Do what you mean to do.

Temple of Apollo, Delphi

This recorded journey towards financial independence started nine years ago, with an initial objective of building a passive income of $58,000 per annum by July 2021.

Since that time, goals have evolved and changed, with the most recent targets being achieved from January 2024 onwards, as well as temporarily before that.

Each year in early January I spend time reviewing my investment goals and how I plan to reach them.

This post talks about reflections arising from this annual review, updates my portfolio goal, and reviews the measures and assumptions I will use. It also discusses how I will approach management of the portfolio and associated finances given the current achievement of each of my past portfolio goals.

The aim each year is to have a clear written record of the objectives, approaches and reasoning underlying the plan, to serve as a reference point through the year to come. The process also enables the updating of plans and assumptions for changes in circumstances, thinking, as well as available data and evidence.

Little island? Reflecting on a post-journey agenda

The objective of this record at its commencement was to seek to test whether there were any hidden or invisible barriers to the actual achievement of financial independence, given a path of consistent investing over a long period.

Early posts around future goals were largely focused on setting specific financial targets, to put in place the foundations of financial independence, such as achieving a certain portfolio level, or amount of distributions.

At this point in the journey, following the formal meeting of past goals and targets, arguably the approach of setting yearly goals has less to recommend it. The task of a record is to focus on what is occurring, and may occur, rather than becoming trapped in formalities and rituals now existing beyond their natural utility.

Uncertainty and the potential for major market movements, and financial crises, do mean that all progress in quantity terms is provisional.

It would be within the expected run of financial markets for the portfolio’s equity component to fall 40-50 per cent in an exceptionally poor year. Similarly, more volatile components of the portfolio could suffer even larger falls, without falling anywhere outside of historical precedents. And of course, there is always the potential for entirely new precedents to be set, including ones that undermine the entire basis of the FIRE exploration.

This remains true, and yet there is another emerging, less urgent truth emerging over past years. This is that perhaps the main task is shifting from forging the portfolio, to a role of observing and monitoring its own internal processes, applying judicious action only where necessary.

A reason for this is the growing part played by internally generated compounding forces within the portfolio. Put simply, this means that the portfolio has grown to a level where it is less affected by small ongoing decisions or investment choices made. The goal perhaps switches to a more negatively framed one – of not acting in a way that interrupts, or disrupts this self-sustaining process of portfolio growth.

Again, humility is required, because compounding in equity markets does not occur by virtue of smooth annual 7 per cent glide-paths. It occurs in between brutal, sharp upward and downward saw-tooth moments in markets.

These movements themselves are demonstrations of the movement of the journey from one of deliberate, calibrated, controlled choices to a different stage. A stage requiring a greater sense of detachment from the impacts of market forces on the portfolio. And a stage that redirects energy from goal-setting in the financial sphere to other aspects of life.

The tasks that seem most relevant to this stage continue to be evolutions of the two set out for the last two years.

• First, to provide for a reasonably assured passive income which is consistent in real after-inflation terms with the target chosen.

• Second, to maintain reserves of cash that will be essential to future movement to entire reliance on investment returns and the application of the safe withdrawal rate to the portfolio over an extended multi-decade period.

Should financial markets fall substantially, it is possible I will use reserves in excess of the above requirements, as well as any regular distributions, to purchase new investment assets to restore in particular the targeted level of equity holdings.

Wings of a swallow: updating the target portfolio goal

The target portfolio goal was lifted to $3.0 million at this time last year, largely to account for shifts in annual ordinary earnings during a period of higher than average inflation. This followed a much more significant upwards movement to fully implement a ‘safe withdrawal’ rate approach in 2021.

To ensure maintenance of the real inflation-adjusted value of the target and resultant income, and consistent with the approach taken last year, I have updated my existing goal and formed an updated Portfolio Objective.

The new objective is to seek to maintain a portfolio of at least $3,250,000 through 2026. This should be capable of producing an annual income from total returns of about $112,000 (in May 2026 dollars).

Consistent with this overall target and a target 80 per cent allocation to equities, a secondary objective through 2026 will be maintaining a minimum equity target of $2,600,000.

