How I retired early as a single woman and live on just $18k a year
Three years ago we first profiled seven Aussies who are working towards early retirement.
Money caught up with them again to find out how their plans and investments have fared during COVID-19.
NAME: Joanna Jones*, 63
RETIRED: At 51
INCOME: $18,000 per year
INVESTMENT STRATEGY: Switching from direct shares to diversified index funds, increasingly in different parts of the world.
Joanna has been retired for 12 years and, remarkably, she still isn't eating into her capital. In fact, her invested amount has grown by 20% over the past decade as she takes a limited income stream from her savings.
This is one of the miraculous features of retired FIREs.
Once you have accumulated your savings, it is possible to live off the income stream without touching the capital. Some years the capital goes up more than spending. But it all depends on living according to your means and not exceeding your income too much.
"Since I don't spend all the money I need to take out each year, my stash has been growing most years. There were a couple of years when it went backwards," says Joanna.
To make early retirement work, you need to live within your means, she says.
"For some people this is extremely hard. I've almost never been in debt. I paid off my first house within five years, and when I moved I paid cash for my current house."
Joanna has relished a frugal life, buying a cheap, unrenovated house in the inner city close to public transport and eventually a small second-hand car. She renovated her house gradually, one room at a time, when she had extra money and she drove her car until it stopped working.
Joanna lived on around $18,000 a year - and still does - and paid off her mortgage at the same time as she was retrenched.
As she told us in 2018, she always focused on her super, contributing extra to boost her retirement savings. In the days before concessional contributions were capped at $25,000, Joanna was able to put 70% of her salary into superannuation.
Part of the redundancy included some financial advice. The financial planner asked her how much she spent every year, and when she said $18,000 he said she could retire tomorrow.
"It took me a while to believe him," says Joanna. "I got a few months off work and spent that time making really sure all the figures were right and then retired at 51."
Leaving work meant she didn't spend as much. In fact, Joanna has been thinking that she could have probably retired sooner with a smaller amount of money. "But I'm content with the decisions I made."
Joanna says the fact that an ordinary person like her can be financially independent is enlightening.
"It doesn't take enormous wads of money - in fact, the people with wads of money seem to have a much harder time saving it."
Retirement is fulfilling for Joanna.
"The last two years have been good years. I've made more friends, finished some projects, decluttered, travelled to wondrous places, lost weight and I've got fitter.
"I've been doing a lot of local exploring with a good friend who I made through the FIRE community. We've been to a lot of local Aboriginal sites - ochre mines, ring trees, axe grooves and other special places - that are really world-class."
Joanna has been hiking to all the local national park peaks and is using the time to get her garden working better.
"I've always grown a lot of fruit and vegetables and preserved the harvest. I've decided to branch out into bush tucker plants. The bush tucker plants are also mainly permanent, so I expect that I'll have less gardening to do, with a lot of interesting flavours."
Joanna is a skilled craftsperson and went to a masterclass overseas before COVID hit. She makes her own clothes.
Since 2018, Joanna says the early retirement community has matured a lot and many people who were still working then are now retired. "As a result life is more interesting, as I can visit friends and they can visit me," she says. She had her last overseas FIRE guest in February last year.
Joanna keeps a couple of years of living expenses in cash, so she doesn't need to convert any paper losses into real losses. She has gradually been moving from individual shares to index funds.
"Each year, as my investments have grown, I've diversified a little more, into other parts of the world, or different sectors, as my understanding of them increased and it made sense given the economic climate to move in that direction."
*Not her real name.
She believes you need to look at your expenditure and work out how to optimise it.
This can mean reducing what you spend, but it can also mean spending money to save money. For instance, buying a solar system to cut electricity costs or deciding that something is very important to you and you want to spend more (for instance, on better equipment) to pursue it more deeply. Joanna had an energy audit done on her house and gradually carried out some of the suggestions, halving her utility bills.
She says it's important to understand what you're investing in and why, rather than just doing as you're told or what other people are doing.