20-05-2025
‘I'm 28 and I've saved £5,000 to start a business. Can I retire by 50?'
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Unlike many 28-year-olds, Madhura Sawant knows exactly what she wants.
Her ambition is to start a business within the next five years so she can retire by the time she's 50. To make her dream a reality, Madhura is pouring every penny of spare income into a pot to be used as the project's seed capital.
Currently, she earns £38,000 as a procurement and Environmental, Social, and Governance (ESG) analyst at a major car manufacturer. 'The job is not too bad,' she says. 'It's challenging, intellectually stimulating, but I don't want to keep working in Excel spreadsheets my whole life.'
The next step in her career is set to be radically different. Madhura owns a 7.5-acre plot of fertile agricultural land in the state of Maharashtra in Western India, where she was born and where her mother and younger sister still live.
Coconuts, mangoes and cashew nuts are the staple crops, and she plans to turn the land into an orchard and start an import-export business, or an agritourism venture.
She intends to spend between 10 and 20 years building the business, and get it to a stage where it operates without her oversight – 'autopilot mode'.
'I want to keep my plans open and agile,' she says. 'I may stay here or go back to India, but in any case the focus will be on the business.'
Flights back to India to see her family are her main expense. Besides that, she is a 'very modest' spender, content in her rented studio flat in Coventry.
Madhura and her employer pay a combined £350 a month into a workplace pension, which is now worth £5,600. After spending £750 on rent, £200 on bills and £100 of council tax, she manages to save a little over £1,000 each month.
She has built up a £5,000 pot in a regular cash savings account, but feels that taking her first step into the world of investments will unlock the growth she needs to make her venture a success when the time comes.
Madhura wants to know how to maximise any investment allowances she is entitled to, and how to strike a balance between saving for her pension and her business.
'I want to be my own boss,' she says. 'So I need to grow my savings, while also maintaining some liquidity.'
Matt Bayliss, client manager at Chancery Lane Income Planners
Madhura's short-term goal is to start her own business using the land she owns in India. She will need to exchange GBP for rupees at some point, and it is generally better to do this in several tranches to guarantee she doesn't hit the worst rate.
Regarding the question of investing her money, the answer is very different depending on whether we're considering her cash or pension savings.
The only thing guaranteed with investment is volatility, which is something she cannot afford with her short time horizon, intending to establish her business within the next few years. We would never recommend a client place money into the market with an investment timescale of less than five years for the simple fact that she does not have the time to recover, nor can she afford any potential losses.
Instead I would suggest converting some of the cash she currently has on deposit to a fixed interest Isa, given a range of banks and building societies all offer rates above 4pc.
With inflation at 2.6pc, these rates would ensure her money retains its value over the period held while benefitting from some additional growth.
There is no investment risk with this strategy, and she would have the same protection against institutional risk that she does with her current savings account.
Furthermore, as the funds are held within an Isa, no tax would be due on any growth.
I would then suggest the cash Isa is topped up monthly with the majority of Madhura's surplus capital. This will increase the overall tax efficiency of her holdings while allowing for some growth and ensuring her holdings remain liquid, therefore meeting all her short-term goals.
Moving on to Madhura's long-term goals, she has suggested she would like to retire at 50. Based on her current level of income, and assuming she wants to retire with the same level of income, this is unrealistic.
I would suggest moving her retirement date in line with the ability to access her pension, which will be 58 under the legislation at the time of writing.
I would first suggest she takes full advantage of her current workplace scheme and ensures she makes the maximum contributions available as her employer will then match this. This will also give her the benefit of 'pound cost averaging', a method which spreads investments are over time in smaller increments instead of all at once. Doing this reduces risk and potentially increases returns by achieving a satisfactory overall price.
Regarding the investment of the pension, long-term growth is achieved through equities.
While equities are volatile, they are suitable if she aims to retire by 58 at the earliest, as she would have an investment timeline of at least 30 years. There is no time period in history when listed equities have not outperformed all other retail asset classes.
I would suggest selecting a fund such as the Vanguard FTSE Global All Cap Index Fund. The fund is ultra low cost (0.23pc per annum) and gives her access to all major markets and economies around the world, to avoid putting all her eggs in one basket. The secret to investing for a future pension is to set up the regular investment and walk away. Don't touch, don't fidget – let the markets do what they do.
Laura Suter, director of personal finance at AJ Bell
Madhura has made a great start when it comes to saving her money and financially preparing for the future. She's built up £5,000 in cash savings, which is a decent emergency pot to fall back on should she need it.
We usually suggest three to six months of expenses in cash savings to dip into if needed. Madhura is already in this band, so she just needs to assess whether she'd want to build this up further in order to have a bigger pot to fall back on.
Once she's satisfied that her cash savings are sufficient, she can shift her £1,000-a-month of savings towards her goal of building seed capital for her future business.
We generally think of investing as being suitable for money you won't need for around five years – if Madhura needs it sooner, then it may be better to stick to cash.
An alternative is to split the money between the two: taking investment risk with some of the money and keeping the rest in cash. She'll need to think about her time horizons and attitude to risk to work out the right split.
If this is Madhura's first time investing it's a good idea to open a stocks and shares Isa to protect her investments from tax. It could be a good option to pick a multi-asset fund, in which the money is invested across different types of investments to get a spread of exposure across different markets. Lots of platforms have their own versions, with different options depending on how much risk she wants to take.
Another option is to invest in a broad global tracker fund, such as Fidelity Index World, which costs just 0.12pc a year and buys a small part of lots of different companies around the world.
After five years of investing £1,000 a month she could have a pot worth almost £70,000, assuming she achieves 5pc growth per year after charges – and after 10 years it could grow to almost £160,000.
She needs to balance the short-term goal with her desire to retire early. This means she'll need to maximise her pension and long-term savings as well. The first step is to make sure she's making the most of any employer matching that her company offers for her pension – if she isn't, she's leaving free money on the table. She can check with her HR department about what her company offers and what she's paying in.
Madhura could supplement her workplace pension with extra savings on the side, either in a personal pension or in a lifetime Isa. In a lifetime Isa, she can pay in up to £4,000 a year, which the Government will top up by 25pc, to a maximum of £1,000 a year.
The money is entirely tax-free when she comes to withdraw it, but she can't remove it without penalty until she reaches the age of 60, unless she uses it for buying her first house.
