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Weekend reading: The inspiring success of a fellow UK personal finance blogger

Weekend reading

Good reads from around the Web.

A big congratulations to fellow UK personal finance blogger and sometime Monevator contributor, Retirement Investing Today.

After years of saving hard and investing wisely, RIT – as he is known to his friends and to those with carpal tunnel syndrome – has achieved his goal of financial independence.

The recent stock market rally has pushed his portfolio to the £1,014,000. According to his sums, that makes work optional for the foreseeable future.

Somewhat ironically though, the weak pound that has helped lift his assets has arrived in concert with a host of other post-Brexit imponderables that have made that “foreseeable future” rather less foreseeable.

RIT writes:

You’d think we’d be out celebrating. But in the RIT household this week (and in the run up in recent weeks) there has been calm as I’ve actually been umming and ahing about whether I can actually call myself Financial Independent.

The main reason for this is that over the years I’ve diligently planned for just about every financial situation that I can think of.

However what in hindsight I’ve actually glossed over is the risk of politicians just blatantly changing the rules.

In the past few weeks we’ve seen some of this appear via the Brexit vote, which for somebody who intends to emigrate to an EU country as soon as they FIRE has brought real risk.

One impact is that in UK pound terms, the European-based property that RIT plans to sip fancy foreign beverages in until senility comes knocking is now more expensive.

The pounds thrown off by his investment portfolio won’t stretch as far when buying that booze on the continent, either. Nor his bread, his olives, nor his live-in maid and butler.

(Okay, they’re not in his plan. But if they were…)

RIT is also having to think again about his pension and healthcare entitlements in life after Brexit.

It’s yet another reminder that everything can turn on a dime, which for me makes micro-debates about whether 2.73% or 2.74% is a safe withdrawal rate in retirement rather moot.

Still, it’s great to have such options.

Tribal uncertainties

Brexit will sort itself out in time. Being free at 43-years old, RIT has plenty of that on his side.

And that’s the really inspiring part of his journey, for the likes of you and me.

If he can do it, can we?

Like me, RIT began blogging many years ago when there were barely any UK personal finance blogs around. If I recall correctly he started blind, before discovering how others had blazed a trail to financial independence before him.

When I began Monevator in 2007 I’d read some nascent US blogs – and a few influential financial forum posters – but my own journey to financial freedom was otherwise motivated by a personal epiphany.

You probably always need such a ‘lightbulb moment’ to get started.

But once you have begun, there are nowadays all sorts of sites to help and inspire you. I feature many in the links here every week.

Indeed, the Internet is abundant with role models.

  • Will you do what a 25-year old friend of mine does, and follow a slew of fashion fanatics on Instagram, spend all your money (literally) on shoes and handbags, and then beg others for a pint so you can cry over your penurious plight?
  • Will you work your fingers off and save nearly everything that’s left after food and rent or mortgage payments, in the style of RIT and my co-blogger The Accumulator? (Their patron saint and blogger Jacob also described his methods on Monevator).
  • Will you be a bit slacker like yours truly – saving more than almost anyone you know, but still splashing out strategically on nice clothes, the odd overseas holiday, and making more effort to grow your income than to cut back on every last frothy coffee?
  • Or will you (and the correct answer is “yes, this one!”) roll-your-own plan?

Your choice – but choose carefully.

US financial advisor Tony Isola wrote this week about the downsides of similar minds flocking together on the Internet, before asking:

[What] if we are genetically predisposed to join a tribe?

The answer is: find the right one!

I know I have.

Your tribe, like mine, should consist of people of high character.

Data and evidence should take precedence over emotion. The focus should be on what the tribe can control. Things beyond the tribe’s influence are rightly ignored.

Investment friction, like taxes and high-fee products, along with global diversification, are prime examples of the former; short-term market returns, the latter.

Finally, your tribe should think in probabilities and not certainties, which are non-existent in the markets.

Unfortunately most investors end up in tribes that spend their time throwing coconuts at each other, like our ancestral primates. They worship false investment gods and create cults of personality.

Deal with it; tribes are a major influence upon the choices we make. Joining the right one to manage your investments is a decision you should not take lightly.

With his blog – and the completion of his first goal – RIT has surely inspired many people climbing towards financial independence.

Not a bad tribe to belong to.

Still crazy after all of these years

RIT tends to update his blog on Saturdays – and often after I’ve done my Weekend Reading links.

This means he actually achieved financial independence a week ago. By now he might have spent it all on fast cars and even faster women!

It’s okay, stand down – I just checked and everything’s good. Rather than withdrawing his cash to head to a casino, RIT is predictably blogging about safe withdrawal rates.

Old habits die hard.

Let’s make sure we have the right habits.

From the blogs

Making good use of the things that we find…

Passive investing

Active investing

Other articles

Product of the week: The cost of 10-year mortgages continue to fall, which like the weaker currency could take some of the sting out of Brexit. ThisIsMoney reports that the new 10-year fix from the Yorkshire Building Society charges 2.89% – not the very cheapest, but the lowest available for those with just a 25% deposit to bring to the party.

Mainstream media money

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 of that site.1

Passive investing

Active investing

  • Buffett deputy Ted Weschler makes his mark – Institutional Investor
  • This bull market is powered by your indifference – Bloomberg
  • Brexit puts UK companies in the bargain basement [Search result]FT
  • Four trends rocking the hedge fund industry – Business Insider

A word from a broker

Other stuff worth reading

  • Britain’s economy wilting fast after Brexit vote – Reuters
  • Brexit and the pound, property prices, and more [Search result]FT
  • Santander’s new 1-2-3 ‘Lite’ account pays no interest – Telegraph
  • How Pokémon Go will make you spend more [Search result]FT
  • New chancellor has to wean us off high house prices – ThisIsMoney
  • Property market hit by Brexit, warns leading agent – ThisIsMoney
  • Housel: The power of asking, “Compared to what?”Motley Fool US
  • Capitalism is reducing inequality, on a global scale – Quartz
  • Financial stress can cause physical pain – Scientific American
  • Robert Shiller: Why US land has been a poor investment – NYT
  • How exercise shapes you, far beyond the gym – NYT

Book of the week: In the late 1990s, former Wired editor Kevin Kelly wrote a soon much-mocked book called New Rules for The New Economy that basically foresaw the Internet revolution we’re living through. True the dotcom bust made Kelly look like a nelly for a few years, but many of his then-radical pronouncements are now truisms. Having got the big picture right, with The Inevitables Kelly digs into the detail to consider how everything from AI to Uber can be understood as arising from a handful of massive forces of change. (Personally, I believe this is the stuff that’s really making the world richer and more bountiful – yet also angrier and more unequal.) Extra irony points if you buy the hardcover dead-tree edition, instead of getting it on Kindle.

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  1. 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”. []

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{ 74 comments… add one }
  • 1 old_eyes July 23, 2016, 12:28 pm

    Congratulations to RIT! I read his blog earlier in the week and cheered and worried with him in equal measure.

    I recognise the fear, uncertainty and doubt generated by the way your careful plans and scenarios can be shattered by the potential for political processes to stuff things up.

    I am not changing the date I declare FI in a couple of months (it’s not really retiring early as I am in my 60’s, but FI nevertheless after some years of striving for it), but I have found myself slamming the brakes on some long planned activities and capital investments. Even if it is only a 6 month pause whilst I try and understand what this new landscape might ultimately look like.

    Since my defensive reaction has been so strong I do find myself wondering what else I might have missed.

  • 2 Retirement Investing Today July 23, 2016, 12:56 pm

    Firstly, many thanks for the congratulations TI. I must admit that one week on and even though I’ve been watching myself get closer weekly it definitely feels different now that I’ve actually done it. It certainly feels good. I’m also finding work a very different place already and I’m certainly speaking more freely.

