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What are my FIRE (Financial Independence/Fire Early) goals? Part 2

Fretful Finance · December 9, 2018 · 8 Comments

The post where I lay out when I’m hoping to retire and how I plan to get there

In my last post I discussed what my goals are at various points until retirement (using the 7 Stages of Financial Independence) by reference to the value of the fund. In this post I thought I’d give a bit more detail on when I hope to achieve this by for those that are interested (and I appreciate it might be a minority that enjoy the number-crunching).

I’ve summarised this in the table below. All figures are in 2018 money although my spreadsheets factor in inflation.

STAGEFUNDCASH BUFFERAGE GOALNOTES
Financial Stability£335,000£15,00042This works on the assumption I would live off of an ISA of £153,000 from 42-60 and then a pension of £182,000 from 60 until death. As noted in Part 1, this is really just theoretical as I wouldn’t actually retire at this point. It’s more a psychological milestone that I could support myself from passive income if I had to.
Financial Independence£590,000£50,00049This works on the assumption I would live off of an ISA of £272,000 from 49-65 and then a pension of £318,000 from 65 until death.
Financial Freedom£825,000£50,00054This works on the assumption I would live off of an ISA of £400,000 from 54-65 and then a pension of £425,000 from 65 until death.

Isn’t this a futile exercise in crystal ball-gazing?

Quite possibly. Also, for me it isn’t as simple as retiring when I reach a certain monetary figure. As my retirement plan is split between pre- and post-pension years, a change to the age I retire also affects the fund I’ll need due to the different tax treatments of the ISA and pension, both when saving and drawing down.  But I think it still helps to have a goal in mind and adjust as time goes on rather than stumbling blindly towards retirement without a plan.

What do I mean when I say it lasts until “death”?

As my calculations eat into my capital I have to make some sort of guess as to how long I’ll live. By my calculations, the above comfortably lasts me until late 90s (except for the Financial Stability stage which would only last until late 80s) but for the various reasons explained below, will probably last me much longer.

Aren’t the figures arbitrarily split between ISA and pension?

Looking at the figures above some might be thinking the split is a bit odd between the ISA and pension. Take the Financial Freedom row for example: am I really going to get through £400,000 between 54 and 65 and then only £425,000 from 65 until death? Clearly not. The £400,000 should last me way beyond 65 (even with quite poor returns) so there will be plenty of overlap between ISA and pension. This begs the questions “couldn’t you just retire earlier on an ISA of that size”? To which I have two responses:

  1. I tried out various spreadsheet simulations retiring earlier than 54 and each time even one year different makes a big difference to the sums due to compounding of gains. This was the point at which my fretful leanings could be satisfied.
  2. It gives me a decent cushion to play with if there is a big overlap between my ISA running out and when I can draw my pension. My family have appalling genetics so it is probably unlikely I’ll live to 110, but you never know.

What cushions and flexibility do I have in place?

With all of the above calculations I build in buffers – in particular the switch from living off my ISA to living off of my pension (as I’ve explained above). I make sure that even with my “pot” only averaging real returns of 2% per year, I would still have enough in the ISA to last me slightly beyond when I estimate I can access my pension. If returns are better than this then I would have a significant amount of overlap where I could delay accessing my pension for many years and continue to draw on the ISA.

Some would inevitably look at my figures and think I’m being too cautious and am wasting years when I would clearly be in retirement. But I wouldn’t be Fretful Finance if I didn’t give myself this cushion. And there will always be others who think I’m being too cavalier and a pension that I only forecast will last until 100 is reckless when I could live until I’m 110.

Other ways in which I consider this is cautious include:

  1. It doesn’t include the state pension. In my view it is almost unthinkable this will be cut completely and I even consider it unlikely it will become means-tested. But it is probably going to become accessible at a later and later age, so I prefer to see it as a nice bonus.
  2. It doesn’t include any inheritance I might get in later life.
  3. It doesn’t include the fact that I am planning to have a fully paid-off property in London by retirement and could downsize/move.
  4. At the Financial Freedom stage I could comfortably cut back my spending without feeling like I’m living a miserable, deprived life, so I won’t get too worried if I’m not making 4% real returns.

