One thing that helped me through the worst of the pandemic was a newly-found love of South Korean ‘K Dramas’.
Like many others, I discovered these bingeable soap operas – with their wholesome story lines and fairy tale romances – to be wonderful escapism.
What my 19-year old self – neck-deep in Dostoevsky and Joy Division – would make of my middle-aged addiction, I’m embarrassed to think about.
Then again perhaps it’s just two sides of the same coin.
In those days I thought there were answers to the human condition, waiting for me to find them.
Much older and maybe very slightly wiser – or perhaps just more cowardly – I now suspect there are mostly only comforts.
Here, there, and everywhere
Enough metaphysics, and on to some on-topic reflections on the latest K Drama to soothe my days – the veritable chicken soup for the soul that is Hometown Cha Cha Cha.
It’s still available on Netflix and you should watch it. So I’ll try to avoid spoilers.
In brief it’s the story of high-flying dentist Yoon Hye-jin and her burgeoning relationship with the show’s other lead – a huge fish in a small pond named Hong Du-sik, or ‘Chief Hong’ to all his neighbours.
Besides making all real-life women pale for me compared to the fantasy of Hye-jin (and there’s even a t-shirt suggesting many viewers feel the same about Chief Hong) Hometown Cha Cha Cha showcases an alternative way of life. One that’s relevant to the way we do business around here.
You see, from the moment of her arrival in the small town where Chief Hong plies his many trades, Hye-jin is astonished to find him at work everywhere.
Here is Chief Hong directing fisherman at the docks. Now he’s over there at the coffee shop pulling lattes. The doorbell rings – Chief Hong has deliveries. His other occupations include estate agent, carpenter, and tech repair guy.
Naturally, hilarity ensues. And there’s a deeper reason for all this plate juggling, too.
But as I said, no spoilers.
Moe than his job’s worth
Just to generalise, Chief Hong is doing all these things because he wants to support – and be supported by – the local community.
Hong charges for everything he does. But he only ever charges an hourly minimum wage. Hye-jin argues he could pull big bucks in the capital, Seoul. But he prefers pulling espressos for his friends by the seaside.
On his days off he surfs.
Again dancing around revealing too much, we can see Chief Hong as sort of Barista FIRE1. He appears to have inherited his grandfather’s home (and to be fair what a home). Beyond that, the minimum wage – and endless payments in kind – keep him happy.
Hye-jin can’t believe he’s not working for a prestigious chaebol making megabucks. Chief Hong is frustrated that she can’t see why he doesn’t.
Less pain, more gain
I like the new FIRE definitions – Coast FIRE, Barista FIRE, and so on – that arrived in the more recent years of what we now apparently must call a movement.
These new definitions neuter that old enemy, the ‘retirement police’.
So you might say “yes I’m financial independent and I’ve retired from the rat race, but I’m Barista FIRE. I’m working at the pub because I like the social contact and the extra cream it puts on my post-work cake”.
Or perhaps you do some maths and see that as long as you let your ISAs and SIPP compound for 20 years, you’re already sorted. So you shift to a Coast FIRE way of life, ambling towards the end of your career at your leisure.
Many of the biggest voices on the Internet on this topic transition to one of those two lifestyles after finishing with formal work. Even our own Accumulator, I’d (gingerly) argue.
TA would say he’s ‘Lean FIRE’. He has a pot of cash that he calculates can get his household through the rest of his days, albeit without many fancy holidays.
But in practice he’s still doing paid work he likes. Because, well, he likes it, but also – I strongly suspect – because it takes the edge of that Lean aspect. So perhaps he’s Barista FIRE, but a fatter FIRE than his Lean FIRE sums suggest.
Still, a rose by any other name and all that malarkey, right?
The testimonies of the legions of early retirement advocates who either go back to work or do some sort of side hustle reinforce my case for me.
Volunteer by all means. But I believe in our society as we find it today, getting paid for doing something is about more than money.
