What caught my eye this week.
The ‘Just One More Year’ dilemma crops up all the time around these parts, so I was interested to see academics have put some numbers on it.
According to a report in Bloomberg:
A recent academic study called The Power of Working Longer, cited in the New York Times, finds that working just three to six months longer can raise your retirement income as much as increasing your savings by 1% every year for the last 30 years of your career.
Heck, that’s not even a year!
Too many people set up a false choice between working until you’re 65, and retiring at 27 to live an ultra-frugal life in a tent.
Instead work smart, tend to spend a little less, tend to save a bit more, invest the difference, and see where you’re at after a decade or so.
You might be lucky! If not, keep going.
Taste, season, and adjust the cooking time as required.
More on a working a little bit more
Here are the two sources cited by the Bloomberg piece if you’d like to read more:
- The Power of Working Longer [Research paper]
- Thinking about retirement? Consider working a little longer – New York Times
Hope you enjoy the links below!
From Monevator
A big fat D- for me, as we got no new content up on the site this week. I’m working on a fix, so please bear with us. By the end of summer we should be back to a regular schedule. (Add fibre allusions to suit.)
From the archive-ator: Reasons to rent instead of buying – Monevator
News
Note: Some links are Google search results – in PC/desktop view these enable you to click through to read the piece without being a paid subscriber.1
House prices jump £3,000 in a month despite ‘subdued’ property market – ThisIsMoney
London’s ultra-low emission zone to extend to North and South circular [Good!] – ThisIsMoney
Revealed: The mystery trader who roiled Wall Street [Search result] – FT
The real price of Madagascar’s vanilla boom [Search result] – FT
Products and services
Atom Bank launches best buy one-year fixed saving deal – ThisIsMoney
Eight taxes that you could incur by getting involved in the property market – ThisIsMoney
Sky vs BT vs Now TV: the cheapest ways to watch the 2018-19 Premier League – Telegraph
RateSetter will pay you £100 (and me a bonus) if you invest £1,000 for a year via my affiliate link – RateSetter
Fingerprint reading cards could be in your wallet by next year – Telegraph
Who really owns Bitcoin now? [Search result] – FT
The 20 most consistent investment trusts over the past decade – ThisIsMoney
Five of the cheapest UK homes for sale – Guardian
Comment and opinion
The psychology of money – Morgan Housel
Does private equity deserve more scrutiny? – A Wealth of Common Sense
Martin Lewis: 5 changes to fix student finance [Search result] – FT
Downsizing: Taking stock, 5 years on – Can I Retire Yet?
Spending speed bumps and your future self – Abnormal Returns
Do you have enough water in your whiskey? – The Evidence-based Investor
Hedge funds have lost their dynamic creators of value luster [Search result] – FT
How to copyright a song and earn royalties – Financial Samurai
Invesco fees row is a tragedy for shareholder democracy [Search result] – FT
Equities outperform bonds? [Stock picking is mega risky, with skewed returns] – DIY Investor
Pulling the thread with Tren Griffin [Podcast] – Invest Like The Best
Is BT’s near-8% dividend yield a good reason to buy? [PDF] – UK Value Investor
Reps, reps, reps: How to become a learning machine – Of Dollars and Data
Factors from scratch [For the investing nerds among us!] – OSAM
Kindle book bargains
The Idiot Brain: A Neuroscientist Explains What Your Head is Really Up To by Dean Burnett – £2.59 on Kindle
How To Be F*cking Awesome by Dan Meredith – £0.99 on Kindle
Quiet Leadership: Winning Hearts, Minds and Matches by Carlo Ancelotti – £1.99 on Kindle
Eye of the storm: 25 years in action with the SAS by Peter Ratcliffe – £0.99 on Kindle
Off our beat
How a former Tesla staffer became an Internet sales millionaire in his spare time – Bloomberg
Beaufort Brexit scale [Funny. Sort of.] – via Twitter
Why having your thoughts and dreams crushed can be a good thing – Young FI Guy
On immigration – Paul Dean
Anthony Bourdain’s theory on the foodie revolution – Smithsonian
And finally…
“Why do so few investment firms educate and treat their clients in this way? ‘It’s a joke, isn’t it?’ answers Buffett, adding that fund managers and brokers ‘don’t judge their success by investment results. They judge it by how much they can gather in assets. So they don’t want the shareholders to think of themselves as owners. They want them to think of themselves as customers'”.
– Cunningham & Cuba, The Warren Buffett Shareholder
Like these links? Subscribe to get them every Friday!
