Monevator: The UK's leading website for private investors

Weekend reading: earning learning

by The Investor on May 27, 2023

What caught my eye this week.

The results are in from last week’s poll (now closed) and in news that will shock no one, it turns out that the readers of a personal and investing website are in general earning much more than the average UK citizen.

Over 2,000 of you voted – thanks! Your votes confirmed that a majority of Monevator readers pay higher-rate taxes:

Indeed going by the poll results, more than a fifth of you pay additional-rate taxes.

That high score does slightly surprise me. The figure nationally is around 1% of the adult population.

Perhaps higher-earners are more likely to want to tell us about it in polls?

And maybe I should cajole Finumus into writing more mundane stuff about household accounts for the very wealthy among you?

Or maybe not: he’d have you putting the family home into an offshore vehicle that you securitise on the Moldavian Stock Exchange by teatime…

How much?

I’m often surprised by how much some people earn. Blame my long years of Bohemian living like a graduate student – plus my multi-decade avoidance of the office.

In a standout example, I learned this week that an old friend took home £600,000 last year.

I knew he was world-class at his job, and that his employer is the best in the field. But that field is not financial services – nor money-laundering, racketeering, or producing hip-hop records.

And my friend is a wage slave (still 15-hour days in his late 40s, he claims, at times) not an entrepreneur.

A bit more interrogation revealed 2022 was an outlier thanks to some massive bonuses, but still.

We were talking about general investing, and as my friends tend to he’d asked for some thoughts about something. In the subsequent conversation I’d guessed his salary – I thought generously – at about £150,000.

He looked at me without saying anything for a moment. Not unkindly.

Everyday high earners

Are you feeling hard done by? Remember my friend is an extreme outlier. Nearly everyone earns a lot less.

An annual salary of just over £60,000 a year puts you in the top 10% of wage earners:

Source: Statista

At least I think it does. Unfortunately Statista restricts access to the source for this data to subscribers; I presume it’s from the ONS.

Note that if you randomly Google around, most reports discuss ‘household income’. That includes all sorts of non-salary income – and in many cases the earnings of multiple people.

Cheap cuts

It was my friend’s turn to be shocked when I said I’d only paid higher-rate taxes in a handful of years. Even after I explained I’d used SIPP contributions to mitigate the impact.

My friend has been prudent with saving and investing, and is no spendy oligarch. Lots squirreled away, mostly lives in a two-bed flat – though there is a holiday home and buy-to-lets – and one where the kitchen has been unusable for a year (another story).

Nevertheless, we were speaking a totally different language on income. I was in mild shock for the rest of the evening; I think he was in turn unsettled by my earnings profile, too.

He’s now looking to downshift his family’s life or even to retire – our conversation was basically about ‘the number’ – and is mulling doing a couple of years in a less pressured and more enjoyable role as an off-ramp.

A big salary cut, obviously. He reckons to about £150,000 a year.

You can know the statistics but it’s always different with revelations from friends. Whatever you tell yourself in the cold light of day, or from a soap box in the comments on a blog. (Anticipating? Moi?)

I walked the long way home, wondering for a bit if I’d done something wrong with my life. I decided I hadn’t – I couldn’t hack his work-life for a week – but it did make me think.

No bad thing. Just not too often!

Have a great weekend.

p.s. A couple of readers who have signed-up for membership were confused when they couldn’t access yesterday’s article on the site. Remember we have two tiers – essentially passive and active, though it’ll be a bit cloudier in practice. If you’ve joined the lower-priced Mavens cohort (thank you!) then you can’t read the naughty Mogul stuff. High-rolling Moguls can read everything. I’ll look for a way to make the paywall clearer.

[continue reading…]

{ 38 comments }

Ego as a catalyst: why I see value being outed in this investment company

For MOGULS by The Investor on May 25, 2023

The effortless way to beat the market is to pay someone to do it for you. Especially if you enjoy sleeping in, tap dancing, bingeing Netflix, golf, time-consuming love affairs, or doing almost anything but hunting for good investments.

Why suffer existential doubts wondering whether you have edge when you can give your money to somebody proven to have the right stuff? Why indeed… if only it were that easy.

This article can be read by selected Monevator members. Please see our membership plans and consider joining! Already a member? Sign in here.

{ 60 comments }

FIRE update: second year anniversary

by The Accumulator on May 23, 2023

I will cut to the chase. FIRE Year Two was not all sugar-sprinkles and marmalade dreams. Not at all. It was completely dominated by the illness and death of Mrs Accumulator’s mum.

