A couple managed to retire in just five years by turning £100 a month into £1 million, a BBC finance expert has explained. Appearing on BBC Morning Live, personal finance expert Laura Pomfret said it was indeed possible, but it requires a major ramping up of savings amounts.
Presenter Gaby Roslin read out a headline saying ‘We went from £100 a month to £1 million in 5 years and retired, but we weren’t high earners.’ She asked: “I’m sure there were a lot of people who were thinking, tell us what, how, does this happen?”
How the FIRE scheme works
Laura Pomfret said: “How on earth did they do this? Well, they did this using something called the fire scheme. So, the fire scheme is financial independence, retire early. And a caveat to this is they started with £100, but they then quickly ramped up their savings.”
“They did end up saving more than that per month. So, it’s worth keeping in mind. But this was a craze that started in the ‘90s in the US. This concept of retiring early and living off you know your own pot of money. And then it had this resurgence in the 2010s or 2000s with social media talking about this concept of retiring early. And actually one of the most popular terms searched online is how to retire early. So it’s obviously front and centre for lots of people.”
The FIRE movement explained
The FIRE movement stands for Financial Independence, Retire Early, which is a lifestyle and savings strategy designed to let people stop working decades before traditional retirement age. Followers save between 50% and 70% (sometimes up to 75%) of their post-tax income.
Ms Pomfret said: “But this concept of so you’re saving up a pot of money and have it build up into a big pot over time isn’t new. A really fascinate example I have is you could invest £100 a month for a baby from the day they’re born into a pension and by the time they are 65 they’re not a baby anymore but on a on a basis of it if if it grew 8% which is not guaranteed that would hit a million pounds and it’s time that’s done that it’s investing and saving over time that can sometimes bring about these pots of money but interestingly with fire you’re actually cutting down the time that you have because you want to retire early so you have to be much more aggressive ultimately than £100 together.”
Expert advice on the FIRE approach
Finance experts AJ Bell said: “The FIRE (Financial Independence, Retire Early) movement promotes extreme planning for early retirement in your 30, 40s or 50s, achieved via severe cost-cutting, adopting a frugal lifestyle, and saving up to 70% of what you earn. The aim is to build up a pot worth 25 times your annual expenses, and then withdraw it at 4% a year, so it lasts for life.
“It initially gained popularity in the 1990s among US retail investors thanks to Vicki Robin and Joe Dominguez’s 1992 book Your Money or Your Life and took off more internationally after 2010 when Jacob Lund Fisker’s Early Retirement Extreme came out.
“Although it has amassed a following over the decades, FIRE may not be best practice for everyone attempting to hit this personal finance goal of early retirement, given how intensive the ‘necessary’ steps are.”