- Note some articles can only be accessed through the search results if you’re using PC/desktop view (from mobile/tablet view they bring up the firewall/subscription page). To circumvent, switch your mobile browser to use the desktop view. On Chrome for Android: press the menu button followed by “Request Desktop Site”. [↩]
It may be worth noting that the Bronshtein et al (2018) paper considers people retiring in their 60s and buying an annuity on retirement (many Monevator readers may have other ideas on both scores).
In the paper, the vast majority of the benefit from working that little bit longer comes from a) delaying drawing social security (US equivalent of the UK state pension. By deferring it you get a bit more when you do retire) and b) a better annuity rate as they’re older and hence statistically closer to death.
By simple extension, I can confidently predict that working until you’re 100 will work absolute wonders for your retirement income….
Tell me about it. I have a spreadsheet that tells me that if Mr Market performs to average OMY could add around 16% to my retirement income. Peak earnings + peak compounding + quality of life = a very powerful force.
I’m beginning to be tempted by your RateSetter deal. I suspect that I should diversify to two or three other P2P outfits too. Do you have any recommendations?
I was taken by “Equities outperform bonds?” and the Bessembinder paper behind it. Do investment managers have a rough intuitive feel for his conclusions, or do they come as a shock?
I am just doing One More Year right now. I hate it, or rather, I see a vision of the broad sunlit uplands of FIRE and it is tantalisingly just out of reach.
Reasons for delay (1) To meet my target for FIRE (which is 1.3m, 1k/week at 4%SWR) (2) Uncertainties and costs for the future, in case Brexit goes south, and in case my children need help, and my mother, and…….
So even though I’m doing it already, F*ck no, One More Year sucks.
This is roughly the position I am in, could retire in October and, a few years ago, would have been forced to. There is a physiological issue though as once the ‘r’ word gets into your head it seems to have a corrosive influence! Rational thought about financial issues isn’t the determining factor.
On the US studies, a few recent papers I have read suggest delaying claiming social security until 70 as the most effective means of countering longevity risk, to the point if drawing down savings to bridge any cash flow gap. This is entirely dependent on the rules of the US system and can’t be read across to the UK without adjustment ( which I have seen anywhere).
@dearieme, I took up the Ratesetter deal some time ago, and also use Funding Circle Balanced account and Assetz Capital Great British Business.
The link on the pyschology of money is the most interesting thing I have read for some time. Thanks.
RIP Anthony Bourdain
Post FI, I decided to taper rather than retire completely in my mid forties so I went down to 4 days a week recently. At the same time, I’m exploring new hobbies and pursuits with a view to slowly replacing work with other activities I find meaningful over the next decade or so (although it might happen earlier than that).
There is more than one way to cut the FIRE cake.
@ W Neil: ta.
“delaying claiming social security until 70 as the most effective means of countering longevity risk”: it’s a wonderful deal if you have the old-style British state pension; much less attractive for the new-style.
I’m now mostly retired, which is good as offspring and parents are now all needing more help regards housing, DIY, finances, etc. The last year at work was hard for all kinds of reasons, and I only just got out with my health and sanity intact. I’m just so thankful that we caught the saving and investing bug in our 20s and never lost it.
Thanks for the Anthony Bourdain interview link – fascinating.
https://retirementresearcher.com/wsj-the-new-math-of-delaying-social-security-benefits/
Shows US thinking on the subject of delaying claiming against old age social security. US rules differ from ours so not relevant as such to the UK.
So, currently it’s very choppy on the Brexit scale…?
A spoonful of oat bran with my morning porridge does wonders for me. You can also add it to smoothies 😉
> I only just got out with my health and sanity intact.
That cross-point tends to rush up all of a sudden. I hadn’t prepped properly at all, so I ended up with three OMYs to get out. They were tough and I don’t recommend it.
Sure, living on beans from 27 is perhaps an example of not having balance in your life. But if you have the option at all, and I appreciate an awful lot of people don’t, having the option to clear off out of an increasingly toxic workplace from age 50 is a wise investment IMO. It may not be toxic now, but the direction of travel is clear. Work is getting better for about 5%, the rest, not so much.
OMY in your early forties – doddle. OMY in your fifties – much bigger ask if that’s a year after you need to be outta there. Depends on you, depends on the workplace, depends on the situation. I’ve seen people not make that OMY… There’s a lot more to life than work.
Yeah, so sad to hear of his passing this week.
