$5,000,000, is it my EGO talking?

I have had a niggling feeling for a few months now that I may be targetting the wrong networth number to reach FI (financial independence and retire by 60). In my early 40’s my dream was to retire by 55. I even had the number 55 written on my wall at work. People use to come in and think it was “55 days to my next holiday” or something similar. I would proudly state that it was when I was retiring. I would get blank stares from people younger and from the older folk, “really?!?!?!”. I even had a TTR (transition to retirement) countdown on my phone. I wanted so badly to retire or have the choice, at 55. I was exhausted from trying to be ‘everything’ to everyone and it beat me down. I just didn’t really know what vehicle or strategy would get us there when our income was not high and we had daycare & primary school kids and the dreaded mortgage!.

You see, I grew up in a housing commission apartment and we never had money. Thank god for the single mother’s pension and Austudy when I was at school. Once I left school I spent every paycheck I got on ‘stuff’. Stuff that I had always wanted but never could have AND then I got a credit card and then it was a very bumpy ride during my 20s. I wasn’t afraid of hard work or debt to buy a property which I did in my early 20’s, but the knowledge and guidance to use my income, and equity in my property, to build wealth were not instilled in me and I just was never around people who had built wealth (or was but no-one talked about it!). There was no ‘google’ search or online communities back then.

If you don’t know, ask. You will be a fool for the moment, but a wise person for the rest of your life

When super was first introduced in Australia, back in 1990-92, I was on the trustee committee for our company as the employee spokesperson and went to workshops to understand it and relay it back to staff. I thought it was really interesting. They trained me on how the structure worked and what the employees had to sign off on. Back then it was 3% super and it was so small that you really didn’t pay much attention to it. I didn’t trust shares and thought it was gambling with your money. I didn’t understand it. Years later, I remember a few people showing me their portfolio online and how simple it was but I would just glaze over and state how it wasn’t for me as “it could be all gone overnight’. I preferred property. Property is safer. But property is harder to manage. You need alot of capital, a steady job so that you could successfully get loans to build a property portfolio, keeping an eye on home loans, tenants, repairs AND the big one…. ‘you can’t sell a room to cash in some for extra income’. My knowledge and confidence just didn’t go far enough to understand that you could do both (property and the stock market) AND also SUPER.

In my last post (Actual & 2022 Budget post) I drilled down into every expense over the last 2 years and categorised all these expenses with the thought that some items may no longer apply in a few years. We know that since our kids are now 15 & 18, our expenses will change. The passive income required to pay for our lifestyle is possibly different from what I first thought. I understand a lot more, not just the importance of building NETWORTH but also the financial strength of building a solid passive income.

You see I have this specific number that I think will equate to “ALL WILL BE WELL”, but as I am delving more into the mindset side of things, I am rethinking this number. I have always published that the goal was to reach $5,000,000 in networth. It felt like the right number and I really believe it’s because it makes me feel safe. $10m seems too much and unobtainable and less would mean we could run out before ‘we do’…

So in all this, the main message to myself is that I NEED to feel SAFE, travel freely and have ample to give generously.

Numbers talk and I think they don’t lie and so I have left it to the numbers to show me the way.

Below are the expenses that would need to be budgeted. I have also considered the one-off expenses, like the price matching we have discussed with our kids (car & house) – <see this post>. AND the most important category, our travel fund and what the yearly amount would need to be to allow both of us to enjoy the travelling we both wish for.

I have gone overboard with the simulations and categories but it has helped me over the last few months to calm myself and work on looking at the big picture and then breaking it into month by month, year by year bite-size pieces.

Let me know what you think. What have I missed? What have I over-simulated? Too complex? I would love to hear from you. You can email me or message me on iambuildingwealth@gmail.com or DM on Instagram @i.am.building.wealth

The Numbers

1. Typical yearly expense budget. Now, this has the investment property continuing with a debt. The net income from the investment property is approx $8k. I love doing hypotheticals and we are blessed that we have the options. The general expenses are lighter than now, thank goodness!

