Whenever I mention I want to retire at 55, no one believes me.
The most common reaction I get is an eye roll, followed by “Yeah, right! In your dreams!”
And then the inevitable ‘What are you going to do all day? You don’t like being bored!’
No one ever, ever asks me how I am going to achieve it. They assume that I am kidding because retiring at 55 seems such an impossible task. And simply dismiss it as another wacky idea.
While it seems that 55 is a bit old for a FIRE blogger to retire, it is early(ish) for a late starter. I only discovered the FIRE concept 18 months ago. And 55 is a full 10 years before what is perceived as traditional retirement. And a good 12 years before the government will consider giving you a pension.
I have a PLAN. And since no one in my real life wants to know about it, I will share it with you instead.
What is the PLAN?
First of all, I must declare up front, that I did not come up with this plan at the beginning of my FIRE journey.
No, I stumbled around. Lamenting about lost opportunities. Berating myself for not starting earlier. Regretting my spend, spend, spend lifestyle. Blah, blah, blah.
Then I just got down to it and started with the basics.
I found out my net worth and monitored it every month.
Then I started tracking my expenses seriously, not just having a vague idea of what I was spending. I reduced expenses wherever I can although frugality is not my strong suit.
I made sure I invested the gap between my income and expenses.
And now, 18 months later, I have a PLAN.
There are 3 phases to my plan – Pre super*, Post super* and The end.
*Super = superannuation, our retirement account in Australia
Since I plan to retire at 55, I have 5 years before I can access my superannuation. This is an advantage of pursuing FI later in life – you have less years to plan for, until you can access funds locked up in retirement accounts. If you retire at 30, you need sufficient funds for 30 years before you can access your super.
So Phase 1 (Pre super) of my plan involves being able to survive this first 5 years. Phase 2 (Post super) kicks in when I turn 60, when I can utilise my superannuation funds. And Phase 3 (The end) will be activated when I need to move in to an aged care facility (unless there is another option).
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Phase 1 - Pre super
Tracking my net worth shows me that the majority of my net worth (a whopping 92%) is tied up in fixed assets ie my house and superannuation. Which will be useful for Post super and The End phases.
Not useful at all for the Pre super phase. I need sufficient investment outside of superannuation to ensure I survive the first 5 years of retirement.
Investment outside of superannuation for me means a share portfolio and cash.
Right now, I have a fully funded emergency fund and various sinking funds – for travel and annual expenses, held as cash in online high interest saving accounts.
My biggest expense at retirement is to purchase a car, as I will no longer have access to a company car from work. So I am conscious this is something I need to start saving for.
I will need a cash buffer, preferably 2-3 years of living expenses to counter sequence of returns risk, just in case the stock market crashes at the precise time I retire.
That cash reserve will also need to cater for home maintenance costs. I need to ensure my house is in good shape, to reap its benefits for Phase 3 – The end.
So my current strategy is to invest every spare cent in my share portfolio, taking into consideration living expenses and sinking funds. Sorry, I have to live, you know. That travel fund is not going to fund itself and I am not not travelling the next 7 years.
I will not be using the 4% rule in this phase. I don’t have time to build my savings and investments up to 7 figures, in order to withdraw 4% from it. This amount need not last forever either – just 5 years.
Phase 2 - Post super
I am most excited about this Post super phase.
Unbeknownst to me, I have been tracking well on this front. I cannot stress the importance of automating retirement savings enough. Even though I did not do it right 100% of the time, 70% to 80% was enough to set me up to be in a good position.
So what I did right with superannuation was that I contributed extra on and off throughout my whole working life.
When I first started working in 1992, a family friend convinced me to open a superannuation account with AMP. This was an additional account, a separate account outside of my employer’s contribution. All I had to do was deposit $2000 (after tax) each year – this increased every year to cater for inflation.
Some years when I felt I didn’t have extra money, I did not contribute or I contributed less than what I was invoiced for. Eventually I stopped contributing altogether. I never budgeted for it and found it hard to come up with an annual lump sum, what with paying a mortgage and travelling.
I have no idea what sort of fund it was invested in, no idea on its asset allocation or the fees charged. All I know is that some years, the return was in double digits and some years it was negative. Yes, negative.
