To retire by the age of 50 is not going to happen without a serious commitment and some sacrifices from an investor – that's the 'bad' news or at least the realistic news. The good news is that it is certainly possible.
Of course everybody has different retirement objectives and requirements and a level of savings for one person to retire comfortably can be quite different from what another retiree requires to fund their lifestyle. For many, a starting goal is to attain a portfolio valued at $1 million.
To build a $1 million portfolio more than anything takes time and if you want to retire by 50 you need to start early. Here's one way to get there.
Let's assume you earn an average salary of $50,000 per annum from the age of 20 to the age of 50. This might be a little high to start with but hopefully it's a little (or a lot) low as you get older. Secondly, let's assume you make a rock solid commitment to live well within your means and save 15% of your salary – that's $7,500 per annum (pa) or $144 per week. Thirdly, you need to be savvy about how you invest this money, as you need to earn 9% pa.
If you can achieve this: investing $7,500 every year at 9% for 30 years, guess what – by the age of 50 you'll have a portfolio worth $1,022,307!
But how do you earn 9%?
Is a 9% return realistic you ask? Well, it's certainly achievable. For example, the State Street SPDR S&P/ASX 200 Fund which attempts to mimic the accumulated returns from the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) has achieved a return of 8.48% since its inception in 2001 which will get you very close. Argo Investments Limited (ASX: ARG) has done even better, having produced an accumulated gain in net tangible assets of 9.5% per annum over the past 15 years! Meanwhile, top performing private hospital operator Ramsay Health Care Limited (ASX: RHC) has produced a total shareholder return of 25.6% per annum for the last decade.
So identifying a low cost index fund, an outperforming fund manager or a top performing business are all ways to achieve a return of around 9% or more – you'll need to achieve this for 30 years of course.
