Sat. Apr 20th, 2019

What it takes to retire at 45

Work Or Retire

The Stig of financial blogging unpacks his journey towards financial independence. Ingé Lamprecht 29 January 2019
The FIRE movement has its critics, but millennials in particular seem keen on the idea of ‘buying back time’ by living frugally and saving as much as possible.
The FIRE (Financial Independence, Retire Early) movement encourages its followers to save a substantial amount of their income and accumulate assets capable of generating enough passive income for them to be able to retire in their thirties or forties. FIRE has its critics, but at its heart is a realisation that a frugal and debt-free lifestyle gives individuals more freedom around how they spend their time. The movement is not about not working, but about placing yourself in a position where you can choose when and how you work. As such, some of the principles can be useful, even for those who will probably work from nine to five for most of their lives.
One of South Africa’s most well-known FIRE followers is a blogger called Stealthy Wealth. Below, the Stig of financial blogging answers a few questions about his journey towards financial independence.
Your blog, Stealthy Wealth, tells the story of your journey towards financial independence. You aim to retire in 2030 at age 45.What made you decide to go on this journey?

Towards the end of 2015, beginning 2016, a few things happened. The first was that my wife and I found out we were expecting our first child. There is nothing quite like the imminent arrival of a baby to really make you look at life and your priorities. Secondly, we were about to make the last payment on my wife’s car. That was going to be the last instalment on our short-term debt. I was thinking I really want the bit of extra money to make a difference in our lives and not just get absorbed in month-to-month expenses. Then around the same time I stumbled across a blog called Mr Money Mustache and that blog details a 30-something year old who retired at the age of just over 30. I really liked the idea of buying back your time by becoming financially independent and that is where it all began.
How did you calculate how much money you need to retire?
I used a concept known as the 4% rule. The long and short of it is that you can draw 4% of your capital to cover your living expenses in the first year of your retirement. Now the math is a little bit complicated but if you rearrange it a little bit it boils down to 300 times your monthly expenses in retirement is the lump sum you would need and then you pretty much have an excellent shot of never running out of money before you kick the bucket.
What percentage of your income do you currently save?
At the moment it is around a third. It does vary a little bit month to month depending on certain expenses that may come up, but I generally try to save and invest as much as I can. It is a little bit on the low side compared to some of the other FIRE people out there, but my wife is currently a stay-at-home mom, so when she returns to work I hope to up that percentage a little more.
What were the main changes you had to make regarding your finances and
lifestyle?
I think the two big things that is enabling this goal of mine is the fact that we only have
one car. It is a very cheap-to-run, cheap-to-maintain hatchback and it is paid off, and we
don’t plan on taking on more car debt for the foreseeable future. We’ll drive that car
until it is no longer drivable and then the other big thing is I stay fairly close to my work,
so my commuting cost is very minimal compared to what the average South African
spends on getting to and from work.

You have been on this journey for a few years. If your investments have largely
been in South Africa, chances are returns have disappointed. What does your
progress look like at this point?

Like most South Africans who are working I have a pension fund through my company,
which, through Regulation 28, does have quite a bit of South African exposure. So the
returns over the last four years have been extremely disappointing – but, you know,
investing is a long-term game. It is not three to five years, it is 10-years plus in my view.
At the moment, I am about 30% behind where I hope to be, but I’m optimistic that going
forward and over the remaining years until 2030 that the market will catch up some of
the gains that we’ve all been craving and I should hopefully get back on track.

The FIRE movement has gained a lot of traction, particularly in the US, less so in
South Africa. Most people struggle to retire and maintain their standard of living
at 65. Many people will say retiring at 45 is a pipe dream. Do you think it is a
realistic goal?

I think it is realistic. It is going to be challenging, I think it will be – but, you know, even
if I don’t make the 2030 part, even if I take an extra year or two, I’m still going to be
younger than 50 and it is going to put me miles ahead of where I would have been if I
didn’t have this goal at all.

So what happens after 45? How are you going to fill your days?

I’ve still got a few years to figure it all out, but I do have some projects and ideas in
mind. I would definitely like to give back to the personal finance community – either
through teaching or going to schools, and just trying to increase the dismal financial
literacy stats in South Africa so that more people can just be better with their finances,
avoid debt and secure themselves a comfortable retirement.

