The $1 million dollar retirement figure can be daunting…introducing the concept of LEAN FI.

You may have noticed there has not been a lot of new posts on the site lately. I’ve been busy working away on writing for my clients as part of my copywriting business so sadly I don’t get to post as often as I’d like here.  So I’ve reached out to some of my online buddies who are also a part of the financial independence and money blogging community who have been kind enough to offer a guest post for us. 

I am most excited to introduce you to Mr 3000 who blogs over at 3000 days.  He is a new Aussie blogger on the scene and only just starting out on his journey to financial independence so I think he’s a great person to follow and see how it can be done from the start.

Over to you Mr 3000. 

Let’s be honest, having the goal of first paying off your home (or having enough passive income to cover your rent) and then saving $1 million or more for retirement is a daunting task when starting out. It can actually seem an impossible task when the goal is to do this before your 60’s.

What if there was a strategy, where you could reach your life goals sooner rather than later, get back some time, reduce your stress levels and still have $1+ million dollars at retirement and own your home…introducing the concept of lean financial independence (LEAN FI).

What does retirement look like for you? Do you dream of laying on the couch watching TV? Pottering around in the garden? Sipping cocktails by the pool? All of these things are great for a 3 week holiday, however, what if that is all you had to do for the next 30+ years, would you be fulfilled? Also, would you be able to maintain your health during these early retirement years?

A US study by Cornell University published in December 2017 analysed US Census figures and the results reveal a clear correlation between premature death and premature retirement. The link is particularly stark amongst men, who have a 20 percent higher mortality risk if they retire at 62 years of age instead of 65 years onwards. Now, these results could be linked to many factors, however, my bet would be that as humans we need to maintain a purpose in life, to feel needed and to feel like we are contributing to the world in some way. That is where the concept of LEAN FI comes in.

In a nutshell, our definition of LEAN FI is having a significant savings/investment portfolio in place and only requiring enough income to cover all of your expenses such as housing, food, utilities, transport and general living expenses. Imagine how empowering this would be…..you could make a career change, work part-time, freelance, take extra time off to travel, pursue your passions and generally design your life, however, you would like. This is what Mrs 3000 and I strive for in our 3000 days to financial independence…..to have a life where we get to choose its overall design!

So how do you get to LEAN FI?

  1. Pay down and eliminate all consumer debt such credit cards, personal loans and car loans – high interest bearing loan balances are not wanted on this journey.
  2. Pay off your mortgage (or have enough passive income to cover your rent) – as this is most likely your biggest expense.
  3. Avoid lifestyle creep – once you have points 1 & 2 covered, you will have all this spare cash, beware of lifestyle creep and keep your spending in check. Remember your LEAN FI goals.
  4. Save and invest – with all of your extra cash, you should be saving and investing at least 30% – 80% of your net income.
  5. Work out your LEAN FI target – Hopefully, by now you have managed to grow your savings into a sizeable investment portfolio. Create a LEAN FI target based on the life you design.

What sacrifices will I have to make I hear you ask?

Yes, obviously there is no reckless spending at least while you are paying down your debt and building your investment portfolio, however, after that, you can go a little bit crazy if you want to. Remember your goal here is LEAN FI and taking back control of your life. So whatever money saving strategies or extra income earning efforts will only benefit the end result and allow you to better design the life you want.

So how do these benefits sound?

  • A paid off house within 8 years
  • A $427k investment portfolio after 15 years
  • A $1.1mil+ investment portfolio by the traditional retirement age of 65….
  • Plus whatever you have in superannuation

The best part is, depending on your circumstances, this can all be achieved 15 years or less.

So let’s work through a LEAN FI case study:

A couple who are 30 years old, first home buyers with a $335,000 mortgage at 4% interest. Combined income of $130,000 before tax (earned equally), which is $102,000 after tax approximately. They have cut their lifestyle expenses down to $45,000 per annum which allows them to pay $50,000 off their house each year or add this to an investment portfolio (modest 5% returns). They save $7,000 per annum in an emergency fund (not counted) to cover shock bills and put towards modest car upgrades every 5-10 years. They want to be at LEAN FI within 15 years. So let’s see how they go:

