Category: Superannuation

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2019 – a year in reflection

I always think nothing much happens in my life.

Work, home and work some more.

I am also not one to set goals or track achievements – I would say I am a drifter though life, more than anything else. And I am contented and satisfied easily so I don’t push through to the next level.

But all that changed in 2019.

I discovered the FIRE movement in mid 2018 – the best thing I learned though wasn’t how to be frugal (that is important too) but to live an intentional life. After all, what is the point of saving and investing if we don’t know what it is all for?

So in January 2019, for the first time in my life I set some goals. I admit I did not do a very good job at tracking them through the year. But strangely, the fact that I made the effort to set some goals was enough to get the ball rolling.

To help me with thinking through all of this, I completed Montana Money Adventure’s Live with Intention series. In particular, answering the following 3 questions gave me clarity – What do you want to BE? What do you want to HAVE? and What do you want to DO? 

To recap, my overarching goals were to stop drifting through life and live with intention and purpose. I wanted to live a life that reflects a healthier me, mentally, physically and financially.

I was very stressed at the time, working in a demanding job with long hours. The priority was to find time each day and week to think and reflect.

So, this is my 2019 – a year in reflection.

I quit my stressful job

Spoiler alert – quitting my stressful job was the single, hands down, most significant ‘event’ in my life in 2019. And the most emotional as I felt I was letting everyone else down. But in the end, I had to choose me over everyone else.

It has been six months since I began another role with the same employer but at another site. This has singularly reduced the stress levels in my life. I am very proud that I finally took action here.

The transition took me longer than I expected. From having no time at all to having time is quite an adjustment. I was conscious of not squandering all this newly acquired free time but was equally conscious of not filling it all up with frenetic activities.

It is a work in progress – this knowing what to do with my time. I look forward to exploring this more in 2020.

I travelled and connected with family and friends

 

Travel is very important to me. It is a time where I am free to be me totally and indulge in what I enjoy most – eating good food, exploring the art and culture of a new environment. But if I am honest, travel has always been an escape from my job, a time where it is difficult for work to contact me. 

Travelling also allows me to reconnect with family and friends overseas. In 2019, this is what I focused on in my travels.

I attended the 60th anniversary of my high school in my hometown and went down memory lane with old school friends. I reconnected via WhatsApp with old boarding school mates whom I hadn’t seen for decades. Precious memories were made with my little niece on her home turf in London. Catching up with elderly relatives in South East Asia was poignant, making me realise that our time on Earth with loved ones is limited, that one day they will not be in our lives anymore.

Amongst visiting old haunts and familiar cities and towns, I managed to squeeze in visiting Prague and Budapest for the first time. I always feel fully alive when I am travelling, particularly to new places.  

Fisherman’s Bastion in Budapest at sunset

I started a veggie garden

In May, I bought a raised wicking garden bed (basically a self watering garden bed) and planted vegetables for the first time. I have always wanted a vegetable garden but ruled it out in the past as there were not any sunny spots in my garden.

When I mentioned it to my friend, she thought outside the square and suggested the front of my unit, which does get some sun exposure. And that is exactly where I situated the raised garden beds. It just goes to show that when we are open to ideas, even wacky ones such as a vegetable garden in FRONT of your house …

Through winter and spring, I harvested snow peas, lettuce, boy choy, carrots, beetroot, broccolini and cauliflower. And in summer, I planted zucchini, cucumber, eggplant, beans, tomatoes and more bok choy.

Besides quitting the stressful job, having this vegetable garden has contributed the most to my mental health. There is just something very satisfying about planting a seedling and watching it grow, then eating the fruit of your labours. The wicking bed made it easier in that I only need to replenish the water reservoir every 7 to 10 days during winter and every 4 to 5 days during summer. So really, the work has been minimal.

Summer vegetables in wicking bed

I fully funded my emergency fund

One of the first things I started doing when I first discovered the Barefoot Investor in 2018 was to build my emergency fund. In November 2018, I raided it to pay up front for solar panels installation. The government rebate (for nearly half the amount) did not arrive until April 2019.

