What caught my eye this week.
The rebooted US financial blog Get Rich Slowly posted some interesting data this week about the benefits of working the dreaded One More Year – or even a few more – before retiring.
It’s interesting to see the results recast as ‘standard of living’ rather than just dollars banked:
Note that the last time I highlighted similar US data, a wise comment pointed out the US retirement benefits system is different to ours. That may limit the read-across for UK readers.
Also, I feel Get Rich Slowly skips over a big reason why standard of living increases – which is that the years left living in retirement decrease, so the money doesn’t have to stretch so far! We’re not playing with an infinite resource here.
Still, I do feel that the benefits of working just a little longer to get a little more spending money forever are often too quickly dismissed – especially by the heads down and head for the exits FIRE crowd.
Retirement Investing: In 12 month’s time
Consider the case of Retirement Investing Today. He revealed this week that working an extra year or so has given him a £300,000 buffer above his £1 million retirement target. That could be an extra £12,000 a year to spend on fun things – for life.
Of course that stupendous excess achieved in a short period of time is a massive extra lump of cash in anyone’s books. If you’re working on your local council golf course at £9 an hour it may seem pie in the sky.
But remember firstly that RIT put himself in this position through ten years of hard graft. He concentrated on working hard, as well as saving and investing – on climbing the corporate ladder, but saving rather than spending away the proceeds.
Indeed one reason why I applauded his decision to work an extra year was because it seemed to me worth harvesting the prime position he had put himself in. RIT will probably never be in such a position to sock away cash again.
And once you know you are financial free, the desire to actually deploy the F.U. fund diminishes. I’d bet his last year at work has been the least desperate.
The second thing? It’s all relative. If you’re looking to retire early and you’re on a lower wage, then you must have cut your cloth accordingly. (If you’re an ex-Cityboy sitting on a mega-nut and earning £9 an hour, feel free to call it quits yesterday).
The world is full of wonderful places, things, and experiences, but not all of them are free. I’m as big a fan of quietly reading a novel alone in a park on a Tuesday afternoon as you’ll find – I wrote the guide to living like a billionaire for next to nothing – but there are limits.
It’s also why I think those who do quit work should consider trying to find something they don’t mind doing for a day a week for money. Each to their own, but I feel some are too dogmatic about this.
A little more spending money goes a long way. We don’t have to be fanatics about this stuff.
From Monevator
The Slow and Steady passive portfolio update: Q2 2018 – Monevator
From the archive-ator: Find out when you’ll make your million – Monevator
News
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Government borrowing is at an 11-year low… – BBC
…but weak UK growth and tax revenues could put the squeeze on Hammond – Guardian
Councils are introducing landlord licence schemes costing up to £1,000 – ThisIsMoney
Radical proposals to end the huge cost of buying a leasehold – Guardian
Work less, get more: Four-day work week trial was an ‘unmitigated success’ – Guardian
Prices of flats stay unchanged for a year, says ONS – BBC
US dollar is overvalued 30% against the pound, according to Big Mac index – ThisIsMoney
Cullen Roche: How the biggest perceived risk to the bull market has shifted – via Twitter
Products and services
Birmingham Midshires launches three table-topping savings deals – ThisIsMoney
Fears of UK cashpoint ‘deserts’ lead to scaling back of ATM fee cuts – Guardian
Ratesetter’s £100 bonus effectively boosts your expected return on £1,000 to 13% – Ratesetter [Affiliate link]
Commuter chaos: Know your rights to rail compensation [Search result] – FT
As prices rise, here’s how you can cut your energy bills by £400 – ThisIsMoney
Larry Swedroe: Hedge funds are still trailing – ETF.com
Comment and opinion
Bonds behaving badly [Canadian, but relevant] – Canadian Couch Potato
Barry Ritholtz: Inflows to passive funds have slowed. No problem. – Bloomberg
Merryn S-W: Hit the switch for profiting investment platforms [Search result] – FT
Understanding the yield curve: A prescient economic indicator – Financial Samurai
1962: “The market is rolling because the market is rolling” – A Wealth of Common Sense
