Following on from my current dilemma in giving up work, I have bits of news. I’m accepted into the Chinese course and I have a second interview for a new contract. So I wanted to dig into the numbers in more details. Do I really have enough funds to retire? How workable are these numbers?
Have I got enough money to retire?
Well, as you may have noticed from my recent Net worth Updates, I’ve crossed that magical FI line. I now have 25 x my current expenses in my FIRE fund.
Yet I don’t consider myself FI. I don’t think I have enough money to retire and confidently say goodbye to work forever. And here’s why.
The biggest reason – Pension Access Age
I’m in the UK, and a substantial amount of that money is in my pension. And in the UK, no matter what you cannot get the money out of your pension until the pension access age. Now to add a bit of complexity, this age is currently 55, but set to be changed to ten years before state pension age – which will be 58 for me. That is 20 years from now.
So while I am reasonably confident I’ll have a comfortable income as a pensioner and don’t have to worry too much about my later years, I cannot access this money before then. The money will remain invested and hopefully grow substantially over the next twenty years until I hit that magical access age. So we’re talking cruises and rocking old lady style in my future. I may even try and bring blue rinses back into fashion.
Another reason – Expenses I
Back to the present and one of the main figures needed to calculate FI and the ability to retire – annual expenses. These I have tracked for years and have a really good handle on. Although my expenses are stable at the moment at the £22k that these sums are based on, I know that these could be artificially low.
I own a house and car, yet haven’t spent much on repairs, replacements and maintenance for years. Having said that, the car is a luxury I don’t need. Nonetheless, I am expecting some big expenses to come my way. I don’t know what it will be, but I am due some large expenses.
Not to mention I am currently only supporting myself and a lazy feline, but who knows, this may change in the future. While this could result in expenses reducing, it could also go the other way. A big unknown here.
Ignoring this obvious discrepancy in my calculations is not my style, yet as it’s frankly a pain to calculate and model 400 different forecasts. Hence, I prefer a simpler approach to adding some contingency.
Not to mention, my expenses are based on working full time with only a small amount of leisure time. If my time was free all of the time, would I spend more money?
And this is where my weird frugal nature comes in. In reality, as of today, I’d spend the time as follows.
- Studying – Given my first-year expenses were negligible, I don’t expect these to be significant.
- Running – Perhaps I’ll get through a few more pairs of running shoes.
- Reading – The library is free – and the digital library is a godsend.
- Yoga – Free classes abound on youtube, and library books/internet provide more material.
- Blogging – Again, no additional costs for blogging more.
- Volunteering – No additional costs.
So in reality, I’d probably not increase my expenses due to more leisure time. Although incidentals such as heating (I dislike the cold) would not doubt creep up a bit.
Playing it Safe – Hence the £750k target
While I know my figures look close, I do like to play it safe. And add a little bit of fat into the numbers. And that is why I have come up with the £750k target, giving an annual spend of £30k. Adding in the buffer for some contingency if times are bad. Or some amazing trips of a lifetime if times are good.
And I’ve also got a backup plan of £700k – this also looks doable, but has much less wriggle room than the £750k. But from my modelling and forecasts, if I can keep spending at current levels for a while, this reduced target will also work. Like a true FIRE geek, I’ve run many sets of numbers through both CFIRESim and Firecalc.
I’m not a side hustler. It’s just not something that interests me. I’ve long ago accepted that for me my main employment is the easiest way to bring in the money. So while I may take other jobs in the future, this isn’t guaranteed.
Alternatively, I could get a lodger and use my home to bring in income. I’m not in a great area for rentals or lodgers, but there is some demand out there. I’m reluctant to give up my personal space at the moment, but am keeping this as an emergency card in case I need to take drastic action.
If I stopped now
So, I know that I might actually make it and have enough money now if I stopped work. If the next 10 years gave a 8% return I’d be home and dry. Now, given my current portfolio has returned >10% over the 3 years horizon this doesn’t seem too far fetched.
Yet past performance doesn’t indicate future success.
So I’d just need a 8% return
And is that too much to ask? I feel that in this climate of market highs and political instability it might be too much of a demand. Or those forces could work in my favour and delivery amazing market returns.
I feel that we’ve been lucky with a great bull run since the last crash and know I could never predict when the next crash will happen. I know it will occur and accept that, but boy does it make my planning hard!
Or alternatively to reduce my spending by £5k a year
Looking at another perspective, this could also work by reducing my spending. Truth be told, there is some fat that could be trimmed, but do I want to live a truly austere lifestyle? Would that really bring me joy? I could cut my great love of travel, but I don’t think I’d find that acceptable. So, like the lodger, this would be a back pocket emergency strategy. And not one that would be employed in good times.
Or hedge with a part-time contract
Slowly gaining on all other options, is the idea of working part-time. However, this is holy grail material to find a contract I want to do that’s amenable to part-time. Yet there is something very, very appealing about this option.
It’s a gamble
In conclusion, there are no right or wrong answers numbers wise. It’s all a gamble. Am I feeling lucky?
Over to you
- What are your thoughts?
- Would you take the risk?