Lizzie Davey, a 35-year-old freelance writer from Brighton, is on a mission to retire at 55 with over £1.5 million in savings. This ambitious goal, which would provide an annual income of £50,000 to £80,000, is not just a pipe dream but a carefully planned strategy. Here's how she's doing it.
Saving Strategies
Davey's high earnings allow her to save tax-efficiently. As a freelance copywriter for tech and software companies, her business brought in £185,000 in the year to October, and £232,000 the previous year. She pays herself around £75,000 through a combination of salary and dividends, and contributes £1,000 monthly to a pension and a general investing account. Her pension, started three years ago, currently holds £50,000.
When she can, Davey plans to pay the maximum £60,000 annually into her pension, taking advantage of tax relief. She also aims to build a substantial pot in other investment accounts with no age restrictions, contributing £1,000 annually. Her goal is to have a pension worth £1 million by the time she can access her private pension at 58.
Quitting the Rat Race
Early retirement savers typically rely on a combination of pensions and Individual Savings Accounts (ISAs). Pensions offer tax relief, where the government refunds the tax on contributions. For instance, if you pay in £800 and are a basic-rate taxpayer, the government adds £200, making it £1,000. Higher or additional-rate taxpayers can claim additional rate tax relief through self-assessment.
Self-employed individuals, like Davey, can make pension contributions directly from their company. The annual pension contribution limit is £60,000, or up to your annual earnings, whichever is lower. You can also carry forward unused allowances from the previous three tax years.
The Importance of Early Saving
Achieving total savings of over £1 million requires diligent saving, ideally from a young age. Saving £1,000 monthly for 30 years with a 6% annual growth rate after fees would result in a £1 million pot. However, many start with lower amounts and increase contributions from their forties. A £1 million pot could provide an annual retirement income of around £40,000, assuming a 4% withdrawal rate.
A Controversial Take
Davey's high savings goal and early retirement plan might raise eyebrows. Some may question the feasibility of such a goal, especially for those without her high earnings. However, her strategy highlights the importance of financial planning and the potential for freelancers to earn substantial incomes. It also underscores the value of starting to save early and taking advantage of tax relief and investment opportunities.
Final Thoughts
Davey's journey is a testament to the power of financial planning and discipline. While her path may not be realistic for everyone, it serves as an inspiration for those who dream of early retirement. The key takeaways are the importance of saving early, taking advantage of tax relief, and building a diversified investment portfolio. As Davey says, 'I’m definitely a saver when it comes to my personal money. I’m not a big spender, but I prioritize my future.'