I’ve always assumed work-with-FIRE should usually involve maximizing your Pareto-power by doing your best-paid work in the least amount of time.
But – call me slow – Chief Hong has opened my eyes to another way.
I wonder too if the government would have more luck tempting the retired back to work if they encouraged them to watch Hometown Cha Cha Cha, versus fiddling with the tax system.
Maybe getting these over-50 dropouts to do just a couple of days a week part-time doesn’t suit their diabolical economic plans?
I don’t know. But as we’ve discussed before, just a little extra income is worth an awful lot, especially in retirement. Making £10,000 a year doing a couple of days of engaging work a week pretty much doubles the state pension. It is equivalent to perhaps £250,000 extra in your retirement pot.
I understand taxes and allowances complicate the maths, but again I think that misses the point.
Yes, I know wild horses wouldn’t drag some of you back to anything resembling work. Fair enough, whatever is best for you is grand with me.
But at least schedule Hometown Cha Cha Cha into one of your endless days of leisure. You might just get a glimpse of what you’re missing…
Have a great Easter weekend!
p.s. Sending my links early ahead of the long weekend as The Accumulator and Mrs TA are visiting Monevator HQ for an overnight stay. Of course, generally we don’t even travel on the same planes, in order to avoid a tragedy bringing down this blog forever. If you never hear from us again, you know that freak gas explosion you saw in the news had our names on it…
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The beginning of the year has not been awful. Which is all I ask, really.
You’ll recall that last quarter capped off the worst year ever for the Slow and Steady passive portfolio: a -13% loss. Pretty painful, if really nowt but a light slap on the list of all-time market drawdowns.
The good news today is every asset class bar commercial property has regained ground since then. That’s despite bank runs triggering flashbacks to the Financial Crisis, Britain flirting with recession harder than a couple of Love Island playas, and all of us being afraid of our heating bills.
True, recovering a few per cent under these circumstances feels about as triumphant as winning back 20 yards of No Man’s Land after months of trench warfare. It’s hardly the stuff of overnight victories, but we’ll take what we can get.
Here are the latest results from the Slow and Steady portfolio brought to you by HalfGlassEmpty-O-Vision™:
The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,200 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts tucked away in the Monevator vaults.
The wider economic tumult has put me in a disheartened mood. I think it’s because, for me, my own portfolio first and foremost represented a hedge against being crushed by the grinding wheels of capitalism.
Regardless of demand for my particular skills, through focused saving and investing I was able to construct a fast-moving skiff of securities that skimmed over the turmoil and finally beached me in the sunnier climes of FIRE1 island.
But I now worry the opportunity may be lost for the younger generation battling rising taxes, rising inflation, a rising cost of living, and fears of a rising China.
How can you invest if you can’t spare the change?
And why would you believe in it anyway if the market drifts sideways for years?
The generation game
For all we talk about it being a long-term game, I’m painfully aware that passive investing was an easy sell when returns were advancing at a heady rate, post-Financial Crisis.
But how many would jump onboard or keep the faith during a lost decade? Even if that churn created the conditions for higher expected returns in the future?
Who would buy into that?
It’s not a personal thing. I’m happy and remain optimistic about my own future.
But I was moved by Mrs Accumulator telling me that her young pupils feel terrified of, and despondent about, the climate crisis.
I don’t blame them. Too many of their elders seem to be calculating it’s okay to drive SUVs because they’re not going to be around to deal with the consequences.
So colour me concerned that there aren’t enough reasons to be hopeful about the future right now. It feels like the tube is squeezed from both ends – from a UK and from a global perspective.
My portfolio has helped insulate me to some extent. I just don’t want those who come after me to conclude that even the financial independence escape route has been closed.
Slow & Steady: the sequel
Changing the subject, I’d like to ask your opinion about some ideas The Investor and I have been kicking around.
We’ve been thinking about introducing two new Monevator portfolios to the site. They’d be long-running series, in a similar vein to the Slow & Steady portfolio.