The updated portfolio target is an increase of $250,000 on my previous portfolio objective, more than equivalent increase as last year. The key reasons for these objective and target changes are to account for movements in benchmark earnings, and bringing the target income into 2026 dollars in a period of above RBA target range inflation. Moving the previous target into nominal 2026 dollars and updating average ordinary earnings for real changes over the past year fully accounts for the increase of the target.

The passive income target for the objective is updated using May 2025 Australian Bureau of Statistics data (of average earnings of $2,083 per week). This is escalated for an growth in consumer prices of approximately 3.5 per cent across the period from May 2025 to mid 2026 (i.e. to $2,156, and $2,156 * 52 = approximately $112,000). This 3.5 per cent figure is a judgement based on the current range of CPI forecasts by the Reserve Bank.

The goal therefore seeks to reflect the approximate equivalent of average Australian full-time ordinary earnings in mid-2026. It remains above my current estimated average annual spending over the last three years of around $107,000.

This income goal is designed to reflect a ‘business as usual’ lifestyle, rather than a ‘leanFIRE’ approach.

The goal is a key and fundamentally personal choice.

In some circumstances, making this choice represents an irreversible ‘once in time’ decision about the approximate standard of living to be locked in and experienced across multiple decades – including those in which flexibility to adjust income or expenses may be circumscribed in completely unforeseen ways.

The target goal of adult ordinary full-time earnings represents an objective external measure of a continuing capacity to fully access and participate in the broad range of goods, services and daily experiences of those in the community.

That it continues to sits relatively close to my actual spending also provides an assurance that post-early retirement life would not see a material diminishment in, or undue limitation of, lifestyle.

In this way, the level is closer to the level of expenditure at which I think I am truly indifferent to working or not in terms of lifestyle.

Prison or freedom? Continuing use of a safe withdrawal rate approach

Five years ago I changed my approach to setting the portfolio goal by explicitly incorporating a safe withdrawal rate into its calculation. I will continue with this approach.

Prior to that I estimated the portfolio goal by dividing the passive income target by a projected average real portfolio return.

The real return assumption used in this past calculation was based on the total return arising from the portfolio allocation. These return assumptions are noted further below in the second half of this entry which reviews allocation plans and portfolio design.

Such an approach was a useful rough approximation of a safe withdrawal rate, and past annual reviews recognised it as an imperfect but serviceable proxy measure for use on the earlier stages of the journey of accumulation.

The weakness of this approach, however, was that it failed to properly account for sequence of returns risk. This is the potential for early negative returns affecting the portfolio in the first years of income drawdown to lead to unsustainably high portfolio withdrawals, depleting the portfolio irreversibly.

The change in approach in 2021 was made to move beyond approximations and to target explicitly a portfolio goal that better took into account a reasonable estimate of a sustainable safe withdrawal rate.

A target safe withdrawal rate of 3.45 per cent will continue to be used.

This figure underpins the updated portfolio goal (i.e. $112,000/0.0345 = $3,250,000, with some rounding).

Any safe withdrawal rate is at its core a highly individual decision.

In past years I have used a safe withdrawal rate of 3.5 per cent. In 2023 I reviewed this, and adjusted it slightly downwards to 3.45 per cent.

As with 2024 and 2025, this year I have not seen any new evidence that would warrant changing this revised estimate, and so propose to maintain it.

The steady horizon: safe withdrawal rate estimate maintained

The reasoning for the decision to maintain an estimate of 3.45 per cent remains the same as between 2023 and 2025, and is reproduced below.

The choice was informed by risk tolerances, personal factors, available academic and other studies and views about the value of historical data in forward-looking decisions of high and enduring personal consequence.

The primary basis for previous decisions on safe withdrawal rates has been the finding that based on historical Australian equity returns data over the period 1900-2011, a safe withdrawal rate of 4.0 per cent has had an 88 per cent success rate over a 40 year time horizon. This success rate lifted to 97 per cent at a withdrawal rate of 3.0 per cent.

A further study by Professor Wade Pfau, an eminent academic commentator in this area, has found that the maximum safe withdrawal rate for Australia using 1900-1979 equity market data was 3.68 per cent.

Factors considered in setting an initial safe withdrawal rate

These Australian-based findings might suggest a safe withdrawal rate around 3.7-4.0 per cent. Several factors, however, have led to a more conservative rate being adopted.