Retirement Expenses

2. Yearly travel budget and how that would look like – now this was FUN. I have estimated costs for key elements of any trip. I would be looking at 2-3 combos of these types of travel each year. Of course, it might only be for the first 5-10 years and then it would slow down OR maybe become more Luxury cruising 🙂

Retirement travel budget

What do you think? How accurate are the travel budgets for the different types of holidays? This is for two people. We love eating out (we don’t drink so that works well to keep costs down) but don’t normally buy much in tourist-type things. It’s mainly experiences & accommodation that we would spend the most. Our past expenses with two teens were around $20,000 for 3-4 weeks. Airfares were the highest cost, especially as we went to the northern hemisphere.

Don’t listen to what they say, go see

3. AFTER all this, the total value of our Super, investment property and our home would mean about the $5,000,000 mark anyway. It’s split a little different from what I first thought but we want the passive income AND to retain our properties in Sydney. Well at least for the start. I have learned my lesson… NO MORE SELLING property if I can help it.. a conversation for another post! 🙂

4. Simulated way we could get there with traditional employer-type roles and what age for each of us – This was so much FUN. I have a few key milestones. They are not set in stone but my ideas on how we can make the end balance for a 5% withdrawal/ passive income

Simulated Investment in Super
Ideas on how our super contributions and withdrawl would look like in the early years of retirement

In the above table, there are some numbers to take note of. In 2023, I am thinking we may do a $200k contribution using the equity in our home or investment property and add to Super to help grow our super account AND to take advantage of tax refunds on our PAYE taxes. I still have in my heart that I would like to reduce my working week OR work seasonally by 2025 and will need to work on how I do that. Any ideas on seasonal work or totally virtual work I could do? In 2030 (at 60 years old), when I can tap into our super fund, I will definitely be stopping traditional employment and drawing an income from the SuperFund. Hubby is still adamant he will be working until 65 so at the moment, my spreadsheet works with him still earning super and employed. This simulation goes to the ripe old age of 88 and pretty much doubles in overall balance even though we will take a passive income of $100k per year. You will note that the returns I have applied take into account 1.5% inflation to allow for living cost increases over the decades. This might be light but it’s what I am playing with at the moment.

The below table shows the breakdown of the potential passive income. The retirement/super account will be tax free and the income generated from the investment property and shares will be below the tax threshold so will be tax-free too (in retirement, I believe you can generate $25,000 pa tax-free). Even though the investment property (IP) will have a mortgage, there will still be a net gain of approx $8,000 pa. At present we are thinking of keeping the IP even with a mortgage.

Retirement Income Plan

One off expenses that will need to be funded. This relates to ‘price matching’ with our kids. We have started with the car purchase where we contributed half the amount. We have explained the goal to them so that when they have saved a substantial amount for a property, we would assist. I am thinking that would be approximately $30,000 each. That’s a lot of money and I have some ideas about how this will happen IF other things work out OK (put our oxygen mask on first 🙂 ). Some ways that we have up our sleeve are; I set up 2x Investment BONDS a few years back that will possibly be used for this and some shares that are DRP that are not a part of our retirement investment plan outlined above. These are all simulations and perhaps we don’t do any of them. The first car purchase and matching 50% is a given as we have done it with one child already so will definitely do with the younger one. I would like the choice to do this for them but only if I know they have developed their own financial savviness. No way are they getting a free ride from mum & dad!

So, is $5,000,000 correct for our FIRE number? Including our home that we may keep for the long term, then this number may come close as the house prices in Sydney are quite high. If I remove the house for the initial networth number for our passive income targets then I believe that $3,000,000 in income-generating assets will work well to allow a conservative $120,000 per year in passive income WITHOUT eating into the capital. Perhaps this is still greedy (yes my mind goes straight to greed instead of that I am worthy!)… still working on changing that phrase in my head.

After reading through this post a few times I think that it might be too detailed for you to want to see and then I thought about it and realised that I like to have a starting point. These tables will be a ‘picture in time’ of what I thought post-retirement would look like. It will be interesting to read back on this post in 5 & 10 years and see how close I am to the mark or how hilariously naive I was. Time will tell. x