A few weeks ago, we published that we have set our retirement date: 1 July, 2023.
So exactly how do we intend to get there?
Poopsie and I have been discussing this retirement plan of ours for at least a year now. Prior to that, we definitely had a vague idea we wanted to retire early, but we really only started planning in the last twelve months. However, we’d never really written anything down- they were just discussions.
Recently, we read a great post at Our Next Life and it inspired us to put our plan out there for review and critique.
As we have previously divulged, Poopsie and I both work for the same government department- it’s how we met! One of the best things about these jobs is that, at age 55, we will receive a defined benefit pension.
But, if you’re keeping track, neither of us will be 55 by the time we retire and thus, our retirement is split into three phases: Pre-Pension, Pension (just Poopsie’s) and Pensions (mine and Poopsie’s).
We will have six years between early retirement and Poopsie’s pension kicking in. Easy right? Just save six years of living expenses… Not quite.
Pre-Pension Phase: 2023-2029
We have estimated a retirement budget of $45 000 per year. We believe that if we are travelling out of the country full time, we can live on quite a bit less, but we didn’t want to force ourselves into a situation where we couldn’t be in Australia full time if that’s what we wanted.
We intend to draw our income from three possible sources:
- Vanguard Dividends– at the moment, we are earning roughly $12 000 in dividends from our Vanguard account. At the moment, this is automatically reinvested to continue building our stash. We contribute to Vanguard every fortnight, and this will increase exponentially when we have completely offset our mortgage. It’s hard to estimate what our dividends will look like in six years, but conservatively I think they will roughly double, bringing us to $24 000 per year.
- Rental Income– if we are travelling outside of the country, we intend to rent out our home- after all, that was the main reason behind our purchase. We have very conservatively estimated we will earn approximately $15 000 in rental income. This is an extremely conservative estimate, as we want to make sure we have a lot of fat built into our calculations.
- Vanguard Index Fund– to make up any difference we need, we intend to sell off shares from Vanguard. If we are travelling outside of Australia, it’s very possible the above two incomes (approximately $39 000) will be more than enough for us to live off. If we are living in our home in Australia, then we will withdraw $21 000 from Vanguard per year to make up our spending difference. Over the six year period, this is only a withdrawal of $126 000, well below the total amount we intend to have in our Vanguard portfolio.
At least for the first couple of years, we do intend to be out of the country full time, travelling the world. As such, we are expecting our dividends and our rental income to fund this lifestyle. In the last couple of years before pension phase, we may return to Australia to live full time, but we’re confident we can draw down slowly on Vanguard and still have plenty of capital behind us.
From 2029, Poopsie will begin receiving his pension. We have conservatively estimated that this will be approximately $30 000 per annum. In all likelihood, it will be more, however, we’re sticking to this amount for planning purposes.
The remaining $15 000 we need will be drawn from the above sources- mostly through dividends and selling off a small parcel of Vanguard shares. We may still decide to live outside the country, in which case we also have the rental income to fall back on.
In 2043, I will begin to receive my pension. As I will have spent a lot less time in the workforce than Poopsie, we estimate my pension will only be approximately $20 000.
At this stage, our pension income will now total $50 000, exceeding our expected living expenses. At this stage in our lives, we will probably travel a little more luxuriously, so the extra income will certainly be helpful. We may also be ready to settle down somewhere in Australia which may require purchasing another home or renting somewhere.
One word I have used a lot above is conservatively. And that’s exactly how we are making our retirement plans. We want to ensure that we can safely enact this plan with very little risk of failure.
Here are the safety nets we have put in place:
- We have underestimated what our pension amounts are likely to be.
- We have underestimated what our rental income is likely to be on our current home.
- We have not included the superannuation lump sum amounts we will each receive at age 60 in any of our calculations. These will be treated as bonuses.
- We have made sure our “bare bones” budget is significantly less than the $45 000 budget we are using for our calculations. We can drop our spending at any time if we need to.
- We will have a large amount of money sitting in our Offset account, as part of our “paid off” mortgage. If we desperately need to, we can utilise these funds.
