‘At 25, can I save enough money to retire at 40?’

Can this reader put away enough to buy a property in London and stop working within 15 years? Laura Suter finds out

There is a growing movement of people who wish to retire early and enjoy a better work-life balance. Andrew Alinda is one. The 25-year-old e-commerce manager wants to semi-retire at the age of 40 to pursue his dream of football coaching. He aims to have £36,000 a year to live off.

“My goal is to get to a point where I do some work. I really enjoy coaching kids at football but it doesn’t pay well,” he said.

Currently earning around £45,000, Mr Alinda is careful with his cash and saves about £1,600 a month. He set up a financial videoblogging website for millennials, called Money Tree Man, and is keen to learn more about personal finance.

His aggressive saving was initially to pay off £25,000 in debt he had acquired from his master’s degree. That is now cleared, and he wants to look to save for the future.

He currently rents in London, costing £650 a month, and wants to buy a property with his girlfriend – which will take up his existing near-£12,000 savings. His girlfriend has saved a similar amount. They plan to buy in Bromley, south-east London, and he estimates a property will cost around £350,000.

“I want to have enough for the deposit, which between us will be about £32,000, and then I want about £10,000 to fall back on so I’m not starting again from zero,” he said.

His money is spread between cash Isas, a Lifetime Isa, some investments and £1,300 in peer-to-peer lending. He is not engaged with his pension, but contributes 3pc of his salary, which his employer matches. avocados and craft beers. He should be applauded for paying off his student debt and proactively exploring different investment options.

However, I’m concerned his piecemeal approach to investments and peer-to-peer lending is taking his eye off his actual goals.

Mr Alinda should focus on saving his deposit and given his short time frame I’d recommend he keep this entirely in cash.

With £11,600 already banked and saving £1,600 per month this should take less than two years. You can save up to £4,000 into a Lifetime Isa per year so I’d recommend he makes sure he is doing this to get the maximum Government bonus of £1,000 per year.

Once Mr Alinda is on the property ladder, he can start investing again. His goal of semi-retiring at 40 sounds ambitious and I think would be reliant on Mr Alinda investing aggressively. I would see this as a mixture of pension, stocks and shares Isas and considering Venture Capital Trusts ( VCTs).

Mr Alinda admits that he isn’t very engaged with his pension, but ultimately if he wants to ensure long-term financial security then he would do well to familiarise himself with pensions. Given his young age I’d encourage him to invest into a higher risk strategy, as he has plenty of time for this money to grow.

As pensions are only accessible from age 55, Mr Alinda will need other vehicles to save and could direct his excess monthly income to a stocks and shares Isa. I’d discourage him from picking stocks himself and instead suggest he looks for either a low-cost multi-asset fund or a riskrated portfolio of either tracker or active funds.

Once Mr Alinda has built a good chunk in stocks and shares Isas he might want to consider VCTs. These have the attraction of offering income tax relief of 30pc on the money you invest into smaller British companies. Dividends are tax free and there is no capital gains tax on the growth. They have the potential for high growth but they are high risk and in order to get the income tax relief you must hold the investment for five years. To retire from any job at the age of 40 is a major ask. Fortunately, Mr Alinda has already developed a savings mentality, which will do wonders. But I fear that 15 years is not long enough.

For an income of £36,000, you would need a total pot of around £720,000, assuming withdrawals of 5pc per year.

Over 15 years on monthly savings of £1,600 you would need annualised investment growth of around 11pc. No investment exists that guarantees such a high rate.

In 15 years’ time, a monthly saving of £1,500 and investment growth at 4pc a year would generate a fund of around £346,000 – on this Mr Alinda could enjoy a monthly withdrawal of nearly half of his target. The remaining balance could come from his football coaching.

To get favourable mortgage rates a deposit of at least 10pc would be required. For a mortgage of £315,000 over 25 years you are looking at a monthly repayment of around £1,300.

It is vital to consider all expenditure when planning to buy your first property. That would include essential

costs such as council tax and utility bills. Household items could be bought on interest-free credit. For example, furniture and carpets could be purchased for a monthly interestfree cost over several years.

Mr Alinda and his girlfriend should buy the property as tenants in common, with a written plan of action in the case of separation, however unlikely that might sound.

Another area to consider is mortgage and income protection insurance, which would cover the cost of the mortgage in the event of critical illness or death. They should each get their own policy as this provides true independence.

If you are saving for a deposit needed in the short term, it is not at all sensible to buy stocks and shares. The longer you hold shares that are volatile, the less risky they become overall as shown by past performance data.

I would recommend all the share-based investments are immediately converted to cash.

That includes the peer-to-peer gamble, which should not form part of an investment strategy, especially for a beginner.