One would be aimed at absolute beginners and the other would plot a course for Planet Decumulation.
It’s crazy but true that the Slow & Steady portfolio is in its 13th year now. This means there are only seven years left on the clock before we hit the model portfolio’s self-imposed 20-year lifespan!
So the question we’ve been asking ourselves is: what would a passive portfolio look like if we were starting from scratch today?
Our model portfolio is meant as an educational exercise, rather than as a default recommendation. And my reading of the feedback is that everybody gets the global equities side of the equation.
All the angst lies on the defensive side:
“Why bother with bonds?”
“Why are my index-linked gilts getting crushed?”
“What about ‘alternatives’?”
“I’ll stay in cash thanks.”
I think a new starter portfolio should work harder to explain its defensive picks. I also believe the Slow & Steady probably isn’t diversified enough to deal with an uncertain world.
I’ve talked before about the all-weather portfolio concept. Harry Browne’s Permanent Portfolio and Ray Dalio’s All-Weather strategy are famed examples.
These frameworks focus first on the principles of diversification, while being built upon solid investing foundations that remain simple and effective.
Model behaviour
The value of a model portfolio lies in its ability to confirm or to challenge our preconceptions.
I’d rather the Slow & Steady’s successor tilts more towards the latter, by exploring what happens when we add more volatile but less correlated assets to the mix.
Something like:
Global equities
Gold
Broad commodities
A bond barbell (long bonds and an ultra-short or cash component)
That’s a portfolio which will almost always have a hero and a zero on its books. The contrasting fortunes of those asset classes should provide plenty of food for thought.
To keep it simple, I’m thinking of leaving out some of the elements the Slow and Steady portfolio already deals with. For example, UK home bias, global REITS, and emerging markets.
Index-linked bonds would also stay on the shelf. I think young investors can do without them.
Should the equity allocation be invested in ESG funds? Because my hunch is that more young investors are putting their faith in that label even though I’m wary of the potential for greenwashing.
And should there be a 5% fun money element? Perhaps a naughty punt on tech, a macroeconomic theme, private equity, or some other alternative bet?
Let me know what you think.
Destination decumulation
The decumulator’s portfolio would be more about the moving parts than the asset price soap opera.
All the action happens when you withdraw cash. Perhaps there’d be two check-ins a year to simulate that. Maybe I’d run two different withdrawal methodologies in parallel to see how each plays out.
Then I’ll try to tease apart the complex interactions of portfolio returns, inflation-adjusted income, tax consequences, dynamic withdrawals, SWRs, and life expectancy.
Rock. And roll.
Along the way, I’d like to look at how to handle unexpected cash demands, equity release, annuities, sustainable withdrawal rate guardrails, and the psychological hurdles of living off a diminishing pot of wealth.
It all sounds pretty ripping, I’m sure you’ll agree!
Anyway, we’ve been musing about it for ages so it’s about time we did something.
Please let me know your thoughts, ideas, and requests in the comments below.
New transactions
Every quarter we pipette £1,200 into the global market petri dish. Our financial seed culture is split between seven funds according to our predetermined asset allocation. The trades play out like this:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £60
Buy 0.247 units @ £242.69
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
New purchase: £444
Buy 0.842 units @ £527.11
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £60
Buy 0.159 units @ £378.28
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.21%
Fund identifier: GB00B84DY642
New purchase: £96
Buy 53.402 units @ £1.80
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.17%
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £156
Buy 146.893 units @ £1.06
Target allocation: 13%
New investmentcontribution = £1,200
Trading cost = £0
Take a look at our broker comparison table for your best investment account options. InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.
Last week’s inheritance tax and pension alchemy from Monevator contributor Finumus was rounded off with an excellent thread of comments from readers.