Equally there could be things that cause my projections to take a hit: Brexit could cast us into a 20 year recession or ill health could affect my ability to keep doing my well-paid job. I want a balanced approach where I won’t get upset if things don’t slot into place for me retiring at, say, 45.

54 isn’t a very ambitious age for someone pursuing financial independence

No it isn’t but it’s where I would feel comfortable totally retiring based on current projections. I hope these will accelerate with time if my income grows faster than expected or investment returns are better than expected. Also, 54 doesn’t sound mega-young for retirement now, but give it 20 years and 54 may be the new 44 in terms of retirement goals.

Isn’t £50,000 too high for a cash buffer?

I used to have it at £100,000 for the Financial Freedom stage! And then I listened to Karsten at Early Retirement Now on the Choose FI podcast. He doesn’t have a cash buffer at all and puts forward a very strong argument why it’s illogical to have one. I completely get that the numbers don’t support a cash buffer that high, but I’m fretful, so for now the cash buffer stays at £50,000.

How will I reach my goals

So what do I need to be saving in order to get to the goals above. I must admit this is all a bit theoretic al at the moment. I am in the very slow and painful process of trying to buy a flat so all my savings are sitting in cash waiting for that to happen. If that goes ahead I (potentially) have short-term goals including extensions and conversion works that will delay my plans for starting to invest in index funds. I was going to delay starting this blog until I was a bit more certain about what I’m saving where, but I got impatient.

My spreadsheets work from age 35 (so a few years away for me). I am assuming by this point I’ll have bought a property, modelled it how I want it am ready to start properly saving. My forecasts assume that from 35 I will be maxing out an ISA every year and putting 15% of my salary into a pension.

At the moment I put 5% into my pension (matched by my employer) which I’ll up to 15% as soon as I’ve purchased the flat as I don’t want to waste any more years of that brilliant tax relief when it’s at constant risk of being taken away.

How does paying the mortgage fit into this?

My current salary matched with my ISA and pension savings goals doesn’t leave much left for overpaying the mortgage (or I should say a mortgage as I don’t actually have one yet). I’m seeing paying off the mortgage as a separate workstream (if I may irritate you with management buzzwords). As my income increases I should be able to overpay the mortgage, likewise with any bonus I receive. I also aim to earn some extra income from side hustles and have plans to get to grips with matched betting and also potentially monetising this blog if anyone ever bothers to read it, although I’m not sure how I feel about that as aggressively monetised blogs piss me off.

There is, of course, also the chance I might meet someone and have a partner to share the mortgage repayments with although I won’t hold my breath on that one!

This is the one area where I worry I’m too bullish. I’m hoping to have paid off the mortgage about the same time I reach stage 4 (i.e. at 42) but realistically I might have to settle for doing it concurrently with stage 5 or 6.

So that’s it for now. I plan to tweak my figures once a year to keep them in line with inflation and when I do that I’ll factor in any other major changes and post blog updates


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Related Posts

  • Jumping on the FIRE bandwagon
  • What are my FIRE (Financial Independence/Retire Early) goals? Part 1
  • My 2019 Financial Goals

Filed Under: Financial Independence, Retirement, Savings and investments

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Comments

  1. Ms ZiYou says

    December 11, 2018 at 6:08 pm

    Hey – welcome to the club.

    That looks like a fabulous plan you’ve got there – you’ve put a lot of thought into all those stages and calculations.

    Forgive me if you’ve stated this elsewhere – but what do you want to retire to?

    Reply
    • Fretful Finance says

      December 11, 2018 at 9:24 pm

      Hello! I think my ideal retirement would veer dramatically between relaxing in vineyards, drinking wine, eating cheese and doing crosswords on the one hand, and travelling the world reviewing rollercoasters for some sort of “The Rollercoaster Retiree” blog on the other. Of course, that all sounds a bit pricey, even by my “luxury” plan standards so maybe I’ll have to settle for the budget version: the pub and Thorpe Park plan. I feel like most people in the FIRE movement want to carry on doing some sort of meaningful work after official retirement. I feel rather frivolous in comparison.

