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Woohoo, this is the first of hopefully many monthly updates on the retirement finances.
My hope is that it will help others who are planning a FIRE lifestyle to gauge what it takes to live a life of early retirement and learn from the many mistakes I'll inevitably be making!
Our Financial Position
If you've read some of my other posts you'll know that I'm 44, live with my wife and pooch in Cape Town South Africa. We are expats from the UK so about 60% of our money is held in investments outside South Africa (Mostly UK and US equities and bonds) . The children are grown up (But never stop costing you), Mrs H still works and has a good job with a salary we could both live on if we had to. She is also planning to retire in the next few years but is not ready quite yet. Having saved hard to enable us to retire early, we have no mortgage and no debt.
So here is the inaugural financial update:
April 2020 - Monthly Finances
Total Pension Pot: R13,514,216 / $794,594 / £643,534
Previous Month: R12,850,442 / $755,908/ £611,925
Change: +4.8%
On the surface, it looks like a great month. Don't be deceived!
March was a howler with losses of around R2,000,000 / $110,000 / £91,000 due to the stock market crash caused by the onset of the corona virus. Fortunately we've already made around 30% of those losses back due to the market recovering slightly but mostly because almost at the same time the virus kicked in, the South African economy got downgraded to junk status. This devalued the South African Rand against the Dollar and the British Pound by around 30% which because a large portion of my investments are not held in rand, increased the book value for me as one day they will all be converted to Rand.
Still, not what you want just as you retire but it was too late to turn back and as I'm not planning to hit the retirement pot too hard in the next 6 months due to final salary payments, bonuses and stock allocations being sold from leaving my job, it's fingers crossed the global economy will be starting to heal by then.
Investment Growth: R619,000 / $34,388 / $28,136
Annualised Return on Investments 4.8%
As described above, this is pretty "Wind Assisted" due to the devaluation of the Rand but one of my favourite funds (Investec Franchise Feeder Fund) which tracks the MSCI World Index and is mostly invested in big global companies, did pretty well and has actually grown despite Corona Virus. Other than that I had a bit of luck buying into the somewhat broken oil industry due to the lock downs and bought a few shares in a South African oil company SASOL while things where shaky. I got very lucky as the share price is now already up over 200%! Unfortunately I only bought a few hundred dollars worth as I figured it was a total gamble. I will however now receive a pretty nice dividend from that share now which in a couple of years will probably exceed my investment so after that it's free money for life (as long as they stay in business).
I also moved some money (around R280,000 / $15,555 / £12,727) out of the stock market and into a Solar Power Investment which is my new favourite investment vehicle as it's helping the environment and paying me a healthy return. I'll be writing more about social investing in the coming weeks as it sits right in my wheel house.
Our Annual rate of return is currently at 4.8% which is pretty good considering the massive stock market crash. I would like to see this recover to at least 10% by the end of the year but I think I might be being optimistic. In super simple math, to support our planned monthly budget, I need to grow the total pension pot to around R18,000,000 / $1,000,000 / £818,000 to be in the 4% yearly spend "safe zone" where your money will technically last forever. That means with the 4.5% inflation rate in South Africa and 4% for the budget I need at least 8.5% return after getting there. So if I can get to 10% or even 12% to close the gap over the next few years, I can then sleep without a money worry for the rest of my days.
Living Expenses: R39,732 / $2,207 / £1,806
Budget: R62,000 / $3,444 / £2,818
Given that we were locked down for the entire month, and in South African lock down is just that, you don't leave your house. You can go out for food and medical supplies but that's it, and as I'm high risk due to blood pressure and my history of Pneumonia, we ordered food to be delivered mostly. Because of that we couldn't spend anything else apart from food and household bills. In total, we spent R11,000 / $611 / £500 on groceries, R8,573 / $476 / £390 on household bills and Mrs H and I paid ourselves our monthly allowance of R10,000 / $555 / £455 which couldn't be spent anyway so it ended up being probably the cheapest month of living expenses we've ever had. It has been a good experiment though as it proves if we had to (If we have a massive market crash or a massive unexpected expense) we could live on around R20,000 / $1,110 / £910 per month which is reassuring. Let's hope though we never have to do that is being locked down has not been fun, at all. Another thing that is turning out to be a massive win was having solar installed at the house before I retired. It was a big investment at around R320,000 / $17,777 / £14,545 so is going to take along time to pay back (between 6-9 years) but after 3 months, it saving us around R2,800 / $155 / £127 on our monthly expenses. That might not seem massive but when you consider we spent around R40,000 this month, it's 7% less on our total living cost, not too shabby. That will improve further still when we get our "Feed-In" meter fitted and can offset the electricity we use at night. (More about that in a later blog post).
A big expense missing this month was transport costs, no petrol, no servicing, nothing. We didn't go anywhere. This is a big chunk of spend normally despite the fact we downgraded from big thirst 4x4 Land Rovers to a pair of Mini's late last year so that is a big saving that won't continue. I am hoping the petrol price will drop a long way though as that usually is one of our bigger expenses. I don't think I'll every be ready not to have a car. It's a fierce debate in the FIRE community due to their being no real way of making it a cheap part of your expenses. I may look into electric cars if and when the South African government wakes up and stops taxing them to oblivion.
Monthly Summary
All in all a really good month for the finances for all the wrong reasons. Investment growth were recoveries of previous losses, spending was down due to being locked down not down to frugality and the value of the pot in Rand got devalued in real terms as the price of things here is going to increase now as the cost of importation goes up. But every cloud and all that, the pot is up 4.8% when technically it should be down by 0.33% each month. This month is going to be similar on the lockdown front but the lockdown level has reduced so me and Mrs H were able to take a trip to the DIY store at the weekend and blow a small stack of cash on things to keep us occupied. What a rockstar life I'm leading in retirement so far!
As of 30th April 2020: At the current budget, investment performance and inflation rate, we have enough money to last until I am 62 - That's Just 18 Years.
Until next month, keep living.