I have a confession to make. I’ve unFIRE’d myself. For the last six months, I’ve taken on so many paid projects I’m effectively working full-time.

I’ve always done some work since declaring FIRE. Including Monevator, those side projects have kept me slaving over a hot laptop for two or three days a week.

I enjoyed a balance that:

• Anchored my week
• Made the freedom of my other days taste like ice-cream
• Provided a trickle of pocket-money to blow guilt-free

But this is different. I returned to work because I needed the money. And this extra work is squeezing out time I’d prefer to spend on other things.

What happened? Did I miss my old 5.30am starts, back-to-back meetings, and ridiculous targets plucked out of the P&L owner’s backside?

NO!

Renovating the house happened. Doing up our money pit turned into a black hole of unforeseen expenses. A swirling vortex sucking in everything with a pound sign on it:

• The war chest I’d initially set aside for the fix-uppery
• All our extra pocket money
• Then, finally, the bridging cash that was tiding me over until I could raid my SIPP

Cash and burn

I don’t want to make it sound like I was an innocent victim in all of this.

Sorting the house could have been done more cheaply. Shortcuts could have been taken. We could have papered over many of the cracks and crossed our fingers. The final result could have been less ‘nice’.

Mrs Accumulator, for one, did not want me to burn the bridging cash.

But I argued for a different perspective:

This is our forever home.

We spend a lot of time in it.

We love it.

Our property is very old. It has a lot of problems we can resolve here and now (probably).

The interior is just dying for want of TLC.

So let’s just fix everything we can in a one-er. Let’s make it look the way we’d talked about on so many walks, late evenings, and envious Internet browses.

Let’s feel really good about living here for the rest of our lives.

And if we have to compromise anything, then let’s not compromise the house. Let’s compromise my FIRE status for a time. FIRE will keep. I can come back to it.

Mrs TA was not won over, but she reluctantly agreed. And she does love the final result. As do I.

So I think it was worth it. Even though I’m still feeling the heat of the backlash.

FIRE alarm

Part of the heat came from The Investor. He gave me a proper grilling about my U-turn.

“Is FIRE not all it’s cracked up to be, then?”

“Are you secretly missing work?”

“Has inflation made a mockery of your numbers?”

Here’s how I feel about it:

Unretirement shouldn’t take more than a year of my life, if I’ve done my sums right. (That’s a sizeable ‘if’.)

Also, I’ve got something I really wanted out of it. A home I’m very happy with, and that I’m loving living in every day.

The work itself is fine. It’s not like my old job. No 5.30am starts, back-to-back meetings, or ridiculous targets. And I’m working for some very nice people. It’s been fun to meet them all. I enjoy working with them.

I choose my hours, I’m given all the autonomy I could ask for, and there’s no commute.

For all those reasons, this doesn’t feel like the grind I previously escaped from.

The problem with my old gig was that it took everything I had and I only felt like I lived in the holidays.

The current arrangement still means I can goof off whenever I like, as long as I get the job done.

Burning my bridges

I’m not pretending this is FIRE. It’s not. There’s only seven days in a week and I’ve lost the balance that FIRE gave me. But I should have recharged the savings account after 12 months, and I’ll be able to rebalance my life again.

For what it’s worth and to address TI’s main point, I’m not worried about inflation now that it’s subsiding. Our underlying portfolio can still support the income Mrs TA and I need.

The only hitch is it’s all locked up in SIPPs and I can’t personally touch mine for [*checks watch*] two years, a few months, some days, and 43 seconds.

Keep the faith

So there you go. That’s what happened.

I’d like to add that – when I was working towards FIRE – I got very disappointed whenever someone in the community went back to work. I suppose it made me worry that FIRE was a mirage.

I don’t think FIRE is a mirage. If you’re on the FIRE path then I say – loudly – “stick with it!”

I’ve gone off-piste for personal reasons related to my values and circumstances. I’d rather not have to, but I’ve temporarily sacrificed FIRE to achieve a goal that I hope will make me happy for decades to come. I think that’s a fair swap.