A sudden hospitalisation. Followed by tests, and a diagnosis that brooked no argument. There was a little time left, but not the endless supply you always assume you’ll have.

The sentence seemed suspended for a while. We had a beautiful May Day together in the garden. Mrs TA and I, her mum and step-dad. Everything was set up just as mum liked it.

Dreamy cream tea, dreamy weather, a gentle day, remembered as if in the soft focus of a film. It seemed as though nothing was wrong.

We didn’t talk about arrangements, or wishes, or any of the things we planned to, because – why spoil it?

It was the last perfect day. The last time we could pretend that everything was just as it used to be.

Time runs out.

The rest was the agony of watching a loved one slowly depart. Seeing them fight the pain and fear. You can only try to repay a little of the debt you owe for their love.

I don’t want to drag out my description of what happened or turn the experience into a trite FIRE lesson. It was just the inescapable reality for us in year two.

There is no lesson, except life cannot be avoided. You deal with it as best you can.

Perhaps Mrs TA and I were in a stronger position in that respect than we might have been a few years ago. But that’s all.

Life goes on

The most disorientating part of letting somebody go? The rest of life must still be attended to.

Initially you’re on auto-pilot, or in a zombie state. But grieving, like any other cleansing process, works to maintain your balance, patch you up, and keep you ploughing on.

So Mrs TA and I returned to building the life we want.

And one of the things I want, is to live without paying heed to the kind of grinding anxieties that sandpaper the soul.

At work, that was mainly the fear of a mid-life redundancy ending my little game of corporate snakes and ladders with a slide back down the board.

Now I’m out of that for good, I absolutely refuse to replace one insecurity with another – some new mental cheese-grater, such as fretting about my sustainable withdrawal rate (SWR), or inflation, or spending levels.

That last concern is something I want to talk more about though. Because a number of readers have mentioned that it’s troubling them.

Almost exclusively they’re FIRE-ees who find it difficult to spend.

My guess is that the FIRE population over-indexes towards natural saver types.

Whereas that was never my bag. I was a spendthrift in a former life. I had to learn how to stop chucking my money away. So perhaps undoing the purse strings isn’t so hard for me.

But I have some thoughts on how to spend, all the same. Our lean-ish FIRE still requires a good frugality game.

How to spend money in retirement

Three things help me to spend money so that it enhances our life.

Firstly, there’s mindset.

Secondly, there’s guide ropes.

Thirdly, there’s a story.

Mindset

By mindset I mean our resolution on what the money is for.

We saved so hard for so long – why?

Yes, for the security of financial independence but also for the promise of a better life in the future.

Well, that future is here and it’s every bit as good as I thought it would be. So it’s time to let go a little. If we don’t spend now, then when?

We’re both past 50. How long do we have left? 20 good years? A bit more? Less?

Mrs TA’s mum was only 25 years older than us.

Am I going to spend the next decade obsessing about sequence of returns risk?

Screw that.

We have to live life like we mean it. I’m past spending time worrying about shadows. If something awful slithers out, we’ll deal with it then.

Guide ropes

This free-spending talk doesn’t mean I advocate going loopy and blowing our carefully harvested FI nuts on a lambo or whatevs.

I only mean we should not feel guilt or anxiety about spending within our means.

I think it’s quite likely that the people who suffer most from spending aversion have already mapped out an extremely prudent income level. And that with back-up plans to spare.

An SWR already offers a historically safe drawdown level. If an unprecedented squadron of apocalyptic horsemen turn up like the opposition’s cavalry, then either there’s nothing you can do, or you take evasive action as the threat materialises.

On a personal level, there’s good evidence that you’ll probably spend less later in life. Forgoing spending in the go-go years at the start only means penalising yourself twice.

If you already have a good decumulation plan but your brain is badgering you for new guardrails, then create some. For example:

Live freely on a near-bombproof 2.5% SWR.
Or tot up how much you overspend every month. Put half of it into your back-up funds and spend the other half without regret.
If extreme frugality is crimping your lifestyle then try calculating that cup of fancy coffee as 0.0005% of your net worth. Expose it as a rounding error.

You’ll know best how to distract your own meddlesome mind.

Story

This is the technique that works best for me, especially when it comes to big expenditures.

I simply create a narrative that justifies the outlay.

This might be as simple as the aphorism ‘buy cheap, buy twice’ when I’m choosing between an expensive item that will last, versus a cheapo substitute that’ll probably fall apart in a couple of years.

The line could be, “because we deserve it”, or “I’m spending this money on people I love”.