All up, I contributed $41000 over the years. And when I finally looked at it in 2018, my balance was $83000! However, they charged me around $4000 in exit fees so my ‘roll over’ amount was only $79000 when I transferred it to my main account.
I am sure if I had paid attention over the years, especially to the fees and the type of fund it was invested in, the returns would have been much better. But I consider it a good result in light of my neglect and failure to contribute every year.
In the meantime, my main superannuation account where my employer contributions were deposited, was also steadily growing. Before I bought my house, I salary sacrificed a small amount every week – on the advice of my accountant who sees his main job as saving me taxes. The amount I salary sacrificed reduced my taxable income, hence I paid less tax.
Even though I stopped salary sacrificing while I had my mortgage, the balance was still growing. Once again, I had no idea what my balance was or how it was invested. Or the fees charged. Or the insurance premiums deducted. Until last year.
I started salary sacrificing again in 2018 and aimed to deposit the maximum of $25000 pre tax including my employer’s contribution. Once I stop working, contributions from my employer will stop. I am conscious I have 7 more years to optimise this phase.
The 4% rule will apply for this Post super phase. And the amount will need to last forever.
Phase 3 - The end
With any luck, I do not need to activate this phase until I am in my 80s, when I can no longer look after myself in my own home. Most likely this means I have to move into an aged care facility. Who knows what aged care options will be available then? I sincerely hope there are other alternatives available.
My paid up house will be sold to generate extra funds to pay for aged care. There is no guarantee what house values will be then. But I can rest easy knowing I have an asset that will contribute towards the cost of aged care. And in the meantime, it will have provided stable and comfortable shelter for many years.
There should also be some money left over from Phase 2, in case house prices are really bad at the time when I need to sell. And in the worse case scenario, there may be the aged pension from the Commonwealth government if it still exists. The pension, that is, not the government.
Where am I at now?
I aim to have a mix of 30% cash and 70% shares for the Pre super phase 1. Right now, I am at 17% of cash target and 50% of shares target. Amazingly, I am also at 50% of my target for the Post super phase 2. Of course, this is all due to the strong share market at the moment.
The Rule of 72 is a simple calculation to estimate when an investment could double. Divide 72 by the rate of return to calculate when an initial investment will double. So assuming a rate of return of 8%, I could double my investment in 9 years.
This is very reassuring as it means even if I never contribute another cent, my shares and super (majority invested in shares) should double in 9 years, provided we can maintain a rate of return of 8% or better.
And this is where the uncertainty lies. Are we heading into a recession? Will the strong performance of our share market continue? Past performance does not predict future performance, blah blah blah.
The only thing I can control is how much I contribute to savings and investments. I decide how much to allocate to cash and shares outside of super and assess if I need to continue salary sacrificing the maximum amount into super.
So I will continue to automate savings and track my net worth. I will adjust and pivot as necessary; and celebrate each milestone.
Fingers crossed, if nothing drastic happens to my life circumstances, I should be able to reach my goal in the next 7 years.
Final thoughts
There, you have it – my 3 Phase plan to retire at 55.
I am trying very hard not to second guess myself.
It is not the end of the world if I can’t achieve my targets by 55. I can always work part time from 55 until 60, when I can access super.
Looking at the cold hard figures and barring any unexpected life altering events, I am confident I will reach my target within the 7 year timeframe.
And retire early at 55.
What are your thoughts on my plan? Do you think it is sound? I would love to hear about your plans too - please share them in the comments below
Speaking as a 56-year-old – retiring at 55 IS early!!
I liked this sentence – “This is an advantage of pursuing FI later in life – you have less years to plan for until you can access funds locked up in retirement accounts.”
It’s true.
And hey, we’ve got to have at least ONE advantage over those young whippersnappers!
Exactly! Since we lost out on compound interest …
I hadn’t come across FIRE but decided to start looking at early retirement at 56. I have gone for working 2 days/wk (I’m 57). it’s taken me a good 6 months to adapt to the amount of free time so that I enjoy it. To start with I was cramming my days so full, I was exhausted or else horizontal consuming box sets. But now, I am enjoying it, I have a new hobby (metalworking) and planning my travels. I can live on 2 days, and am saving enough for a couple of holidays next year. Things will really start to pick up once my mortgage is paid off in Summer 2021.
