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

Case Study
Taken from The Independent, Saturday 10 January 2009

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 planners help Nick with his concerns: Alex Pegley of Calculis Limited, Dennis Hall of Yellowtail Financial Planning Limited, and Duncan Glassey, founder of Wealthflow LLP.


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.


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.


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”.


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”.


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.

Reproduced with the kind permission of The Independent, London.

Duncan R Glassey
Senior Partner – Wealthflow LLP

[email protected]

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