Take it steady,

The Accumulator

P.S. Our FIRE budget for 2023-24 was £27,600 for two. Actual spend minus one-off renovation costs: £26,200. 

What caught my eye this week.

A year ago, we added membership to Monevator. Our Mavens and Moguls memberships are basically two tiers of special members-only content, like you see with the wildly-popular SubStack newsletters.

I won’t deny I was nervous about launching this.

Yes, I’d spent nearly two decades collecting hundreds of ‘thank you’ emails from readers – vastly more than for any other work I’ve done – and I’d turned down lots of unsolicited offers of cash, whether to support the site, or to buy my co-blogger @TA some thermal socks.

But we’d been free forever. Moreover we’d spent those years urging readers to save reflexively and to spend wisely. Not to mention we were in a wicked cost-of-living crisis. Or that we needed this new business model to work to keep the lights on at Monevator Towers.

So I wondered if we’d be writing articles exclusively for my mum to not read twice a month.

Happily I needn’t have worried.

My mum still doesn’t read our Monevator member emails. But many hundreds of you do. Nobody has to sign-up to pay for content in a tough media world where everyone is now asking for subscriptions, but loads of you guys have.

After a year in which countless more independent websites have thrown in the towel, we’re still standing.

We can’t thank you enough! Every member is ensuring the future of Monevator.

Content to please you

Happily I’ve enjoyed the content side of membership, too.

The Accumulator can nerd out even more so than usual – free from the tyranny of search engines – and Mavens has motivated him to start a new decumulation model portfolio just for members.

No small commitment given he’s been managing the original Slow & Steady for 15 years already.

Meanwhile, with Moguls I’ve been exploring some of the naughty active investing strands I originally started Monevator to pull on, before deciding to be responsible and to triple-down on highlighting passive investing into index funds as the best solution for most people.

My Moguls articles are far too long – the lengthiest over 5,000 words – and partly because of this the publishing schedule isn’t rock solid. But the feedback to my pieces, Mavens, and guest star contributions from Finumus have all been very heartening.

Frankly, a membership newsletter feels like blogging in the good old days.

There’s no thousands of daily spam comments and emails. The discussion threads are entirely positive and constructive. There are no trolls. And it’s so much nicer writing for real people happy to support you with a few quid a month than for search engines – let alone for AI training models threatening to do away with you altogether.

It’s tempting to make Monevator members-only and to switch off the free content. Life would be easier.

But then I remember why we actually wrote those 2,000-plus free articles in the first place. And also all those thank-yous from people we (or let’s face it, mostly @TA) have helped into the world of investing.

The good vibes still far outweigh the frustrations.

Besides, I know that many of you who signed-up for membership are explicitly supporting us not only for yourselves but also to help us to get the sensible investing message to as many as possible.

Which is both incredibly generous and an executive order for us to keep at it.

Any other business

A couple of quick housekeeping reminders on membership, as it’s been a while.

Firstly, if you’re having any sort of log-in problems it will almost certainly be a cookies issue or because you’re using an ad-blocker.

The membership software needs to use cookies to tell you’re logged in. And there are no ads for members browsing the site anyway.

So far in every case enabling third-party cookies, deleting stored cookies, and/or disabling the ad-blocker for Monevator has solved any log-in problems.

Secondly, there are still a couple of dozen members who are not getting member emails. Some may prefer to read us on the website. But I’m sure others would rather be getting our content in their in-box.

The solution here seems to be to make sure you’re signed-up to our free emails. Use this link to ensure you are. If you’re still having problems then please let me know via our contact form. I can then get you manually re-added to the email list. GDPR regulations mean I need your explicit permission to do so.

Remember there are dedicated Mavens and Moguls article archives.

Finally, I’m thinking of adding a Discord discussion forum for Monevator member investing chat. Do you think you would use it? I’ve resisted calls to add a forum due to the admin headaches, but it might work with members.