Hi, Maria! Working 2 days a week would be a nice transition to full retirement. Like you, I would struggle not to fill my days with lots of activities. Glad you have adapted now – thanks for sharing your experience 🙂
I just realised, I forgot to comment on your plan (too busy talking about me 😊) It sounds very sensible – and we’ll thought through. I’m no expert on funds and investments, so I can’t really comment on that, but key thing to remember is you always have the option to work a bit if you are short in your phase one, or even phase two. You mention it, but only in passing. Just now, my partner and I were talking about renting a room to summer students to pay for next winter’s flights. You have a house, so you have those earnings options too.
Haha, no worries – I love reading your stories.
Yes, continuing to work full time or cutting back to part time is one of the contingencies. I would be sad if I couldn’t retire at 55 but it’s not the end of the world – I can be flexible and will adapt.
It would be ideal though to reduce to part time for a couple of years before full retirement but we’ll see … 7 years will go by in a flash
Yes!! Agree that this “This is an advantage of pursuing FI later in life – you have less years to plan for until you can access funds locked up in retirement accounts.” is SO well put. Speaking as a late starter too (just found FI this year at 47) I really appreciate this positive point of view. I also get the same reaction when I say I plan to retire by 59, so this made me lol: “And since no one in my real life wants to know about it, I will share it with you instead.” Great plan! Sounds like you are rockin’ it!
Thanks, Amelia! Rockin’ it indeed, haha – makes me sound almost cool! The plan depends on a lot of ifs … so fingers and toes crossed, it shall come to pass
Sounds like a good plan to me! Thanks for highlighting the advantage of pursuing FIRE later in life, which often goes unmentioned. Another advantage s that later in life, there was no question of whether I would need to factor kids into my plan, unlike youngsters who still need to make these life decisions! I will be able to access my first pension at 55 and my main pension at 65. My equivalent of your pre-super has to last me 10 years.
Haha, that is so true – way too late for me to factor kids in! But my niece would likely benefit if all goes to plan 🙂 The plan does depend on many ifs going well though. Right now the preservation age for super for those born in my year is 60 so I am very lucky I only need to plan for 5 years. All the best with your planning and strategy
Sounds like you have a well thought out plan. Retiring at 55 is very early and FI at any age is an amazing feat. I know too many people who just ignore the fact that working until you no longer can isn’t much of a retirement plan.
Thank you! The problem too is that sometimes the time when you no longer can work may come earlier than you anticipate, if unfortunately you suffer a bad health event, for example or need to cut back to part time to look after aging parents
Yes, our plan got derailed by my mother’s Alzheimer’s. We’d always thought that once the kids flew the nest, we’d be free to travel loads, but now my mum is a huge factor in our planning. Don’t get me wrong, I’m conscious that this is the last period of having my mum, and her being her, so I want to share that, but it puts a massive spanner in the works from a travel perspective. At the moment, we try and get away little and often, and not always together, so we can minimise additional care costs. Our plan is an ever-changing entity 🙂
Yes, the best laid plans can go awry! So sorry about your mother’s Alzheimer’s. I understand as my Mum has dementia – right now, my Dad is her carer but in later years, I will take over. That is another reason why I want to retire ‘early’ – it is difficult to look after elderly parents while holding onto a full time job.
The person who says it cannot be done should not interrupt the person who is already doing it.
You made a plan and are being intentional with your finances, which is a foreign concept to many full-time employees. Good on you!
Thanks Kim – only time will tell if it works!
Your timeframes are exactly the same as mine. I only found FIRE last year and I am 48 now. I plan to be fully retired at 55 (all going well). I would like to go part time before that but it would require a significant job change and drop in hourly rate – so i will make that decision as I go. I am working to pay off my investment properties for positive gearing but I still haven’t got into investing in shares! I know I need to but I seem to get a bit overwhelmed with warnings of recession to know where to start.
I would love to go part time before then too but like you, not sure how I can cope with the significant wage decrease. So I’m leaving part time option to after 55 as the back up plan.
There is always talk of recession … Sounds like you have passive income from investment properties so you may be ok without investing in shares. If you live in Australia and have superannuation, you are already invested in shares.
Google The Barefoot Investor, Peter Thornhill, JL Collins, Strong Money Australia, Aussie Firebug – they all write about index funds, exchange traded funds (ETFs) and listed investment companies (LICs). Start with an ETF or LIC rather than individual shares to spread your risk. Good luck!