How much do I need to save to retire in my 50s?

Stuart is 29 and works in a pharmacy for a salary of about £26,000 a year. His boyfriend is self-employed and growing his business. They bought their first home last year which is worth about £142,000 and has a mortgage of £75,000.

“I would like to retire in my 50s,” says Stuart. “My father has worked as a fisherman since the age of 15 and is preparing to retire next year at the age of 56. I’d love to be able to emulate his success and enjoy as much of my life on my terms as possible. I hope to have a retirement income of £30,000 a year by age 60, so wondered how much more I need to save per month to achieve this?

"I’ve educated myself on personal finance and financial planning since discovering the Financial Independence, Retire Early (Fire) concept, and am saving and investing with this in mind. After spending a couple years travelling our priorities have shifted – we’re putting down roots and I've started to take financial planning seriously.

“I contribute £195 a month to my workplace pension, along with the statutory minimum contribution from my employer. It is invested in B&CE The People's Pension Shariah 0.5% Pn (GB00BYY2PJ30) as, over the past five years, it has been the best-performer out of the limited range of funds my provider offers. This fund is heavily weighted to US equities [see chart] but this does not greatly concern me as these have included some of the best-performing stocks.

"My boyfriend cannot afford to save a lot of money at the moment but does have a defined-contribution pension from a previous employer worth about £14,000.

"I also have about £1,300 in a self invested personal pension (Sipp) to which I contribute £200 a month. I hope to increase my contributions by £100 a month over the next three years. It is invested in the Vanguard LifeStrategy 100% Equity (GB00B41XG308) and Vanguard U.S. Equity Index (GB00B5B71Q71) funds. I would also like to add a low-cost exchange traded fund (ETF) that invests in Asia, as I expect there will be a lot of growth in this region between now and my target retirement age.

"My individual savings account (Isa) has £100 invested in each of Scottish Mortgage Investment Trust (SMT), Baillie Gifford China (GB00B39RMM81), Polar Capital Automation & Artificial Intelligence (IE00BF0GL543), Mobius Investment Trust (MMIT) and Marlborough UK Micro-Cap Growth (GB00B8F8YX59). I invest £25 a month into each fund and aim to increase this amount as my salary increases in future.

"My Isa has a more aggressive, growth-focused strategy as it currently represents only a small portion of my portfolio and I have at least 25 years until when I hope to retire. But should I rebalance the geographical allocations of the Sipp and Isa to get wider exposure to the global equities market?

"I also hold 410 Brewdog shares for which I paid about £1,800. The company is planning to do an initial public offering but I don't know what value my shares will have when it lists. But if they make a decent return for me I may buy whisky casks because they are a different asset class to my equity-focused portfolios."

NONE OF THE COMMENTARY BELOW SHOULD BE REGARDED AS ADVICE. IT IS GENERAL INFORMATION BASED ON A SNAPSHOT OF THESE INVESTORS' CIRCUMSTANCES.

David Henry, investment manager at Quilter Cheviot, says:

Every pound that you save now will have a large impact on your future financial well-being, given the long period of time you are giving it to grow. Maintaining financial discipline and regularly contributing to your savings will have a much larger impact on your ability to meet your longer-term objectives than any particular fund or investment. That said, a few amendments to your overall positioning could help to grow your wealth and ensure that you retire with the standard of living that you wish.

Within your Sipp, Vanguard LifeStrategy 100% Equity Fund has exposure to a range of different geographies [see chart] so provides ready-made diversification. Therefore I would consolidate all monies currently within the Sipp and future contributions into this fund.

Is the fund you hold in your workplace pension in any way reflective of your personal ethical views? If not, I suggest switching it into BC&E The People's Pension Global Investments (up to 100% shares) 0.5% Pn (GB00BYY2NK05). As a rule of thumb, I recommend that investors avoid reducing their investable universe where possible – unless they have specific ethical or other considerations. I think that it is best to have access to as many potential investment opportunities as you can.