Okay, thanks again everyone who signed up for – and renewed – their Monevator membership. You have made all the difference!

Have a great weekend.

[continue reading…]

Many Monevator readers rightly strive to shave tenths of a percent from the running cost of their portfolios. But some people – especially wealthier savers – ought to think even harder about tax-efficient investment.

That’s because the impact of paying taxes on share gains or dividends can dwarf all your cost-curbing in the long run.

Which is precisely why I bang on about mitigating your tax bill more than is entirely seemly.

Investment tax in the UK is a rich person’s problem

If you’re paying capital gains tax (CGT) on profits from share trades or on dividend income, you may be throwing away money.

For a minority of investors, regularly paying taxes on investments is inevitable. Perhaps they’re wealthy enough to have money leftover outside of their tax shelters, for example, yet not loaded enough to call on the UK’s legions of tax specialists to get creative.

But those lucky few aside, most of us can postpone, reduce, or even entirely avoid paying taxes on our investment gains by using ISAs and pensions.

We can also become knowledgeable about taxes on dividends and bond income, and hold our different assets in the most tax-efficient way.

If needed we can even judiciously manage our capital gains and losses every year on unsheltered assets, and defuse gains where possible. (Albeit the scope for the latter has been much reduced by the whittling away of the annual CGT allowance).

Like this, even if you can’t escape paying taxes on some of your investment returns, you might still try to delay the bulk until you’re retired, when you’ll probably be taxed at a lower rate.

How tax reduces your returns

How big a deal is paying tax on investments anyway?

Let’s consider two investors, Canny Christine and Flamboyant Freddie.

(Sorry if these names are too cute. As members of the Financial Writer’s Union we’re officially required to pick kitschy sobriquets when illustrating long-term returns with an example.)

Let’s assume Christine and Freddie both inherit £10,000 each. Nothing to be sneezed at, certainly – though Freddie isn’t against shoving a crisp £10 of it up his nose in the right circs – but also not enough to see HMRC unleash a plainclothes officer and a tax evasion detector van. (Not that we’ll be suggesting anything dodgy, of course.)

Now, when it comes to tax Flamboyant Freddie can’t be bothered to know.

Freddie thinks ISAs and pensions are for people who buy Tupperware in bulk from mail order catalogues. He regularly turns over his shares in a no-cost share trading app. He boasts about his wins to his friends who put up with him because he’s always good for a pint.

Freddie is my kind of drinking buddy, but he’s not my kind of investor.

Enter Canny Christine.

Christine uses ISAs from day one. She can easily put the whole £10,000 into a shares ISA right away, meaning her investment is entirely protected from tax forever more. And so she does just that

What happens to their respective loot after 20 years?

Two decades later

Everyone’s tax situation is different. The rate of tax on dividend income and capital gains depends on how much you have and what you earn. There’s no point me doing specific calculations.

Tax rates change all the time, too.

So let’s simply and arbitrarily assume:

• Our heroes each make 10% a year returns. We’ll ignore costs.

• Freddie pays tax on his returns at a rate of 25% every year.

• Canny Christine has no tax to pay.

Here’s how their money compounds over 20 years:

Year	Freddie (taxed)	Christine (no tax)
0	£10,000	£10,000
1	£10,750	£11,000
2	£11,556	£12,100
3	£12,423	£13,310
4	£13,355	£14,641
5	£14,356	£16,105
6	£15,433	£17,716
7	£16,590	£19,487
8	£17,835	£21,436
9	£19,172	£23,579
10	£20,610	£25,937
11	£22,156	£28,531
12	£23,818	£31,384
13	£25,604	£34,523
14	£27,524	£37,975
15	£29,589	£41,772
16	£31,808	£45,950
17	£34,194	£50,545
18	£36,758	£55,599
19	£39,515	£61,159
20	£42,479	£67,275

(Note: You can also envisage this by comparing annual returns of 7.5% and 10% using a compound interest calculator).

