Is Financial Freedom a Realistic Goal for the Average UK Person?

Financial freedom and the similar concept of financial independence is a hot phrase right now. You’ll barely make your way through the money side of any social media platform without being inundated with tips on how to become financially independent at a young age.

But how realistic is this goal? Is this an achievable ambition or are marketers simply taking advantage of financially desperate people to sell courses, books and other informational products?

In this article, we’ll look at the stats available to measure the level of financial independence in Britain, and walk through a real-life example budget to see whether an ordinary single person or family could possibly become financially independent by 50.

How many people actually reach financial independence?

If you exclude state benefits such as the old-age pension, it’s difficult to measure the number of financially independent souls in the UK because private wealth is… private, and few national surveys by the ONS really ask the questions needed to isolate what portion of the UK is not in work and also not reliant on social security benefits.

What we do know:

The median wealth of a British household from 2018 – 2020 was £302,500. £302,500 is not sufficient to live off, as this would produce a maximum sustainable withdrawal of £12,500 per year, which is below the poverty line.

We also know from an Aviva study that ¼ of working adults hope to retire at or before the age of 60. That’s a shockingly low proportion considering that 60 is a fairly advanced age and not a particularly aspirational target within the financial independence community.

How realistic is it to retire at 50?

Before using an example, we need to be clear about relationship status because retiring as a single adult is a different ball game to doing so as a team sport. Housing is one of the most expensive parts of any budget, and buying a house or splitting rent between two purses is much easier than going it alone.

Given that most adults are in steady relationships at the age of 50, I will work through an example assuming that both adults are working towards the same goal.

The median salary in the UK is £25,971 as of 2022, which equates to £51,942 per couple.

Approximately half of young people go to university, so we’ll assume you can only begin earning at the age of 22 after graduation. This gives 28 years to save up for retirement by the milestone of age 50.

 

Before we can crunch the numbers, we need to know what amount of assets you would need to retire as a couple at 50. Retiring early is expensive because you have so much of your life left ahead of you. With an average life expectancy of 81 years in the UK, that’s 31 years of retirement to fund with only 28 working years.

If you stop to think, this means that each year of your working life, you need to save enough money to fund at least one year of retirement.

Simplistically, we could take away that this means you need to save half of your income. Half for now, and a half for later.

Back to the maths, if we say you would need £30,000 as a couple of life a frugal retired life, you’d need savings of at least £750,000 for this to be feasible.

To save £750,000 in 18 years, this requires £28,000 saved per year with compounded returns of 4% per annum. This is possible with an investment account with a UK stockbroker.

Let’s step back and look at whether this feels remotely achievable.

• You would need to save over half of your combined income every year.
• This also assumes that you begin your career with the average salary in the UK, which is unrealistic.
• You would need to live off less than £12,000 per adult for your entire working life.

This paints a fairly grim picture. And we can assume that buying a house is off the table unless you use your retirement savings for the house deposit.

How to improve your odds for achieving financial freedom

So what can you do to tip the scales in your favour?

The most important thing is to try to increase your gross salary. The higher you earn, the more opportunity you have to meet a savings target without forcing yourself into poverty. However, be wary of enjoying a high-salary lifestyle, as this will increase the amount you will comfortably need to retire, creating a negative-feedback loop that will push back your retirement again.

The second most important thing is to invest your money wisely. Find a great financial adviser or use a wealth management firm that will invest your money in a diversified portfolio of investments to hopefully increase your rate of return from 4% to 6% or possibly even high.

Each percentage point of annual return you can squeeze out of your investments will lop years off your retirement date.

Overall, you cannot make a retirement plan with the certainty that you will be able to achieve it. Life can throw curve balls your way and a 28-year plan is always going to be swerved off-course by life’s little surprises.

All you can do is set some goals, create some clever ways to ensure you can meet the requirements in the short term and see what happens!