Assuming you have no unusual deductions, a $71k gross income will attract $15k in income tax, leaving $56k net (take-home) pay which you live off. Of this figure, you generally save $700 per fortnight, which is $350 per week, or $18,200 per year.

Deducting this additional savings off your income, you get a net expenditure of $37,800. You should track your spending for a month or so to confirm this is correct.

To be ready for early retirement, you will require the following amounts of savings/investments at certain real rates of investment return:

1% - $3.78m

2% - $1.89m

2.5% - $1.51m <- note that with Aus inflation at 2.5% and your cash account returning 5%, this is how much you would need in that bank account.

3% - $1.26m

4% - $945k

5% - $756k

6% - $630k

7% - $540k

8% - $472k

9% - $420k

10% - $378k

Note that with inflation at 2.5%, you will be adding 2.5% to each of these real rates of return to find the nominal (quoted) returns required.

By this math, if you were to place your $400k in a fund returning ~9% real (~11.5% nominal) returns per year, you could retire tomorrow. Risky, though.

Given you are getting 5% nominal returns, this explains why you are not feeling particularly independently wealthy, despite having in all likelihood in excess of a million dollars’ assets (median house price in Australia is close to $500k, so if your owned-outright house is median, you would have ~$900k total assets).

However, given you are saving something like $60k a year ($40k being approximate net income from your partner’s work, plus $18k from your ongoing savings), that required rate will fall as your savings pile grows.

If you work for another year, your required return will fall to 8% real (10.5% nominal if inflation is constant). Another year after that, and you will need only 7%. Another year on top? Almost down to 6%.

How much should you aim for? That depends. MMM discusses the 4% safe withdrawal rule, which assumes that you will get 7% nominal returns in the long term, with 3% inflation, meaning you can withdraw 4% each year without reducing the buying power of your investment pool. The nominal amount will increase by 3%, but each dollar will buy 3% less, so it ends up at the same purchasing power.

Research has found that a 3% SWR will give something like a 95% chance of having money left after a 30 year period. However, a closer look at the data showed that in all but two years (in which a crash occurred just after starting to invest), a 4% rule gave as much chance of having money left over. I personally am aiming for 5, 6, even 7%, but I am not going to have a sit-on-my-hands retirement - part-time is as good as retired to me!

Ultimately you have to trade off the likelihood of having money left over after x years against working for longer. The longer you work, the more you save, the less you will need to draw from your account (and the less risky the investments you will need to choose) in order to maintain your current standard of living. However, you have to work longer.

Given your current position you could ‘retire’ if you invested in Australian equities or bonds, both which average 7-8% real returns over the long term, with between $470k and $540k of savings – which is one to two years’ extra work for you and your partner.

However, the decision is not binary. You do not have to either work full-time or retire full-time. If you wanted an in-between step, shifting to a 4-day working week or similar is one option, which allows you more time with your family while only decreasing your income somewhat.

Remember that if you switch your investments to returning more like 7% pa real (9.5% nominal) you will be receiving $28k pa in investment income in addition to your work incomes (as opposed to the $10k you should be getting now in real terms); at that stage you only need $10k work income to ‘get by’ – any extra will increase your stash, and allow you to either shift your portfolio to less risky investments or to increase your spending.

Alternatively, you should currently be able to withdraw $10k per year from your savings account (which should be getting $20k in interest; the other $10k goes to keeping the purchasing power of your stash the same as last year). That means you only need $28k in income to maintain your standard of living, with any extra going to making the stash bigger.

Put a third way, your stash currently pays for ¼ of your expenses. If you take on some extra risk, it could pay ½ or even ¾ of your expenses without drastically imperilling your savings.

That sounds pretty financially independent to me. =)

TLDR: You are very financially independent. I suggest you invest your savings in 7% real return (split 50-50 between Vanguard’s Diversified Bond Fund and one of its Australian Shares funds, for instance). Visit the investor section of the forums for more comprehensive guidance.

Pick your preferred retirement. Were I you, I’d choose between something like:

1. Work for 1-2 more years, retire entirely or go part-time.

2. Work part-time from now, keep adding to your stash until you get bored of part-time work.