Also: It’s always a remix – The Reformed Broker
Gold bugs Vs stock market bulls – Charlie Bilello
The bottom and the top – The Irrelevant Investor
Priced out of parenthood – Guardian
Things to remember when selecting an active fund manager – Behavioural Investment
When will ‘socially responsible investing’ become just ‘investing’? – Quartz
Why mutual funds can’t be hedge funds – Morningstar
Four rules for selling shares – UK Value Investor
Five lessons learned from super-investor Howard Marks – The Value Perspective
Don’t write off factor investing just yet – Bloomberg
It was you, Charley [Deep dive, for investing nerds like me] – Epsilon Theory
Kindle book bargains
Einstein: His Life and Universe by Walter Isaacson – £0.99 on Kindle
Alan Sugar: What you see is what you get by Alan Sugar – £0.99 on Kindle
The Honourable Company: History of the English East India Company by John Keay – £1.99 on Kindle
Moon Over Soho: The Second Rivers of London novel by Ben Aaronovitch – £0.99 on Kindle
Brexit
From Anxiety to Zuckerberg: An A-Z of Brexit – Guardian
Brexit fudge – DIY Investor
Fruit ‘left to rot’ due to labour shortages – BBC
PM of 65-million strong UK tells 508-million strong EU2 it ‘must’ evolve Brexit position – BBC
Tory MP Anna Soubry attacks “wealthy” Brexiteers [Video] – BBC
Off our beat
Time is your most important asset – Of Dollars and Data
Do these 13 things every day – Ryan Holliday
Always go to the funeral [Missed this from last August, excellent] – Epsilon Theory
The age of floating transport – Citymapper via Medium
What was the full story behind Elon Musk’s Thai cave rescue effort? – Quora
And finally…
“Basically, CEOs have five essential choices for deploying capital – investing in existing operations, acquiring other businesses, issuing dividends, paying down debt, or repurchasing stock – and three alternatives for raising it – tapping internal cash flow, issuing debt, or raising equity. Think of these options collectively as a tool kit. Over the long term, returns for shareholders will be determined largely by the decisions a CEO makes in choosing which tools to use (and which to avoid) among these various options. Stated simply, two companies with identical operating results and different approaches to allocating capital will derive two very different long-term outcomes for shareholders.”
– William Thorndike, The Outsiders
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Yep, read US based articles suggesting defering claiming social security benefits until age 70 max could be beneficial. It mitigates longevity risk. It is applicable to US only though.
One problem with the “work one more year” scenario is that you sacrifice your healthiest, most active year of retirement. Increasing the retirement pot by 30% in that final year or so, must be considered extremely unusual and not practical for most folk. Far better to spend that year getting fit and use the occasion to adopt a healthy lifestyle to maximise your healthy years, whilst having fun.
I dropped down to a four day week at age 53 and am now at age 55 (with new startup) doing two days a week. It doesn’t have to be all or nothing.
I’m with Chiny. They don’t make more time.
We really need to hear from the One Less Year brigade, people in their last years of life with more cash than they will ever spend, wondering if they should have stopped work earlier. But the selection effect means they are not blogging about it.
> trying to find something they don’t mind doing for a day a week for money.
Nah. The trouble with work is the frickin’ commitment. The whole point of retirement is that nobody tells you where to be on a certain day. The flexibility of owning your time gives you serious options in life.
I think that perspective changes as you get older, I was chatting with a couple of some old university pals last night, and not one of us could imagine working again.
I’m not averse to hit and run jobs – take something on, do it, get paid, get out again, no ongoing commitment, but one day a week? Sheesh, that’s neither fish nor flesh, much of the downside of work . The whole point of investing is to make your money work harder than you do.
But as you say, each to their own 😉
@John B
That’ll be Paul Tsongas, he of the classic “No one on his deathbed ever said, I wish I had spent more time on my business.” He had reason to know, poor devil, cashed in his chips at 55
I’m with Chiny too. OMY is comes off the good health end, usually. They ain’t making any more time, and quality of life is about how you spend your time as well as how you spend your money.
