On... Delaying Retirement

Before you reach your first million, you should not take your foot off the gas pedal.

If you really want to retire or retire early, consider reducing your expenditure. Not talking about small items like having a coffee but big ticket items, say values of more than 10k AUD. Because the wonders of compounding works in reverse when you spend big, it can significantly delay your retirement.

I ran a few scenarios to compare what our spending do to our retirement planning. These are very simple scenarios with very rough numbers. You can do this for yourself and see how your spending delays your retirement. That should help you think twice before you go on your next big purchase!

The chart below shows 3 scenarios. For all scenarios, it assumes the starting investment capital of 130k AUD with a portfolio return of 10 percent per annum. I assume you can retire when you have grown your account to 1 million AUD. Scenario 1 (Blue) is the Base Case. Scenario 2 (Grey) is a scenario of the impact of taking a holiday, estimated at 15k AUD. Scenario 3 (Green) is a scenario of purchasing a nice car, such as a Volvo, estimated at 60k AUD.

As you can see, in the Base scenario, you can reach 1 mil AUD after 23 years of investing. That means after 23 years of investing, you have accumulated enough capital to retire. In Scenario 2, it takes you 24 years. That means your vacation has delayed your retirement by a year. Thats not too bad. In Scenario 3, it takes you 29 years. That means your high end car purchase has delayed your retirement by 6 years! In my books, thats a lot.

Now, I'd like to do a variation of Scenario 2 (Second Chart) because people don't go on holiday only once. They're likely to do it annually. In this case, your investment return is not even enough to cover your expenses and eventually you end up spending all your capital.

Each time your spend your money on big ticket items, it bodes well to see the effect it has on your retirement plans.