Over the summer I worked out that a 35 year old earning the median salary could potentially retire at 52, if they just stop buying crap they don’t need now. In contrast, the expenditure levels of the average worker-consumer effectively tie them into working until the current standard retirement age of 68.

This post is simultaneously a critique of the ordinary worker-consumer and of the Extreme-Early-Retirement model, which I don’t think can be applied in its fullest sense to an average person in the U.K. (Although if someone wants to modify my stats using different investment models to see if the retirement date could be brought forward, I’d be interested!).

In this blog post I compare two hypothetical 35 year old individuals (4) who both earn the median UK salary. One individual has average consumption and expenditure while the other has in mind the goal of retiring as early as possible and so is much more frugal, without completely having cut themselves off from society.

As testimony to my lack of Open Office Calculator and Inkscape skills, this is represented below:

To make reading this more meaningful, you should refer to this spread sheet throughout – Comparing 33 years of expenditure

For the sake of making an easy comparison, I’ve used expenditure figures based on one person living alone for the remainder of their life, and imagined that they have just bought their first property at the age of 35. The reason for selecting a 35 year old is because this is the age by which most people are settled into a stable career, and this is also the age by which most people are at least starting to think about retirement, if not yet looking forward to it in the near future. It also happens to be the age at which today’s typical graduate student can reasonably have expected to have paid off their student debts and have some kind of savings towards their first property. Although the figures in each expenditure category will vary considerably depending on variables such as age, or household make up, the levels of expenditure are generally not going to be that far away from how the majority of people spend their money for much of their lives, and thus most people should at least recognise something of their own and their friends’ expenditure habits in these figures.

However, to satisfy those who just can’t get over the problems of using averages when variables which will differ widely, I’ve included a link (4) to the spread sheet where I’ve done my calculations so you can add in your own expenditure and income levels in order to personalise these calculations for yourself, or you can even modify at a deeper level to add in things such as inflationary effects, investment returns and changes in circumstance over time.

The purpose of this exercise is to put in the starkest terms possible how many years and months (expressed in decimal terms) of one average human life one individual would have to spend working to buy certain things for the remainder of one’s normal working adult human life. In those stark terms – The expenditure levels of the average-consumer effectively lock them into working until the current standard retirement age of 67-8, while the frugal-consumer, assuming they maintain their frugal levels of consumption, will be able to retire when they are 51, or 14 years earlier, or in half as much time as the average consumer on the average wage.

**Executive summary – A comparison of the 33 expenditure patterns of an average-consumer compared to a hypothetical frugal-consumer.**

As far as I see it, there are three main factors which work together to keep the average 35 year old **worker-consumer** locked into the need to work for 33 years until they are 67-8. In terms of overall expenditure, the single most significant item is the 25 year mortgage with massive interest payments (costs 9 years). However, this lock in occurs primarily because the high cost of car ownership (costs 5 years), and what I can only characterise as fragmented expenditure on a range of unnecessary consumer frivolities (costs 4 years), which together means that a person earning the average median salary has no choice other than to drag the mortgage out over a 25 year period, and accept the attendant massive interest costs.

In contrast, what I call the **frugal-consumer** chooses to get rid of the car and buys a bike (saving 4 years), radically reduces consumption of frivolities (saving 2.3 years), and in addition makes some relatively marginal savings on necessities (saving 1.5 years) such as food and utilities. Taken together, these changes in lifestyle allow for an 11 year mortgage repayment term and much lower interest payments as a result (saving 2 years). All of this, factored with the lower cost of living, mean that this individual could potentially accrue enough savings over 16 to years to pay for 33 years worth of frugal consumption, allowing for an early retirement age of 52.

In future blog posts, I’ll compare expenditures across four categories – housing, transport (focusing on the car), consumer frivolities and things which may be reasonably regarded as necessities.

If you can’t wait, you can always buy my book and help me retire a few minutes earlier…..

**Boring but important – A few (selected) notes on data sources and expenditure categories and statistics**

Categories of Expenditure In my analysis below I have four main expenditure categories, mainly drawn from The Office for National Statistics’ Family Expenditure Survey (5) -Mortgage repayments -Transport costs -Necessities – food, utilities, council tax, clothes, pensions contribution, communication, maintenance of dwelling, health -Consumer frivolities – recreation and culture, restaurants and hotels, ‘miscellaneous’, household goods and services, alcohol and tobacco and education.

To get my figures for individual expenditure based on one individual living along I’ve mainly used the data from the ONS’ family spending survey and divided by the average household size (2.4 people) where it makes sense to do this (dividing makes sense for clothes, but not for council tax). Because the figures are mostly weekly, I’ve multiplied by 52 to get the annual figures and then 33 to get the 33 year overall expenditure to the normal retirement age. I’ve calculated how many years working it would take the average consumer to pay for one category of expenditure earning the median net salary by dividing the total cost of 33 years worth of expenditure by this figure (£21, 240). Where housing costs are concerned, I’ve used the figures for the cost of repaying the average mortgage which is £121 000 according to this is money (6). Here, for the average-consumer repayment is over a 25 year term, while for the frugal-consumer, the repayment period is over an 11 year term.

*Median Income*

According to the UK Annual Survey of hours and earnings (7) median, full-time gross weekly earnings stands at £517.00 per week, which amounts to (*52) a median gross annual salary of £26884, which equates to a take home annual salary of £21, 240, or a monthly salary of £1770 after income tax and national insurance are taken out (£408/ week for those who like to work in weeks).

**Potential problems with my modelling**

Firstly, I don’t take into account inflation, I’ve just worked out everything at today’s prices, and neither do I take into account any returns you might make investing rather than paying down the mortgage, which is the main early-retirement strategy in my scenario. However, these two things being equal in both my average and frugal-consumer examples, you are still a lot better of spending as little as possible on anything other than the mortgage or savings. Another potential limitation of the model is that it is mainly based on someone having a stable job, and being single, although it is possible to ‘stick to the programme’ while moving around jobs and holding down a relationship, maybe even kids, just a lot more difficult.

**References**

(4)See the spread sheet above

(5)Office for National Statistics – Family Spending 2013 http://www.ons.gov.uk/ons/rel/family-spending/family-spending/2013-edition/index.html

(6)http://www.thisismoney.co.uk/money/mortgageshome/article-2553023/Two-thirds-time-buyers-turn-Bank-Mum-Dad-deposit-help.html

(7)ONS – Annual Survey of Hours and Earnings 2013 – http://www.ons.gov.uk/ons/rel/ashe/annual-survey-of-hours-and-earnings/2013-provisional-results/stb-ashe-statistical-bulletin-2013.html