“defering claiming social security benefits until age 70 max could be beneficial. It mitigates longevity risk. It is applicable to US only though.” You can defer your UK State Retirement Pension for as long as you like. The reward is a 10.4% increase for each year of deferral for old-style pensions and 5.8% for new-style.
“the One Less Year brigade”: call no man rich until he is dead.
Yes, I agree a day a week is a commitment (and I think that in itself would be useful for some of the retirees I’ve encountered over the years) but it could be some other sort of arrangement. Even hit-and-run, as you say @ermine.
Obviously if you’re loaded and really have no use for the money then fair enough. But one day a week could easily be £5000 a year — perhaps twice that for the average reader of this blog.
If an otherwise frugal retirement is pepped up every year with a trip to the Maldives, ten weekends living it up in fancy boutique hotels around the UK, some high-end cookery course, hiring a Ferrari once a month, and/or whatever else floats your boat, I think your deathbed memories might be somewhat more vivid. 😉
If your life flashes before your eyes and all you can remember is doing the same old for 30 years, it might not take too long. 😉
p.s. I am being slightly provocative here as a small antidote to something that I’ve seen becoming almost dogma, with even my own co-blogger showing some signs. In reality I urged my own father to quit work for more than a year before he finally did, for his ultimately far too short retirement. Set against that, he was in his mid-60s, not his mid-40s! Anyway, clearly two sides. 🙂
RIT’s OMY made sense though – he’s not stopping work so he can just potter around the house/garden; he’s relocating his whole family to another country to start a new life.
If things don’t work out, well, he now has a handy extra £300k to fall back on.
I guess there is a big selection bias to those standard of living calculations. How do you score the person that could retire at 62, but decides to work 8 more years to get that 74.57% boost in standard of living and then dies at 63. And what about the person that dies at 64, 65, 66 etc.
Also even if the person survive, those scores I guess are just for their retirement years. What is the standard of living score for the 8 extra years of work?
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Also, I wonder if the comment about RIT and his wealth growing £300k from ‘One more year’ is fair. A lot of that growth was from investment growth, so didn’t relate to working one more year.
Whether OMY makes sense is related to individual circumstances.
Maybe you enjoy your work overall, but want the choice of doing less of it – or even killing the bits of it you don’t like. OMY might become many more years – just interspersed with more holidays and more time spent on hobbies/with family.
Maybe OMY will be the difference between a frugal retirement and one with a safety buffer and/or the possibility of taking up an expensive new hobby you discover or otherwise treating yourself. Perhaps it’ll give you more funds to experiment with and make life richer.
The problem with one more year, is when does it stop? Clearly, more money will always get you…more money….but I thought the point was deciding when was ‘enough’ ?
Also, one problem I have with this argument is that it assumes that work is only about money, and that working for money means doing the same thing you always have.
Surely the point of financial freedom is to liberate you from having to work JUST for money and to survive. If you’ve made good choices with your life, you hopefully won’t be doing that anyway, but will be using your skills and talents to do something both worthwhile and fulfilling, in which case you’ll want to keep doing at least some of it. If you aren’t, or you’re bored and fancy a change, then make that change (and I’d say, don’t wait till you’re financially independent to do it, life is too short).
So in a way, I see life as a quest for doing what you want to be doing in this world. Obviously the more constraints you have (eg the need to make money, the need to raise children, the need to support elderly parents) then the less choice you have in what you do. The greater your financial security, the more choice, but you still don’t have complete freedom as there are many things money can’t buy.
For me, having been self-employed for some years, it’s more a case of OMJ – one more job – rather than OMY. But I haven’t really faced this big dilemma – I’ve been winding down over the years, and I haven’t taken a job on for more than a year now. It can sometimes still feel a bit awkward turning something down and trying to explain why, but it’s getting easier!