I like your 'barbell' strategy of having a well-diversified global equity allocation within your pension and more aggressive, growth-focused strategies within your Isa. A preference for growth companies as oppose to value names makes sense, given your age and because you do not currently require income from these assets. For example, to have benefited from the growth of Amazon.com (US:AMZN) in the past 20 years you would have had to ride out significant periods when the stock was falling – something your long investment horizon allows you to do.

However, it might be a good idea to reduce the number of funds you hold in your Isa. For instance, Scottish Mortgage Investment Trust and Baillie Gifford China seem to have a number of the same holdings as each other. Also, to avoid having to decide how much capital to allocate to each fund and reduce trading costs, I would focus on the more global, generalist funds such as Scottish Mortgage and Polar Capital Automation & Artificial Intelligence, rather than those restricted to a specific geographic area.

Your Brewdog investment seems to have been successful and I hope that you receive a handsome return if it lists on the stock market. It could make sense to diversify your assets if this investment pays off. However, given your age, consequent future earnings potential and emergency cash fund of £4,000, I suggest maintaining the vast majority of your investments in a diversified basket of global stocks.

Alternative assets, like whisky casks, have exploded in popularity in recent years amid an environment of low interest rates. However, their ability to provide uncorrelated returns to stocks during broad bear markets remains unclear, given their lack of a track record. You already have an equity diversifier – property – with your home. I also suggest limiting your exposure to alternative investments to a maximum of 10 per cent of your overall liquid wealth. Instead, you could top up your emergency cash fund with some of the Brewdog proceeds and allocate the rest across your pensions and Isa, given their tax advantages.

Being more defensive with your emergency fund allows you to take more risk with other investments and there is limited opportunity cost in holding cash instead of bonds at the moment due to the historically low yields on offer from fixed income.

Rob Morgan, chief analyst at Charles Stanley, says:

Congratulations on taking some great first steps on the journey to financial independence while in your 20s. You have a lot of time to reach your goal, and time can do a lot of the heavy lifting of investment. 

You seem to be contributing pretty much what you can afford to your investments, and life is always about balancing present-day needs with those of the future. Some rough calculations suggest that you are well on track, though. Together with your employer pension contribution, about £585 a month is going into your pensions and Isa. This is a healthy amount worth over 25 per cent of your gross income – a larger proportion than what many people save and invest.

A rough calculation, which factors in your current rate of investing and growth of 5 per cent a year ahead of inflation, suggests a figure of £500,000 in today’s terms, in 30 years’ time. This should be a decent amount to retire on. Generating the equivalent of about £15,000 a year from this should be easily possible, and give a bit of wiggle room if more is needed now and again.

Together with the state pension, that would give a decent income. However, state pension age is currently 66 and rising to 67 in the next few years – and might rise further. So, increasing your contributions – as you intend to – might allow you to retire with more income and/or earlier.

You hold some great investments, including low-cost passive funds in your Sipp and higher-octane funds that cover some major structural themes in your Isa. But one concern is that some of the funds have the same holdings as each other, for instance, Scottish Mortgage Investment Trust and Baillie Gifford China. Also, most Shariah funds tend to be quite orientated to tech and healthcare so it is likely that a fair amount of your portfolio is focused on similar areas. But as you will be buying the dips over time via your regular investments that’s not such a big issue for now.

That said, a bit more diversification would be welcome. Take care when picking an Asian fund, though, because they vary. Funds labelled as ‘Pacific’ or 'Developed Asia'  are usually concentrated in Australia, Hong Kong and Taiwan, and don’t have exposure to mainland China because it is classified as an emerging rather than developed market. But you already hold Baillie Gifford China in your Isa so may not wish to double up on this exposure. A broader active fund, such as Stewart Investors Asia Pacific Sustainability (GB00B0TY6V50), may be worth considering. You need to look under the bonnet at funds' geographical weightings, which you can find on their factsheets.

Other areas to consider adding over time are Europe and Japan, which tend to be thought of as boring but don’t have to be. Funds that cherry pick the best growth opportunities include BlackRock European Dynamic (GB00BCZRNN30) and JPMorgan Japanese Investment Trust (JFJ). 

Investors probably shouldn’t rely on the US outperforming forever. It will have a dry spell at some point versus others markets, so some more diversification would help you cover a few more bases.