Me Out Of Here! camp
tv
Arts and Entertainment
George Mpanga has been shortlisted for the Critics’ Choice prize
music
News
Albert Camus (left) and Jean-Paul Sartre fell out in 1952 and did not speak again before Camus’s death
people
Arts and Entertainment
Roisin, James and Sanjay in the boardroom
tvReview: This week's failing project manager had to go
News
Ed Miliband visiting the Holocaust museum in Jerusalem. The Labour leader has spoken more openly of his heritage recently
newsAttacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But are the barbs more sinister?
Arts and Entertainment
'Felfie' (2014) by Alison Jackson
photographyNew exhibition shows how female creatives are changing the way women are portrayed in advertising
News
i100
Life and Style
Fright night: the board game dates back to at least 1890
life
Environment
The vaquita is being killed by fishermen trying to catch the totoaba fish, which is prized in China
environmentJust 97 of the 'world's cutest' sea mammals remain
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Langley James : IT Support; Helpdesk, VMware; Manchester, £18k

    £16000 - £18000 per annum: Langley James : IT Support; Helpdesk, VMware; Manch...

    h2 Recruit Ltd: Business Development Manager - HRO - £70k+ ote

    £35000 - £450000 per annum + £3k car, £70k ote: h2 Recruit Ltd: Do you want to...

    Citifocus Ltd: Newly Qualified Accountants - Risk Mgmt

    £Attractive Package: Citifocus Ltd: Prestigious financial institution seeks to...

    Citifocus Ltd: Operational Risk Analyst

    £Negotiable: Citifocus Ltd: Experienced operational risk professional with ban...

    Day In a Page

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    Cameron, Miliband and Clegg join forces for Homeless Veterans campaign

    It's in all our interests to look after servicemen and women who fall on hard times, say party leaders
    Millionaire Sol Campbell wades into wealthy backlash against Labour's mansion tax

    Sol Campbell cries foul at Labour's mansion tax

    The former England defender joins Myleene Klass, Griff Rhys Jones and Melvyn Bragg in criticising proposals
    Nicolas Sarkozy returns: The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?

    Sarkozy returns

    The ex-President is preparing to fight for the leadership of France's main opposition party – but will he win big enough?
    Is the criticism of Ed Miliband a coded form of anti-Semitism?

    Is the criticism of Miliband anti-Semitic?

    Attacks on the Labour leader have coalesced around a sense that he is different, weird, a man apart. But is the criticism more sinister?
    Ouija boards are the must-have gift this Christmas, fuelled by a schlock horror film

    Ouija boards are the must-have festive gift

    Simon Usborne explores the appeal - and mysteries - of a century-old parlour game
    There's a Good Girl exhibition: How female creatives are changing the way women are portrayed in advertising

    In pictures: There's a Good Girl exhibition

    The new exhibition reveals how female creatives are changing the way women are portrayed in advertising
    UK firm Biscuiteers is giving cookies a makeover - from advent calendars to doll's houses

    UK firm Biscuiteers is giving cookies a makeover

    It worked with cupcakes, doughnuts and macarons so no wonder someone decided to revamp the humble biscuit
    Can SkySaga capture the Minecraft magic?

    Can SkySaga capture the Minecraft magic?

    It's no surprise that the building game born in Sweden in 2009 and now played by millions, has imitators keen to construct their own mega money-spinner
    The King's School is way ahead of the pack when it comes to using the latest classroom technology

    Staying connected: The King's School

    The school in Cambridgeshire is ahead of the pack when it comes to using the latest classroom technology. Richard Garner discovers how teachers and pupils stay connected
    Christmas 2014: 23 best women's perfumes

    Festively fragrant: the best women's perfumes

    Give a loved one a luxe fragrance this year or treat yourself to a sensual pick-me-up
    Arsenal vs Borussia Dortmund: Alex Oxlade-Chamberlain celebrates century with trademark display of speed and intuition

    Arsenal vs Borussia Dortmund

    The Ox celebrates century with trademark display of speed and intuition
    Billy Joe Saunders vs Chris Eubank Jnr: When two worlds collide

    When two worlds collide

    Traveller Billy Joe Saunders did not have a pampered public-school upbringing - unlike Saturday’s opponent Chris Eubank Jnr
    Homeless Veterans Christmas Appeal: Drifting and forgotten - turning lives around for ex-soldiers

    Homeless Veterans Christmas Appeal: Turning lives around for ex-soldiers

    Our partner charities help veterans on the brink – and get them back on their feet
    Putin’s far-right ambition: Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU

    Putin’s far-right ambition

    Think-tank reveals how Russian President is wooing – and funding – populist parties across Europe to gain influence in the EU
    Tove Jansson's Moominland: What was the inspiration for Finland's most famous family?

    Escape to Moominland

    What was the inspiration for Finland's most famous family?