Last post, we defined our numerical FIRE goal. In this post I’ll explore whether it is achievable. Is it too ambitious? Or perhaps not ambitious enough? Let’s get to work!
Our FIRE goal: to retire at 60 (in 2033) on $80,000 a year.
To determine how much we need to generate this amount, we are using the 4% rule. This rule states we require 25 times our expenses ($2,000,000) to access an inflation-adjusted $80,000 a year for the rest of our retired life. Yes, it is simplistic. Yes, it is based on historical returns. No, it can’t predict the future or cover nuances for every person saving for FIRE. However we have to start somewhere and this is as good a place as any. In fact, the original author of the research has recently revisited the calculations and it appears that 22.5 times your expenses is now the worst case scenario. Even higher percentage withdrawals will still likely have a good chance of success. This makes 4% (25 times) a conservative estimate which suits me just fine.
As we are following a SlowFIRE path (high expenses, relatively low savings rate for FIRE), superannuation is essential to our FIRE plans. As of 2021, we are legally able to access our superannuation when we turn 60. Unless legislation changes, that is 12 years away, in 2033. For our FIRE goal, we can treat our savings both inside and outside of Super as a single pot.
These calculations are based on the assumption that we both continue to work and save as we currently are, until we turn 60.
Scenario modelling is one of the fun parts of FIRE. I’m sure actual retirement is the most fun part, but playing with calculators is a big motivator while still saving. They’ve also provided reassurance in the times where I’ve panicked or started wondering whether it is really all worth it. So let’s start looking at the various calculators with our numbers, to see whether retiring at 60 is possible.
Calculator inputs 2021
- 12 years to retirement
- Money to last until we are 90 (I know, there’s a good chance of living longer. However I do not expect to be spending $80,000 a year until we are 90).
- Starting savings $1,186,000 (this consists of combined Super and investments outside of Super)
- Monthly Investment $5,300 = $63,600 annually (made up of investments outside of Super, plus Super employer & salary sacrifice contributions less 15% contributions tax)
A Note About Rates of Return
It appears that when calculating historical average rates of return, the US stock market is often taken as a standard. Returns are generally quoted as 10% (or 7% real return after 3% inflation). However while this market makes up a large percentage of world markets, according to the Credit Suisse Global Investment Returns Yearbook 2021 Summary, real returns for the world since 1950 (Baby Boomers) for a 70/30 Equities bonds mix were 6.4%. This drops to 5.9% for world since 1970 (Gen X, which is me), and 5.7% for world since 1990 (Millennials).
So given I’m Gen X, I will use a 5.9% real rate of return as my best scenario return.
On a more sobering note, the Credit Suisse report is projecting a significant drop in returns for the world in the future (Generation Z), of 2%. They note Gen Z could receive
“…about a third of the real return enjoyed by the previous three generations. Many savers, investors, pension plans, endowments and institutions are challenged by the low-return world.”Credit Suisse Global Investment Returns Yearbook 2021 Summary
Given our short timeframe, I will take the middle road for future returns (5.9-2) = 3.9% as my conservative scenario return, and 2.0% as a worst case (but potentially most realistic moving forward) scenario.
(Thanks to Mindfully Investing for pointing me to the Credit Suisse report).
The MoneySmart Calculator is a retirement calculator. It’s a government website, so I trust the source. This is just a superannuation calculator, so I’ve had to fudge the numbers a bit to include our investments outside of Super. As I said, because we are looking to retire at 60 when we can access our Super, I’m treating everything as a single pot. This is not reflective of our actual situation.
These are the inputs. I halved everything evenly for Mr. ETT and I, as you have the option to calculate including another person.
Hmm. This just about meets the ASFA comfortable retirement standard of living if we include the pension, but it’s significantly lower than our desired $80,000 a year.
I’m surprised at how much the pension adds to the yearly pot in this scenario. Without the pension we are below the ASFA modest retirement standard, but if we add the pension in, we are much closer to the comfortable retirement standard.