As travelling is important to me, I have always had a Travel Fund and contribute to it weekly no matter what. I may adjust the amount up if travel is imminent or dial it down if there are more urgent priorities. But I always contribute, even if it’s $10 a week. As a consequence, my travel fund was very healthy, compared to my emergency fund.

The most adult thing I did this year was to swap my travel fund to my emergency fund ie I renamed my travel fund. I was getting a bit impatient that it was taking so long to fund 6 months of living expenses. So finally in October, I fully funded the emergency fund. The feeling of security and achievement is indescribable. I feel such a sense of relief that I can readily access this fund should anything untoward happens.

I contributed the maximum to my superannuation

In the financial year from July 2018 to June 2019, I salary sacrificed and contributed the maximum of $25000 (including employer contributions) into my superannuation (retirement account).

Since transitioning to my new role in July 2019, my pay has decreased as I no longer work so many overtime hours. This means that employer contribution to my superannuation has decreased. And if I want to achieve the maximum contribution, I therefore have to contribute more myself. It forced me to reassess whether I could afford to continue salary sacrificing.

My conclusion is that I cannot afford to stop contributing the maximum at the moment. So my take home pay has shrunk significantly as a result. I will reassess this contribution annually as I also need funds to contribute to my investments outside of super.

Savings rate

I started tracking my expenses in March 2018. So 2019 was the first full calendar year that I have been able to calculate an annual savings rate. Because I am lazy and really not a spreadsheet nerd, it is easier for me to calculate my savings rate based on my take home pay instead of gross income. (Knowing at the back of my mind that I have contributed the maximum to my superannuation)

I was aiming for a 50% savings rate but fell short at 40%. I am not too unhappy about this result, seeing that my take home pay is significantly reduced for the second 6 months of the year.

Net worth

Amazingly, my net worth increased by more than my gross annual wage, mainly due to the stellar performance of the stock market.  Investment within superannuation performed very well – not including the $25000 contribution, the return was 20%. My share portfolio outside of superannuation also grew by 19%.

The challenge is to continue to grow these investments in 2020 and beyond.

I now have a solid plan to retire at 55

What started me on the FI path was the realisation that I did not have enough to retire at the traditional age of 65. As I explained here, I now have a 3 phase plan to retire at 55, provided the stock market cooperates and nothing drastic happens in my life.

Having this plan in place gives me security and focus – I can see the light at the end of the tunnel. I just need to maintain my contributions steadfastly and fingers crossed, the stock market will do the rest.

What I didn’t do so well …

While I started the year off with an exercise regime, it soon fell to the wayside after I completed the Run for the Kids race in April. I gave myself some time off and never got back to running again for the rest of the year.

I started walking after work with my friend which was great but there were lots of times when work and family commitments interrupted our rhythm and we went off course.

Then I had a minor health scare after returning from my travels – my cholesterol was high and my liver enzymes were through the roof. I was given 3 months to ‘do something about it’ so this spurred me to get back to a healthy eating regime and walk daily.

Happily, my levels decreased significantly at the next blood test and I am given a reprieve from commencing medication. But I have to maintain a healthy diet and exercise more regularly from now on. This is a major challenge in 2020.

Final thoughts

I made huge improvements to my mental and financial health but did not do so well on my physical health.

My goal of creating time to think and reflect was met partly by my quitting the stressful job – my mental health has improved drastically as a result.

Financially, 2019 was about tracking expenses and getting some annual metrics so I can compare in later years. The increase in net worth was just a really great bonus.

How was your 2019? I would love to hear your wins and trials – please share in the comments below 

 

 

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When can I retire? No one believes I can retire at 55

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.

I love sunsets - this is Mauritius - looking forward to more sunsets in exotic locations in retirement

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

Retire early at 55 - I have a plan | Retiring Early

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