Category: FIRE

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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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Am I a FinFluencer? ASIC thinks so

Am I a finfluencer? graphic of woman with black hair with open mouth

When I think of finfluencers, I think of Gen Z on youtube or TikTok (ok, I had to google how to spell TikTok 🤣)

A finfluencer is a financial influencer – someone who shares or comments on social media, mainly on TikTok and Instagram about finances and investing.

The ones who have been featured on mainstream media are generally young and apparently earning a decent income from their efforts.

Australia’s regulator, ASIC is cracking down on finfluencers.

ASIC stands for Australian Securities and Investments Commission. It is “Australia’s integrated corporate, markets, financial services and consumer credit regulator.”

Some of their roles are to “maintain, facilitate and improve the performance of the financial system and entities in it; promote confident and informed participation by investors and consumers in the financial system.”

And they license financial advisers in Australia.

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Back story

A record number of 18-24 year olds started investing in the stock market over the past two years – 25% of all new investors, in fact. Plus 27% of all intending investors (defined as those wanting to invest in the next 12 months) are in this age group. This is according to a study done by the Australian Securities Exchange (ASX) in 2020.

Interestingly, these young investors are willing to seek advice from a financial adviser.

According to this same study, 37% would seek help with investment decisions and 36% would seek help for access to a wider range of investments.

But 37% don’t know how to find an adviser while 25% think they are too expensive.

And 30% wouldn’t use an adviser because they think their portfolio is too small.

So where are they getting their advice?

According to ASIC’s surveys in July 2020 and again in February – March 2021, when asked who they have received the best piece of financial advice from, 67% cite their parent.

But 28% indicate they follow at least one finfluencer on social media. And of those that follow a finfluencer, 64% reported having changed at least one of their financial behaviours as a result.

Crucially, they were not asked if their finances improved as a result of changing those financial behaviours. I could not find this in the report.

ASIC cited this report in their media release on March 21, 2022. (Although they cited 33% of young people follow a finfluencer whereas the survey report on page 9 cites 28% – not sure why there is a discrepancy).

It is clear that ASIC is worried about the influence finfluencers have over young investors.

ASIC Chair Joseph Longo gave a speech to financial advisers at a conference in September 2021. He gave an example of a young family wanting to know about their life insurance needs and wondering where to get advice.

“Here comes the plot twist.

They may have gone online and sought to educate themselves via a financial influencer or ‘finfluencer’.

ASIC is aware of the fact that the pandemic has created the perfect conditions for finfluencers to flourish. The result is the conflation of general and personal advice, which is now in a state of flux.

We are watching this evolution closely.”

He acknowledges that there is an unmet advice need of Australians seeking quality financial advice and goes on to outline how ASIC is helping financial advisers to help Australians like the young couple.

 

Group of Friends sitting on steps with Tablet PC

What is their solution?

ASIC issued an information sheet (INFO 269) titled “Discussing financial products and services online” on March 21, 2022. It outlines how the financial service laws apply to social media influencers.

But they didn’t define who an influencer is.

I most definitely do not consider myself an influencer. And anyone in their right mind wouldn’t either. Don’t you need thousands or hundreds of thousands of followers to be considered an influencer?

But it seems ASIC may disagree because I do discuss financial products and services online.

They threatened 5 years jail for anyone who breaches these financial service laws.

According to the information sheet,

“Financial product advice is a recommendation or statement of opinion which is intended to influence, or which could reasonably be regarded as being intended to influence, a person making a decision in relation to financial products.” (Italics are mine)

It goes on – “You can share factual information that describes the features or terms and conditions of a financial product (or a class of financial products) without giving financial product advice. However, if you present factual information in a way that conveys a recommendation that someone should (or should not) invest in that product or class of products, you could breach the law by providing unlicensed financial product advice.”

Therefore my interpretation is that I cannot recommend any financial product or service eg bank account, credit card, shares, superannuation company, insurance companies, share platform that I personally use and love. I also can’t express my opinion. Because it could be considered as “being intended to influence”.

And I most certainly can’t give you affiliate links to said financial products or services where both of us may benefit even though I’ve disclosed this fact. It would be “dealing by arranging”.