Check out the nearly 90 responses if you haven’t. There’s plenty of extra pension and inheritance tax knowledge to be gleaned from the Monevator masses. (Yes, we’re all surprised at the turns our lives have taken that means learning more about taxes and pensions is an exciting prospect. And yet here we are…)
The comment thread also includes a by-turns intriguing and befuddling discussion about what the phrase ‘middle class’ really means these days.
I don’t intend to resurrect that debate. What was frustrating about it to me though was that some people’s conception of middle-class – and for the sake of peace, I’ll concede ‘middle-class’ was a cheeky if not provocative classifier to use in the title – led to off-base missives about how Monevator was becoming the parish circular for the Downton Abbey set.
(Regarding the same article, I just now deleted a short content-less comment bemoaning that Finumus’ useful advice was cluttered up with “left-wing claptrap”. You see the challenge?)
Anyway nobody, not even Finumus (at least not in this article) was denying that – with a household income of £360,000 a year and millions of pounds of assets – the coupled that he featured weren’t minted, even by the standards of London’s gilded postcodes.
My argument will always be that I want people to know how and why people with money do what they do. We can learn something from them. (Including that they often do dumb things, like pamper their egos by investing in expensive market-lagging active funds.)
Alternatively, you could try the opposite approach of hanging around with the Socialist Worker crowd in a south London pub on a Friday night.
You’ll certainly learn something. But I’m confident it won’t be how to make, keep, and invest your money.
Knowing your place
The point is that I fully agree the couple were very well-off, of course. And while from his vantage point in a helicopter headed to the Home Counties for the weekend Finumus may move in more rarefied air, even he bemoans that most people earn so little, rather than being ignorant of it.
In fact I often find myself explaining to friends whose careers are kicking into their peak earning years that their incomes would sound magical (if not faintly criminal) to much of the populace.
Yet even I’m still mildly surprised when I’m confronted with statistics like the dissection of the latest household income figures in This Is Money this week:
Official figures show that 8.8 million people in Britain had an income above £1,000 a week in the year to March 2022 – which would equate to £52,000 a year and put them in the higher rate tax bracket.
However, the average median real-terms household income before housing costs was £565 a week in the period, equating to around £29,500 a year.
That nearly nine million people have been dragged into paying higher-rate income tax is shocking. In 1990 just 1.7 million paid the 40% tax rate. Even by the time Tony Blair was elected in 1997 it had only risen to a little over two million.
This is of course all grist to the ‘squeezed middle’ line of political thinking.
But – much more dispiriting – just look at the thin gruel down below:
Britain’s real problem
As I’ve said before in our political debates, Britain is a relatively poor country among its peers – on a per capita basis – that unfortunately thinks it’s rich enough to indulge in self-harming fantasies.
It wouldn’t be so bad if we had more affordable housing, like Germany, Spain, or (ex-Paris) France.
But our expensive property puts the boot in.
Anyway go check out all the graphs in the This Is Moneyarticle, there’s plenty to gawp at. (I couldn’t locate the original graphs from the Department of Work and Pensions website. If you have a link please pop it in the comments below).
But I must confess that it left me in a gloomy frame of mind.
One visual metaphor for wealth generation and distribution in the UK in recent years is the helicopters evacuating a few lucky thousands in the Fall of Saigon in 1975, with a handful more clinging to the landing gear and the rest falling back into a doomed mob left behind.
Maybe I should buy the Socialist Worker bloke a pint, after all?
The new competition
Okay, I’m kidding, for rhetorical effect. Been down that road 30 years ago, literally got the T-shirt.
But capitalism must do better, especially with yet another workplace revolution – instigated by AI – seemingly at our door.
On that note, I’ve included a new AI links section below. Things are moving so fast, and unlike with crypto real-world use cases already abound. Every week there’s something new to flag. Watch this space, and those links.
We’re back with another interview with a Monevator reader who has attained financial independence and/or early retirement (FIRE). This month John explains how he achieved a very comfortable retirement by working hard, maxing out pensions, and buying property – all while raising a growing family. Plenty to chew on, especially for those aspiring to Fat FIRE…
A place by the FIRE
Hello John! How old are you and are you married?
