It looks like we can retire at 60 on $80,000 a year, so now it’s time to look at our stretch FIRE goal – can we retire at 55 on the same?
To be honest, the stock standard retirement calculators did not paint a very happy picture for our retirement, except in the best case scenario of receiving at least 5.9% growth for the rest of our lives. However, the FIRE principles and calculators say differently. I’ve been around long enough now to put my faith in an alternative pathway. There are a lot of people successfully implementing various versions of FIRE, including in Australia.
Our Stretch FIRE Goal: To retire at 55 (in 2028) 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. It is simplistic and based on historical returns. It can’t predict the future or cover nuances for every person saving for FIRE. However we have to start somewhere. In fact, Bill Bengen, the original author of the research, has recently revisited the calculations and it appears that 22.5 or even 20 times your expenses will likely have a good chance of success. This makes 4% (25 times) a more 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.
FIRE in Two Parts
For our original FIRE goal of retiring at 60, we could treat our savings both inside and outside of Super as a single pot.
However, for our stretch FIRE goal, we can’t. If we want to retire at 55, we will need enough in our investments outside of Super to fund five years, from 55 to 60, when we can access our Super.
In my inflation post, I identified that we will need to have $615,573 to cover the five years between 55 and 60. This is an inflation-adjusted equivalent of $80,000 a year in today’s dollars.
Traditional retirement calculators can’t be used in this situation, as none of the ones I’ve used previously allow me to enter a retirement date before 60. Many of the FIRE calculators also assume that we will have access to our full FIRE savings at the beginning of early retirement. There are a few calculators that allow modelling on a split pool, so they are the ones I’ll use here.
Calculator inputs 2021
- 7 years to retirement
- 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)
- Real (post-inflation) rates of return = 5.9%, 3.9% and 2% (check out my note about rates of return to see the source of these numbers).
- Inflation = 4.88%
My FIRE Calculator
This simplistic calculation shows we should be able to retire at 55 if we get a real rate of return of 5.9%. The total value of our pot will be over $2,000,000. The value of our investments outside of Super will be more than required to cover the five years until we reach our Super preservation age.
In this case if we began our drawdown of investment, it would likely last until 62, so we would have another two years of growth in our Super before we had to access it, increasing our chances of success.
At 3.9%, we can’t retire at 55. We would have enough in our external investments to cover the five year period, but the total value isn’t $2,000,000. We would need to wait one more year before we met both conditions of enough outside Super and total value.
If we enter the predicted high inflation/low return world and only achieve 2%, then no. We won’t reach FIRE at 55 with our current inputs. We would need to make lifestyle changes, increase our earnings and/or decrease our spending.
I’ve spent a few hours with this calculator. I’ve watched the video, read the blog post along with all 126 comments (including one of mine from years ago!), and dug into the back end calculations. After all that, I’m still not entirely sure I’m interpreting what the graph is telling me correctly.
Starting with 5.9% real returns, based on $80,000 spending a year:
What I think it’s telling me is that in 2024, we will have saved enough outside of Super to sustain our lifestyle until we can access our Super at 60. But at this point, there won’t be enough in our Super to grow to our FIRE number by 60. So, we need to continue working and saving for another year. Then in 2025, we will be able to retire, live off our Pre-Super savings, and when we reach Super preservation age, there will be enough to sustain FIRE based on the 4% rule.
I think where the blue line begins to go down in 2024, it ties in with the blog post & comments to begin living off our Pre-Super savings, and put 100% of our earnings into Super. We’d likely be breaking deposit cap rules if we did that, but another possibility is that we might be able to use the bring-forward rules to deposit the equivalent as a lump sum from our savings. That’s something I won’t dive into now. It’s not relevant as the rules could easily change by 2024.
However if I am interpreting this correctly, my takeaway is that at 5.9%, we will be able to retire before 55, which is crazy!
At 3.9%, like my calculations above, we couldn’t retire at 55. It would take one more year and we’d be able to retire at 56.
At 2% we’ll need to continue working until nearly our preservation age, so can’t retire at 55.
FIRECalc doesn’t work on entering specific returns or inflation. Instead, it takes an historical look 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. While this calculator doesn’t use particular rates of return, I will use them to estimate how much of a lump sum we might have when we access our Super at 60, so we will still have three possible outcomes from this calculator. Our starting portfolio outside of Super is $436,000.
As I mentioned last post, 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!
Out of curiosity, I thought I’d first take a look at our potential success rate if we weren’t to access a lump sum. Unsurprisingly, it came in at a low 8.7%. We’ll skip right over that and move on to adding our Super as a lump sum when we turn 60.
- At 5.9% that could be $1,861,130, even taking into account that there would be no deposits from 55 onwards.
- 3.9% could be $1,496,661
- 2% could be $1,212,897
We find a 100% success if we add a Super lump sum based on 5.9% real rate of return. That’s great!
Surprisingly, there was also a 100% success rate if we get 3.9%. What differs is lower values for the highest portfolio balance and average end balance.
At 2% we start to see some failure, but it’s lower than I would have expected. Historically, there is a 7.7% chance of our portfolio running out before we turn 100. It’s difficult to see on the graph, but the earliest that appears to happen is when we are 92. To be honest, I’d still feel relatively comfortable with that, despite my generally conservative leanings.
So Can We Retire at 55?
You know what? I’m going to bite the bullet and say yes. As long as investment returns and/or inflation don’t go to hell in a hand basket, we have a real chance of retiring at 55. So much so that this will be our new FIRE goal. I’m not going to make a new stretch goal, as we have our planned spending to take into account over the next seven years as well.
Our new FIRE goal: to retire at 60 (in 2033) on $80,000 a year.
I hope you all have a COVID-free Christmas and New Year and have some sort of opportunity to relax. A shoutout to those in the healthcare system who are now being smashed at what should be a time of year where they can begin to wind back. I know words can’t fix anything, but we see you and we are thankful. Personally, we are doing what we can not to add to your burden.