    You’re right that I started blind back in 2007. At the time I didn’t even know the term for what I was chasing but in hindsight the most important thing I actually did was start. I’ve also made plenty of mistakes on the way but I’d happily make every one of those again as they’ve made me and my plan what they are. The final main learning was that this FIRE stuff takes real determination.

    When I started it was a pretty lonely road I was walking down but over the years more UK FIRE bloggers have started which has certainly brought some community to the journey. In the end it took me a little under 9 years to achieve Financial Independence. It really does show what’s possible if something is focused on.

    It’s of course taken some sacrifice. Looking back now though has it all been worth it – absolutely.

    At this time I’d also likely to personally thank you and The Accumulator. Without your teachings week in week out I genuinely don’t think I’d be where I am today. Monevator has certainly changed life.

    Small typo in paragraph 3 where you need to add a zero. I don’t think even my methods of living below my means could provide a satisfying FI life with a little over £100k. 🙂

  • 3 Fireplanter July 23, 2016, 1:10 pm

    Inspirational story. Thanks for showing us it is achievable. Now I wait to hear about how is life after FI. Keep the motivation coming!

  • 4 magneto July 23, 2016, 5:24 pm

    I am getting worried. I might well be wrong avoiding Gilts?

    The Value Perspective link above talks about -ve Bond Yields, (-ve real yields as troubling this investor recently).
    Short quote from article (well worth a read in full) :-
    ” people will look back with astonishment at a time when those record-low and increasingly negative yields were considered an attractive investment proposition”

    Why worry about our portfolio’s present lack of Gilts, etc?

    There is an ‘acid test’ question when seeing or not seeing value :-
    “And who doesn’t know that?”

    Surely nobody?
    Everybody knows the Bond/Gilt situation only too well as demonstrated in the linked article!!!
    Could this investor then be missing some vital insight ???

    Good Luck to Us All

  • 5 Factor July 23, 2016, 6:45 pm

    @magneto (4)

    Beware, you might be an unhappy maximizer! 🙂 (per TI 33 in TA’s holiday item).

  • 6 gadgetmind July 23, 2016, 7:26 pm

    Hats off to RIT, but discussions about property in Cyprus reducing wealth suggests this sum includes UK property (or maybe there isn’t any?) I refuse to include my home as part of my retirement “wealth” as I’d prefer to not have to sell it. I may choose to, but I don’t want to be forced to.

    A difficult one.

  • 7 dearieme July 24, 2016, 12:56 am

    If you don’t consider it as wealth just donate it to The Lifeboats.

  • 8 oldie July 24, 2016, 9:31 am

    apologies if I am going over old ground.

    Having reached a sum targeted as Ok to provide a range of future options, do you change the portfolio mix as life moves on?

    Do you shift to a more capital protected strategy than pursuing growth opportunities?

  • 9 The Investor July 24, 2016, 10:01 am

    @old_eyes — I suppose the difficult part is deciding between prudence and procrastination? I don’t really intend to retire as such (it’s the FI bit of the FIRE acronym that appeals to me) but if I did I could well imagine finding excuses to stall for years. Six months pause may seem reasonable, but we know that, for instance, that in around that time they’ll trigger Article 50 and the two year window of negotiations will begin. Do you wait another two years? Tricky!

    Sounds morbid, but perhaps concentrating on the time you have left and what you want to do with it (maybe with a mortality calculator) could help. I often find the realization I’ve likely lived about half my life (and the healthier half at that) a wake up call. (Can’t quite bring myself to put a smiley face after such morbid talk, but meant warmly and sympathetically! 🙂 )

    @RIT — Cheers! It’s always amazing to hear when the website has made a difference in people’s lives, especially people who have achieved such a (relatively) radical ambition! Sorry about the typo — retiring on £100K, those were the days, eh? 🙂 (There were a few too many typos in the emailed version of this post — I was in my “it’s sunny and it’s Saturday morning, what have I done to my life” mode and somewhat rushed the proofreading. It’s not often sunny so it’s not often a problem! 🙂 )

    @Fireplanter — Great, isn’t it? Sharing concrete numbers definitely helps. I’m too shy for that though.

    @Magneto — Remember last week when I said you *always* talk about this? Um. Perhaps you don’t realize you’re doing it? 🙂

    @gadgetmind — As Charlie Munger says, “Invert, always invert”. It’s a great way to reveal dodgy / self-deceiving thinking. 🙂 Inverting your situation: If you didn’t have a home, would it require “wealth” to buy it? Yes. Equally, if you chose to sell it (as you say) you’d generate wealth. Therefore if you have it it is wealth. This seems even clearer to me than the argument as to whether a house is an investment. (You may recall I certainly think it is, and am amazed when anybody (and that could read “most people”) disagree.

    I understand you know this (as evidenced by your acknowledgement via the word “choose”) and I do get it’s perhaps helpful from a mental ring-fencing point of view. But I personally would always prefer to know exactly what I owned, what I needed, and what I needed to pay, than to try to confuse myself with illogical assertions. 🙂

    @oldie — I think everyone does this differently. Generally you change your portfolio mix because of risk. (As you get older, you can afford to take less of it.) People often say they can’t/won’t, but that is because they haven’t got enough money, really, so they are taking on more risk than they “should” for their age. This article by TA on having a minimum income floor might help. My own strategy (as an active investor, remember, not a passive TA type) is to create sufficient wealth to live off income and never touch capital, which obviously requires a lot more capital but in my opinion (and people definitely disagree) leaves you less at the mercy of a riskier asset mix, from a capital point of view.

  • 10 gadgetmind July 24, 2016, 10:24 am

    I definitely include our house in my mental view of personal wealth (and have little real idea of its actual value though I’m sure my wife does!) but I don’t include it as part of our *retirement* wealth as I can see no value to putting this figure into any of my spreadsheets.

    I know roughly what income we’ll need in retirement (which I’ll admit doesn’t include rent whereas it would otherwise) but I don’t have relocating or downsizing in the plan as a way to create more capital and income.

    As you say “invert”. The opposite is those who say “Oh, we don’t have a pension, we’ll sell the house and move somewhere smaller.” People tend to overestimate how much capital this will release and vastly overestimate how much secure income this will provide.

    “Downsizing to fund retirement nightmare more likely than dream warning ”


    This why I kept our house “off the books” regards *retirement* wealth, and again I’ve stressed the “retirement” adjective. Perhaps I should have applied the stress in my original message. 🙂

  • 11 Old_eyes July 24, 2016, 11:54 am

    @TI – thank you for the reply. I agree entirely that we can procrastinate ourselves into inaction. For that reason I am sticking to the planned date when I declare FI. Buttons have been pressed, levers pulled, and it WILL happen on the planned date. As you say we only have a certain time left on this earth, and there is much I want to do.

    Where I find myself worrying is whether to execute some of the capital items in my longer term plan(mainly some work on the house). Hence the pause. I want to see how things develop. Will I need that money for another use because the game has changed significantly? Even here you are right to ask how much is it prudence and how much fear? Is Brexit just an excuse to walk away from long cherished plans because I have become scared of major expenditure? Once I have been living for a while without a steady income I hope we will be able to loosen up and live the life we had planned.

    @gadgetmind – I am with you. I definitely see the house as an asset, but either we will continue to live there, downsize because of age (in which case since we would probably move from country to town we would not necessarily release much cash), or need to cash it in because something horrible has happened. In all those cases thinking about it as a current asset is unhelpful. It does not help me make any decisions about investment or spending, it just sits there in the middle distance as part of the “if it comes to the worst” planning. It is not liquid, and I can’t materially affect the value by better management.