I’m 53 and my spouse is 59. We have been together 30 years but only married in the last ten. (We didn’t want to rush!) Marriage does simplify things such as wills, defined benefit (DB) spouse pensions, ISAs, and so on.
We FIRE-ed about seven years ago and we still feel financially secure. But world events and double-digit inflation do concern me.
All this positive talk of inflation eating away at mortgages only works if you get inflationary pay rises. FIRE types may have ‘real’ investments such as property. But they probably don’t get many inflationary increases.
Do you have any dependants?
We have three kids and eight grandkids. The kids are 35-40, the grandchildren 3-23. All three of our children went to university and two work in the NHS. Their lives seem a little harder than ours in terms of getting on the housing ladder and settling into adult life. We still provide some financial help. Mostly interest-free loans and below-market rents.
Childcare can be expensive and we’ve helped out a lot during the last seven years. We even got NI credits for four years!
The little ones are now all in school so it’s more drop-off and pick-ups a couple of days a week. I’ve really valued time with the little ones this time round. The first time I was more selfish and work focused.
The older grandchildren seem like a different species. They just don’t grow up as quickly as I remember. Two of the older ones decided against university. One is an apprentice trades-person and the other works in the hospital, waiting for a suitable apprentice opportunity.
Whereabouts do you live and what’s it like there?
We are currently in East Anglia but have lived in the North and South following job opportunities.
The weather is fantastic compared to where I grew up. Rail links are good for the capital.
When do you consider you achieved Financial Independence (FI) and why?
By age 45 I thought I had enough for a fairly ‘Fat FIRE’ – around £5,000 per month – without running down investments in nominal terms, and hopefully not in real terms1.
FI to me means work is an option, not a requirement, and “how much is enough” to achieve that is a tough question for a young FIRE-ee. I needed to be confident that my living standard wouldn’t take too hard a hit and that we’d be robust to changes in interest rates and inflation.
The big question for me was about the gap between the work pensions and exiting date. I had ten years until I could access the defined contribution (DC) pension pot and 15 for the DB pension.
What ultimately decided it for you?
I resigned when I’d truly had enough of working 60 hours per week and being away from home for 150 days a year. The less you need the money, the easier it is to walk away.
Also, as your FIRE fund grows, each extra year of work moves the dial less. At some point you realise your assets earn enough to live off. At that point you start to think about things differently.
What about Retired Early?
I left aged 45 and haven’t returned to any full-time work yet. There has been some interim consulting and contract work and quite a bit of unpaid work with a tech start-up that eventually fizzled out. About 100 days in total paid work – things dried up post-Covid.
I’m still open to day-rate work and short contracts but the telephone calls are much less frequent than when I was working.
If I went back now, my earnings would be lower than when I left. A three to four-month well-paid winter contract every year would be nice. It would make the summers off even sweeter!
Assets: Fat FIRE
What is your net worth?
Current net worth is around £2.8m.
This roughly made up of:
Four properties at £1.2m total (valued at 90% of the 2022 peak)
Defined Benefit pension £900,000
Defined contribution pension £450,000
Cash £250,000
ISA £500,000
General investment account £75,000
All minus two mortgages totaling £500,000 (@Jan23)
The DC pots have been set to retirement age 70 and I’m in the default funds. The ISA and General Investment Account are in the FTSE 100 and Pref shares (45/55% split).
I’m a sucker for yield. I should have bought a world tracker, I know!
The interest-only mortgages have been my friend for 12 years (costing the Bank of England’s base rate +.75% on average across two properties). But now rates have risen, the £1,800 per month interest is starting to hurt. I’ve had such a good run on ultra-low rates it’s hard to complain.
My main (and only) residence makes up about 20-25% of our net worth. It’s a four-bed detached house at 2,000 sq ft set on a quarter of an acre.
We will consider downsizing again soon. I just need to work out how to take the mortgage with me.
