When I first started writing this blog I set out a very brief goal:
Financial independence for myself and MrsFireShrink.
But beyond that, the aim is to save a sufficient amount to create a self-sustaining portfolio. The dream goal being to create a portfolio sufficient to support my family in the future and continue to grow (1).
Which is all a bit wishy-washy. Over the course of the year I’ve realised that I need to firm up my yearly goals, and also articulate more clearly my long term dream. This was put into sharp focus by a few recent blog posts, including indeedably’s goals, strategy and tactics (2). Elsewhere in life I’m fairly SMART in my goals, with monthly and yearly targets.
“Sound tactics bring victory” – Shaxx
So here’s the current goals list with
steps already taken and timescale for target/ dream (a-la indeedably) (3). (Last updated Jan 2020). Complete medical degree. Achieve Royal College Membership.Become a consultant (2028). Find a girl. Get married.Have kids (2028). Have good kids. Publish a paper (2018). Get a fellowship (2019). Get another fellowship (2019).Get a Phd. Get a lectureship. Make Prof. Get a job. Get a job I enjoy.Get a job which doesn’t feel like work (2020). Be in a position to retire in 15 years (2033). Have an emergency fund of three months income (2019).Save £1000/month (2020). Have a net worth of £100k. Own a home.Have £100k in equity (2023). Own our dream home in 10 years (2028). Own a self-sustaining estate. Learn to drive. Own a car. Own a six-cylinder car.Own an eight-cylinder car (2028). Race in a motorsport.Win a race (no timescale). Start a martial art. StartGet to sho dan (no timescale). gradeing.
- Learn to ride a motor bike.
- Learn to fly a plane.
Do 50 press-ups.Do a pull-up (again) ( 20192020). Get back to 16 stone ( 20192020). Do a hand-stand press-up (again). Do a ring muscle-up.
- Re-learn languages I once knew. Become fluent in one of them. Learn a fourth language (no timescale).
Most of the maths in this section is rough and dirty. I’m not going to make complex predictions or models. Life itself is too unpredictable (even if the money isn’t), and some recent health concerns have demonstrated the fallacy of trying to predict the future. I’ll review my household expenses more formally in a couple of years, and may come back and model timescales then.
- Be in a position to retire in 15 years (2033).
A review of the 10 months I’ve tracked so far shows my personal yearly expenditure (minus credit card payments and one-offs for this year) to be around £10k. To this I’ll add £2.5k to cover lifestyle inflation. Our joint account also goes through around £10k a year in running costs for the house, groceries, energy etc. I conservatively therefore need around £22.5k a year to maintain our current lifestyle if I didn’t work. This fits nicely with what the fun Standard Life calculator reckons for our current lifestyle (~£23,000) (4).
Plugging that into a simple interest calculator suggests I need to have around £650,000 saved to be able to withdraw £22,752/year at a reasonable 3.5% interest rate with no erosion of capital. This presumes the savings will be tax-sheltered. This seems pretty unachievable from a standing start, but I love a moonshot (5). I’ve selected 3.5% as a conservative blend of cash interest rates (currently 1.5%) and the average annual return of the FTSE All-Share over the last 100 years (+7.0%) (6). It’s also conveniently the mythical Perpetual Withdrawal Rate (7, 8).
You say: “Why are you not interested in drawdown? You’d get to retirement a lot quicker.”
This seems to be a fundamental schism in the investing/ FI community. I think it’s highly personal, and relates among other things to your optimism for your life expectancy, number of dependents and general approach to lifestyle. The figure above would replace my current salary (9). I have a pipe dream goal relating to my families history and future inheritance, and therefore I’ve no interest in drawdown.
- Have an emergency fund of three months income (2019). Save £1000/month (2020). Have a net worth of £100k.
These are all stepping stones on the route to the previous bullet point. Plugging that £650,000 into Money Advice Service’s savings calculator suggests I need to be saving £2300/month at 6% interest to achieve retirement by 2033 (10, 11). Yikes. 110% of my current take home. Thankfully my income should ramp up in the next few years, and while I’m quite a way from £2300/month now, it’s probable that I will reach that in the next 10 years. Just in time to miss my target.
- Have £100k in equity (2023). Own our dream home in 10 years (2028). Own a self-sustaining estate.
Currently our dream homes cost around £500k. Difficult to say what that will be in 10 years time. Historically the yearly trend has been c2.9% (12). More recently it’s closer to 2%, comparable to the OECD 2.0% long-range inflation forecasts (13, 14). Inflating the £500k at 2% brings us to £610k in 2028. Our feet are on the ladder, which mean we also benefit from that inflation to an extent.
We envisage another move in 5 years time, and I’m not averse to value-adding property renovation. I’m therefore aiming for some stepping stones to a solid deposit for the move to a dream home in 10 years.
- Have an emergency fund of three months income (2019)
- Save £1000/month (2020)
- Be worth £100k (2022)
- Have £100k in equity (2023)
- Be in a position to retire in 15 years (2033)
In the next post I’ll cover my asset allocation.