I think the problem with the three more months argument is there in the first sentence: ‘Lots of people around the world aren’t prepared for retirement.’ That is less applicable to readers of this blog and those seeking FIRE. The study doesn’t refer to saving an additional 1 per cent of income in each of the final 30 years pre-retirement, which would much more quickly accumulate, but to an additional 1 per cent of savings, which for most people would mean beginning from, and in many cases even with the 1 per cent annual addition, remaining at, a very low base?
If you have the luxury of preparation, you should use it to the full as most problems with retirement for the FI are from insufficient mental preparation beforehand. An uncle had a good job in a car assembly plant he’d worked his whole life and the company then underwent an ideological change. They used nice words, but it was obvious they wanted everyone over 40 out so they could pay the younger ones a lot less for the same work and the sweetener was a good early (for a conventional worklife) retirement payoff; he was 60 at the time but still fearful whether his saving were enough to coast to the end on. The sting in the tail was a high probability that those who wouldn’t jump would get pushed soon after anyway with nothing to show for it.
He was the kind of guy who gets stressed if they sit still, so the greater fear was what to do all day because he was very healthy, in better shape than guys half his age. The irony was that he didn’t lack imagination in that respect, he’d built himself workshops for metal and woodwork at home with an impressive lifetime’s collection of tools. He also played an instrument, fished and went canoeing, often the last two at the same time 🙂 , yet it was more the surprise of the decision and the forced aspect that disturbed him, so he sweated for a couple of years before taking the deal .
Although quiet, he was known for honesty, reliability and being hardworking, so soon after, friends, relatives and neighbours approached him to do jobs for them. He now has to turn down work, can often do it from home, always on his own timetable and it’s much more interesting in variety. With the wisdom of hindsight, it seems so obvious it’d all be Ok and what he should have done, but back then, nobody’d heard of choosing to break with the conventional work pattern. Theoretically, he’s still working, probably full-time, but he sees it differently, reckoning that if you’re doing what you love all day it can’t be work; he’d literally be doing it anyway. (He’s living in a house he built almost by himself)
I knew someone who retired early and read for Holy Orders. It takes all sorts.
I think the one more year is a good time to get used to not saving anymore and spending your new monthly figure, and transitioning into your new lifestyle – because you could end up the richest man/woman in the graveyard. One more year does reduce the risk of running out of cash
Most people who do OMY will die with the extra money. The caution that encourages the extra buffer means they won’t spend it. So much depends how you feel during that extra year. Current years are more valuable than future ones, as you can do more with them. Your final years are likely to be wearisome with health issues or loneliness, and a bigger cash buffer is unlikely to help.
Hi
One aspect of an early retirement is to be able to do something else….
and while the motivation and capability are still there.
“London’s ultra-low emission zone to extend to North and South circular”
Feck! This ain’t gonna help me retire if everytime I get in the car I have to pay a fine. Obviously, I’m not trading my old car for a new one which is what the politicians want. And yes, of course it’s polluting, but that is what the politicians wanted when it was bought by its original owner.
I wish the system was a little less draconian. Like letting residence residents off the fine for existings cars then charging if they buy a new(er) car that is also polluting. That way we could phase out cars without kicking poorer people in the nuts. You could simply see it as tax on poorer motorists.
@johnb- totally agree. I’m becoming more convinced that excessive financial caution is as big an issue as recklessness!
@ The investor – great post as always.
@JB & VF +1 that! Ongoing project for me!
My aim at the minute is just to ensure I have enough savings/pension to retire comfortably at 60, although I am obviously open to revising this downwards where possible.
With 2 young kids, my wife only working part time for the foreseeable future and not starting ‘proper’ work until I was 23 (8 years ago), I think this is an acheivable aim, but I do worry that for many of my friends and colleagues working until 67 will be the norm.
There are cleaners working at my place who are in their 70’s!
@dan- I wouldn’t worry about them, because they (probably) the opportunity to shoot for early retirement if they really wanted it, and chose they’d rather live for now. I’d worry more for people who were trying but over cautious, ie overpaying mortgage, because unless they aim high they could lose it all to nursing home fees and not shave many years off for all their sacrifice
I’m glad to live in the age of the Internet where I could learn to invest and do it cheaply
There is an article in the FT this week about wealthy pensioners not spending down their wealth – no doubt will be in Friday’s links.
I can certainly confirm that caution and frugality are not habits that are discarded in retirement. My father died sitting on a ridiculous pile of money, having been quite careful to save enough to cover his possible care costs (he didn’t need much, and what he did was covered by income).