My experience of unmet advice needs

When I first paid off my mortgage, I was so excited. I understood that I had to use the money that I saved from not paying a mortgage in some sort of investment. But I didn’t know what sort of investment.

Colleagues suggested an buying investment property. I met with a mortgage loan officer at a “Big Four” bank. He wasn’t interested in my situation – late 40s single woman – and maybe I gave off vibes that I wasn’t too keen on entering into another mortgage.

I then rang an investment firm that I’d heard being spruiked on radio. The guy who rang me back quickly showed his disinterest when he found out that I had $10k to invest – an amount that was obviously not worth their while.

Next, I made an appointment with a financial adviser within a “Big Four” bank. He told me there was no point in him providing personal advice to me because it would cost $3k to $4k for the advice and I only had $10k. I wholeheartedly agreed.

So it’s not just the young ones who can’t access mainstream financial advice. I was a middle aged woman with $10k cash.

In hindsight, all of this probably contributed to me waking up one morning in a cold sweat, petrified about not being able to retire. Subconsciously I was obviously worried about not knowing how to invest for my retirement.

You know my story of googling “how much I need to retire” and somehow stumbling onto FIRE (Financial Independence Retire Early) blogs. They were all American sites. I was reading about how to contribute to 401k, IRA, Roth IRA, backdoor IRA, HSA etc etc, none of which is available in Australia.

Then I found Aussie Firebug and Strong Money Australia who wrote about FIRE in the Australian context. And boom! I now have examples of what they invest in, their strategies and tips. And I could see their progress. I didn’t follow anyone’s advice blindly. They were so much younger than me. And so I had to adapt their advice (and anyone else’s for that matter) to my own circumstances.

Mauritius sunset

Why I started Latestarterfire

The reason I started my blog (& related social media channels) was that I wanted to share what I’ve learned on the path to achieving Financial Independence and Retire Early(ish) as a Late Starter. That is someone starting in their 40s/50s vs someone starting in their 20s.

Because I couldn’t find anyone who started their FIRE journey like me. There were plenty of people in their 40s but they were at the end of their FIRE journeys, about to retire or already retired.

It was only after I started Latestarterfire that I found Frogdancer Jones on Burning Desire for FIRE. I remember my joy at finding another late starter who has gone on the same path ahead of me.

Representation matters.

Just like seeing Aussie Firebug and Strong Money Australia achieve or pursue FIRE as Australians and Frogdancer Jones’ success as a late starter motivates and inspires me, I too want to contribute my story and journey.

And in doing so, I may help fellow late starters get started on a path where they can take control of their money, achieve financial independence and retire earlier.

What ASIC's crackdown means

While I understand the need for ASIC to crack down on dodgy advice and quite simply, criminals who prey on vulnerable people, I think it’s very heavy handed in trying to solve the problem.

All of us online financial content creators have been lumped in the one basket – the good, the bad and the indifferent. I don’t know what the solution is. But I fear that the very people ASIC wants to protect and help are the ones who will lose out by this action.

Who will they turn to for real life examples, for lived experiences?

Will financial advisers lower their fees? How can Australians, young, old and in between who are just starting their investment journeys afford to pay thousands of dollars for financial advice? Will financial advisers advise on products that don’t earn them a fee eg recommending ETFs?

Why not educate the public on how to discern good financial advice? Why not go after the influencers that give misleading advice or behave deceptively?

 

Final thoughts

I apologise now.

If what I’m allowed to share is so restrictive that it doesn’t help you, I’m very sorry.

But I will find ways to comply with ASIC and still serve you.

Because my desire to share my story and what I’ve learned is still strong. The potential that doing this may help someone is what keeps me going.

Thank you to everyone who has read and interacted with me over the years, both here and on social media. Your support is very appreciated.

And a huge thank you to those who have written and shared their stories both here and overseas – I have learnt so much from all of you. I value your content and the work you do to deliver that content. 🔥

For another perspective on this topic, Dave at Strong Money Australia has written an excellent article – ASIC’s Crackdown on Financial Content and ‘Finfluencers’

What do you think of ASIC's crackdown?

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