Prior to the current financial crisis, I had been planning on hitting my retirement number at the end of 2012 or 2013: 2008 Financial Goals . This was based on an assumed return on investments of 6.7% from 2008 onwards, savings levels of both myself and mrs traineeinvestor continuing at their high historical levels and an assumed level household expenditure. All three assumptions are now wrong:
1. my return on investments since January 2008 has been less than 6.7% pa ( I lost money in 2008);
2. our savings rates have taken a hit because mrs traineeinvestor's income used to include a significant bonus component - and bonuses in the financial industry have been significantly reduced;
3. our household expenditure is actually higher than I had previously believed. We run a mixture of separate and combined finances and, while each of us had healthy savings rates, until recently we had never run a combined budget. In effect we had each assumed that the other was spending less (saving more) than had actually been the case. This was an embarrasing case of taking about savings in general terms but only investments and longer term plans in detail.
In effect the entire basis of the 2012/2013 target retirement date calculation has collapsed.
Feeling a bit disillusioned, I went back to the spreadsheet and spent the best part of a week reworking the numbers. The reason it took a week is that the revised numbers showed that we can still achieve our number and retire in 2012/2013. My initial reaction was that I must have messed up (again). Most of the time went into trying to figure out why, in spite of all three of the critical assumptions being wrong, we are still on target to retire in 2012/2013. The answers were as follows:
1. asset prices are lower. I can buy assets with higher yields today than I could in early 2008;
2. the range of investable assets available to me in Hong Kong has expanded. There are more low cost ETF's listed in Hong Kong, more derivative products available and long dated corporate bonds are now available to retail investors;
3. interest rates have dropped by enough to ensure that my property portfolio is still cash flow positive in spite of having to roll over leases at lower levels;
4. in the process of changing jobs, I cashed out what amounts to a long service payment which had not previously been included in my calculations.
The combined effect of all of these is that we are still on track to hit our number in 2012 or 2013. That was a nice surprise. Of course, a lot can happen between now and then (or after), but the fact that our financial objectives are capable of withstanding the current economic crisis was encouraging.