I achieved my Coast FI milestone this time last year. As a late starter.
For those not familiar with the concept of Coast FI, it refers to a point where your investments can grow by compound interest WITHOUT you investing an extra cent, to the figure you need for Financial Independence at traditional retirement.
For the youngsters, traditional retirement can be another 30 years away and therefore they don’t need much to reach Coast FI. Ah … the beauty of compound interest and having time on your side.
Therefore it also means that for the youngsters, they can slow down – take a lower paying job or shift to part time hours. They only have to worry about earning enough to support current living expenses. They no longer have to sock away huge chunks of their income towards investing for eventual retirement.
It’s just a matter of sitting back now and coasting to traditional retirement.
Is it different for a late starter?
Well, for one, we don’t have time on our side. Sorry, but that is the hard truth.
Traditional retirement is only years away, not decades away.
So our Coast FI number has to be much larger.
And depending on how many years we have to traditional retirement, we may not have the luxury of working part time or taking a less well paying job.
But what is the same is how freeing it is to reach Coast FI.
I know for me, it felt like a weight off my shoulder.
There is evidence now that I am heading in the right direction, not just floundering around in the choppy sea.
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Recap on how I reached Coast FI as a late starter
I turned 50 last year. Therefore I have 10 years before I can access my superannuation (retirement account).
When I looked at my balance last year in mid April, I calculated that I would reach my FIRE number at age 60 IF it could double in value in 10 years.
To double in 10 years, the annual rate of return needs to be 7.2% every year for the next 10 years. This is referred to as the Rule of 72.
I understand that past performance is not a guarantee of future performance. But it is a guide.
My superannuation fund is invested mainly in equities. And I was confident that an annual rate of return of 7.2% was achievable as shares have performed better than this on average in the past decade.
So I declared that I was at Coast FI. Woohoo!
But just in case ...
I am a cautious (or anxious?) person. Have always been.
It’s hard to just trust the math, you know?
After all, it feels very much that I am at the mercy of the share market. What if the next 10 years is terrible? And the balance doesn’t have enough time to recover? Reminder here again that time is not on our side as late starters.
So I have contingency plans.
Because I am still working, my superannuation will benefit from a mandatory employer contribution of 10% of my wage.
To arrive at Coast FI, I salary sacrificed for two and a half years to make sure I contributed the maximum (including employer contributions) allowed in a year. At the time, it was $25k a year.
Salary sacrificing is contributing gross income ie an amount is deducted from my pay each week and deposited into my superannuation before it is taxed at my marginal rate of 32.5%. Instead, that amount is taxed at 15% in superannuation.
As part of my contingency plan, instead of stopping this altogether, I reduced it. By quite a it. But I am still salary sacrificing something every week.
In other words, I continue investing into my retirement account. Just in case.
What happened to retiring at 55?
Before the idea of Coast FI occurred to me, I had planned to retire fully at 55 in a 3 phase plan.
Now that I reached Coast FI, has anything changed?
Yes … my brain started to f*ck with me.
Let me explain.
I work in healthcare. Unless you were not born in the last two and a half years, you’d know that working in healthcare in a pandemic is stressful.
My job is no exception.
I oscillate between feeling that my job is at risk because we have no customers to being stressed out with the extra work. It comes in cycles or poorly thought out public health policies announced at press conferences.
So the idea of working less hours is sooooooooooooo SEDUCTIVE.
And this is what I have struggled with in my first year of achieving Coast FI.
To work less or not?
I am very conflicted.
It seems I have two choices.
One is to work full time until I retire fully at 55.
And the other is to work part time and delay full retirement till 60 or at the earliest, after 55.
Because I can’t access my superannuation until 60 and my original plan is to retire at 55, I have been investing heavily outside of superannuation in order to build a ‘bridge the gap’ fund.
This ‘bridge the gap’ fund is what I will live on for the 5 years between age 55 and 60.
And I am confident that I will be able to retire fully at 55 if I continue investing at this rate.
The sad truth is that I can’t invest the amount I want to if I reduce my working hours and as a result, earn less income.
And that means the ‘bridge the gap’ fund will not have enough to support me if I fully retire at 55.
I do so want to retire fully at 55 and just NOT. Work. Anymore. Full stop.
So I suppose the choice is clear – I will have to continue to work full time for the next 5 years.
But the stress …. is killing me.
Long service leave to the rescue
Luckily I have long service leave.
Thanks to working for the same employer for nigh on 30 years, this is my second round of long service leave.
At first, it was really precious and I was taking a day off every fortnight. But then no one including me took it seriously. So if it was going to be a busy week, I’d skip the day off. In the end, there was no pattern and it was too ad hoc for my brain.
After the horror of a very stressful January (when Omicron struck), I decided that from February I would take a day off EVERY WEEK. That is, I would only work 4 days a week and take Wednesdays off, no matter what. I told all my colleagues that my day off was not negotiable and that I needed it for my mental health.
I can report that I absolutely LOVE working 4 days week, every week.
I spend Wednesdays reading on the couch, writing a blog post, sometimes doing laundry so I don’t have to do it on the weekend, meeting friends for lunch, running errands, getting a haircut …
There is NO ONE at the shopping centre on a Wednesday. Who knew??
And thanks to long service leave, the day off is paid. So my income is still the same, working 4 days.
What happens when my long service ends?
All good things must come to an end, right?
I will run out of long service leave in mid June.
Do I go back to working 5 days a week? Or take the pay cut and work 4 days a week?
Initially I will work 5 days a week until my planned holidays in late July.
After I return from my holidays … who knows?
My brain is trying frantically to come up with a solution to work 4 days a week at the same pay.
That involves either negotiating to work longer hours on 4 days to make up for the day off. Or negotiating a pay rise. Both options have pros and cons.
Working longer hours means less free time at nights – to walk or garden or recuperate for the next day. But I will have a day off.
I know the pay rise will be an issue – that is a 20% pay rise if I work 4 days without extra hours per day. Even though we are busier and more stressed these days, our revenue hasn’t increased considerably. But if I don’t ask, I definitely won’t get it.
The other option is to earn the 20% with a side hustle such as monetising this blog. Thanks to ASIC, it is not as possible as before.
The elephant in the room
Of course the elephant in the room is that I can reduce my expenses further.
But can I?
Living costs have increased. My grocery bill can attest to this fact. I am thankful that I drive a work car and don’t have to pay for petrol.
I’m not sure I can reduce my expenses by that much to make it significant. At this stage, a 20% cut in expenses is A LOT.
Reaching Coast FI is amazing, even as a late starter.
You can slow down. You do have the option of working less and coasting to financial independence at traditional retirement.
The question for me though, is … do I still want to fully retire at 55?
The answer is a resounding YES which means I need to maintain my current income. Because I need to invest a significant amount to build my ‘bridge the gap’ fund.
And this is the significant difference between younger folk and us late starters. They have the luxury of investing a little bit and let time and compound interest do the work. We just don’t have that luxury.
In the meantime, I will enjoy my Wednesdays off – only 8 left …
Oh and I nearly forgot to tell you – after one year, my superannuation has grown by more than 7.2% despite all the ups and downs of the last 12 months. So I am currently on track … one year down and only 9 years to go, haha!