    I meet too many people who calculate themselves rich by thinking about the often unrealisable value of their house, whilst severely in debt because of a lifestyle their ‘wealth’ justifies.

  • 12 Neverland July 24, 2016, 2:01 pm

    The thing about a house is that while it does save you from paying rent it does cost money to repair and heat

    A 5 bed detached McMansion like Gadgetmind’s in the frozen north will cost nearly as much in council tax and utility bills as someone like RIT plans to spend a year living off about 2.5% on £800,000 of capital

    If my mental arithmetic is correct, thats only about £1,650 a month

    There is a relentless mathematics to financial independence combined with the UK tax code which dictates that it is very difficult to reach without a frugal income requirement

    Its no coincidence either that actually retired personal finance bloggers in the UK all have generous defined benefit pensions to fall back on

  • 13 WhiteSheep July 24, 2016, 2:28 pm

    @TI – “[…] I do get it’s perhaps helpful from a mental ring-fencing point of view. […] My own strategy […] is […] to live off income and never touch capital.” – Apologies, I am sure this has been discussed many times before, but I am still curious to understand the categorical exclusion of capital drawdown to generate income that seems so wide-spread even in the PF community. I understand there may be many arguments why it may be beneficial to focus on income *depending on the circumstances* (also discussed in the linked article: risk management, diversification, taxes, mental ring-fencing etc, and I suspect to a large degree not having to come up oneself with an adaptive withdrawal strategy), but why completely rule out drawing on capital? (And, although admittedly a very different topic, philosophically it also seems slightly at odds with the reminders not do deal in absolutes that was extolled during the Brexit debate?)

  • 14 The Investor July 24, 2016, 2:38 pm

    @WhiteSheep — I don’t rule out capital drawdown completely, especially for others, and I know for many people it’s necessary. My co-blogger here The Accumulator plans to do exactly that with his early retirement plans. He considers trying to live off investment income to be active investing bunkum, essentially. 🙂 I’d say a majority of comments I read even on this site are pro-capital drawdown (to the extent that I usually get pushback when I mention it).

    That’s why I wrote “my own strategy”. 🙂

    Why it’s my own strategy would take far more detail than I can or should (on a Sunday!) get into via a comment, as you suggest it has been discussed before. My article “The one number…” linked to above pretty much lays out my thoughts.

  • 15 Retirement Investing Today July 24, 2016, 2:40 pm

    “Its no coincidence either that actually retired personal finance bloggers in the UK all have generous defined benefit pensions to fall back on.” Just to clarify I have no DB (generous or otherwise) scheme to fall back on. In my industry that drawbridge was pulled up long before I arrived. I’ll also just confirm that I expect no inheritance nor do I have a BOMAD available to me. Given my age I also don’t expect a State Pension unless I have my planning very wrong and if that occurs it may also require a move back to the UK dependent on the Brexit decisions of our political elite.

    The above is I guess why I have an approach that requires “relentless mathematics”. The stakes are high given the downside of getting it wrong.

  • 16 goldghost July 24, 2016, 4:48 pm

    @gadgetmind and Old-eyes. The house is a difficult one for me too. In theory I could be FI if I sold it and lived frugally somewhere with cheap housing but I wouldn’t feel secure and I don’t like the feeling that it would be an irrevocable decision. Rationally it might have been the sensible thing to do since the rental yield on it is a joke at current prices suggesting it is overvalued and vulnerable for a fall. For me the house represents being able to live rent and mortgage free so avoiding being forced to overwork in a stressful, misery inducing job.

    @Nevermind. I think this way too. To retire I would only feel comfortable with a big safety margin. Too much uncertainty otherwise and it is one thing to live frugally to save but another entirely to have to live frugally because that is all you can afford. Personally I don’t think I will be the type who can maintain peace of mind living off capital. At least not unless I manage to accumulate enough to easily live off the income or get so old that it doesn’t have to last me very long. I will always veer more towards mixing investments with part time work. . I envy my father’s defined benefit pension – he could just sit back and relax and it took care of itself.

  • 17 FIREplanter July 24, 2016, 5:18 pm

    Looking at it from an accumulation phase point of view, I understand property as a much poorer asset class compared to stocks/shares/bonds. It tends to take up too much capital, reduces diversification in the early accumulator’s portfolio, has zero/negative returns if you are staying in it, overexposes the early portfolio to just one asset class, loads of complicated red tape, paperwork, middle man fees to deal with. Does not fit in with the FI plan at all.

    Then again I am not so extreme as to think that I wouldn’t want to own at some point in my life. I think at the right age, w50ith a steady job, a decent deposit and when valuations are reasonable and when it will be not take up more than half of my networth, I shall consider this. Basically needing a small miracle to happen. 😀

  • 18 Marked July 24, 2016, 6:32 pm

    FirePlanter, not sure you can say zero/negative for owning a house, since you live in it you don’t pay rent. There’s a technical term for it I can’t remember nor think of a thread to look it up.

    I know TI rents and I’d love to hear his motivations why since I think he’s a similar age to me so could’ve got on that early to mid 90s train. Almost impossible now in the SE and London.

    I also read RIT’ s blog entry, and great for him, but due to his aspirations of emigrating surely his FI number changed by virtue of the pound being worth less. Yes I understand the assets he holds have improved due currency effects of world diversification, but his checkout number is in pounds and the consumption currency in euros. Personally that doesn’t make sense, and his checkout number should be in euros.

  • 19 zxspectrum48k July 24, 2016, 6:54 pm

    Long time lurker, first time poster. Foremost congratulations to RIT are the order of the day. It must be fantastic not to have to work ever again.

    I’d love to be in RIT’s position and my “stash” (in MMM speak) is much higher than RITs but I feel miles away from being able to FIRE. What keeps coming back to me about most people who that achieve FIRE is that either their spending levels are “frugal” like RITs compared to my family (two adults, two young children), they don’t have children or they have some sort of backstop (DB pension, state pension, inheritance etc). I wouldn’t say we live like kings at all in outer London but £20k is unfortunately a fraction of what we spend and as someone who is in their early 40s, DB pensions and state pensions are just fantasies.

    I am starting to wonder whether FIRE is only really viable if you don’t have children (or you’ve passed on the liability structure they create). Once you account for giving them an education (school and university fees rising far faster than RPI) and paying for deposits on their houses (because they will never be able to buy without you) the retirement planner Monte Carlo throws out a number more in the £5-10mm range! At that level the typical tax wrappers like ISAs and SIPPs are marginal and the rest is taxed so heavily as to eliminate any passive real return on capital. So you’re forced to accept drawdown of capital but at that point longevity risk becomes a big risk.

    Apologies for sounding bitter but has anyone succeeded with FIRE for their family while also leading a pseudo “London-like” lifestyle?

  • 20 Retirement Investing Today July 24, 2016, 6:57 pm

    My number is in £’s as even though I intend to move to The Med I’ve set myself up as a UK investor as I want to give myself a way back if it doesn’t agree with us long term. If after a few years it’s all looking good then I can foresee a gradual reallocation from a £ investor to a Euro one.

    I use a GBP:EUR exchange rate of 1.123 forever in my models which is the worst average annual exchange rate since the currencies inception so providing it doesn’t get any worse than that all is good.

  • 21 John from UK Value Investor July 24, 2016, 9:32 pm

    @zxspectrum48k (Good name – I had one of those)… I whether £1m is enough depends what “London-like lifestyle” means. I lived in London for 35 years and there are a lot of different lifestyles!

    If “London-like” means buying a new Lamborghini every week then £1m probably isn’t going to be enough to retire on. Ditto if paying for private schools and university and house deposits for the kids.

    But if “London-like” means not doing any of the above, even with kids, then I think £1m is plenty, although obviously the bonkers cost of housing and rent in London would be a bit of an issue.

