The Fifteen Year Plan

When I decided I wanted to retire by the time I was 55, I knew I would need a plan. And who doesn't love a good spreadsheet?

It turned out that with the New Zealand average inflation rate, and other challenges, retiring at 55 was going to be tricky. So I caved a year and went to 56.

Below is the result of all my planning. I've gone into some more detail below the figures.

Need Some Explanation?

Apart from the next two or three years, where I know my situation fairly accurately, I’ve been working on basic percent multipliers for things like income increase and cost of living increase (inflation). The income increase is fairly aggressive, and will be need to be supported by Side Hustles - the ability to bring in additional revenue outside of your day job. I’ve got some thoughts on this that I’ll get down in this blog before long.

The New Zealand inflation has averaged 4.68% over the last 75 years, which is fairly high for a ‘western’ nation. It’s currently less than 2%, but for the sake of these calculations I’ve assumed the average. If it averages out at 3%, the situation looks a lot better.

Income shown is after tax. Though the tax situation gets tricky to calculate after retirement. The expectation baked into this is that at some point the tax bands will move around to take into account inflation increases, otherwise before long minimum wage earners are paying out at 33%.

The American stock market has realised 7% annualised returns over the last 75 years, with some bad years and some great years - last year returned 22% for instance. Over this time frame though, we care about averages.

There is an expectation that post retirement income will not drop away to zero. I’ll still want to be doing something, and worst case, we’ll just AirBnB - or whatever the equivalent is in fifteen years - the house periodically. It is also very likely that a portion of our net worth will be in property, and with luck that will also be returning some rental income in addition to property appreciation.

That’s the assumptions, let’s dig into the where it’s wrong in my favour, and against it.

Where things might go even better

• Inflation is currently no where near 4.68% and given how economies are more tied together these days, there’s an argument to be made it won’t go back up that high very often. The increase in cost of living is the real killer in this model, so anything that can happen to keep that low really works in my favour.
• I’ve amortised the cost of housing maintenance at $10k a year - which is not overkill, replacing parts of your house is a fairly predictable affair and predictably expensive. However, if we can push the big work until after the mortgage is paid off then we can pay the amortising amount into savings in the meantime. Early additional payments into the savings have a huge advantage because of the additional time they have to compound.
• I’ve assumed in 2042 when my wife and I receive pension payments, it will still be around $16k a year. This seems unlikely - it will be either be significantly more, or nothing. My bet is on the side of significantly more, but for now, we’ll stick with a mid-ground in the calculations.
• Will I really stop work at 56? Knowing me, it does seem unlikely. This plan is around giving us options, but in likelihood all that may happen is that I’ll go down to a three or four day week.

Where we’ve got risk

• Between 2018 and 2067 a hell of a lot will change. Tax, income, savings rates - I’m treating them like predictable entities in this spreadsheet but in 20 years we could all have 60% tax brackets and Universal Basic Income. There is no certainty here. All I know is, that if we've got money in various diversified investments, we’ll be well placed to weather any financial storms. And if I have to work another five years, then that certainly isn’t the worst outcome in the world.
• I might live beyond 85 ;-) The current plan has me going into debt at this point. Given the huge uncertainty though over the next 40 years, I'm pretty confident I can find a way to to address this before I run out of time.
• We could have misjudged how much we’ll spend. Certainly it is likely at some point I’ll have to spend $10k plus on flights to and from the UK to visit my parents as they continue their march towards the bottom of their own spreadsheet of life.
• We’ve assumed we’ll pay off our mortgage and not buy another house. The truth is that may not be the case. I’ve mitigated that to some extend by having eleven years of mortgage accounted for and being fairly sure we can clear it in six. The extra five year represents a move to somewhere a little bigger or nicer.
• Assuming a steady pay increase of 6% could be challenging. I’m fairly happy with the predictions over the next five years as my wife will go back to work soon and I’m hopeful of my own pay increases, but after that it becomes a touch more hopeful. Once again, I’m expecting we’ll need to generate revenue sources that aren’t our day jobs to achieve this.

FI, or Not FI?

In a way, this is not true FI. The money making machine does not keep churning out money faster than I can spend it. To get there, I’d need in excess of $3 million. The state of the New Zealand figures just mean that the American-based rubric of “25 times your annual expenditure” does not hold true here. In fact, there are a number of factors that make this operation more difficult in New Zealand that I’ll cover in a different post.

While there are undoubtedly uncertainties in this plan, and I can’t conceive of me making it through to 56 with all these predictions still valid, I do think we’re setting ourselves up for success in the best way we can right now. Either old age is coming, or I die young. In the former I want to be able to enjoy my time, and in the latter scenario I want money for my surviving family to support themselves. I hope this plan strikes the right balance between discipline, practicality and freedom.