INVESTING

The 19-year-old Aussie woman on track to retire at 40

By

If you believe retirement only happens when you reach your 60s - and you want to retire earlier - then read on.

There is a growing band of retirees in Australia and overseas who are hitting retirement in their 30s or 40s.

No, they aren't rich kids living on an inheritance or technology whizzes who have sold an app.

They are followers of the FIRE movement - that stands for "financial independence, retire early" - who rigorously save, invest sensibly and enjoy a modest, agreeable life.

early retirement FIRE mr money mustache

It is the opposite of working flat out throughout your life, piling on debt, living beyond your means and consuming voraciously.

While most Australians rely on compulsory superannuation and its 9.5% contribution rate (capped at $25,000 a year) to fund their retirement, FIREs don't want to wait until they are in their mid to late 60s.

They want to pursue interests, have a more balanced life and enjoy more family time.

Kate Campbell, 19, plans to save $1 million over the next 20 years and live on $40,000pa.

Pat Seyrak has an ambitious plan: he wants to have $1?million in 10 years. At 30 he is half way there and aims to reach his goal in the next five years.

The FIRE trend is still in its infancy in Australia but it has taken off in the US and Canada thanks to its most high-profile supporter, Peter Adeney.

He and his partner worked as software engineers in their 20s, and by living a frugal life and saving they had enough money to leave the workforce at 30.

They have one son and the family spends around $US25,000 ($32,000) to $US27,000 a year.

early retirement FIRE mr money mustache
Pat Seyrak on holidays with his girlfriend

He has cut three big spending areas: accommodation, transport and food. "This is where the 80/20 principle applies. For example, 80% of your savings can come from optimising just these three areas of your life. Everything else is just icing on the cake.

"I decided that I could easily live a great life, and in many ways an even better life than before I had this goal, all the while reducing my expenses, consumption and waste and doing more things for myself."

He rents a small home close to work and walks and cycles whenever possible.

"Cars are enormously more expensive than most people realise," he says. "Ideally, everything should be within walking or bicycle distance, such as work, children's schools and a supermarket."

Pat learnt how to cook well: "I prepare the vast majority of my own dinners and lunches and this saves me a fortune compared to eating out often."

He has also learnt to do his own repairs.

Pat's investment plan is simple. "The only way I know to build wealth is to do it slowly and methodically. Dollar-cost averaging into diversified broad-market exchange traded funds over an extended period of time."

Saving hard now means that he can reduce the amount of money he needs in the future because his savings are earning an income.

He doesn't like the word frugal to describe his life. "Because many people seem to associate it with self-deprivation, which is simply not how I like to live. Nor do I feel anything I am doing is extreme.

"If I were to be honest, I would consider the way in which most people live their lives to be extreme - paying much more than they need to for just about everything and spending their entire pay cheques, regardless of how large those pay cheques may be."

Slaving for 30 years to pay off a mortgage isn't part of Pat's plan. He prefers to spend time with friends and family.

Pat has a retirement plan that includes plenty of energetic activities such as playing music, learning a language and joining the State Emergency Service. As an engineer he is interested in the practical side of building.

"Mostly I just want the freedom to live each day as I see fit and dedicate as much time as I would like to my passions and hobbies. I would like to be able to balance productivity and free time and not be forced onto a schedule."

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Susan has been a finance journalist for more than 30 years, beginning at the Australian Financial Review before moving to the Sydney Morning Herald. She edited a superannuation magazine, Superfunds, for the Association of Superannuation Funds of Australia, and writes regularly on superannuation and managed funds. She's also author of the best-selling book Women and Money.
Comments
Brian OKeefe
July 25, 2018 4.34pm

Hope she enjoys her retirement. I retired 10 years ago at age 55 but it doesn't work: all your mates are still working. I chose to return to work part time in parking buildings just for customer contact and my on sanity. Retired again at age 65. It is better...