  • 22 Marked July 24, 2016, 10:13 pm

    Zxspectrum48k. Sadly you and I agree on a guesstimate for FIRE. Although the FI bit is nice I’m not sure I would stop working. Do less possibly, do something I enjoy certainly.

    I have two kids, and whilst a number of peers say they don’t pay for their kids Uni fees as they need to learn themselves I think really under the hood they probably can’t afford it. I certainly didn’t have massive debts upon graduation and wouldn’t want my children to if I’m in a position to help. Same with houses. I kid you not my first house is on the market at the moment, and I bought it at 3.5 Times my first year’s salary. If you were to do that today you’d graduate and have a salary on 65k. Of course helping them only makes the house prices higher. Either way if you want to help your kids £1M isn’t enough.

    @RIT glad to see you are being conservative on exchange rates , which with BREXIT will really help!

  • 23 The Investor July 24, 2016, 11:12 pm

    @all — Of course £1 million is enough. The average UK salary is £26,000. I am very confident I could get £26,000 a year income without touching capital, even in current environment, and on better tax terms than a salary, too. (A lot of it could be ISA-d if you’d had your wits about you for 15-20 years. Maybe SIPP-ed, depending on age and plans).

    I agree kids are a complication, though I don’t think impossible. (As I say, £26,000 is the average salary. And plenty of average people have kids. 🙂 But as a childless person I won’t presume too much today…)

    What this always boils down to is: “Is £1 million enough to let me do X, Y, and Z expensive things? Not for me.”

    For someone who is able to amass £1 million anytime unusually soon, X, Y, and Z have probably at least been on the menu, occasionally indulged, and likely often indulged in by friends. (Private school for kids, bigger houses than needed, two foreign holidays a year, fancy restaurant for four once a week, whatever).

    Well no, £1 million probably isn’t enough to retire at 43 and live like a high earner who spends most of their income. 🙂

    I think you buy financial freedom (or early retirement) like anything else. It has a cost.

    If you want to buy it and a *lot* of fancy things (as opposed to occasional fancy things) then you’ll need more than £1 million. But the likes of RIT (or me or TA for that matter) aren’t living like that now.

    Life is good. I’ve just spend two days at a festival. I was trying my new and silly expensive VivoBarefoot shoes that would have cost £149 but I have a 50% voucher for reasons. I ate expensive nonsense like jerk chicken, rice, and peas from a vendor for £6 and hung out with good friends. Wine was consumed. The sun shone all weekend.

    £1 million is fine for me. Your mileage may vary. 🙂

  • 24 John B July 24, 2016, 11:34 pm

    £26k may be the average salary per person, but I guess most people are assessing the FIRE worth required per household, which could easily have an an expenditure of £35k, funded by 1 3/4 salaries combined at £45k

    Of course as you say when drawing on savings the tax position is better than when earning it, and you don’t need to put aside savings towards a pension, but its not obvious when you go over the hill what the new expenditure rate will be, without commuting but with more hobbies. I wish all the FIRE bloggers who report their spending in huge detail on the way towards FIRE did the same afterwards, so we’d have a set of representative profiles for home-bodies and world-travellers.

    I’d guess that if you budget to match pre-FIRE spending after tax with post FIRE income before tax, you’d be about right, given the vanishing costs of employment.

    Mortgages are an example of this, they act as both rent equivalent and savings schemes on the way up, but how do you treat houses on the way down. Are they your inheritance for your children, your care-home policy, or an income stream through equity release?

  • 25 The Investor July 24, 2016, 11:36 pm

    p.s. For the record, I don’t currently intend to ever retire, and expect to always earn some money. However I do want the freedom to do whatever I want and to say goodbye to any employer (/client) on my whim, and £1m is enough for that for me. In reality I’ll do some of those fancy things that need more than £1m to do regularly. I’m not decrying them.

    From Seneca, the Roman stoic philosopher:

    Set aside a certain number of days, during which you shall be content with the scantiest and cheapest fare, with coarse and rough dress, saying to yourself the while: “Is this the condition that I feared?

    Perhaps if you’re struggling with the £1m figure and *want* to imagine making it work for you (I’m not saying you *should*, each to their own 🙂 ) then you might adapt Seneca for a £26K lifestyle every odd weekend.

    Knock yourself out, live like a billionaire… 😉

    In fact on £26K you’ll live better than the average Roman Emperor, in all but a few ways. (Notably housing. Well, and chariots. And slaves. You get my point.)

  • 26 John B July 24, 2016, 11:40 pm

    PS £35k is the about the point where a couple pay no tax using all their allowances, and in drawdown you can assign income evenly, which can’t be done when earning it. And at 3.5% dividend rate, leads back to the mythical £1m we are celebrating for RIT.

  • 27 John B July 25, 2016, 12:00 am

    Me again. http://visual.ons.gov.uk/uk-perspectives-personal-and-household-finances-in-the-uk/ has figures on personal and household income, the most relevant being the £17k RHDI per person

    “Real Household Disposable Income (RHDI) is the total amount of money that households have available after direct taxes (such as income tax and council tax) have been paid, with an adjustment for inflation to allow for comparisons over time.”

    They equate this with £23k per household if you allow for different costs for different household sizes, equivalisation.

  • 28 Neverland July 25, 2016, 9:03 am


    “Of course £1 million is enough.” “p.s. For the record, I don’t currently intend to ever retire, and expect to always earn some money.” Somewhat contradictary no?

    One million is just a number. Our currency been pretty debased. I remember when a packet of crisps was 10 p and Pret A Manger charged £1 for a coffee.

    When you are looking at a 40+ year retirement it doesn’t really look like enough

  • 29 The Investor July 25, 2016, 9:32 am

    @Neverland — That’s your opinion, which you’ve given a few times. I’ve given mine. Putting “really” into a sentence doesn’t make you right.

    £1 million can today buy you the average UK salary, as income, without having to touch capital. More than half the UK population will never see the average salary in their lives, and will live full long lives.

    When people are saying “impossible!” that’s what they’re saying is impossible — life on the average UK salary.

    What they mean is some aspect of lifestyle they like is incompatible with the UK average salary.

    The £1m capital sensibly deployed can be expected to grow with inflation in all but depression level scenarios, if the past 100 years is any guide.

    Yes, prices will rise. So will income from dividends in the capital and so on.

    Yes, £1m is just a number. It happens to fit today. In 20 years you’ll probably need say £1.5-£2m.

    If you want things that £26,000 a year can’t buy (and I happily concede many of us would, and why not) then you’ll need more.

    If you want “Enough capital to cope with all kinds of massive inflationary shocks and whatnot” or “Enough capital to give my multiple kids 20 years of private schooling, pay for university, and then give them £50K each for a house deposit” then yes, you’ll need more than £1m.

    (Um, doh! 🙂 )

    You don’t get to be rich by saving hard and investing as a middle class person and then quitting work at 43. If you want that, you’re going to have to start a business or something similar.

    You can get to be financial independent, however. The numbers clearly work.

  • 30 The Investor July 25, 2016, 9:45 am

    p.s. On immediate reflection my comment “More than half the UK population will never see the average salary in their lives” is clearly mathematical nonsense. (Average will be skewed by young people with low but growing salaries etc.) But the specifics of the UK average salary is not really germane, and I think the point stands. 🙂

  • 31 John B July 25, 2016, 10:13 am

    “More than half the UK population will never see the average salary in their lives, and will live full long lives”

    Lots of problems with that statement. I’m sure we all know the difference between mean, median and mode, but its easily forgotten when bandying numbers around. What period in your life are you considered to be working, as to being a child, student, pensioner or long-term sick. And many people move up and down salary bands with age, luck and disaster. The ONS talk about household income and expenditure, but don’t specify its source, whether salary, benefits or savings.

