Is there really a way you can retire in 5 years or less in the UK? Creating a passive income used to be for the very wealthy but things have changed. If you don’t want to keep working the way you are until your statutory retirement age, read on to find out ways to retire in 5 year or less.
WHY DO WE NEED TO PLAN FOR RETIREMENT NOW?
The recent article in Independent highlighted the pension crisis in the UK further. It reckons the Government will have to find £7.6 trillion to fund future pensioners. That includes people like you and me.
Since 2010, the Government has been encouraging the working-age population to make contributions to private pension schemes either through employers or making payments to personal pension schemes.
Like many economists, I predict there will not be enough funds to go around everyone to payout a state pension by the time I am at the statutory retirement age.
I imagine that the state pension scheme will still exist but the weekly pension we are likely to receive will be nowhere near what we need to live on.
In other words, we can no longer rely on the Government to look after us in our old age. That is why we need to take the matter into our own hands, to secure our financial future.
HOW TO CHECK HOW MUCH IN PENSION PAYMENT YOU WILL RECEIVE
Unless you have a large enough pension pot already, you need to be thinking about different options to fund your retirement anyway even if you are prepared to wait until the statutory retirement age.
It is a common advice that you should have at least two-thirds of your current income coming in regularly to live comfortably in your retirement.
The first thing to do is to check how much your pension will pay out each month with the existing pension pot you have. This can be found out very easily online.
There are many pension calculators available online but I found the following site concise, easy to use, and is from a non-profit organisation. This is a UK site but I am sure you will find a similar site in your own country.
The Money Advice Service – Pension Calculator
The calculator will suggest the monthly income you will be needing in your retirement and how much you will need to be contributing monthly NOW in order to have enough when you retire. You have to also bear in mind that the value of your currency is always going down.
This is when I had a huge shock personally. I found out that there was no way I could put that sort of money aside each month right now for my future!
WHAT CAN WE DO NOW TO SECURE OUR FINANCIAL FUTURE?
If you have a large amount of cash kicking around, you naturally have more options to invest the capital for returns such as in properties, and other commodities such as gold. However, if you feel you are hands are currently tied, there are two ways you can go about thinking about this.
Method 1 – MAKE THE POT BIGGER – Put away any lump sum capital into your pension to increase the pot.
For example, do you receive an annual bonus from your employer? If you do, you pay your income tax up front. Depending on what rate of tax you are on, the net bonus you receive is actually 60-80% of the bonus your employer pays you. Instead of paying your bonus as part of your monthly payroll, ask your employer to pay your bonus into your pension scheme as ‘an employer’s contribution’. This means, instead of you paying income tax on the pension you receive, you will be able to pay the whole amount into your personal pension scheme. For example, if your annual bonus is £3,000, this is equivalent to making a contribution of £250 per month into your pension pot.
In the same way, you can increase the funds in your pension pot by putting whatever additional cash you get into the pot.
Method 2 – HAVE ANOTHER REGULAR INCOME – Build a business that brings in passive income or a regular income that does not need too much of your time spent on it.
Many savvy people who benefited from the property boom and have built their property portfolio before the crash are leaping the reward. This was one of the classic ways of creating a passive income just the way Rober Kiyosaki in his book Rich Dad, Poor Dad explained.
However, following the changes to property regulations, it has become increasingly harder to find a buy-to-let mortgage without having a large deposit to put down.
An alternative way to build a passive income is to build an income stream from a business or multiple businesses.
Understanding a simple passive income stream and how to create it
The way this works is best explained by an example I often use. Say you own a fitness gym that is already equipped and set up. You charge £20 per month for a membership. You have 100 members signed up that use the gym on a regular basis. You now have a regular income of £24,000 per year just by letting people use your facility. So now you know how a simple passive income model works. But in terms of profitability, running a gym requires paying out on overheads, such as business rates, insurance, staff to greet members all day etc. before you get your income. So, in reality, your income will be after deducting those costs.
However, it is possible to run a similar service on the internet to create monthly income online if you choose the business model wisely. The best things about the internet are that there is hardly any overheads to risk and you have access to over 2 billion potential members. Building enough number of members who pay for the regular membership takes time, but I believe it is worth putting the effort in as there is NO capacity issue such as running a physical fitness gym. This means there is absolutely no limit on the number of members you can sign up.
So in the example, above if you collect £20 per month from 500 regular members, your income will be £120,000 per year and your overheads will be minimal in comparison to running a physical gym. That would be a substantial retirement income for most people.
Do you think you can find 500 members within the next 5 years out of over 2 billion people online?
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