That’s a bit of a gloomy picture. I imagine that there is strong research and actuarial calculations happening here, although I would also expect it to be on the conservative side to encourage people to put more in their Super. Certainly something to think about.
MoneySmart, can we retire at 60? Only in the best case returns scenario.
Mercer Retirement Income Simulator
The Mercer Retirement Income Simulator is also a retirement calculator, but it has many more input options than the one above. You can include career changes, lump sum Super contributions, investment assets outside of Super, other income before and after retirement, and lump sum withdrawals. Based on your age and sex, it also calculates your chance of living to different ages. This is quite important for my assumption above that the money has to last until we are 90. Finally, you can even stress test your results through 10 different scenarios based on potential market fluctuations.
I spent quite a bit of time with this calculator, highly recommended.
At 5.9%, the money will only last until we are 86. For me as a female, there is a 76% chance I’ll outlive our Super. Even when taking the pension into account, the age lifts to 89, with a 66% chance of outliving it.
Not great. We have parents that have reached 80 and are still going strong. We probably won’t be spending $80,000 a year by then, but for the sake of this comparison it doesn’t pass the test.
Retirement Income Simulator, can we retire at 60? Only in the best case returns scenario, when including the pension.
My FIRE Calculator
Like many in the FIRE field, I have my own calculator in Excel for playing around with. While I have a few different calculations, I’ll keep this one simple. I take our balance in a year, add our contributions, calculate growth based on my three inputs, then move the new balance to the next year and repeat. There are a lot of things wrong with this approach. It assumes that our contributions are added once a year as a lump sum. Not true. It assumes that we earn exactly the same amount of growth each year. Not true. But as long as I recognise that this is best case scenario and treat it as any other crystal ball prediction of the future, it’s fine.
Wow! Best case scenario we would have nearly $3.5 million. Even at a 2% growth rate we would have $2.37 million – more than we need to meet the 4% rule. However, as acknowledged this is very simplistic and can’t be relied on in isolation.
Mrs. ETT, can we retire at 60? Yes, in all growth environments.
Matt’s FIRE Calculator allows you to calculate using your investments before you can access Super, as well as your Super savings. This better reflects our approach. Although Super plays a big part, when we started 5 years ago we were too far from our preservation age for me to trust Super entirely. I wanted some control which is why we also invest in Vanguard and play with Raiz and Ratesetter.
|How long will it take to reach FIRE?||4.55||7.71||10.82|
|What year will we reach FIRE?||2026||2029||2032|
Aussie FIREBug, can we retire at 60? Yes, in all growth environments.
FIRECalc is another powerful calculator which allows many different inputs and scenario checking. The difference is that you don’t put in a specific return. You enter your data, then FIRECalc looks at whether your savings would have been likely to last at any starting period over the last 150 or so years.
The calculator also allows you add a lump sum, which is useful if you are going to retire before you access Super. However for the goal we are testing today, I will continue to assume all of our savings are in a single pot.
This tool is offered for free, but there is a donate button on the results page. If you get as much value from this as I have, I encourage you to buy the creator a coffee or three!
FIRECalc, can we retire at 60? Yes. Based on historical returns, at no point would our money have run out.
Money Flamingo’s Flamingo FI/Coast FI FIRE Calculator
I’ve left this to last, as Mrs. Flamingo offers some different options to racing directly for full FIRE. This may be something we consider in the future, but for now I’ll just focus on the full FIRE part of the calculations.
Mrs Flamingo, can we retire at 60? Yes, in all growth environments.
So Can We Retire at 60?
These are very rough, back of the envelope calculations. Many of the calculators rely on the 4% rule as a basis, so are basically replicating the same calculations. Interestingly both of the retirement calculators (as opposed to the FIRE calculators) paint a pessimistic picture. We’ll be OK if we receive 5.9% returns, but anything lower and we could find ourselves with less than we want. I’m not sure how I feel about these results. It certainly hasn’t painted the rosy picture I was hoping for.
I don’t know what causes the discrepancy between the two calculator types. If anyone knows or has some theories, please comment!