These factors are:

• Survivorship bias – Due to a historically strong equity market performance Australia has had one of the highest safe withdrawal rates in the world. Effectively projecting continued higher than globally average equity market returns indefinitely into the future is not likely to reflect a realistic central estimate of probable outcomes. Many other highly developed countries with comparable advantages have experienced lower safe withdrawal rates. There are no particular reasons to suppose that the outperformance of Australia’s equity markets over the past century will reliably persist (see Pfau An International Perspective on Safe Withdrawal Rates from Retirement Savings: The Demise of the 4 Percent Rule? 2010).

• Portfolio management fees not taken into account – Academic and other estimates of safe withdrawal rates routinely assume away real world investment management fees. For the investment portfolio at present, these average around 0.2 per cent per annum. Paying 1 per cent in fund expenses has been estimated to lower a safe withdrawal rate by 0.5 per cent (see Pye, G. 2001. “Adjusting Withdrawal Rates for Taxes and Expenses.” Journal of Financial Planning, Vol. 14, No. 4, p. 126).

• Statistical portfolio ‘success’ can look and feel a lot like failure – Many statistical ‘successes’ with a higher safe withdrawal rate would actually be close run exercises. This is because success is frequently defined in such studies as having at least $1 in the retirement portfolio at the end of the drawdown. Suffice to say, this does not match many people’s intuitive desire for a margin of safety and security late in life’s journey. In short, as this analysis shows, ‘terminal values’ and the experienced path of the drawdown matters.

Two additional factors, supported by some market evidence, might be argued to have implications for the safe withdrawal rate.

These are high equity market valuations and a low bond yield environment. Over the period from 2022 to 2025, persistently high equity market valuations and rises in bond yields towards more historical average levels means that these factors, now in tension, may be less persuasive considerations in informing the final rate, and have therefore not been given any weight in this review.

A 2021 study by Morningstar (h/t Aussie HIFIRE) examined some of the above listed factors, and projecting lower future returns estimated that a safe withdrawal rate for a 40 year period with an equity allocation of 80 per cent could be as low as 2.6 per cent (modelled based on a 90 per cent ‘success’ rate).

A similar Morningstar study in 2022 reviewed safe withdrawal rates in the context of higher bond yields and lower equity valuations across 2022. For a 40 year period (at a 90 per cent success rate), with the same equity allocation of 80 per cent, the safe withdrawal rate had risen to 3.1 per cent.

Reviewing international evidence of safe withdrawal rates

The most significant recent evidence on safe withdrawal rates for my considerations has been a paper from Anarkulova et at in September 2022 titled The Safe Withdrawal Rate: Evidence from a Broad Sample of Developed Markets.

This examines the question of safe withdrawal rates using a set of 38 developed country markets, and including hypothecated returns data from ‘difficult’ data periods typically excluded from such analysis.

The paper then analyses the resulting approximate 2,500 years of asset class return data from 1890 to 2015 to ‘test’ by simulations safe withdrawal rates across developed countries. The point of this analysis is to account for the kind of survivorship bias inherent in using only Australian or US data sets to determine safe withdrawal rates.

The results therefore represent a more realistic, ex ante or forward-looking, analysis of possible safe withdrawal rates, taking into account the fact that US or Australian returns in the future are quite likely to resemble broader averages from developed markets.

This removes the often implicit, and potentially dangerous, assumption from solely US or Australian-based withdrawal rate analysis that these markets will unquestionably continue to produce above average returns in the decades ahead. The new paper adds significantly to similar evidence in the previously mentioned Pfau analysis from 2010.

The headline finding of Anarkulova et al (2022) is that the 4 per cent ‘rule of thumb’ commonly applied and cited in retirement planning and many financial independence sources is not ‘safe’.

In fact, pursuing the standard ‘4 per cent rule’ applying this more comprehensive global data set results in a failure rate of around 17 per cent, or running out of portfolio income in nearly one in five cases. The work focuses its central case on a safe withdrawal rate of 2.3 per cent, for a traditional retirement horizon, with a 5 per cent chance of failure and with a standard 60/40 equity and debt portfolio, but also provides further iterations and scenarios.

Using some extrapolation from the 2022 Morningstar analysis, and some of these tailored scenarios that apply more closely to my circumstances and portfolio allocation, the data in Anarkulova would suggest a starting point for a safe withdrawal rate of around 3.3 per cent.

