‘We'll need a £3m retirement pot – can we do it in 20 years?'

Telegraph

12-02-2025

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Hi Kyle,
I turn 40 in June and my wife turns 39 next month. We are both employed as senior leaders in international schools. We have a one-year-old baby and are expecting our second child in July.
We have two properties, a semi-detached house in Stirling, Scotland, and a city-centre apartment in Bristol, totalling £600,000 (very conservative estimates) with approximately £320,000 in equity. We have no debt other than the mortgages.
We each have an investment account and invest regularly each month, almost exclusively into global index funds. Our investments total approximately £546,000.
We would like to achieve financial freedom so we can work more flexibly and prioritise time with our children and ageing parents. Realistically, neither of us would seek to retire fully until we are at least 60, and as older parents we will still be supporting teenagers/young adults at that stage.
According to the Pensions and Lifetime Savings Association's (PLSA) Retirement Living Standards, a couple needs £60,000 a year in 2025 to have a 'comfortable' retirement. Based on the 4pc rule, taking 4pc out each year, this would require a pot of £2,730,000 in 20 years' time when we would aim to retire.
There is also the concern that the £60,000 per year estimate for a comfortable retirement is based on a couple, and does not take into consideration the likely costs of supporting university-age children or elderly parents who may need care.
Therefore, sometimes I think my wife and I are in a good position for our financial future, but at other times I see us needing to build a pot of around £3m by the time we are 60, which seems impossible.
I would be very grateful for your perspective.
- John
Dear John,
My hat goes off to you both, it sounds like you are in a great position. Most people your age would be envious of an investment pot of more than £500,000, particularly since it's a tricky time to prioritise paying your future self, due to the costs of getting on to the property ladder and bringing up children.
It's important to remember that the 'comfortable' retirement income estimate of £60,000 a year from the
As you say, inflation will alter the PLSA estimate of the cost of a comfortable retirement over the next two decades. However, if your investment returns beat price rises, then this will keep your money growing in real terms.
You are clearly savvy and well-versed in the fundamentals of growing wealth. However, getting some financial advice to put a plan in place could increase your chances of fulfilling your goal of approaching your working lives more flexibly.
That said, here is some brief number-crunching on your current position. Leaving aside your cryptocurrency position for now, both your global equity investments of £475,000 would turn into £773,722 over 10 years and £1,260,308 over 20 years, according to Candid Money's investment calculator. This is based on a 5pc annual return after charges and is calculated based on no further investment. Be aware that the figures do not account for inflation.
But I'm assuming you'll continue investing over the next 20 years, which will boost your pot size even more, providing your investments fare well. You've also not factored in the
If you haven't done so already, it's worth heading to
A further suggestion is to review your retirement goals frequently as things can change over time. Tracking your investment plan and strategy against your goals and target pot size on an annual basis will enable you to tweak your portfolio as the need arises. And crucially, it will reduce the prospect of nasty shocks as you edge towards your golden years.
Overall, it looks like you are on track to have a pot size of between £1m to £2m. Based on the 4pc rule, that would generate £40,000 to £80,000 a year.
In terms of your investments, you've clearly done your homework and chosen to 'own the market' through index funds, rather than seek out active funds, which attempt to beat a comparable index. However, there are no guarantees that active funds will outperform and while some succeed, many fail.
Therefore, it could be worth seeking diversification beyond your three global index funds to reduce risk.
In theory, the coming years should present a more favourable backdrop for active fund managers, as such funds can target undervalued shares.
One active global option that our fund research team likes is Dodge & Cox Worldwide Global Stock fund, which has a price-to-earnings ratio of just 12.1 times, compared with 18 times for the MSCI All Country World Index (as of the end of 2024). It has only one Magnificent Seven stock, Alphabet, in its top 10 holdings and favours financial firms and healthcare companies, such as GSK and Sanofi.
However, given your preference for passive strategies (index funds or ETFs) I'll leave you with a couple of suggestions to consider that would potentially complement your current holdings, provide additional diversification and make your portfolio less growth-heavy.
The first is iShares Edge MSCI World Minimum Volatility ETF. It selects stocks that are less volatile than their peers. Its top 10 holdings are completely different from a global index fund or ETF, and there's no exposure to the Magnificent Seven. The top three holdings are Deutsche Telecom, Walmart and T-Mobile. If we experience a more volatile period for markets in the coming years, this ETF's approach could benefit.
Another way to increase diversification is through Vanguard FTSE All World High Dividend Yield ETF. It owns companies with dividend yields that are higher than the global average. This means it buys cheaper shares than a classic global stocks tracker and yields far more, at 3.2pc. The US is the largest country weighting at 43.1pc, but this is notably lower than the typical 70pc weighting for a global index fund or ETF.
The
Kyle Caldwell is funds and investment education editor at interactive investor. His columns should not be taken as advice or as a personal recommendation, but as a starting point for readers to undertake their own further research.