What it takes to ‘retire’ at 45: Part 2

There are some important takeaways from the FIRE movement, whether you think
financial independence at a young age is a realistic goal or not.

Ingé Lamprecht 5 February 2019
There are some principles underlying the FIRE (Financial Independence, Retire Early)
movement that can be helpful in financial planning. One of them is thinking about your
expenses in relation to time.
An interview recently published on Moneyweb created quite a stir. The article, What it
takes to retire at 45, detailed financial blogger Stealthy Wealth’s journey towards
financial independence. While some readers felt that early retirement is only possible
for a small minority, others noted that the majority of South Africans are not able to
retire at 65. Surely retirement at 45 is a pipe dream? Some critics also highlighted that
the future is uncertain, that tax laws could change, or that unexpected medical expenses
could derail a carefully constructed plan. In hindsight, the reference to ‘retire’ in the
headline should probably have been in inverted commas. Most people still think of
retirement as a period where you don’t work at all and sit at home. Fortunately, this is
changing, and whether you are 45 or 65, in future ‘retirement’ will probably include
some form of work, even if it is only a few hours every week, or a few months every
year.
Longevity may necessitate retiring the concept of retirement altogether.

While the FIRE (Financial Independence, Retire Early) movement’s proponents save a
substantial amount of their income and accumulate enough assets to generate a passive
income that would allow them to ‘retire’ in their 30s or 40s, at its core, the movement is
not about getting to a point where you could stop working and sit on the porch. Rather,
it is about the optionality a debt-free lifestyle provides and reaching a phase where you
have more freedom around how you spend your time, which may include doing other
(lower paying) work or escaping the eight-to-five rat race. In that sense, the focus is
rather about reaching financial independence than ‘retiring’ early.
Regardless of whether you think this is achievable, there are some principles underlying
the FIRE movement that can be helpful in financial planning in general, even if you are
not in a position to save 30% of your income.
1. The scarce commodity is time
When I was contemplating going back to university some years back, my boss told me:
“Remember, we can still make more money tomorrow, but we can never get back the
time we’ve used.” Buying decisions are often made by considering the money you have
‘available’ – in other words, whether your cash and the credit you can access will be
enough to buy something. If someone can relatively comfortably ‘afford’ a monthly car
instalment of R5 000 based on their income and expenses, it may seem like a standard
financial decision. The FIRE movement encourages people to think about such expenses
by considering the time they would have to spend at work to pay for the purchase.
Would the same person be willing to spend a year at work to settle R500 000 of debt for
the car? Thinking about expenses in relation to time instead of money provides a
different perspective.

2. Living below your means has an impact, even if it’s not early retirement
The most important determinant of people’s spending is arguably their income. We
generally don’t buy what we need, but what we can ‘afford’. Saving a significant amount
of your income (FIRE followers sometimes save more than 50% of their income) forces
you to live below your means. This not only creates a buffer for when something
unexpected happens, but also allows compound interest to work its magic. More
importantly though, if you decide to save 25% or more of your income, you would have
to scale down on your two largest purchases – your car and your house. Homes and cars
are two great examples of ‘magnetic’ items; items that tend to attract more expenses.
The more expensive the car, the higher the insurance payments, tyre expenses and so
on. Buying a cheaper, second-hand car, also allows for savings in other areas.

3. Financial independence is not about doing nothing
Financial independence gives you a much greater degree of flexibility around how you
spend your time. If you have large amounts of debt and expenses that need to be repaid,
you need a regular income to meet the instalments. If you are debt-free, don’t have
significant expenses, and reach a point where your passive investment income can
cover your basic needs, you have much more flexibility to decide how you spend your
time. Maybe you love your work, and nothing changes, but maybe you have always
wanted to take a year off to travel, or want to make a career change, or move to another
city. Maybe you want time to write a book, or to teach or just want to spend more time
with friends and family. This doesn’t mean things can’t go wrong. Maybe you will need
to return to work full time along the line, but in a world where people are living to 100,
managing finances for the long run shouldn’t be about reaching a point where you can
finally say goodbye to work. It should be about managing your finances in a way that
will put you in the best possible position to reach the goals you set for yourself, live a
meaningful life and weather the storms that may come.
It’s time to think about retirement in a completely new way. This holds true whether
you are 65 or 45.