#111 First Annual FI Review - April 2020

Whilst not targeting RE it's nice to track when we might be FI.

As is said "What gets measured, gets improved "

In 2018 I built a 'model' based on the below assumptions.

Workplace Pension value £31,800
Contributions of £10,800 per annum, with contributions growing 2% per annum

SIPP value £0
Contributions of £1200 per annum, with contributions growing 5% per annum

Other Equities (ISA etc) value £1,500
Contributions of £2,400 per annum, with contributions growing 2% per annum

Assumed annual growth for all of these is 5%

How have we progressed vs the forecast?

	Value
	Forecast	Actual
	Apr-20	Apr-20	+/-
Workplace Pension	£45,000.00	£44,000.00	-£1,000.00
SIPP	£2,620.80	£1,900.00	-£720.80
Other Equities (Eg ISA)	£6,657.49	£4,100.00	-£2,557.49
*New* Cash	£0.00	£10,000.00	£10,000.00
Total	£54,278.29	£60,000.00	£5,721.71

My contributions into Workplace Pension, SIPP and Other Equities have not been as high as expected plus with the recent market turmoil the values have dropped.

With the addition of the Cash buffer though it's nice to see that I'm ahead of where I had forecast, even taking the turmoil into account.

How much do we need to be FI?

Our annual spend in 2019 minus Tax/NI and Mortgage was £36k

If we use the 4% draw-down rule that means we'll need a minimum 'pot' of £913k~

Other Changes...

I had previously forecast an annual growth rate of 3%. I think this was being too conservative. Generally, it seems the historical annual growth for the major indexes is anywhere between 7%  and 12%, and 10% in between.

However, I also did not take into account inflation which will erode the spending power of that pot.

The average annual inflation amount is roughly 2%. 2% is also the Bank of England's target.

Given that I need to understand how this can be modelled more accurately I'll simply use a lower level of expected growth to account for the erosion by inflation. Using the lower of the growth estimates minus inflation average = 5%, which I what I am now using for the model.

What does all this mean?

Updating with actuals plus increasing the expected growth to 5% has suggests we'll be FI in 2045, when I am 59.

As I said at the start "what gets measured, gets improved". So keeping an eye on this and using it for my annual targets and goals should stand me in good stead. My intention isn't to keep on top of this too regularly, an annual review and inclusion in annual goal setting should be enough.

I have also not included any mention of the state pension. I worry about the pension situation that looms in this country and am not relying on that in any shape or form.

The second significant assumption I should remind myself of, is that this assumes we are mortgage free. For today I'll leave that assumption as it is, but possibly one to review in the future.