Paying taxes on gains every year makes a stunning difference:

• After 20 years, Freddie’s pot is worth £42,479. He feels pretty good about quadrupling his money, thank you very much.

• But Canny Christine has £67,275!

Christine has an enormous 58% more money than Freddie. That’s entirely due to her prudence in sheltering her portfolio from tax.

Even if Christine’s returns were taxed in the end – maybe if you were modelling pensions not ISAs – and at the same rate as Freddie, she’s still ahead.

A 25% tax charge on Christine’s £57,275 investment gain takes her final pot down to £52,956.

By deferring her taxes and keeping her capital unmolested to grow until Year 20, she’s left with very nearly 20% more money in her pot than Freddie.

Tax-efficient investment in practice

This theoretical example isn’t over-burdened with realism.

In reality, returns from investment – and hence whether and how you’re taxed – won’t be smooth.

Most investors will invest far more than £10,000 over their lifetimes. So capital gains tax and dividend tax will become more of an issue as portfolios grow.

An investor’s personal tax profile will also change over time. Not least due to investment gains and dividends if they invest large amounts of money outside of tax-efficient investment shelters! But also because they’ll probably earn an increasing income at work.

Most salary earners who are canny enough to start investing in their 20s will end up as higher-rate taxpayers. And tax rates than might seem trivial as a basic-rate payer, such as dividend tax, ramp up with your salary.

Gimme shelter

So don’t get obsessed about the details above. Again, everyone’s exact tax profile and financial journey will be different.

Instead focus on the takeaways:

• Paying tax on dividends or share gains can take a big chunk out of your returns.
• Most of us can and should use ISAs or pensions. We might be able to shield all our investments from tax, or at least postpone taxes until retirement. (Part of your pension withdrawals will almost certainly be liable for income tax eventually, niche scenarios aside.)
• Those with large sums invested outside of ISAs or SIPPs should read my articles on defusing capital gains and offsetting gains with losses to lessen the pain.
• Big into your cash hoard? At the time of writing gilts can be more tax-efficient investments for higher-rate taxpayers, as opposed to relying on cash ISAs. Switching up could free more ISA space up for assets such as equities or higher-yielding bonds.
• Think about the return on paying off your mortgage from a post-tax perspective. The ‘return’ of even cheap debt reduction may be higher than the taxed return from unsheltered cash.
• Are you maxing out your ISA allowance and yet you can’t or don’t want to put more into a pension? Then think hard about which assets you should really must shelter, versus those better able to withstand taxation. Capital gains tax, for example, isn’t due until you sell an asset and book the gain. You might be able to buy and hold some kinds of investments – properties, companies, investment trusts – and defer capital gains for decades. (Note that accumulation funds are liable for tax on their income though).

Pensions are more tax-efficient investment wrappers than ISAs

The core tax benefits of ISAs and pensions are theoretically the same. But pensions do have a few perks that make them slightly more attractive from a tax perspective – crucially the tax-free lump sum, and for higher-earners the likelihood of paying a lower tax rate in retirement – at the cost of restrictions on accessing your money.

For my part, I use a mix of ISAs and pensions. But I’ve begun to favour the latter with new money as I’ve inched closer to the age when you can access a private pension, and also as the old pension constraints were loosened.

A tax-efficient investment strategy is not too taxing

Hopefully you think this is all perfectly obvious and you already use ISAs and pensions yourself.

Subscribe to Monevator if you’ve not yet done so. You clearly belong here!

However I do sometimes still hear people saying they don’t need a tax shelter – often flagging small initial sums or extra admin hassle as justification.

This is wrong-headed. If you’re going to be a successful investor, you need a tax-efficient investment strategy from day one. It will benefit you many decades down the line!

Note: I’ve updated this article from 2012 to reflect our shining modernity in 2024. But the reader comments on Monevator have been retained, and may reflect out-of-date tax law. Check the comment dates if you’re confused.