    Simplistically if you work for 45 years and live for 90, with the state spending £12k p/a on you (see http://www.ukpublicspending.co.uk/breakdown?units=d), and you spending £15k (£17 less VAT) your labour needs to generate 90*(12+15)/45 = £54k p/a when working. A FIRE person hopes they can change that to 30 years working, so their labour should generate £81k, which should be possible with a generally better skill set, or their £1m capital invested in companies can generate 8% returns to the economy, which is still in business loan territory.

    (I did start this by quoting GDP, but as UK GDP is $40k, its not the same measure)

  • 32 The Investor July 25, 2016, 10:23 am

    @John B — Yes, I just acknowledged that John. I was just correcting my error of statement, I don’t think it really changes the main point. 🙂

    e.g. I just brought the UK average salary into it for a talking point because I think it reveals what people are really saying is that for *their* lifestyle it doesn’t work, not that *it doesn’t work*.

    What’s more, in reality I would be looking for about 3.5% from £1m (i.e. £35,000). We’ve already agreed the more favourable tax treatment, too. And that’s before you go into the weeds of no commuting costs, being able to live somewhere cheaper, holiday-ing/buying off-peak, etc etc.

    It can be done. That’s my disagreement with for example @Neverland.

    If people are saying “it can be done but it’s not for me” that’s perfectly reasonable, as I see it. But a different discussion.

  • 33 Marked July 25, 2016, 11:30 am

    Very Interesting discussion.

    I remember in my mid twenties thinking I’d need 3M GBP and my thinking was based on adding to the capital to inflation proof it opposed to drawdown – I was sufficiently dumb at that stage to not think of drawdown. Interestingly I still think the same amount applies for me despite inflation largely due to the fact I’ve got 20years older and thus need less for the years ahead. Is this the old Giffer strategy!

    But…it does ring true that 1M is just a number and whilst I certainly advocate substance over froth, doing froth with substance would be cool. I remember my trip to Disney, Universal Studios, New York, etc and would love to do those things with my children so we have indelible memories. As TI points out its the X Y and Z that perhaps defines what that number could be , and I think kids complicate it massively.

    BTW TI your choice of renting opposed to buying – is that investment strategy or life choices? Or of course none of my business.

  • 34 magneto July 25, 2016, 12:14 pm

    @The Investor

    re ‘The One Number’

    Had to search to find (somehow missed the link).
    But an article well worth reading!


  • 35 The Investor July 25, 2016, 12:44 pm

    @Marked — Me not owning a house is basically an accident of history, with a bit of greed and ineptitude in the mix on my part. I’ve explained why a few times, here’s a recent comment:



  • 36 The Rhino July 25, 2016, 1:17 pm

    I hit FI back in 2013 in my early thirties. Didn’t stop working though as like TI I enjoy it too much and it provides essential variety in the day-to-day. I’m engineering ever greater flexibility with it though over time so it impinges less an less on my extra-curricular activities. My greatest achievement in this respect so far is too have an office only 2 miles from the beach so I can go for a lunchtime surf – it doesn’t get much better than that.

  • 37 John B July 25, 2016, 2:39 pm

    Rhino, as you continue working, how do you handle the extra cash? Do you spend it on fun now, give it to charity, or just squirrel it away? How much of a point of inflexion do you expect when you finally retire?

  • 38 The Rhino July 25, 2016, 2:54 pm

    @JB – I am training myself to spend more, i.e. spend it on fun. I also have a charity business in the pipeline, which i hope to unleash in the next few years. But for sure also squirreling a good chunk away to increase the margin of safety (old habits die hard) – its already pretty robust though. To put it into context my notional FI annual salary is up to about 35k whereas my annual spend is about 25k, and I’ve got my salary on top of that.

    On top, the missus has made noises about wanting to go back to work – which will be another source of cash-flow for the rhino-ltd

  • 39 The Rhino July 25, 2016, 2:57 pm

    @JB I don’t really intend on retiring per se – just to keep evolving the way i use my time, trying to make it more consistent with the things I like doing. – i’m not sure what you mean by ‘point of inflexion’?

  • 40 old_eyes July 25, 2016, 3:26 pm

    @TI – enjoyed the Seneca quote. For Christmas someone bought me “The Antidote: Happiness for People Who Can’t Stand Positive Thinking” by Oliver Burkeman. I really enjoyed it and there are some laugh out loud sections in it. A paean to the power of (moderate) pessimism, with lots of links to Stoic and Buddhist philosophy.

    Not to everyone’s taste perhaps, but I enjoyed it.

  • 41 The Rhino July 25, 2016, 3:33 pm

    @OE – i really enjoyed that book also. Currently reading a trio of books,

    1. The Importance of Living – Lin Yutang
    2. No Beast So Fierce – Ed Bunker (thanks Neverland)
    3. Investing Demystified – Lars Kroijer

    (All from the Library obviously 🙂

    Donald Robertson wrote a nice book on stoicism – ‘Stoicism and the Art of Happiness’, preferred it to the Irvine one, i.e. ‘A Guide to the Good Life’ – although thats still worth a look..

  • 42 The Rhino July 25, 2016, 3:36 pm

    burkeman’s ‘help’ was also excellent..

  • 43 John B July 25, 2016, 3:40 pm

    @Rhino when most people retire both their earnings and expenditure drop. For the latter both commuting and ‘saving for retirement’ costs go, but new hobbies/travel don’t cost as much, and the elderly have lower costs once the mortgage is paid/children leave so 2/3 employment income is considered sufficient. So net wealth gain is gently negative, with the classic annuity tending to 0 at death.

    For FIRE people spending will decline less, so post retirement spending might be 90% of that before, and you’d want income to exceed that, to continue an upward trajectory of wealth until you near ordinary retirement age when you can draw it down.

    Your trajectory is strongly positive, perhaps too much so, as you’ll need to spend it some time. I’m in a similar position, mainly because I moved back into my parents home to look after them, and now my housebound mother pays all household expenses, so my salary is 5* my expenditure at present. The difference is that I hate my job, but its the only one in my field I can do from home while acting as a carer. Only once she dies will I be able to spend money to move or ramp my spending as I tour the world.

  • 44 The Rhino July 25, 2016, 3:54 pm

    @JB thats a tough gig – but as rastamouse would say though, ‘you’re making a bad thing good..’ many lesser folk would outsource that sort of responsibility

  • 45 Planting Acorns July 25, 2016, 4:36 pm

    Re the magic number…I’ve put my weekends picking fruit firmly behind me, but even so, if “I” had 1m saved at 43, I’d retire comfortably at 50. Each to their own.

  • 46 old_eyes July 25, 2016, 5:27 pm

    @Rhino – yes “Help” also has a place on my bookshelf.

  • 47 gadgetmind July 25, 2016, 5:30 pm

    > @zxspectrum48k (Good name – I had one of those)

    I have three “Smashes” under my belt, which is something only those around at the time will understand!

  • 48 gadgetmind July 25, 2016, 5:38 pm

    > in drawdown you can assign income evenly, which can’t be done when earning it

    Not with pensions you can’t. My pension pot is 15x the size of my wife’s so I’ll struggle to keep within 40% and she won’t use her full personal allowance.

    I’ve suggested a strategic divorce but she doesn’t seem keen.

  • 49 The Accumulator July 25, 2016, 6:24 pm

    @zx – I recommend reading Your Money Or Your Life. It’s a great book that can help anyone grappling with the issues of money, freedom, status, needs and wants.

    The ‘relentless mathematics’ (love that phrase, Neverland) of FIRE does force a major reevaluation of life priorities for anyone who really wants it.