Is your home an asset or an investment?
I consider my home to be an asset. It’s an asset that pays your rent.
I often wonder what percentage of net worth is sensible to spend on your home? We have downsized once already and will probably do so again in the next five years. I’m keen to take advantage of the inheritance tax rules, so I will downsize in terms of size, but probably not value.
My three remaining buy-to-lets are clearly investments and a hassle I don’t need. I would like to sell at some point. But evicting family is unlikely, and a spare flat could be handy if we move abroad.
I sold one property last year with a rental yield of 3% and bought preference shares at 6% yield, so I nearly doubled the income. But I subsequently lost the capital gains potential and about 15-20% in their value!
Earning: High-earner, SAYE, and property investment
What did you do in your regular income-earning days?
I spent my career working in the finance departments of insurance companies in senior technical and director-level roles.
In order to achieve pay rises, I frequently applied for external roles. Sometimes I left and sometimes I stayed with a pay rise.
In all I had about seven different roles over 24 years, and worked at five different companies.
For the first half of my career my average earnings were ~£40,000, including a car and bonus, but excluding the DB pension. The second half averaged around £170,000 (including car, DC pension, and bonus). Total career earnings excluding the DB pension was around £2.5m, before tax & NI.
Other income sources included Save As You Earn (SAYE) share schemes and similar discounted share buying schemes. I tried to invest the maximum. Free money is the best money! I ended up with around £250,000 of employer company shares in total. All sold now, with minimal CGT.
Buy-to-lets happened accidentally at the first, and then on purpose. We relocated with work and we didn’t sell the old house for a few years.
All told we’ve bought nine properties. Four main residences and five rentals. Across the properties there has been around £900,000 capital growth and £250,000 income. Costs are harder to total up!
Did thinking about FIRE influence your progression?
Planning to retire early didn’t impact my career. With hindsight I wish I’d moved jobs sooner and more often to get broader experience.
I should also have been more choosy about my first graduate employer. A good graduate training program can offer a great foundation and career springboard.
Saving: a saver born and bred
What is your annual spending? Do you stick to a budget or otherwise structure your spending?
We don’t actively stick to a budget, but I’m a value-focused Northerner who isn’t keen on waste, and who demands value for money. It’s probably to my own detriment. I’d rather go hungry in an airport than pay £15 for a burger! But your money DNA or blueprint stays with you.
I’m very aware of what income is coming in and try not to spend too far over that level. The large volatile number is travel and holidays. And also gifts to kids.
Our income will increase significantly when I can access my pension pot at 55 and final salary pension at 60. Until then we stick to spending the current income, but we probably could spend more.
What percentage of your gross income did you save over the years?
I don’t have good record keeping for savings and cash flows.
The first half of my career didn’t involve savings, apart from owning two houses, a DB pension, and some employer shares. I recall my net worth was around £250,000 after 13 years, excluding the DB pension. Roughly £200,000 was from the houses, which benefited from the fall in interest rates around 2001.
In the second half of my career I moved to DC pensions. I usually put in about 10% on top of the company’s 10-15%. Towards the end I also put in bonus payments.
Based on my DC contribution and the properties I bought for cash, I estimate my savings rate in the last ten year to be around 35% of work earnings. That includes the company pension element.
As earnings increased and then later as children moved out, our savings headroom increased. We never massively changed our lifestyle – yes to a nicer car, house, holiday, clothes (my wife) but not in a silly way. We’ve only ever bought one brand new car and my daughter has it now 12 years later. The cost of that car works out at about £4 a day so far…
Essentially, most of the money came when we were over-35. By then we were set in our financial ways. It isn’t always a good thing. I’m going to Tesco later to take advantage of an £8-off coupon!
That’s always a good thing in my book! But what is the secret to saving more money?
Earn more, earn more, earn more!
Maximise free money – pension contributions. Don’t buy new cars, learn to cook, avoid keeping up with the Jones’s, and aggressively manage your direct debits and bills.