Great post as ever TI. You’ve managed to put my OMY thoughts into words far more elegantly than I ever can. Let me try and give a few extra thoughts…
I could have FIRE’d at age 44, I’ll actually FIRE at 46 and lifetime calculators suggest it’ll be all over by 89 years of age. So I’ve traded 4% of my most likely retirement period for more wealth. What have a received for that? Home wise I’ll now be able to get sea views rather than sea glimpses plus a more than 100% increase in fun money. I understand that the retirement years I’ve traded are probably my best FIRE years but for me the trade was at the time worth and now importantly looking back I’m still glad I did it. In years to come I may of course regret that decision.
“Indeed one reason why I applauded his decision to work an extra year was because it seemed to me worth harvesting the prime position he had put himself in. RIT will probably never be in such a position to sock away cash again.” Exactly. In some of the FIRE communities I read about people saying if there’s a market downturn I’ll just go back to work. I personally think that’s way to optimistic a view particularly in my case. My skills will be lost very quickly and so it seemed prudent to stay a little longer and earn in 1 month what it might take me a year or more to earn 10 years hence (assuming I could get a job) when my skills are toast. It’s why I’ve consistently always defined early retirement for me as work becomes 100% optional.
“And once you know you are financial free, the desire to actually deploy the F.U. fund diminishes. I’d bet his last year at work has been the least desperate.” With the Sword of Damocles firmly removed my stress levels during my OMY’s fell away very quickly. The biggest problem I had was that my tolerance for b*llshit was greatly diminished which did put me in a few interesting scenarios.
@Chiny
“Increasing the retirement pot by 30% in that final year or so, must be considered extremely unusual and not practical for most folk.” Why? If you’ve played the FIRE accrual game similarly to the way I played it you’re at minimal spending, peak earnings and maximum investment education meaning you’re at peak wealth growth (ignoring Mr Market of course).
@John B
“We really need to hear from the One Less Year brigade, people in their last years of life with more cash than they will ever spend, wondering if they should have stopped work earlier.” The risk is of course leaving significant wealth on the table. My view has always been that I’d prefer to leave some wealth on the table and lose a bit of retirement time than spend the last years of my life under a railway arch. For that reason my withdrawal rate of 2.5% plus investment expenses seems conservative for many.
> he was in his mid-60s, not his mid-40s!
I really do think this does change with age. Not universally, for sure, but in general one’s focus shifts from the outer world, of which work is a large expression in our current culture. It probably is quite an unusual person who can quit at 40 and not work again, because culturally a lot of meaning is invested in ‘what do you do’. People still look at me surprised when I say that I am retired, although I am less than five years away from what used to be a typical white-collar retirement age. Much of such an individual’s peer group will still be working. Of the several people I went to Imperial College that I’m still in touch with, not a single one is still working and using that degree, and only one is working at all. None of us have reached our three-score years yet.
But your cited paper was talking about people who are 62 and up, they’re less than a decade away from your three-score years and ten, and I’d venture that if work is the best thing they can do with their days that close to the endgame then perhaps there’s a need for more hinterland?
Really interesting post and comments as always. In terms of “one more year” i think this is altered both by age, one more year at 40 is not the same as an another year at 56 / 57 and also needs to take job satisfaction into account and maybe jobs can be more satisfying once you have that “F.U. fund” and attitude.
The bit in the post I’m really interested in, because its the thing totally missing so far from my own FIRE plan is “It’s also why I think those who do quit work should consider trying to find something they don’t mind doing for a day a week for money.” I actually like the idea of doing some work in retirement. My problem is I have not figured out what that could be yet, I know I don’t want a McJob and I don’t want to do consult in the area I do now (even if this would maximise the earning potential).
This is definitely the missing string from my own FIRE plan, still have 5/6 more years to figure it out.