      Reply
      • Nick @ TotalBalance says

        December 17, 2018 at 2:34 pm

        HAHA! That sounds like an awesome retirement plan!
        I hope you succeed 😉

        I too hate highly monetized blogs! If I wanted to get bombarded by stupid commercials, I would visit any MSM news site, or turn on the tv!

        Reply
  2. weenie says

    December 12, 2018 at 1:29 pm

    Thanks for sharing your very detailed plan – puts my ‘back of a fag packet’ plan to shame, haha!

    Although like you, with no kids, I too intend to spend my capital – hopefully not to zero, but certainly, I don’t intend to die with my wealth intact.

    You don’t mention SIPPs – is that something you’ve decided not to invest in, ie just concentrating on your ISA and your company pension? As a higher tax rate payer, you’ll get the usual 40% tax relief from paying into a SIPP, which I think you will be able to access at age 57 (It’s currently 55, so please check for your age!). This might help boost your savings up.

    Aiming for 54 is still a great goal – it might not sound as exciting or headline grabbing as 30s or 40s but for you, it’s realistic and still many years before normal retirement age.

    Interesting that your spreadsheets don’t start until in the future so what you’re doing is just preparing and laying the foundations – wow, that is planning in advance!

    All the best with the flat purchase and if you need any help with the matched betting when you get round to doing it, drop me a note!

    PS – therollercoasterretiree.co.uk domain is available at £0.88 at Go Daddy 🙂

    Reply
    • Fretful Finance says

      December 12, 2018 at 8:14 pm

      I should probably adopt a more “fag packet” calculation given how quickly I seem to amend my figures. They’re out of date almost as soon as I save the spreadsheet.

      I don’t have a SIPP at the moment as I just invest my pension through work via salary sacrifice (and you can invest as much as you like at my work) as the fees charged by the pension provider are only 0.5% which seems reasonable to avoid the hassle of a tax return to reclaim the higher rate tax relief (I’m very lazy) – although it’s something I keep an eye on. And, of course, always happy to be told I’m doing something illogical as I’m quite new to this. Do you invest in both company pension and SIPP?

      I’ll definitely let you know if I need help with the matched betting. It all seems so baffling to the beginner. A bit like Twitter (which I’m just about to sign up with). It seems so confusing and then I think “Justin Bieber manages to handle a Twitter account, why can’t I?”.

      I nearly signed up with Odds Monkey through your link but decided to hold off until the flat purchase is through as if I need to get another mortgage offer in the bag I don’t want to look like a reckless gambler! But I will sign up once the purchase is sorted.

      Maybe I should get that domain name in the bag!

      Reply
      • weenie says

        December 12, 2018 at 9:59 pm

        Yes, I pay into a company pension as well as a SIPP, but then the company pension only pays in at the basic regulatory amount, ie 2% and my 3%, going up to 3% and my 5% next year so I’d be mad not to pay more into some sort of pension scheme if I’m able to.

        Perhaps a SIPP could be used in your plans as you can access them before age 60.

        For more info on the benefits of SIPPs, perhaps check out: https://www.youinvest.co.uk/sipp/tax-benefits-sipp

        I guess not everyone can be bothered to do tax returns but some would consider that 0.5% fee to be quite high. It would depend on how big your pot is, eg if you had a £100k pot, your fees would be £500. Compare to AJBell (for example) who charge 0.25% or a max fee of £100 if the SIPP portfolio only has ETFs, shares and investment trusts.

        If you’re interested, perhaps check out this broker comparison tool, as there are some flat-fee brokers who are cheap: https://monevator.com/compare-uk-cheapest-online-brokers/

        Anyway, there’s nothing illogical about what you’re doing, it’s always better to do your own research, do what you are comfortable with and what you understand.

        Reply
        • Fretful Finance says

          December 12, 2018 at 10:37 pm

          Thanks for the tips. It’s certainly something I’ll be looking into once the abominable flat purchase is done (or collapsed) and I’m ramping up the pension contributions.

          Reply
  3. Fatbritabroad says

    January 20, 2019 at 4:31 pm

    Hi weenie

    AFAIK you can also access your company pension before 65 as well can’t you? Worst case you can transfer out to a sipp closer to the time

    Reply

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