What is my FIRE number as a Late Starter? It is NOT my Net Worth

A new summer day dawns, natural background with the sun just behind
A new summer day dawns, natural background with the sun just behind

The two most commonly tracked metrics on the way to achieving FIRE (Financial Independence Retire Early) are net worth and that magical FIRE number.

Every time I post about what I include in my net worth calculations on social media, I get comments like – oh I don’t include my house because it doesn’t generate an income.

So I want to clarify here that my net worth is NOT the same as my FIRE number.

Let me show you why.

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What is Net Worth?

I’ve written about net worth before but I’ll recap here.

Net worth is a measure of your financial wellbeing. It captures a moment in time of where you stand financially.

Net worth is calculated as your assets minus your liabilities.

A positive net worth is what we are aiming for.

This means that we own more assets than what we owe to others.

Conversely a negative net worth means that we owe more than we own.

The larger your net worth, the more financially stable you are.

There is much debate among the FIRE community as to what assets to include or exclude in the calculation of net worth.

I like to include all my assets (not furniture or personal belongings) – my paid off home, superannuation (retirement account), investments outside of retirement account and cash in bank accounts or brokerage account.


Because I want to know my TOTAL net worth.

This informs my strategy of how to achieve financial independence.

I’ll explain how later.


What is a FIRE number?

Financial independence is defined as having enough investments that can support your lifestyle for the rest of your life without depending on a wage.

And then you can choose to retire early. Or not.

But how do you calculate that magical FIRE number? The number that signals you’ve reached financial independence and that you don’t have to work for a wage from now on?

Most in the FIRE community define it as 25 x expenses based on the 4% rule. So if your expenses are $40k a year, you’ll need 25 x $40k = $1 million to be financially independent. Or to put it another way, you can draw down your investments by 4% every year (plus inflation thereafter) forever. 

The Trinity Study

The 4% rule is based on a study by 3 researchers from Trinity University, popularly known as the Trinity study in 1998. It confirmed what Bill Bengen found in 1994.

This original study had nothing to do with the FIRE movement. The researchers were looking at what a safe withdrawal rate is for retirees, ranging from 3% to 12% based on a portfolio of stocks and bonds using historical data from 1926 to 1995.

What they found was that based on a 4% withdrawal rate the first year and increased by inflation in years thereafter, on a portfolio of 50% stocks and 50% bonds in the US market,there was a 95% success rate that there was money left in that portfolio after 30 years.

It follows that the lower your withdrawal rate, the longer your money will last.

The good news for late starters is that our years in retirement are a lot closer to the study’s longest time frame ie 30 years. If you retire at 30, your nest egg may have to support you for another 70 years.

If you are interested in more in depth analysis of safe withdrawal rates, please head to the Safe Withdrawal Rate Series from Early Retirement Now.


My FIRE number

For me, the traditional 25x expenses rule is a good place to start; a good guide to aim for, when we are starting out on our FIRE journey.

But I believe our FIRE numbers are more nuanced than that.

For example, are we talking about current expenses? Or projected expenses when we retire?

That is why I started tracking my expenses – firstly to know how much my current lifestyle costs and secondly, so I have an idea of what this amount buys me today. And if I’m happy with what I’m getting now.

Will I be happy with my current lifestyle when I eventually retire? Will I need more? Less? Answering these questions gives me a number to work towards.

Ok, so that’s the expenses part taken care of.

Now on to the 4% draw down strategy –

What if we don’t want to draw down our shares portfolio? What if we want to use the income generated from the portfolio? And what if we use real estate investment to achieve FIRE? We can’t sell 4% of a property each year.

As a late starter, there are added complications.

I have less time to save and invest the amount I need and for compound interest to work its magic and grow that portfolio.

So what are my options?

pie chart of investments
What makes up my net worth in April 2022

Net worth calculation to the rescue

This is where I value calculating my net worth. And tracking it over time.

From the chart above, I note that the largest contributor to my net worth is my paid off home. In second place is my superannuation. And in a far off third place is my investment outside superannuation.


1. Paid off home

One option to reach financial independence is to sell my home and use this equity to invest in a shares portfolio from which I can withdraw 4% for the rest of my life.

Another option is to sell my home and buy a property of lesser value and invest the rest into a shares portfolio.

Or I exclude it from my FIRE number as I don’t want to sell my home. Because I can’t deal with the insecurity of renting for the rest of my life. And because I don’t want the hassle of looking for a smaller property or one that is located further afield. For now.