@matthew – you don’t need to figure it out, it will happen if you want it to once you get there. Once you create time and space to follow your desires (you can still be working in the day job, if you can reduce your time commitment) then other stuff will follow. I went down to two days a week (which felt to me like permanent holiday) but have just found myself falling into another paid role two days a week….best way to transition out of work is to find yourself wanting to cut it further and further back so you can fit in your new activities! Those might be paid, they might not (some activities can only be done for money, some can only be done unpaid, many more are in between) The point surely is that it doesn’t matter, once you are financially secure…
Also, personally, I aspire to spend as much time as possibly in activities I find fulfilling or enjoyable, and ideally both. I don’t want to spend my precious time doing stuff I ‘don’t mind’….lord knows between grocery shopping, laundry, cleaning and household admin and maintenance there’s enough time taken up doing necessary-but-not-exactly-joyous stuff!
The implicit criticism of OMY is not that it gives you a buffer against the markets, or extra fun money, its that even after you have budgeted for both, and have won the game, is that you can’t stop playing. I think there is sense when you say ‘I think I can retire now with £1m’, to wait a year and be sure. The problem is when you say “I’m sure I can retire now with £1.2m”, and you don’t, because life has becoming too focused on increasing your pot, not spending it. Entrepreneurs and pop-stars continue working long after they have enough, because they enjoy it and wealth is a means of keeping score. But FIRE is aimed at people who want to do something else apart from their jobs.
A key issue not discussed is inheritance. If you have children, OMY at your peak earning potential could be 3-4 times their starting salaries, and make a huge difference to their lives. But if caution means you keep it back, a taxed inheritance 40 years from now is much less valuable to them. How happy are people giving money away now in the expectation it will be repaid if things become tight. Does the Bank of Mum and Dad require formal loan arrangements or not?
@Matthew > My problem is I have not figured out what that could be yet,
I’m with Vanguardfan. You don’t need to. Opportunities happen for people who are FI – get involved in your local community, you will get to know people that know other people and who know what you can do. What’s the worst that could happen? You don’t find those jobs, and still have enough money to live on.
Know your worth, and the great advantage for people that don’t need the money is you can walk away if the price isn’t right for you. If you aren’t walking away every so often then you’re not valuing your time properly. I’ve done some jobs below minimum wage, and others at rates beyond the effective hourly rate at the high-water mark of my earning power. Depends on the job, depends on the people. Very few of these jobs involve what I did for work.
But one constant is I don’t do enough of any of this to match TI’s one day a week, either in terms of time or annual income 😉
Re “one more year” – what I have difficulty understanding is “more” than what? One more year than you told your self/spouse you would retire? One more year than you wrote on your blog you would retire?
If you’re the sort of person who feels the need to have a larger pot than actually required as a safety net, then wouldn’t this already be factored into your planned retirement date? In which case there would be no need for any more years.
I think im in the OMY brigade. I say I think I am, because I cant settle on what level of non work income is enough. When I began the FI journey I did the inevitable spreadsheet and identified a date where the cash flows should secure a modest life through to 55 when the SIPP rolls in and I can downsize the house as the kids will have left.
So I made the first milestone, and then thought work isn’t too terrible, so lets factor in some travel fun and a few luxuries. Fair enough, another year or so passes. Then I start to think about funding kids at university and house deposits etc etc and so purely down to middle class consumerism my personal target of FI keeps getting pushed back.
I should add that whilst the spreadsheets tell me im FI, they do rely on the wife working in a vocational job she loves, so im not sure I can be FI as it relies on a spouse’s income.
A first world conundrum to be fair.
“Does the Bank of Mum and Dad require formal loan arrangements or not?”
This bank does. Whether a gift or a loan there’s always an exchange of letters spelling it out. We haven’t yet demanded interest, though, nor a charge on property. 🙂
If we’re prepared to work longer or part time, we can afford slightly more risk
I think the transition from everything to nothing is too brutal but my db pension pushes me a bit that way, I think we should plan a winding down
Retirees where I work come back to the same job, but I’d want to try different things, although maybe they feel starting again is hard at their age, or they somehow don’t feel bored
I’m rethinking retirement because my eczema better at work than at home, I’m allergic to dustmites so retirement for me isn’t going to be lazing around in bed, but for health that’s a good thing. I think retirees need to excerise to keep fit after leaving work and to extend their life.