    ‘Needs’ get commuted down to ‘nice-to-haves’ then downsized to ‘who-needs-thats?’ once the scale of the task is apparent. It’s the most meaningful self-discovery process I’ve ever embarked on.

    There are other ways to skin the cat. For example, MMM counters that not sending his child to an expensive school is more than offset by being able to school MMM junior himself. Perhaps there’s less need to supply housing funds for the kids if you can be present to help them restore a fixer-upper with all the spare time you’ll have once FI.

    Yet others have made radical changes to their lives like moving to a cheaper country to defeat the relentless maths.

    By way of comparison – my number is £666,000 at a 3% withdrawal rate. That’s £20K per year to cover two of us.

    It’s worth remembering that few FI-ers actually renounce work all together. Most end up earning a bob or two more because new horizons open up. In the case of two of the most celebrated – MMM and ERE – they ended up raking in serious money once they were ‘retired’.

    @ Neverland – I think it’s very human to seek security but you pay a high price for it. There are billionaires out there who don’t have enough because you can’t buy off the worst-case scenario you can imagine.

    The answer is a Plan B. My FI is low compared to the millionaire set but doesn’t include state pension, tapping into home equity, working part-time, cutting expenses during bad times and so on. It’s not Armageddon proof but we should deal in probabilities not certainties.

    @ RIT – a real pleasure to think I contributed in small part to your journey. You’ve smashed it!

  • 50 The Rhino July 25, 2016, 7:14 pm

    @ZX I am a family of 2 adults and 2 kids, no DB pension or any of that jazz.. Don’t live in London though, maybe thats the problem?

    From the outside looking in, the big smoke looks like a laugh for singles and dinkys, but hell on earth for young families (based on a survey of my mates)

  • 51 John B July 25, 2016, 9:27 pm

    @gadgetmind yes pensions are hard to re-allocate. You need to over withdraw up to HRT and pump her pension up to max(her income, 3600) if you can so her later withdrawls use her allowance.

  • 52 BShnady July 25, 2016, 9:40 pm

    While I’m sure there’s someone out there somewhere who on their deathbed was heard to exclaim “if only I’d spent longer working rather than leading a life of leisure and pursuing my own interests”, I’ve yet to hear of them…

    For those of independent means who continue to clock-in because “it’s their passion”, I say, really, honestly? I’d love to know what roles these people perform! If a true passion, you’d as happily be doing it for nothing (or more likely spending money to do it), just as you do for your true interests.

    More likely they’re doing a job still because they need something from it: perhaps the money, perhaps bolstering their self regard or validating their perceived status, perhaps filling the vacuum in their imaginations even, whatever. Sounds to me more like a theoretical “independence” rather than actual!

    So, what are these roles people are so passion about and just cannot bear to stop?

  • 53 Marked July 25, 2016, 9:54 pm


    I honestly know a number of people that work for the buzz, the negotiating, etc. My boss for example is plugged in 18 hours a day, doesn’t need to work at all. Seeing a problem a big corporation has, doing the research, building the team to fix it can be a lot of fun.

    However, coming back to me *if* I was financially independent (I’m not!) I’d still work – definately. Just to keep alive. Probably 3 days a week opposed to 5, so it wouldn’t be work, more pleasure I suppose.

    My Father-in-law became FI in his early 40’s and retired at 50. He is perfectly content with his allotment, and in spring/summer is always down there – he has 3 plots! Each to their own I guess.

  • 54 The Rhino July 25, 2016, 10:21 pm

    @BS – tiny tech startup designing/building niche non-civilian electronic equipment – the exact nature of which I shall keep under the old hat.

    For stimulating the little grey cells I currently have nothing else to touch it. Even running the rhino hedge fund doesn’t quite require the same beans.

    But as I mentioned prior – variety in all things. I wouldn’t want to and don’t do it 24-7.

  • 55 Duncurin July 25, 2016, 11:49 pm

    The Seneca quote also appears in Alain de Botton’s ‘The Consolations of Philosophy’, which is well worth reading (if you haven’t already) for the other consolations it offers.

  • 56 BShnady July 26, 2016, 12:01 am

    If of independent means and therefore having no requirement for money, then why not perform these roles for nothing? Being paid means being answerable to others (the customer), and this inevitably compromises your art.

    Is not the reason payment is sought in these circumstances because it serves as a validation token from one’s peers – boosting self-regard/esteem?

    The next step up Maslow’s pyramid has self-respect trumping this desire for respect by others, allowing one’s art to take precedence, rendering payment irrelevant if not polluting even. But few people have the privileged position – or desire – to pursue that.

  • 57 John B July 26, 2016, 6:49 am

    @BShnady artists and authors have always accepted money for their work, and many of the latter think its an important transition from writer to author when their work is published, as it acknowledges the quality of their work. I don’t see why it should be different for electronic engineers.

    But society doesn’t value their endeavours that highly, so few artists/authors can make a living just doing their passion, hence the second jobs and garrets. But being FI doesn’t mean you have to RE, it means the flexibility to do what you want without financial constraints: art, charity, startups, or just pottering in the garden (my preference)

    Working for a company and giving your salary to charity gives both job satisfaction and benefit to society. Not accepting a wage is actually harmful, as it changes the expectations of the role and causes poorer treatment of others, as the intern system shows.

  • 58 The Rhino July 26, 2016, 7:46 am

    @DC de botton s religion for atheists was also a really illuminating read. Definitely a step on from the militant atheism of Dawkins et al.

  • 59 old_eyes July 26, 2016, 9:07 am

    @BShnady – There is a practical reason to charge for your work, particularly if you are in the advice game in any way. It appears sadly that many people value advice and other service work at what they pay for it. One way of not wasting your time, even if you are passionate about the project, is to make sure the people you are working for are paying the going rate. If they have skin in the game they are likely to take it seriously and not mess around.

    It is one of the reasons why many grant schemes for innovation (UK and EU) require the the recipient find part of the money. If it is free they may not strain every sinew to make the idea work (I know, strange, but people are…), if they are carrying some of the cost you get more effort.

    It seems to be some weird feature of human psychology and nothing to do with rationality.

  • 60 BShnady July 26, 2016, 9:12 am

    John B, you’re describing the normal seeking of prestige and peer recognition that shapes people’s lives. I’m describing the potential to step beyond that. Perhaps we’re on different wavelengths here so shall bow out.

  • 61 gadgetmind July 26, 2016, 9:21 am

    We pay interns (one year placement students) around £17k pa, which is more than minimum wage. We then sponsor the good ones during their final year and just today had another come back after this to start full time for us.

    I’m sure some would work for us for free (and many work on open source projects in their spare time) but we just don’t do business that way.

  • 62 The Rhino July 26, 2016, 10:08 am

    @BS I think your right in as much as a giant leap is taken when you start to seek self approval and value that far more highly than the approval of others. Others call it keeping your own scorecard, or getting intrinsically rather than extrinsically motivated. You have to be disciplined though – its not just a means of dropping standards because you’re doing the marking. If anything its the point at which you step it up a gear in that respect. Your not going to get very far if you rely on others for self-worth. Recipe for long-term unhappiness.

  • 63 JonWB July 27, 2016, 2:00 pm

    @zxspectrum48k ISAs and SIPPs are not marginal even if aiming for £5M – £10M. Right now, for 2 (working) adults and 2 children, it’s nearly £140K per tax year that can be added into tax wrapped accounts for the family (if both adults have good salaries). Compound that at 7% and you get to £5M from a standing start in 19 years.

    We are a family of 4, adults both 40 who work in London and commute from just outside M25 from a modest house, both work full time(ish), children in state primary schools, never had a nanny (we could afford one, but purposefully didn’t get one, it then forces us to work less and see the children more), never had grandparents closeby to help with childcare. No DB pension, no inheritence, no property windfall as such (we bought in 2006, have equity in the house, but haven’t had to use it to subscribe to tax wrappers).

