My last post which included my Budget showed that my target savings figure is £978.62. This to me feels like a large sum of money. I was brought up having most things I wanted. Toys, computers, clothes and all that goes with being a child and young adult. I was spoilt. But whilst I never wanted for much, my family was never cash rich. Disposable income was negative and debt eventually crippled my parents. This mean’t that when they separated and sold their home, the 600% gain in house value was used to settle all their debts. My family would have never seen the kind of disposable income I’m going to achieve each month, so feels almost intimidating to me, like I have a responsibility with this kind of spare cash.

I promise that I will use it wisely, or try my best to.

In What I am Dreaming Of, I had already worked out that I need £441,377.20 to achieve Financial Independence. This is my end target, my ultimate goal, my Golden Pot. At the moment I have £8,164.73 invested in either pension or my newly acquired Investment ISA. I was a slow starter on the pension front so it’s a bit disappointing, but there’s no point in crying over spilt defined contributions. With that knocked off, it leaves me with a shortfall of £433,212.47.

So, how do I get there?

My pension contributions at 8% are £293.33 per month, and my employer kindly matches this for me spending most of my time here, giving a total pension payment of £586.67.

Added to my monthly target savings figure from my budget, this gives me £1,565.28 towards my Freedom Fund each month. This is a nice sum of 54.18% of my take home pay. (Unsure of the relevance of this percentage given that it’s not all my contributions, some is pre-tax and I’m comparing it to post-tax payments, but it does sound nice)

Excel can be super nifty at times, and this instance is no exception. Using the NPER function, Excel can work out how long it’s going to take to reach a certain taget figure if you give it the value of the recurring investments and an assumed rate of growth of these investments. There is a formula for this and I could do it long hand but I’m all about efficiency these days. Assuming my figures about including pension and a growth rate of 4% per annum, Computer Says:

Tadah! 196.42 months! Which is 16.37 years. If I am now (roughly) 30.41 years old that would take me to 46.77 years old and retiring. Not too bad! A much better shout than the 70 years old the retirement age will probably be by the time I reached that age.

Whilst perusing a business website, I saw this quote attributed to Ellen Bennet;

The path in front of you is rarely a straight line. It’s full of bumps … Embrace the bumps in the road.

Hey Doffer,

First time stopping by your blog. Fair play for starting to think all of this through. I see your thinking.

To be honest, super-precision is a bit of an illusion anyway, though, and not only for the difficulty of factoring pension savings into FI. As someone pointed out to me recently, the 4% “rule” is based on surviving 30 years. Let’s say you retire at 48, relying on 4% in the traditional sense is saying you should make it to 78 (less than the current UK life expectancy). At the end of the day, it’s all only a pretty wide cone of probability. You might work part time for a while to bridge the gap or anything.

Best,

FS

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Hi Freedomsoul,

Thanks for the comment. It’s all very much hypothetical and I know that using assumptions for potential returns and withdrawal rates is always going to be inaccurate. I work with figures and having something calculated with precision, although the answer isn’t precise, gives me more confidence than rough guessing. I’m also kind of hoping that I just save my ass off and all will work out at some point.

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Hi again,

Yeah, for sure. I always hate giving my bosses an un-nuanced yes/no answer or a set figure, because the illusion of certainty without full appreciation of the underlying assumptions/methodology can be dangerous, but I’m with you that some figure is better than none, especially when you have worked it out yourself and therefore know the limitations.

Good luck!

FS

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Hey Doffer,

Have just had a look through your blog posts very interesting read, I agree with Freedomsoul and yourself ultimately all of these calculations are hypothetical as spending levels and life priorities change, which is why I favour your latter strategy of saving my arse off so that I am as prepared as can be for whatever I decide in the future haha.

Have a great Easter weekend

~TwentytoWealthy

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Hey there, twentytowealthy!

Thanks for the comment. I always need a plan to aim for so although the figures are very hypothetical, I know they will help me.

Enjoy your weekend too.

TD

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