Lisa
July 25, 2018 5.57pm

As Brian said... your friends are all still working! So it is a lonelier time. I retired 5yrs ago at 35 years of age. Then became a Parent, supporting my child 100% on the same self-funded frugal income. Living well and teaching everything to my littlie... just as I'd dreamed of doing when I started my mission at age 19. Mission achieved! ! No handouts, no parents to live with along the way, no mentors, just hard work, plenty of saving and simply going against the grain :-) You can do it!

Monika
July 25, 2018 7.23pm

Nineteen and living at home? What will she do when life actually happens to her? Marriage, children, rent/mortgage?

Realism
July 25, 2018 8.54pm

2 extreme examples. The 19 year old, sure she will get there but would be slower once she has rent and definitely if she has a child/children. The engineer he will get from $300K to $1M in 5 years??? Must be earning a massive salary and saving a large part of it - not exactly the normal situation.

I agree though, most people don't save anywhere near enough/ spend a lot more then they need to. Retirement by 50 ish is possible for most, if they have a mortgage, if no mortgage then before that but probably not in their 30s unless they start very young/ have high paying jobs.

Rob
July 27, 2018 9.55am

For goodness sake! Get a career that you will enjoy, have a vibrant social life, eat sensibly, get good sleep & retire with you partner and friends at 60!

What's wrong with that!

P. Mack
July 27, 2018 11.55am

Click bait. The premise is good but then you use examples that are a little too extreme. Look at the averages across Australia, and find people who fit into these categories and how they do this then I will sit up and listen. You are better than this Money magazine.

Monika
July 27, 2018 12.10pm

You clicked on a story about early retirement and now you're complaining that the examples are too extreme?

What were you expecting? "I'm 19, I buy coffee every day, drive a new car and go overseas every six months and I'm going to retire at 40." That's not how you achieve early retirement.

david
August 3, 2018 8.43pm

You have to remember saving up a $ 1m and living of the 4% $40k and retiring at 40 years old, in 20 years time with inflation your 40k will have the buying power of 20k in today's dollars. Add to that if your capitol stays at $1m it to will lose value through inflation as well

Mike
August 9, 2018 7.32am

Agreed. Do any of these people actually HAVE a mortgage or do they just rent? If they do, they still have to rent when they've made their money because they have no house paid off.

And going on holidays is a MASSIVE expense so Pat needs to cut back on that... tell him he's dreaming to double his money in 5 years.

Cheng
August 14, 2018 5.46pm

To retire on $40,000 in twenty years time will be insufficient in my opinion. Kate needs a better plan and a good accountant - preferably one who is a millionaire to provide appropriate guidance). Plus, she needs her own property and ought to stay at home longer to garner a suitable deposit.

Robert Kennedy
October 17, 2018 10.07pm

The concept 'rule of thumb' of multiplying your target income by 25 to determine you require savings goal (i.e if you aim for $40,000pa income to retire you need $40,000 x 25 = $1,000,000 in savings), you withdraw 4% income from you savings in the first year. The 4% is net (or real) return, after inflation. Therefore, your gross invrstment returns need to be at least 7% and with about 3% inflation that leaves you with a real return of 4%. Then, in the second year you withdraw the 4% adjusted for inflation and so on for subsequent years.
There has been much reasearch about this 25, 4% rule of thumb and if not being conservative enough. It has less than a 100% probability of lasting 30 years or more.
A more conservative rule of thumb is a 33, 3% method, where for $40,000 income in the first year and indexed for inflation every year after that, you multiply $40,000 by 33 (not 25), which gives you a target of $1,320,000 needed for your early retirement savings goal. Statistically, this 33, 3% rule of thumb has been shown to last for over 40 years 100% of the time.
Search it to find out more...
Regards,
Robert Kennedy

Tony
December 27, 2018 6.21am

If you do well at school and obtain a decent job with higher than average income, obtaining financial independence at 40 isn't that difficult. My wife and I have done it.

However, we haven't ceased working. We still both work part time and have just embraced a slower lifestyle.

More people could easily do this if they just gave it some thought and maybe had a little bit better financial literacy.

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