The sun is out, the weather’s improving, the Leaving Cert is almost over and it’s time to think of your holidays. With your holidays come dreams, and with dreams come the �wouldn’t it be nice if it were like this all the time’ moments. The dream of every employee over the age of 50 (or younger) is to be able to retire early. Having divested him or herself of any remaining vestiges of ambition – to be rich, to be the boss, to be the best or whatever – the urge grows to be finished with the whole painful business of going to the office or shop or factory, and to do what you want.

In America, and increasingly here, this early retirement dream is sometimes � certainly more often than in Europe – a means of starting work again. This is usually as a self-employed person or in a small business, where the �retiree’� can engage in what he or she enjoys, but in the context of work.

However it’s conceived and whatever it looks like when it arrives, early retirement is a lot more common now than ever before. There are numerous reasons why this is so – including social, demographic, cultural and economic ones – and all of them are relevant, even valid.

But the fundamental reason why early retirement has become a widespread phenomenon and a near-universal hope, is financial. To achieve the twin goals of early retirement and an enjoyable existence requires a large pile of money. This has not been available anywhere until recently and has been available here only in the past five years.

The wealth that is making it possible for even more people to realise their dream has two main sources – the financial markets and the housing market.

Many people, when they hear the phrase �the financial markets’, think immediately of shares.

The bull market in global equities, which lasted from the early 1980s until 2000, created phenomenal wealth. However, it has not been with us in the last five years, despite the partial recovery that has taken place since 2003.

Yet we have managed perfectly well without it, thanks to the bond markets.

Here, the bull that began running in the early 1980s, when interest rates peaked at 21 per cent (on the US dollar for short-term money) and 12 per cent (on the 30-year bond) has not yet died of exhaustion.

Even if the financial markets have been volatile and generally less bountiful in the past few years, the big drive here and all over the world has been the housing market.

Whether you live in Dublin or Dover, Madrid or Manhattan, your property’s value has soared.

If you �cashed in’ (by selling out) or �cashed out’ (by borrowing against the value of your home, or second home), you should have ensured the means for an early retirement. Your real retirement, of course, will be paid for from your pension fund, which is invested in the financial markets and real estate.

So how are these going to perform in the future? A source of genuine concern for everyone is that, in the financial context, we could be entering a �low-return environment’, meaning a state of affairs where neither bonds nor equities nor any other asset class performs particularly well for some years.

To be more precise, how much you need to retire, whether �planned’ or �early’ retirement, depends on three key factors: 1. Time � how long until your target date? 2. Money – how much do you estimate you will need to finance the lifestyle you aspire to adopt? 3.The estimated rate of return, or yield, that will be available on your investments.

The higher the rate of return, the more quickly you will achieve your quantitative goal, or the earlier you will be able to retire.

The excellent rates of return available in the 1990s triggered the mass early retirement phenomenon of recent years and convinced many people throughout the western world that they would be able to join their elder peers on the golf courses of Portugal, at the bridge tables on luxury cruise liners or simply strolling with their grandchildren in the local park.

A low-return environment means that if these dreams happen at all, they will happen much later than the dreamers think. Why? What is telling us that we might be in a low-return world?

The clearest signal is the US bond market. Alan Greenspan, the Federal Reserve Board chairman, has been talking about a conundrum. He is referring to the fact that US long-term interest rates are falling – or at least staying flat – at a time when he has been raising short-term rates. That is not supposed to happen.

The Fed, it will be remembered, has spent the last year raising short-term interest rates, from a multi-decade low of 1 per cent to 3 per cent currently and – it is almost universally believed – to higher rates shortly.

Greenspan expected the steep rise in short-term rates to feed into long-term rates, so that they, too, would climb. This would happen by investors selling medium and long-term bonds, so that their prices would fall and their yields – which represent long-term interest rates – would rise.

However, the opposite has occurred and it means that financial markets are pessimistic about future growth. The main reason seems to be that the opening of China and India means that’s where much of the growth will be in the next 20 years.

We are therefore in a low-return environment, where point three in your early retirement plan is of concern. The yield on your investments will be lower than expected. So what are you to do?

What most investors are doing is taking more risk, particularly in the property market, where they are piling into markets they couldn’t locate on a map a few months ago. This may well work, although I’m not sure that the prudent response to lower returns is to take more risk. Another answer is to stop dreaming and get real.

The dream of early retirement is predicated on annual returns of at least 8 per cent per annum, preferably 10-12 per cent. If you can’t assume that rate will be available for the next ten to 15 years (and that doesn’t appear likely,) then that critical part of the equation has blown up.

What’s left is either to delay your retirement or to reduce the standard of living you thought you’d have when you retired. At this point, people tend to discover that there is, in fact, a third option: save more now.

Of the three, maybe a bit of all three would be smart. Start by saving more, which means spending less. That will put you ahead of the game immediately. Remember, if everybody does this, we’re all finished, because there will be a dreadful recession; so the sooner you do it, the better off you’ll be.

If you can save more and spend less today, cutting your future standard of living will be simpler and you may not have to delay retirement too much. You’ll certainly have deserved it. Clink, clink.

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