Before I discovered FIRE, I had decided I didn’t want a retirement.
Being an artist is an identity I’d become attached to and I could see myself always being. But over the next decade or so of having to be artistic for money, I came to change my mind. I didn’t want art to have to pay the bills forever. It’s not easy balancing joyful creativity and paying the rent with washing powder ads.
I also didn’t want a retirement because I frankly didn’t know how I was going to achieve one. It seemed… not for me. It was something that actual, rich people had. Not me.
It didn’t help that what little information I had was confusing and didn’t inspire confidence. I’m no mathematician (obviously) but the math on retirement seemed… naive? Saving 10 – 15% of my salary was supposed to guarantee me a retirement income of 75 – 80% of what I was spending before? Really?
Or did the math not take into account people like me, who had a variable income and moved around a lot in their careers? Was that only if you’d always had the same, high-paying job and saved diligently from age 12?
But of course, we all retire, one way or another. If we’re lucky. It’s a terrifying thought, if we think outside of our abilities, and think we have to hit the same number as everyone else. But the truth is a lot more fluid than that. It’s less about numbers as tall as skyscrapers and more about… ratios.
FIRE stands for Financial Independence, Retire Early. It’s kind of a movement now in the United States now, though to everyone else it’s just good common sense. It’s basic premise is this:
Retirement is a number, not a date.
65 is our traditional idea of retirement age, but for artists, and Millenials in general, that’s no longer very realistic. We’re living decades longer than we expected to, and it’s a common theme in most Western nations, South Africa included, that we’re simply not saving enough for retirement. Not nearly enough.
But very few of us have a real grip on what “enough” actually is. Then some clever FIRE bloggers came up with a ridiculously simple equation for it.
25 x your annual expenses.
That’s it. No really, it is.
This equation is based on the Trinity Study, which states that once a person can cover their annual income by withdrawing up to 4% of their portfolio (which just means your complete financial picture; all your assets), they have enough saved up and invested. Between market performance and average inflation rate, their money will last forever.
The math on the so-called 4% rule, worked backwards, finds your retirement number equals whatever your current (or ideal) annual salary is, times 25, or your monthly salary times 300.
So if, for instance, you want to have an annual salary of R360 000 in today’s money, or R30 000 a month, you need an invested nest-egg of R9 000 000.
9 mill, you say. Oh is that all? That’s doable for like, nobody who isn’t a celebrity or born into money, surely. How is the average human being supposed to save up that kind of dosh on an average kind of salary?
Through a combination of smart frugality, investing as much, as consistently and as boringly as possible, and the magical fairy dust of compounding interest.
Consider the following: saving R2000 a month, upping it for inflation by say 5% a year, and earning 10% annually on average. You’ll hit R9,005,769.23 in 32 years. If you were lucky enough to start at twenty, you’d retire at 52 years old, more than comfortably…