We’re renovating our home right now. In that case spending is okay because we’re going to be: “…living with it for the next 20 to 40 years”.

The extra money I pick up from hobby work is also fair game because: “it’s all a bonus, anyway”.

Perhaps inventing a story sounds like a cheap trick to your mind? But our society depends upon it. We can’t get anything done unless we collectively tell ourselves: “money is worth something”, or “we’re British, for God’s sake”, or “the time I spend on this Earth matters”.

If you’re an established yarn-spinner then please do let us know some of the ways you convince yourself to spend in the comments.

Be good to yourself

There’s one last strategy you can use to cope with financial constipation and that is to embrace it!

Money symbolises different things to each of us.

For some, its value clearly lies as much in the security that it represents as its purchasing power. And what’s wrong with that? Nothing, except that we’re constantly told that money is for spending, and that spending equals living.

Sure, most people act like that’s the case. But maybe that’s exactly what they’re doing: acting.

Or maybe you’re just not ‘most people’.

You could belong to a culturally underrepresented personality type that draws great comfort from keeping their financial powder dry – rather than flushing it down the drain.

Perhaps your happiness is to some degree dependent on underspending?

Here’s my direct equivalent. Most people apparently like parties. I don’t because I’m an introvert. Parties are an overwhelming sensory nightmare for me.

I used to think something was wrong with me until I found out that there are plenty of people like me. They just don’t get much airtime. Because nobody wants to watch a bunch of introverts having a good time. Even I don’t need to see that.

I suspect that hardcore frugality is the same.

It’s a behaviour that’s fairly obviously wired into many people from an early age.

If that’s you, maybe it’s time to stop fighting it. Not everyone lives to spend, the same as not everyone wants to be on TV.

So don’t beat yourself up.

Send yourself up by all means if your notorious tightwaddery is a matter of mirth among your nearest and dearest.

They’ll thank you for the legacy later.

Sure, you can’t take it with you. But some of us self-evidently need plenty of it hanging around until the matter is beyond doubt.

Anything left over can be handed to your successors, along with your compliments for having put up with you.

Take it steady,

The Accumulator

P.S. My FIRE budget for 2022-23 was £26,780 for two. Actual spend £25,939. I’m happy with that.

{ 53 comments }

Weekend reading: Higher calling

by The Investor on May 20, 2023

What caught my eye this week.

One reason you hear more people complaining about high taxes these days is because more people are paying higher-rate taxes.

At the start of the 1990s, just 3.5% of UK adults were in the upper tax band. That wasn’t exactly fun – and there was a recession coming, with a big housing crash imminent. But least those 1.6 million higher-rate payers could console themselves they were members of an earning elite, of sorts.

Loadsamoney? Not any more. We’ve only just begun to slog through a six-year freeze on tax thresholds that is set to send the number of higher-rate taxpayers to 7.8 million by 2028.

If nothing else it should be a boom time for tax accountants.

Check out this graph from the IFS:

Source: IFS

The higher-rate threshold today starts at £50,270. For the same share of the population to be paying higher-rate taxes as were in 1991, the IFS calculates the threshold would need to be nearer to £100,000 in 2028.

As things stand it will be… £50,270.

There’s an argument that a broader tax base is more equitable and sustainable, I suppose. But good luck raising it in the midst of raging inflation, rising mortgage rates, and disquiet over the state of the public services, especially healthcare.

People can see their money doesn’t go as far as it used to with their own spending, and they’re impatient with what they’re getting for their taxes too.

The UK economy is stagnant and ONS figures show productivity growth has slipped to the lowest level in a decade. (At least energy bills are set to fall – a windfall for both our wallets and also the State purse, given the energy price guarantee.)

Thanks to high inflation and the frozen thresholds, some will even find their incomes go nowhere in real terms1 over the next few years – yet they’ll be taxed more heavily on the top slice of what they do earn, because they’ll be dragged into a higher-rate tax bracket.

It could be you

It’s not a pretty picture, but we only recently did politics so let’s leave that for another day.

Instead I wonder how closely Monevator readers reflect the national statistics?

My instinct is we’re overweight higher-rate payers. Though I guess perhaps a heavier skew to retirees might bring the number back down?

An anonymous poll! Please select according to the highest official rate of UK income tax you pay:

So much for where we’re at today. But if you’re currently a basic-rate tax payer, do you think you’ll be dragged into the higher-rate bracket by 2028?

And if you’re already paying higher-rate taxes – perhaps even the marginal rates the crazy system introduces – are you taking evasive action (such as diverting more salary into your SIPP) to curb the damage?