Retirement could be a chance to go to uni again too, even if only for entertainment
I believe the US system forces you to take benefits no later than 70, hence why the numbers in the table all stop when the extra years bring the total to 70. The academic research was US based, not seen the equivalent for the UK.
Well I will be 65 in October and am plodding on for a while yet. Having saved all my life, very difficult to suddenly stop saving and drawing the balance down.
You also get number blind, is £50k a large sum? £250k? Ridiculous as it may sound I am not sure now it’s in the context of supporting adult children and maybe a widow who could live another 35 years.
I think for me, I would rather work part time to get some extra fun money and perhaps an increase buffer. I currently really enjoy my job though so one more year currently doesn’t seem so bad. I know full when that this could change though. I don’t have a rigid plan and I like it that way for now. Chris
@Paul_a38 “I will be 65 in October and am plodding on for a while yet.” As far as I can see the case for deferring your state pension is likely to be strong if it would have to pay 40% tax to begin with and only 20% when you have stopped earning.
Protecting your widow can be tricky: I think I’ve pulled it off unless my DB pension ends up in the PPF, where she would take a heavy hit. (Or unless I end up in care while she is still in need of my pension income. If I simply die she’ll be much better off.)
@dearieme. Exactly so. Further concern is how she will deal with the investments. Well off widows must be a bit of a target. I am looking to revisit annuities in 10 years time, assuming I am still on the planet 🙂
“Further concern is how she will deal with the investments. Well off widows must be a bit of a target.” Agreed: I’m considering leaving part of my half of the house to a Trust so that it will be harder to swindle her out of the house. As for the investments – Lord knows what to do. Leave mine to the same Trust, probably. My brother would help her with her investments but he will probably die long before her too.
The comparative youngsters who comment here are probably unfamiliar with such worries.
“Does the Bank of Mum and Dad require formal loan arrangements or not?”
This bank does. Whether a gift or a loan there’s always an exchange of letters spelling it out. We haven’t yet demanded interest, though, nor a charge on property.
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One thought I have on this is to get them to pay the equivalent of the interest into an investment account in their own name – gets them into the habit of saving and prepares them to be able to do the same for their own kids in 25 years time.
@ Paul_a38, dearieme, et al
Unapologetically repeating what I’ve said before, keep your Will scrupulously up to date, and “future-proof” your partner by getting the two types of online DIY power of attorney in place and registered.
So many great comments!
For what it’s worth, I think ‘OMY’ brings more to the table than just the money. It also brings a little more comfort. The psychological insecurity of ‘do I have enough’ is very strong. OMY won’t get rid of it, but it can be a comfort blanket (particularly for those who are most concerned).
I’ve also found that working one day a week isn’t such a bad thing. Having some structure after quitting work was helpful to me. Of course, working full-time now seems like an unattractive prospect. As Ermine says, there are lots of hit-and-run opportunities for early retirees. I’ve been very blessed for how many that have come my way since I packed in the job.
@dearieme – are you worried about your scheme going into the PPF? I can’t remember if you’re already retired, but if you are, the only way you’d ‘lose’ pension is if you were above the maximum compensation cap. The cap for last year was £38.5k at age 65 (£34.7k if not retired). If you are worried about that, then you can find the caps on the PPF website. If your scheme goes into PPF they’ll tell you exactly what will happen to your pension.
Regarding widows, I’ve got the opposite situation from above. My mum is a widow, and over the years I took control of the ‘finances’ (once I got old enough, and understood enough). One thing I did was I printed a bunch of posts from this website out for her, which she read and really enjoyed. Having that level of understanding, and trust, made her realise what a bad deal she was getting. @Factor is on the money about ensuring wills are up to date. Another thing to genuinely consider is meeting a financial planner, who can help play ‘good cop’ with the other half and can help with the behavioural aspects of managing an investment pot.