- All of these plans are made with no intention of working again. However, we can, and possibly will, work again at some point. We are both able to do consulting work with our current departments, which will bring in some extra income.
- We intend to utilise geographic arbitrage by spending our first period of full time travel in Asia. This will help us to keep costs down.
Bring on Retirement
As a result of calculating everything using very conservative numbers, we feel pretty good about our ER plans. It was this feeling that prompted us to decide on a retirement date rather than a retirement number.
If our number is slightly less than we need it to be, we are confident we can still retire on 1 July 2023. We will just cut our spending back a little bit. As I mentioned above, our “bare bones” budget is much smaller and much easier to maintain with less funds. We don’t want to work any longer than we have to, especially not for a little bit of extra spending money in an already “safe” ER Plan.
We can’t wait for early retirement and we are feeling pretty good about our calculations.
What do you think of our plan? What about our calculations? Is there anything major we’re missing?
Lovely picture of the Casa Loma library room, btw 🙂
I, alas, am not quite in a position to make an insightful commentary on your well-researched and thoughtful plans; I’m still many paces behind yourself and Poopsie (I’m still knee-deep in my get out of debt stage!) but I can say I’m really impressed with your list of safety nets. I think having them in place will be pivotal to your confidence and enjoyment of your inspiring life path that’s coming up ahead. I especially love the plan to start your travels in Asia – you’ll live like a Queen and King in paradise on a shoe string! I don’t think I’ve ever spent more than $15/day in SE Asia and I felt I was living it up!
I haven’t spent much time in Asia as an adult, just one trip to Vietnam back in 2008, so I am relying on other people’s expertise that it’s cheap to get by. Thanks for another assurance that it is!
Oh and good job recognising the interior of the Casa Loma library!
Defined. Benefit. Pension. I feel like there should be a cutaway scene of the sun breaking out from behind clouds, with a heavenly choir singing. That’s fantastic, hold on to them until your early retirement for sure!
Like Frugal Desperado, I don’t have expertise, but your plan looks well thought out. Not only that, your income is going to increase when you both receive the pension, so you really do seem set. Even if not, as you said, you can return to work if you have to.
Have you guys played with https://www.theearthawaits.com? It’s a fantastic site about the cost of living in different countries, set up by a FIRE blogger. I have no idea why he still has it for free, it would be worth paying for. We aren’t interested in geoarbitrage, but we like to look at it for holiday destinations!
I do like a heavenly choir 😉 Oh wow, we have never heard of The Earth Awaits but we’re going to have some fun using that! Thanks!
I love a good under estimation of income, over estimation of expenses – you’ll always win with calculations like that!
The only thing I would suggest is having a very healthy emergency fund, if it were me I wouldn’t feel comfortable having to rely on the mortgage offset account. If Vanguard takes a hit during some GFC type event, or your rental is vacant for a reasonable stint.. It’d feel like a nice sigh of relief to have that stack of reliable, 100% your money, not having to withdraw from the mortgage wad of cash. PLUS if the market does dip and GFC events happen – you could really leverage some of that cash you’ve got sitting around into some more investments for more income.
Hi Jasmin, thanks for your suggestion. While we aren’t strictly allowing for an emergency fund, I think we will definitely have some cash lying around, but it’s certainly worth thinking about strengthening that aspect of the plan. Thanks!
Look at all of those conservative assumptions and contingencies! You’re after my heart. 🙂 The calculation that we’re still wrestling with, and perhaps you are too, is how to account for diminishing dividends as we sell off Vanguard shares. Like you, we’d like to sell off as little as possible each year, knowing that every time we do sell something, we’re cutting into the next year’s dividends. Glad our two-tiered scenarios were helpful to you in thinking this through! Everything here looks solid to me. 🙂
Oh yes, we love being conservative. I agree, it’s a tough one to think about diminishing dividends. But we think our contingencies are so robust that we can handle a fairly significant reduction in our dividends. What about you guys? How are you calculating it? Thanks for stopping by and for the great advice we’ve gained from your blog!
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