Estimating a final estimated safe withdrawal rate: accounting for additional factors

These factors and evidence discussed above all argue for an initial safe withdrawal figure lower than 4 per cent.

The 3.3 per cent rate suggested by the Anarkulova analysis represents a key initial starting point for a final estimate.

Yet there are other factors to consider in reaching a final point estimate.

First, as noted safe withdrawal analysis can often exclude the impact of portfolio management costs. To account for this in the final estimate I lower the Anarkulova estimate by 0.20 per cent, or 20 basis points, which is the approximate average expected portfolio costs over the long term.

The second factor to account for is the potential value of flexibility in withdrawal rates and approaches.

The flexibility to not draw on one year of distributions can make a significant difference in the performance and success rate of a reasonable safe withdrawal rate. Similarly, this (pdf) Canadian Vanguard study shows that a dynamic flexibility in spending can lift a safe withdrawal rate for a high equity allocation portfolio across 40 years from 3.5 per cent to 4.3 per cent.

The 2022 Morningstar research paper discusses the potential impacts of a range of flexibility strategies in actual withdrawals. These include rules such as reducing spending by 10 per cent temporarily after a negative annual portfolio return, or forgoing annual inflation adjustments in similar circumstances.

The findings are that these strategies can increase safe withdrawal rates (noting a limitation that this analysis is using only US returns data) by 0.2 per cent and 0.5 per cent respectively. Other more complex ‘guardrails’ strategies are presented as potentially offering up to a 1.8 per cent uplift to safe withdrawal rates.

Reaching a final point estimate for the safe withdrawal rate

Taking the initial 3.3 per cent rate from the Anarkulova analysis, my current preferred approach is to then deduct 0.2 per cent to account for portfolio management fees, resulting in an adjusted rate of 3.1 per cent.

I have yet to finalise my precise preferred drawdown approach and strategy in action, but it will like have elements of flexibility, as well as using a 12-month cash ‘bucket’ to avoid some unnecessary withdrawals of capital in any shorter duration adverse market events.

Taking the range of potential uplifts from the ‘10% reduction’ and ‘forgoing inflation’ strategies in the 2022 Morningstar report results in a range of 3.3 to 3.6 per cent. I then select the mid-point of this range, reflecting uncertainty over which of these specific strategies I may seek to adopt.

On balance, taking all these considerations into account, a target value of 3.45 per cent appears to be appropriate as a reasonable estimate, and to match the personal degree of assurance I am comfortable with in my personal circumstances.

This is very slightly lower than the previous 3.5 per cent figure adopted, but is supported by more detailed evidence, and a more explicit accounting for each factor considered.

The presence of a superannuation portfolio continues to provide an additional approximate 37 per cent ‘buffer’ in dollar terms over the new target, potentially reducing the risk of poor ‘tail end’ outcomes that would arise from strict reliance only on the financial independence portfolio.

An indication of the impact of superannuation on the ‘margin of safety’ actually in place is that using January 2026 figures, the target income of $112,000 would represent a 2.3 per cent drawdown of the sum of all financial assets (portfolio assets excluding Bitcoin) and current superannuation holdings.

One factor not accounted for which this additional margin may assist with offsetting is the fact that most safe withdrawal rate estimates and resulting income estimates to do not explicitly account for tax liabilities incurred.

The changing role of the goal and pre-conditions of financial independence

Two years ago I set out both the possibility of the target being achieved, and being blown off course, and the journey’s end remaining elusive.

In mid-2025 I stepped into a permanent part-time position rather than full retirement. This means an income still flowing in, and some, albeit reduced, capacity to make new investments should I choose.

In turn, this means that the transition to full reliance on portfolio income may not occur through 2026, or perhaps early 2027.

This transition means there is a degree of flexibility, optionality, which makes hard and fast rules or preconditions a little less relevant than journey’s completely ended in a full stop.

Despite this, the conditions set out two years ago appear perfectly sensible and serviceable ‘checks’ through this phase.

