It’s time to review our FIRE savings against our goals. We have continued saving on auto-pilot for the last three years. Are we on track? If not, what do we need to do to meet our goal?
Initially, we didn’t set a FIRE goal. Rather than reaching for an age when we could retire, I was working backwards. I took the retirement age as the age you can access the pension in Australia (67). Then, knowing we spend $80,000 a year, I was reducing 67 by 1 year for every $80,000 we saved. Using that calculation, we can retire early by 5 years, or at 62.
Now, that’s nothing to sneeze at, but there are several things wrong with this approach.
What About Superannuation?
This approach only focuses on our lives before we turn 67. It assumes we can retire early, spend $80,000 a year until 67, and then… what? We access our Super and/or the pension, but we don’t know how much that will be. It would be ridiculous to do all of this planning and saving to suddenly find ourselves dropping from $80,000 a year to $38,000 for the next 20 or so years. That’s definitely not the vision we have for our future!
Personally I would love to have a fully self-funded future, and leave the pension to those that need it. Also, before I discovered FIRE, adding to our superannuation was the one way we were saving for our future. Not from any actual plan, just because I was uncomfortable and knew we should be doing something. Super was the easiest method, and we continue to contribute extra today.
Without having a goal to reach for, are we missing out? There are a myriad of articles in the FIRE space (and the life space) on having a goal. If you don’t know where you are going, how will you know how to get there? How will you know when you get there? It’s easy to get lost which is what I’m feeling now.
We spend a lot of time researching, planning and implementing overseas holidays, and the reward has always been worth it. It seems crazy that we don’t follow the same path for such a life-changing event as retirement.
Things May Not Go To Plan
Sure, we can access the Aged Pension at 67. But as we age, the risk of factors outside of our control influencing our ability to work increases. According to the ABS’ Retirement and Retirement Intentions report for the 2018/19 financial year, the average age of retirement was 55.4. So… isn’t that good news for us? That’s way before 67.
Unfortunately, no. The average age people intend to retire is 65.5. Less than half the people who retired at 55 did it because they reached their retirement age or became eligible for superannuation. That means around half of people that retired at 55 didn’t do it by choice. Of those:
- 40% had to retire due to their own illness, injury, or disability
- 20% found themselves out of a job and unable to find a new one – see below
- 14% retired to care for children or ill/disabled/elderly people
This is the full table:
|Own sickness, injury or disability||39%|
|Retrenched/dismissed/no work available||20%|
|To care for ill/disabled/elderly person||9%|
|Own business closed down or sold for other than economic reasons||6%|
|To care for children/pregnancy||5%|
|Unsatisfactory work arrangements/wanted to work part-time||4%|
|To have holiday/pursue leisure activities||3%|
|To coincide with partner’s retirement||3%|
|Own business closed down for economic reasons||3%|
And for those unable to find a new job? Ageism does still exist. According to the Australian Council of Social Services Faces of Unemployment 2021 report, of all the people on benefits in June 2021, 44% were over 45 years old. In their words,
…policy changes have been made without effectively tackling age discrimination in the labour market, which remains stubbornly entrenched.
I’m now firmly in the older worker bracket. While I might like to think I would still be employable, that’s probably what all the long-term unemployed people also thought.
Our FIRE Goal
In the last 3 years we set a goal in our heads to retire on $80,000 a year at 60, with a stretch goal to retire at 55. Using the 4% rule, that will require FIRE savings of $2,000,000. While that goal is specific, I hadn’t reviewed our numbers to see whether either was achievable. In the last post, we set some spending goals. They will also need to be accounted for. So while this qualifies as having a goal, we haven’t sat down to plan how to get there. We have a destination. We haven’t planned the flights. Luckily that’s what blogs are for, so let’s jump in and see what our starting point is.
Our Investment Numbers
I review growth and dividends twice a year, in July and January, as that is when dividend payments occur for Vanguard. In between I add the contributions we made.
As of November 2021, we have:
Starting with the most basic of calculations, as of 2021, we are $814,000 short of our goal. If we were to discount all investment growth and just look at our contributions, it would take us 187 months (16 years) to get there. While that feels like forever, it would still put me before the traditional retirement age of 67! And let’s be honest – there’s a big difference between retiring at 64 on $80,000 and retiring at 67 on a full couples pension of $37,923.60.
Huh. That’s actually made me feel a lot better already.
However, as we saw above, we can’t rely on our ability or choice to work through to 64. Life happens. And despite not knowing what the markets will do, assuming a 0% growth over 16 years is the equivalent of storing cash under the mattress. It’s in no way realistic. So what happens when we start to play with growth assumptions? Do we have a hope of reaching the FIRE goal we’ve had in our heads, or do we need to go back to the drawing board?
That’s what I’ll explore in the next post.