    We tend to spend on experiences as a family. We’ve been to Bali, Cape Town, West Coast USA and Sardinia in the past year, but I put time and effort in to make it cheap/good value even though we are constrained to school holidays. We don’t acquire much stuff – nothing done on the house in 10 years, car is 10 years old, one car back door doesn’t lock properly (that is a bonus, impossible to lock the keys in the car!).

    It’s a challenge to generate the cash to fill all of the tax wrappers each year (especially as the ISAs have been bumped up a lot from the £7K threshold which is where they were for a long time). But we have managed it with good jobs in London. It will get much harder though, for those that follow. Things like student loans, much higher housing costs, loss of child benefit all make a big difference. For many there will be a lower increase in earnings as well.

    At times we’ve had to get creative, such as a strategic redundancy to release a windfall, borrowing 0% on credit cards to timeshift capital to meet end of tax year deadlines, some work on a side business during maternity leave etc.

    If we continue on this path, I fully expect to reach the £5M – £10M range in tax wrapped accounts by 50, having started 10 years ago from a very low base. We are well into 7 figures in tax wrapped accounts already. I invest actively and it’s very concentrated/specialised but unrelated to my professional work, something I stumbled across by accident.

    For the past 6 years, tax wrapped investment returns have exceeded combined post tax salaries in each year for us. Every year, I say it can’t continue, but somehow it has. Whether this is luck, judgement or skill, or a mix of all three, I do not really know (or care). Whilst it was extraordinary to hit this to begin with – less than four years from starting – the reality is it will only take a 5% return this year to beat our combined post tax salaries.

    Whether we will choose to continue living this life for another 10 years is an entirely different question. At various stages we have been at the absolute limit of what works and had to readjust in various ways (but we know this is also the reality for lots of families with young children, regardless of FIRE or not). We could, quite easily, keep our current life minus employment since we have high ISA balances as well as high SIPP balances.

    However, like others have alluded to, I’m not sure that is what we would want to do. The option to quit at any stage is great and the best insurance policy against being given s*it from an employer. Once they know you have capital and are not dependent on the salary they provide, in my experience, things change quite a lot. You can say no when others feel they can’t.

    We definitely feel the extra 10 years of age in terms of tiredness now we are 40. There will definitely be more emphasis on managing our health and wellbeing in the next 10 years. I suspect we may settle into working 3 days per week and be very particular about what work we do and when.

    This journey for FIRE (not that I knew it was called that at the time) started in 2006. It came about because I was worried about what I would do if I didn’t like working for my employer (or I was made redundant etc.). At the time I was getting married and we were planning to have children. As it turns out, I still like working (and in fact, probably more now than 10 years ago – especially now promotion is off the agenda as it just doesn’t matter, the last thing I want is more responsibilty at work).

    Whilst I had doubts that both my wife and I would be able to continue working in London and commuting with children and no grandparents to help, with good decisions on where we live and actively managing our employers, it was possible for us.

    I suspect you hear less about those with young children going for FIRE as they are possibly more time constrained than others. The bit where they inform the FIRE community about what they are up to is likely a task they never get to on their to do list.

    There are some very good wealth planners who charge by the hour (not that I have used any). There are probably more families filling up their tax wrappers each year than you might expect (so working towards FIRE, without being part of the community as such or knowing what it is). I was surprised at the conversations down the pub when our employer started a new salary sacrifice pension arrangement last year. There were more than I would have expected having high levels of SIPP contributions.

    Who knows, in time, we may just decide to switch it all to invest passively. There is certainly a lot to be said for generating market returns (whatever they are) for next to no effort, then using the time saved for something else. I’m not sure I’d ever entrust someone else to invest actively on my behalf. Possibly as a tactical play, or something active with a huge discount on net asset value. I might stretch to active investment via a partnership I was part of.

  • 64 grislybear July 27, 2016, 3:18 pm

    @ TA 666,000 at 3% withdrawl rate 20k pa. Great in theoty and devilshy nice. I read a lot of proposals like yours but I cant find anyone who has actually put it into practice for say 20 years and can provide actual figures for each year. Im not interested in the millions funds its funds like yours that interest me for my own situation. All the best for your future,

  • 65 The Investor July 27, 2016, 3:20 pm

    @JohnB — Great comment, thanks for sharing the detail (and congratulations!)

    I expect your euphemistically “good London salaries” put you outside the scope of a majority of readers, but equally into a large minority of London-based readers.

    That’s one of the downsides of a forum such as this, where so many people are discussing effectively the same thing from such varied positions of strength/weakness, responsibilities, and expectations. One persons challenging sum to find to fill tax wrappers is another person’s outlandish fantasy salary. 🙂 So people can easily talk at cross purposes.

    On the flipside, it’s also a great way for people to mix with people at different ages/stages and in different places in life/careers/financial journeys. Real-life is more segregated, at least when it comes to actually talking about money stuff in the UK I feel. (e.g. Family members might be all sorts, but tricky to discuss without alienating or envy or whatever, depending on where you and they are coming from.)

  • 66 gadgetmind July 27, 2016, 3:54 pm

    @JonWB – Sadly the ever-shrinking Life Time Allowance for pensions is likely to become a serious problem for you. I could easily hit my head on it myself in 2018 and am considering dropping my Salary Sacrifice down to give myself room to manoeuvre and using VCTs to address the nasty tax problems this will cause. If I don’t do this, then I might need to apply for individual protection and stop even employer contributions!

    The other alternative is to up sticks and move elsewhere so you can contribute under a pension system other than the UK one.

  • 67 JonWB July 27, 2016, 7:34 pm

    @TI – I am hoping @zxspectrum48k sees my comment and it motivates them to give it a go (if @zxspectrum48k wants to shoot for £5M – £10M, that is). RE: “good London salaries”, I would expect your comment to be spot on.

    @gadgetmind – I am becoming more sanguine about the Lifetime Allowance (LTA).

    I can’t see it surviving 35 years, which is when I’m forced to take the 55% hit (under the current rules). I don’t think I’ll need to draw on it (over the LTA, whatever it is set at) because of the ISA balances we have. So, bizarrely, the LTA might be a very good thing for us. I suspect it is doing the job (if rather bluntly) in terms of stopping contributions into pensions for nearly everyone else with large pensions balances, but I’m looking beyond it on a longer time horizon. If I’m right, my gut feeling is that it will be quietly dropped within 10 years of the higher rate relief going. If not, I’ll gladly cough up 55% above whatever the threshold is at the time. I’ve had close to 55% up front relief through salary sacrifice and the tax free compounding is a real benefit.

    I’d like to see some really bold initiatives from the government, rather than tinkering at the edges. We need stuff that will make a meaningful fiscal difference and not just on those that are entering the workplace. My two favourites are:

    Capital Gains Tax falls due on an annual accruals basis for residential property. Staggered catch-up. Only exemption is principal primary residence, where some deferment is allowed, those with multiple properties have to cough up or sell – their choice.

    State Pension changes to a loan on the same terms as Student Loans. Interest accrues at RPI + 3%, written off after 30 years, pensioners pay 9% over £21K of earnings. Debt is repaid in full out of your estate if you die within 30 years before you pass on inheritence, exemption for rollover on the death of the first spouse.

  • 68 zxspectrum48k July 27, 2016, 9:52 pm

    @JohnB. I admit that prior to getting married, the management of our personal finances was non-existent (no ISAs, no AVCs, no Sipps etc).