These conditions are:

1. Portfolio target being met – in particular, is the portfolio target met or exceeded, such that applying a 3.45 per cent safe withdrawal rate can be expected to be sustainable over a forty year period? The logic for this target and withdrawal rate is detailed above. While already met, a large financial market event could certainly result in this condition being not fulfilled.
2. Achieving the minimum equity target – has the minimum equity holding targeted been achieved (i.e. whether the equity component of the portfolio is at its target level) to ensure that the long-term core of the portfolio which is assumed to generate income and capital growth is able to serve its function? If the equity holdings are below this level, action would be required to address this.
3. Cash reserve in place – is a capital reserve in place that is equivalent to at least one year of normal expenditure (i.e. $107,000), to minimise or avoid required portfolio withdrawals in future equity market drawdowns?

At the end of 2025, all three of these three conditions were met, just as they were at the end of 2024.

As noted above, the minimum equity target, has required updating to reflect the increase in the overall portfolio objective already detailed. This revised equity target is estimated by multiplying the overall portfolio target with the target equity allocation (of 80 per cent, or 0.8).

This year my approach will continue to be to focus on maintaining each of the three conditions.

Measures on the journey to financial independence

In early 2024 I made some revisions to the benchmarks used to track the achievement of financial independence.

While the measures are fully met now, and in one sense therefore redundant, they still provide a valuable service in a couple of key respects.

First, they indicate, especially in conditions of future market falls, the ‘margin of safety’ until the theoretical goal is no longer met.

Second, the provide a partial link through the year to the dynamic impact of expenditure choices made through the year, and their impact on this same ‘margin of safety’. This occurs through the measure which tracks the degree to which the financial portfolio – comprising only traditional assets – might be expected to meet the total average level of expenses incurred over the last three years.

The metric of Financial portfolio income as % of total average expenses will, therefore, continue to be reported.

This measure is defined as percentage progress toward a strictly financial portfolio value capable of sustaining a moving average of nominal estimated expenditure (using the 3.45% safe withdrawal rate).

Data supporting this figure has been recent updated, with a review of the most recent fixed set of expenses that are added to credit card expenditures to form the total. This analysis shows total average expenses of around $107,000 using the past three years of actual monthly expenditure.

I will also continue to report the second metric added more recently, being Target equity holding. This measure, which I have reported consistently since 2022, will be equal to the current equity holdings in the portfolio, divided by the final targeted equity allocation.

I will continue to report these progress percentages in future monthly updates. An illustrative example of this reporting, using the portfolio position on 1 January of this year as inputs, is set out below.

FI measures – Example

Measure	Progress
Portfolio objective – $3,250,000	156%
Financial portfolio income as % of total average expenses (3 yr average) – $106,500	117%
Target equity holding in portfolio – $2,600,000	114%
Financial portfolio income as % of target income – $112,000 pa	111%

Wishes beyond the sea

This is now the tenth time a portfolio goal has been either set or reviewed.

Typically, this would involve updating the desired target income, for inflation or average wage movements, testing safe withdrawal rate assumptions with recent developments, and identifying the resulting portfolio goal.

A significant reset occurred in 2018, where the target income moved from $58,000 to $80,000, reflecting a movement to more closely track the desired outcome of replicating the income of adult ordinary earnings, through the portfolio income. This entailed an increase in the portfolio target from around $1.5 million to $2.0 million, around a 38 per cent increase.

Since that time, annual updates of the target have tended to be smaller, averaging around 3.8 per cent per year.

The exception is this year, which has seen a 8.2 per cent increase in the required target, a result, perhaps, of movement in the ordinary average earnings measure, and the resumption of real increases, as well as higher than average inflation.

Had the original target been maintained and only updated for inflation, the portfolio target would have been around $2.0 million this year, and would have produced a sustainable withdrawal income of around $68,000, around 60 per cent of average ordinary full time earnings. Updating the goal in real terms by around $1.0m, therefore, has involved the choice of a far different form of lifestyle and freedom in expenditure than original somewhat naively set targets entailed.

As noted last year, it is a salutary ‘forcing function’ this process is that it demonstrates the challenge of achieving a sustained level of financial independence, given the twin effects of inflation and any advancing average earning benchmark.

To lift beyond these powerful forces, wings of a swallow, and a careful eye to the weather ahead are requirements.

January 2026

_{* This specific portfolio allocation and approach has been determined based on my personal circumstances, objectives, assessments and risk tolerances. It is not a recommendation to invest in any particular investment product, security or asset, and investors considering these issues should undertake their own detailed research or seek professional advice.}