How hard is retiring in your 30’s? Really? Back in February 2016 the Australian press hit upon the GoCurryCracker duo and their success at living the early retirement dream.
Since then my far more financially savvy (and world travelling) colleague and I have been breaking down the story and working out the true critical factors to the GoCurryCracker (GCC) success story. Sure we may be a little jealous, but we’ve tempered that admiration of a couple who were lucky enough to be in a position to create such a scenario. The GoCurryCracker Blog is worth reading from the start if only to clear some of the misconceptions from news articles.
Can Australians Repeat the GCC Story?
Yes. While it would be flippant to say that “anyone” could do it there is no barrier preventing people from following the example set.
- The reality is that you need to make a lot of money from starting in the workforce until your chosen retirement age. GCC achieved this by having individual and subsequently joint income (USD135,000) that far exceeded the “average” household income white has hovered in the vicinity of USD55,000 for pretty much the duration of the GCC savings period.
In Australia the most recent figures (2013-2014) show average household income just above AUD80,000 or about USD60,000 at current exchange rates. The benchmark of 2.45x the average means you’ll need to be bringing in just shy of AUD200,000pa (AUD196,000 or USD147,000)!
This level of income can be attained in skilled trades (usually with the assistance of overtime or through being self-employed) or in white-collar professional employment. In many ways in Australia it’s easier to earn the above average income needed for retiring in you 30’s.
If you allow for your early 20’s to establish the skills and experience needed for your chosen work by your mid-late 20’s you need to be approaching these above average income levels.
- The second harsh reality is that you need to save money, a lot of money!
WAIT! you haven’t talked about the income you need in retirement!
- That’s right I haven’t because fundamentally you have YEARS of saving and investing before the question of “Do I have enough?” becomes relevant.
The above chart is based on some very ideal circumstances but with an annual growth of 7% (this has been the average return of the Australian “market” over more than 100 years) and a high deposit rate of AUD10,000 per month it’s still a minimum of 5-6 years before you could before you could be retiring in your 30’s.
- Lets first take into account tax on our income, the figures below are based on a very simple Tax calculator supplied by the ATO and don’t take into account levies and refunds (which in my experience typically cancel each other out).
Income Before Tax: After Tax (Estimate): AUD200,000 AUD135,000 AUD100,000 AUD75,000 AUD80,000 AUD62,000 AUD40,000 AUD35,000
How is this relevant to saving? Savings have to come from post-tax income levels as do your living expenses, so you need to understand what you’re working with.
The quickest rule of thumb is to simply live as a frugal average income earner and put all additional earnings into savings.
An average household saves about 5% of it’s income (AUD3,100 of the post-tax AUD62,000 income) so that in addition to the difference between your AUD135,000 post-tax income means you should be targeting a minimum of AUD6,300 per month of savings while living on less than AUD4,900 per month.
In this chart (above) I’ve plotted the AUD6300 monthly savings again at our market average of 7%. However I’ve also added in a comparison to the AUD260 a month thats saved by the “average household”.
If that’s not an incentive to save nothing is!