Year Loan Balance Interest Rate Simple Interest  Repayments  Loan Balance
Year 1 $335,000 4% $13,400 -$50,000 $298,400
Year 2 $298,400 4% $11,936 -$50,000 $260,336
Year 3 $260,336 4% $10,413 -$50,000 $220,750
Year 4 $220,750 4% $8,830 -$50,000 $179,580
Year 5 $179,580 4% $7,183 -$50,000 $136,763
Year 6 $136,763 4% $5,471 -$50,000 $92,233
Year 7 $92,233 4% $3,689 -$50,000 $45,923
Year 8 $45,923 4% $1,837 -$47,760 $0
Year Savings Balance Additional Savings Investment Return % Investment Return $ Investment Balance
Year 9 $50,000 $0 5% $2,500 $52,500
Year 10 $52,500 $50,000 5% $5,125 $107,625
Year 11 $107,625 $50,000 5% $7,881 $165,506
Year 12 $165,506 $50,000 5% $10,775 $226,282
Year 13 $226,282 $50,000 5% $13,814 $290,096
Year 14 $290,096 $50,000 5% $17,005 $357,101
Year 15 $357,101 $50,000 5% $20,355 $427,456
Year 16 $427,456 $0 5% $21,373 $448,829
Year 17 $448,829 $0 5% $22,441 $471,270
Year 18 $471,270 $0 5% $23,564 $494,834
Year 19 $494,834 $0 5% $24,742 $519,575
Year 20 $519,575 $0 5% $25,979 $545,554
Year 21 $545,554 $0 5% $27,278 $572,832
Year 22 $572,832 $0 5% $28,642 $601,474
Year 23 $601,474 $0 5% $30,074 $631,547
Year 24 $631,547 $0 5% $31,577 $663,125
Year 25 $663,125 $0 5% $33,156 $696,281
Year 26 $696,281 $0 5% $34,814 $731,095
Year 27 $731,095 $0 5% $36,555 $767,650
Year 28 $767,650 $0 5% $38,382 $806,033
Year 29 $806,033 $0 5% $40,302 $846,334
Year 30 $846,334 $0 5% $42,317 $888,651
Year 31 $888,651 $0 5% $44,433 $933,084
Year 32 $933,084 $0 5% $46,654 $979,738
Year 33 $979,738 $0 5% $48,987 $1,028,725
Year 34 $1,028,725 $0 5% $51,436 $1,080,161
Year 35 $1,080,161 $0 5% $54,008 $1,134,169

Note, the interest and return calculations have been kept as very simple calculations for the purpose of this article.

So the results as promised:

A paid off house within 8 years, a $427,000 investment portfolio after 15 years and a $1.1 million investment portfolio by the standard retirement age of 65 and LEAN FI within 15 years. You will note there are no savings listed after 15 years, this is totally up to you depending on how much or how little you choose to work. That is the beauty of this strategy, design your life as you wish.

Now the exciting part…..calculate how much you need to live off and design your LEAN FI life!

Say you need $45k – $50k per annum to maintain a comfortable lifestyle, have a yearly holiday and generally live a nice life. How much paid work do you need to undertake to cover your everyday expenses? So let’s go crazy and design your life! Will you take 6 months off each year to travel? Will you work part-time? Will you start a business? Will you do some volunteer work? Will you start a charity? The opportunities are endless and most importantly, you are in control of your life!

You can now see that with some mindful spending habits, a focus on eliminating debt and saving money, LEAN FI is a great option for those not necessarily looking to retire early. Within a fairly short time frame, you will have the power to structure your life how you wish and still have the million dollar retirement.

LEAN FI is the best of both worlds in our opinion, as it creates balance and allows you the freedom to do what you want in life. We are well on our way to LEAN FI, so why don’t you also take the steps to get started on your own LEAN FI journey today.

Mr 3000. 

Note from Cath: So it turns out I’ve achieved LEAN FI already. We did it in less than 12 years. We have the paid off house and our investment properties are already worth over a million and will be fully paid off before age 60. We do still need to cover our living costs but that means I could start my own business which has been something I am so glad I was able to do. 

1 Comment

  1. Great post. Thanks for sharing your insight into what is possible over time. Lately I’ve been feeling as if it will never happen, but the calculations don’t lie and as you’ve shown here, it is possible.
    I’ll have to rerun the figures though with a Sydney sized mortgage 😉 but I still believe it is possible.

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