But I know that if I run out of options, I do have the option of selling my home. Or at the very least, release some equity from it.

Or I could look at ways of generating income from it – renting out rooms either on a more permanent basis such as getting a roommate or renting out rooms on AirBnB.


2. Superannuation

My superannuation is the next biggest portion of my net worth. This was already the case when I first discovered FIRE, thanks to being in the work force for more than 20 years.

So my strategy was to make use of generous tax concessions to invest the maximum allowed into superannuation and grow this portion of the pie.

The complication here is that I cannot access my superannuation until my preservation age – 60 for me as I am born after July 1, 1964.

I knew this and still chose to focus on investing the maximum into my superannuation until I reached Coast FI (not that I knew that was what I was aiming for when I first started pursuing FIRE). Because I wanted the security of knowing that from aged 60, I’ll be taken care of financially.

My reaching Coast FI as a late starter is totally based on how much is in my retirement account.

I used the 4% rule as a guide here. And worked out 25 x my projected retirement expenses. This was my target number for aged 60 when I can access my superannuation.

I discovered I was half way there last year because I was tracking my net worth. Using the rule of 72, I worked out that the annual return on investment has to be 7.2% every year for this balance to double to my target number in 10 years.

I felt this was possible based on historic returns but it’s not a guarantee. Knowing that even if I never contribute another cent to my superannuation, it should grow to the amount I need at 60 has been freeing.

3. Bridge the Gap fund

But if I want to retire before 60, I will need extra funds outside of superannuation to support me.

This is what I’m building right now – my bridge the gap fund. According to my net worth calculations, this fund comes third overall – my cash and shares portfolio.

It is entirely appropriate as this fund has to support me for 5 years only.

Back to my FIRE number

If my FIRE number is not my net worth, then is it my net worth minus the value of my house? We’ve established that I don’t want to sell the house in the foreseeable future and you can’t sell 4% of a property.

So that works out to be the total of my superannuation balance, shares portfolio and cash minus liabilities (which for me is monthly credit card bills). But a large portion of this is in my superannuation which is not available until I’m 60. Therefore even if this number equals 25x expenses now, I still can’t retire early.

Therefore is my FIRE number the value of my bridge the gap fund?

Right now, because I plan to retire at 55, my bridge the gap fund is intended to support me for 5 years. If the fund grows to the desired amount tomorrow, I can’t retire because it can’t support me for 9 years until I can access superannuation.

In other words, I need to reach my target number at the 5 year mark, not before or after. Argghhhh!

To add another spanner into the works, I now don’t want to draw down from the shares portfolio if I can help it. This will help ensure I don’t totally rely on my superannuation being able to double in 10 years (from last year’s Coast FI value).

So I’m now planning to live on dividends and cash during the 5 year gap. And preserve as much of my portfolio as I can until I access superannuation.

However I’m not sure how much my portfolio needs to be in order to generate the amount of dividends I need. Therefore I’m just investing as much as I can including reinvesting my dividends to grow this portfolio. Dividends is now my favourite metric to track.

My current plan is that I’ll stop investing when my dividends can support half my annual expenses. I’ll then switch to saving as much cash as possible to make up the difference. Because I just don’t have enough time to grow the portfolio to be able to generate enough dividends to pay for ALL my expenses.

Did I tell you that my FIRE number is complicated? 🤣


Final thoughts

Aiming for a FIRE number as 25x expenses and living off it forever with a 4% withdrawal rate is a good guide. And if you don’t own a house or if you live in the US, with ways to access your retirement account before traditional retirement age, then yes, your net worth can be your FIRE number.

Unfortunately as a late starter, I have no choice but to depend on superannuation because I don’t have time to build up a substantial shares portfolio outside superannuation. And in Australia, there is no backdoor method to accessing it any earlier.

Therefore my FIRE number is a tad complicated and does not equal my net worth.

But I am grateful I took action back in 2018 as I now have options even though they are not as straightforward as those of the youngsters. It is the inevitable complication of starting later.

I will continue to track my net worth every month to be aware of where I’m at financially (specifically – is my strategy working?) and to inform me of my options. I’ll also track dividends to see how soon I can retire.

How do you calculate your FIRE number? Have I over complicated my calculation? 🤣

One year of Coast FI as a Late Starter

Big Sur at sunset

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.

Back view of deck chair and umbrella on a beach

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.

Final thoughts

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!

What would you do in my situation? Stick it out working full time for 5 more years and retire fully at 55? OR shift to part time, working 4 days a week and retire later than 55?

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