    Since 2009, however, we’ve fully utilized tax wrapped accounts. Of our £3.5mm portfolio (excluding an unencumbered primary residence), 60-65% is tax wrapped. The problem is that further pension contributions are not available or useful to us. I felt it necessary to take LTA fixed protection at £1.5mm on my larger pot. With 15 years before access is available, annual returns of 5% would now take me above the cap. Meanwhile, my wife meanwhile hasn’t worked since we had children 5 years ago. Contributions to her more limited pension pot would provide essentially 20% tax relief given her investment income. I’m marginal on adding to a pension for 20% tax relief since the gross-roll up would have to outweigh the risk that distributions might be taxed later at higher rates.

    We’re using offshore life insurance bonds to create another tax-wrapper but this product costs 40-50bp in fees. I’m fearful of adding further to it simply because I think the HMRC will eventually come after them. I also note that PF/FIRE websites never mention them which is worrying. This leaves only ISAs available to us, which at £40k (2xISA+2xJISA) is only really 1% of the current portfolio. Hence my use of the word “marginal”.

  • 69 The Rhino July 27, 2016, 9:54 pm

    ‘tax free compounding is a real benefit’ – is that mathematically sound? I’m not sure it is.. I remember discussions about this subject re: ISAs vs SIPPs, i.e. pre and post taxation and TA showed that it made no difference assuming your not getting some arbitrage on marginal tax rates..

  • 70 The Rhino July 27, 2016, 10:34 pm

    ah rereading perhaps you weren’t talking SIPPs v ISAs, rather wrapped v unwrapped?

  • 71 JonWB July 28, 2016, 8:27 am

    @The Rhino – Yes, I’m coming at it from wrapped vs unwrapped and not ISA vs SIPP. Sorry, I should have made that clear.

    @zxspectrum48k – Not much encouragement needed, it would seem, you are doing great!

    A few things that might be of interest.

    I take the LTA charge of 55% (or any tax rate on whichever part of the pension in terms of tax on the way out) and recalculate that as an annual capital tax. I just find that easier to get my head around. If I’m 40, then if forced to take the 55% tax at 75, this is identical to an annual capital tax of 1.26% on whatever contributions are going into the SIPP that year at 40 (since 1.26% compounded tax free for 35 years is 55%). That is a worst case scenario (big assumption that the LTA doesn’t go down again, of course). I can also do it factoring in the up front tax relief, which clearly reduces that further (or at various points, such as the £100K – £122K 62% marginal tax zone, actually provides a benefit even when 55% tax charge is applied coming out the other end).

    For your wife, say it is 20% relief on the way in and 55% tax on the way out (unlikely it will be above the LTA, but still, useful as an example). Over 15 years, that is an annual wealth tax of 2.02%. However, if it was over 30 years (because it isn’t touched until 70), then it is 1.00% which is much better. So, it isn’t just the difference in tax rates on the way in and way out, the big factor is how long there is until it comes out of the pension. Whether that 1% annual wealth tax (worst case scenario) would be worth paying for the tax free roll up probably depends on how you are investing, what the outlook for returns is and how much (pension change) risk you want to take on and whether in your circumstances, access to that money really isn’t needed. If it’s index investing and rebalancing, then probably not worth it, but if it is active stock picking and holding for typically 2-3 years at a time, then it probably is. I just find that this is a much more useful way of evaluating whether to contribute to a pension or just stop, than looking at say 20% up front relief, 40% tax on the way out. It’s also why I think everyone needs to consider ISAs and SIPPs in the round. I wouldn’t be locking money up in a SIPP now unless I had the large ISA balances already. Having the large ISAs mitigates the compulsory lockup periods in the SIPPs.

    I’m clearly taking a big calculated risk in allowing the LTA to drop to £1M (and potentially further), but I’ve gone into it with my eyes open. Ironically, I probably would have stopped and taken Fixed Protection if I thought most others with high balances would carry on contributing and ignore the LTA. It’s the fact that I’m confident that I’m in a minority and the LTA and Fixed Protections are an effective deterrent (if rather blunt), coupled with a 35 year window for it to be dropped in my situation (or some other change in my favour to come along that I have the option to exercise) that emboldened me. Who knows, they may change the tax from 55% to say 75% above the LTA, in which case, I’ll be a big, big loser in deciding to continue contributing. Likewise, the loss of higher rate relief, following just a few years from the precipitous drop in the LTA, is again an issue which changes the picture. Maybe I can escape that as I contribute it all through Salary Sacrifice, maybe I can’t.

    There is a product called the sunlife family SIPP supplied by AXA. It provides you with a family SIPP account, where the apportionment of gains can be applied independently of the individuals assets. So any contributions/transfers are anchored to the individual, but gains from that individuals assets in the family SIPP can miraculously appear in another individuals account within the family SIPP. To me, it sounds like a prime candidate for HMRC to come knocking in years to come with a demand for a hefty tax payment. For many (including me), I’m not sure it passes the smell test. Even so, worth a mention, but in no way a recommendation.

    There is QROPS. You can crystallise against the LTA now at 40, then it rolls up tax free as the LTA isn’t retested once it is offshore.

    It sounds like a family investment company might be useful for you. The idea behind this is you setup a ltd company, different share classes for yourself and your spouse. You then loan money to the company. Company makes investments with the loans. Broadly speaking, everything is chargeable to Corporation Tax (18%), but then you can pay a salary to your spouse, can take income from the loan to the company in your wifes name, pay dividends etc as you see fit, make direct pension contributions if your spouse is an employee. It’s use has been limited somewhat by the recent changes to dividend taxation, but even so, I like being able to separate my personal tax affairs (which is just salary) from my investment tax affairs. After the mainstream tax wrappers (and I don’t use VCTs), this is possibly the next best available option.

    I’ve not looked at offshore life insurance bonds (although I am aware of them). I suspect that the reason PF/FIRE community in general doesn’t cover offshore life insurance bonds is because you have to go a long way down the list to get to them, having filled everything else. For the masses, ISAs and pensions (and then possibly EIS, SEIS and VCTs) covers the job lot.

  • 72 MyNamesEccles July 30, 2016, 4:57 pm

    Reading all the comments above it is obvious that the range of personal circumstances, spending habits, retirement aspirations etc. is huge. Having said that, anecdotal evidence of just what amount of retirement cash is needed has some value.
    I am 72, retired so therefore have no mortgage, children commitments, etc. We live in one of the most expensive places on the planet: Hong Kong.
    We nevertheless live very modestly not counting about 3 good holidays a year and dining out a couple of times a week. We rarely buy “stuff” because of lack of interest. Our total expenditure over the last year has averaged £46,000, well within our income. With a much lower cost of living in the UK, London property excepted, our expenditure would be significantly less than £40,000 which would be a reasonable gross dividend income from £1 million. Allowing for a safety fund, etc., I would envisage having no difficulty in living off a £1m fund in my native small town Scotland……….. but we are all different.

  • 73 Anon August 15, 2016, 4:22 pm

    I am a little amused at the £1M pots that people are talking about needing.

    To give you some context, I retired 3 years ago. I had my house paid off and £280k worth of investments that yield an income of £9,800 a year. Today the same investments with minor tweaking is now worth £360k and is providing an income of £12,200. Without dipping into any capital, my wife and I have managed to raise 2 children, run a car, eat well, and take a foreign holiday without any other income. Naturally, things were tight in the early days, but we always got by. When your income is tax sheltered (thanks to the ISA) and you don’t have a mortgage (we retired to a cheap part of England), it’s amazing how little you can live on.

  • 74 gadgetmind August 15, 2016, 4:39 pm

    Fair enough, but imagine someone who’d tried the same in 2008. Their capital values would have plummeted, income would have dropped drastically as dividends were slashed, and “tight” would have turned into “too tight to mention”.

    Well done on the frugal living, but not everyone wants to be quite so frugal, and we all need a buffer to cover the bad times.

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