Sunday, 22 December 2019

Time

Hello fellow Fire Fans!

Welcome back and today I am going to get a little bit into our monthly investment amounts and this will also provide you with the length of time we are talking about for achieving our FIRE target.

As already mentioned, our approach is Slow FI at the moment and so you maybe a little shocked at the time limit we are talking about, BUT and this is a BIG BUT, down the line we do hope to be able to increase our monthly contributions and so this time limit could (and man do I really wish it will) come down!



Currently (December 2019) we are putting away £2,350 into various accounts that we will be able to withdraw from with, pretty much, quick access. (Not going to include another £100 that I pay into a personal private pension at the moment as I can only access this after reaching a certain age).

One thing to mention: we won’t be able to put away £2,350 for long, maybe another month or so, as my wife’s income will go down over the next few months (as she is on maternity leave) and she’ll only be getting Statutory Maternity Pay. According to the gov.uk website, this is currently set at £148.68 a week L.

Once these happens, I’ll do an updated post with how much we are able to invest at that time.

But for now, let’s get all the figures together:
  • Value of investments as at today: £55,529
  • Current monthly investment amount: £2,350
  • Target amount: £1m

Using a Compounding Calculator:
  • Starting amount: £55,529
  • Interest rate: 5%
  • Time to grow: 20 years (Entered 20 as an example just to see where we cross the £1m mark)
  • Contributions: £2,350 Monthly




This calculation shows me that in the 19th year we will cross the £1m mark (right towards the end of 19 years).

Told you it was gonna be Slow FI! L
  
19 years seems like a long way away. I would be 49 at the time and my wife 45. It’s not bad (better than retiring in mid to late 60’s) however it could be better!

You must remember, though, that I am being very conservative with the % return. I have only put the interest rate at 5%. As mentioned in a previous post most ‘financial experts/advisors’ say that an average amount would be 7%-8%, and I’m pretty sure I have come across figures being quoted as high as 10%-12% somewhere too!

So, 19 years I take as an absolute worst-case scenario!

Let’s have a look at the results with 7% and 9%. 
  • 7%: £1m breached in 17th year
  • 9%: £1m breached in 15th year



I’m no way going to expect 10%-12%, however in that scenario we could be FI in 13-14 years’ time! A more realistic expectation is probably 7% (17 years). However, me being conservative I will be monitoring at 5% and if we end up getting more then it would be a welcome bonus!

The other thing to factor in is the amount we are contributing. As mentioned, presently this is £2,350. This will go down in the short term due to maternity, but in the long term, we hope that this will increase due to e.g. a pay rise.

Ideally we would like to both be able to maximise our ISA allowances down the line (investing £20K each a year), but in the medium term if we can get to even investing say £2,600 a month, then this would also cut down our time period. 


£2,600 a month at 5% = 18th year

Alas, let’s keep 19 years from now as the worst-case scenario and we being 49 and 45 years of age. At these ages we would still be relatively fit to travel around the world and enjoy many more years of doing whatever we want to do!

What do you guys think? Am I being a little too conservative with my interest rate returns? How much do you guys reckon I should be able to get over the next 15 years plus? I’d be keen to know your thoughts.

See you next time!

4 comments:

  1. Hi FF,

    A lot can happen in 18 years! I've recently written a few articles that discuss the battle we have with time and how we never really get our heads around it. Latest article: https://adotium.co.uk/index.php/2019/12/23/rudolph-overthrower-of-titans/.

    If you want my thoughts, you are doing great on the basis of your predictions (this depends of course on what you are invested in). Is the £55,529 the value of your ISA alone or does that include pension as well? In a previous post you said you had a pension that you can withdraw at 58, do you need the full £1m in your ISA to bridge that gap?

    ReplyDelete
  2. Hi Ad Otium,

    True! Thank you. We are fully invested in equities and a little bit in P2P lending (No bonds). I have a pretty high risk tolerance (my wife doesn't but I've convinced her this is the best approach at this time!) and due to the long duration of time we are looking at, the highest returns will be with shares so I will not even bother with bonds at all. The £55K does not include the pension - and so I reckon we won't need the full £1m, however we will assess this closer to the time, but this is the number we keep in our heads (I guess it's a good round number!).

    ReplyDelete
  3. Hi Fire Fan

    I've just read through all your posts and wish you all the very best with your blog and FIRE journey.

    I think realistically, Slow FI is the way to go for most people, so that you can enjoy life, enjoy your journey and not feel like you are 'sacrificing' anything. 19-20 years sounds like a long time but (especially as you have a child), those years will just fly by!

    Depriving oneself of something while aiming for FIRE and trying to rush to get there in a short amount of time (it's not a race!) is not sustainable and probably not healthy to one's well-being.

    ReplyDelete
  4. Hi Weenie,

    Thank you!

    Yes, you are right regarding the Slow FI. Unless someone earns a lot of money, it makes it very difficult to achieve FIRE quickly... average-ish incomes can only take you so far with the amount you can save and invest. And then yes, you have to live in the present too, so there is always a balance to strike! It just depends on individuals on what approach works best for them.

    ReplyDelete

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