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COMMENT: How I retired from finance aged 47 AND provided for my children

Three years ago, I retired from banking. After more than 20 years working in financial services in the City of London, I am now a man of comparative leisure hanging out at my home in Surrey. Although my children are still in their early 20s and still studying, I have been absolved of the need to provide for them. - I don't have my nose to the grindstone. I don't have to do the commute. They are able to pay their own way at university and me, I am free to do my own thing.

How did this happen? Call it the power of compounding. I started saving very early on. Because of this, my children are both now living off interest earned on portfolios I set up for them during my finance career. And while most of my former colleagues are still working to provide for their grown-up offspring - who need university fees paid and house deposits - I am comfortable in the knowledge that my own children don't need to get into debt whilst at university and each have a chunk of money for when they leave.

How much did I save? Not a crippling amount, but enough to mean that I didn't get the holiday home or the flat in London. Enough to mean that I had to endure the daily commute at 6am.

Saving is clearly a function of disposable income. If you work in finance for as long as I did, your income should be high, making it easier to save large chunks later on. However, my secret was that I saved regularly from the start - every year, for 20 years, I saved at least 6% of my income for my children in the most tax efficient way possible. In the UK, a Junior ISA can be opened from birth as can a Self-Invested Personal Pension (SIPP). Anyone can contribute to your child’s JISA up to £4,260 currently per tax year. I chose low-cost exchange-traded-products to build diversified portfolios.

Even now, despite being semi-retired in a consulting career, I continue to put money aside for my children. My current vehicle of choice is the lifetime ISA, which allows those aged between 18 and 39 to contribute up to £4,000 per year. HMRC (Her Majesty's Revenue and Customs if you're in the U.S)  will then add a 25% bonus to everything you've put in. The LISA can be used as a deposit for first-time property buyers. If not used, it can formed part of your pension pot.

The key to saving for your children - and to escaping a full-time finance role before you're too old, then is start early and to invest sensibly for the long term. You don't have to put a huge amount aside, but do need to do it consistently over a long period. Compounding is an incredibly powerful tool when you use it over two decades.

In theory, people in finance know this. In reality though, a lot of people in the industry are quiet about how they invest their money. Many of my former colleagues are currently funding their children's education from income they're earning, or from money they had put aside for themselves. My advice is that it's much easier to ring-fence money for your offspring in tax-efficient accounts from the start.

If you're a 30-something in finance now, therefore, you should saving for your children as soon as possible if you want to get out while you're still (fairly) young. Save small and often. My only other piece of advice is to invest in as near an identical manner as possible for each of your offspring. - You don't want one to be a millionaire and the other a pauper.

Richard Andrew is the pseudonym of a former London portfolio manager now at home in Surrey.

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AUTHORRichard Andrew Insider Comment
  • Al
    9 December 2018

    I am 53 and have just retired. I could probably have retired 5 or 6 years ago but work was going well and I was still enjoying it.

    I have been saving every month, as much as I could afford from a young age. For many years it felt like I wasn’t really getting anywhere but after about 10 to 15 years the savings really started to mount up due to the power of compound interest. The secret is to keep going and not to stop even when times get really tough.

    I also started to invest in property. Anyone who tells you that property investing is easy clearly hasn’t done it. I made many sacrifices to save for the deposits needed, then had to deal with bad tenants, bad letting agents and of course the financial crisis, but again after many years the values went up, the rents went up and I started to pay the mortgages down which left me with surplus income every month. I was then able to use for more deposits and to repeat the cycle.

    Eventually, the rents covered my own living expenses and once I had my monthly outgoings covered by my now passive income I was able to accelerate my savings in a substantial way, increasing my savings rate to around 80% of my salary.

    Work continued to go well and last year I was able to pay off my own mortgage and a few of my investment properties too.

    I also started to invest for my kids, I have two teenagers and have been putting money into their junior ISAs for a number of years. Again starting with a small amount each month which I hope will be enough for them to use as a deposit for their own houses when they are older. I have modelled the growth in a simple spreadsheet where I can simply change the annual growth rate percentage to demonstrate the power of compound interest. Hopefully this will really drive the message home to them and encourage them to also keep the savings going in their own lives once they start to earn their own incomes.

    I spend a lot of time researching investments and the markets and in recent years have been looking at my pension in a lot more detail. I am astounded by the charges that are taken out each year and once you realise that each percentage can make a dramatic difference over the long term, it is well worth spending a bit of time to fully understand what you have and what you are being charged.

    So now I have moved everything to global index funds which are passive funds that simple track the index using algorithms. No manager required, therefor much lower charges and in most cases will beat the performance of an active fund anyway!

    I really believe that most people can also retire much younger than they think but it requires a lot of self discipline and delayed gratification so that you can reap the rewards later in life.

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