However, cultural and free stuff aside (see Part 1 and Part 2 if you haven’t already), there seems to be a bigger problem with the fact that I am not American. And that is the numbers. The actual maths calculations required for working out how much you need to retire on. And it turns out, dear Reader, that this number is dependent on which country you live in. Bugger.
All I can say is thank goodness for my brother. My Humanities brain had skipped over the numbers, being much more interested in the philosophy, culture and way of life behind the idea of Early Retirement. Don’t get me wrong, I knew that the numbers were important, but I figured that they were minor details that I could grapple with when I felt like it. So I absorbed the 4% rule, felt like a hero and marched forth 🙂 But then my brother, who miraculously marches face-first into numbers without any fear, pointed out that I might have a little problem…
This is because the 4% rule is 4% because:
Except that I’m not American. This means that I need to use numbers specific to where I am living. The challenge is that while the inflation number is quite easy to find, the average investment return is not. So with my best googling foot forward this is what I’ve guesstimated:
In terms of South Africa:
- South African average investment return: 14% (8% real return + inflation – fin24)
- South African inflation: 6% (tradingeconomics.com/south-africa)
- Therefore, South Africa’s magic number is: 8% (and I need to save 12.5 times my living expenses to retire). On a side note, maybe this evens out the lack of free stuff in South Africa?
But, I not currently living in South Africa and don’t plan to for a few years. We are currently in South Korea but are planning to head to New Zealand next year so:
- New Zealand average investment return: 7% (rounded down from returns over 20 years – NZ returns)
- New Zealand inflation: 1% (rounded up – tradingeconomics.com/new-zealand)
- Therefore, New Zealand’s magic number is: 6% (and I need to save 17 times my living expenses to retire)
What this means is that if we are going to do this Early Retirement thing I can’t rely on my Experts to give me my exact numbers. And given that I haven’t been able to find any South African or Kiwi Early Retirement Experts (if you know of any PLEASE let me know!), I am going to have to take a deep breath, put on my grown-up pants and try to work out the nitty-gritty of my numbers myself.
P.S. Since writing this post I have spoken to a (South African) friend of mine who is MUCH better with numbers and money than I am. He says that South Africa’s challenge is that our rate of inflation for education and health is higher than normal, which means that 8% isn’t going to cut it in the long term. Instead he says that 5% is our magic number. Now, dear Reader, you don’t know my friend so let me tell you a little about him: he’s brilliant with numbers, a rather intelligent fellow and highly risk adverse. In other words, if he says 5% is safe then it absolutely is.
P.P.S. It hadn’t even entered my brain as a possibility that there could be different rates of inflation for different things. And it scars the crap out of me. I’m going to need a bigger pair of grown-up pants…