I think if we want as a policy objective to reduce pensioners’ hoarding then we have to have a system that pools care cost risk (most people don’t actually need residential care at all). Otherwise we have individuals attempting to cover an unpredictable but potentially very large liability. Crazy.
@Vanguardfan — Yes, it’s the unpredictability that is the issue. (I perhaps have this front of mind as have been working with Mark Meldon on an upcoming life insurance article!)
I can do projections that show that if I live like I’ve lived for the past 20 years and achieve about half the rate of return (a period that has included a vicious bear market and a portfolio heavily overweight to lousy UK equities, so I think not a bonkers assumption) then I’m already probably set — and that includes paying off my recently acquired I/O mortgage.
But what if we “do a Japan”? What if get ill and need 30 years of expensive care, and I was (arguably) cavalier because I have no dependents so don’t have masses of insurance? What if I ended up having dependents late in the process? What if *something* happens.
After a lifetime thinking this way, I’m not surprised people struggle to turn it off. The FT article was to support pension freedoms, but I increasingly think really annuities are the best option for a big chunk of cash, as they are essentially partly a collective insurance policy. If (of course) it wasn’t for the rates (though real rates aren’t as bad!) But this return squeeze may be a historical anomaly we’re living through.
Old dog’s like me in the future I suspect and your father (just going on what you’ve said) will find it hard to change in our final years.
One of my favourite quotes comes from Quentin Crisp:
I think there was supposed to be a care fee cap coming in at 72k, so really have 72k in vls20 and you’re all set for that risk.
How much guaranteed income do we really need? We will have the state pension, and pension credit if it falls low, and if we have no mortgage then we’re already better off than a lot of pensioners who rent with only the state pension (probably get housing benefit)
You could grow your own food even to almost guarantee lower cost of living, but thinking along those lines buying shares of farms is safer than that, and buying a diversified share portfolio ought to be even safer! I believe you don’t need a set % of wealth in bonds, just enough held separately that you can sell to cover expenses/any holes in your guaranteed income while your equities are down
Or just defer your state pension if the markets doing well, thus increasing your guaranteed income
I also concluded that trying to avoid inheritance tax beyond gifting probably isn’t worth it, as the cost of life insurance, or risky and underperforming vcts, or charity or caution up to death is actually likely to cost you more, especially if you can leave assets in specie
Going into a care home could actually be profitable since you might then be able to rent out your home and your total cost of living would be capped at that 72k from 2020 unless things change
@matthew, the cap on care fees has been scrapped. I think it’s fair to say that policy in this area has stalled, and not much prospect of new thinking coming forward in the near future (I think some kind of social care green paper is promised, but government seems a bit snarled up at present, for some reason 😉 )
Plus, the cap only addressed personal care costs, not living costs, so when you scratch the surface hardly anyone would have exceeded it anyway.
Thank you vanguard fan, I missed that one! Although if they can even propose this with such glaring future social costs ahead with the baby boomers then maybe it’s cause for optimism that they’re more likely to for millenials, but it is speculation of course. Some sort if insurance for it could fill the void perhaps
Apparently a “care annuity” that pays straight to the care provider doesn’t incur income tax, that could lessen the cost perhaps, or save your taxable income:
https://www.telegraph.co.uk/finance/personalfinance/insurance/longtermcare/10735051/Care-home-fees-should-you-insure-against-living-too-long.html
Bit of a late comer to the thread… I was really interested in the OSAM article on the value factor (http://osam.com/Commentary/factors-from-scratch). Made me think about the difference between contrarian and value investing.
Value is betting on mean reversion: Mr. Market often over-reacts, so if the price drops because of weak fundamentals then value investing bets that the price will subsequently rise back towards the market average valuation. With the pure value factor there is no expectation of better fundamentals, it is simply mean reversion of price and historically this has worked well with some long periods of under performance. Contrarian investing is a disagreement with the market regarding fundamentals: the expectation that future earnings growth will be better than the market price predicts.
Clearly contrarian investing also benefits from the value factor effect, but with contrarian investing the idea is to buy stocks that will in the future have market beating fundamentals whereas value is happy with average fundamentals and is a simple strategy waiting for the price to rerate.
@TI – would it be possible to ask how you arranged your recent IO mortgage and what sort of rate you were able to get? It would be good to have such info in the back pocket as I’m thinking of doing a similar thing if the right property pops up.
Rightmove has just alerted me to just such a situation which reminded me to ask you…