We think in terms of inside superannuation and outside superannuation. The last few years we’ve made additional contributions to our retirement funds. And with the recent high market returns, our superannuation has done well. It’s only been recently that I’ve realised how well.
Here are the calculations (not our actual numbers).
Let’s calculate our FI number using the basic 25x yearly expenses – 25x $50,000 = $1,250,000 allowing for a 4% withdrawal rate.
Then let’s assume half comes from my superannuation and half from my partner’s. To start drawing down at 60 years of age (when we can access our retirement accounts), we need $625,000 each in our retirement funds by then (half of $1.25 million).
If our current superannuation balance is $200,000 each, let’s use the rule of 72 to project that forward (or a compound interest calculator). If my superannuation makes 7% per year, it will double every 10 years. So if I’m 40 now, when I’m 50 it will be worth $400,000 even if I don’t make any more contributions.
Then double again between 50 and 60 years old to $800,000. Each!
So, our superannuation can just sit there for the next 20 years, and we’ll have enough! This is what’s referred to as COAST FI. We don’t need to add any more to my superannuation – the compounding and time does the work.
This is amazing! We could both go to part time work, just to cover our living expenses from now to 60, and not need to invest any more.