Savings happen when you earn more than your lifestyle is costing you.
If you want money and freedom, you must focus on your market worth in the job market. Think long and hard – about what industry, qualifications, and training time are required – and then work hard to become expert and knowledgeable.
Add value, be flexible, and move companies often.
Do you have any hints about spending less?
Everyone is different and enjoys different things. I suppose actively think about the cost of something versus how much joy it brings. We don’t think about opportunity cost often enough.
Looking at the grandkids, they seem to have a problem with delayed gratification and labels. They have £100 a month or more mobile phone contracts, £14,000 car loans – this when they’re 20 and earning £300 a week or similar.
I have a friend who is a city lawyer charging £600 per hour. Listening to his lifestyle is completely alien to me (but hugely interesting).
Having too many friends a lot wealthier than you must cause some anxiety and extra spending. So pick your social circle thoughtfully.
Investing: not over-thinking or too taxing
I tend not to check share prices too often and intuitively like the invest-and-forget approach.
Rebalancing hasn’t happened yet. So, I’d say I’m passive in that I very rarely buy or sell.
Most of my investments were made before I found the FIRE websites and before I read the books. A big mistake was not buying world trackers to begin with.
Best investments – or rather lucky ones that worked out well:
Discounted company share schemes. Put in about £75,000 investment, sold for around £250,000 over a 20-year period.
Residential property – we must be close to £1m up over 25 years.
Joining the DB pension scheme on my first job, even though I thought I was leaving within two years.
It’s hindsight speaking, but while I was financially comfortable enough to have gambled a small percentage of my money on crytpo or tech shares in the recent boom, I didn’t do it. I lost £1,000 on Motion Poster shares in around 2000 and didn’t try my luck again!
I have no idea what my overall return has been. I mostly focused on the earnings and tax-efficient savings. Once I realized the size of the DB pension, the pressure was off a little.
Can you tell us more about your thinking about tax-efficient savings?
Tax incentives have had a big influence on my strategy. Pension tax relief at 40-50% was too good to ignore. My timing was fortunate in that the annual allowance taper didn’t exist – and I took Fixed Protection 2014 to preserve the £1.5m limit.
My plan is to drain the DC pot from age 55-60 tax efficiently – no 40% tax – and I will probably get close to hitting the £1.5m in aggregate.
DC pension contributions were around £250,000 for 2006-2014, including the company element. Avoiding 40% tax in retirement is also probably what led me to max out ISA for the last 12 years (for me and my wife).
I do wonder sometimes if I over focus on tax efficiency at the expense of growth.
Wealth: buying freedom
Did you have a target for when you’d consider you’d ‘made it’?
Between my late 30s and my early 40s my ‘number’ was around £800,000 plus pensions. But once I got close to this the number I revised it to £1.2m plus pensions. Mostly because 15 years is a long time to wait for the pension.
In real terms I’m broadly level with the 2016 position. I’ve given up potentially a lot of earnings, but I gained a lot of freedom and time.
There is still a niggling question around my children’s finances. Should I return to work to make their lives a little easier?
Things I wished I’d known sooner, or thought about more:
Your spending habits change as you get older or retire. New shiny stuff isn’t that important – apart from a nice iPad obviously!
Enjoy the journey more. Why rush? Some things are better enjoyed 25-40 than at 45-65.
If you didn’t find time for it when you worked then you probably won’t when you retire. Fitness, learning Spanish, and so on.
My working 60 hours a week for that last ten to 15-year stint was probably unnecessary.
Do you have any passions, hobbies, or vices that eat up your income?
We used to smoke, which was incredibly expensive. But we stopped after getting a cancer diagnosis. That was probably the catalyst for aiming to retire by 50. It also makes me think about selling the DB pension.
Our main areas of discretionary spending are family, travelling, holidays, and motoring. Motor homes aren’t cheap! I decided against flying lessons and I struggle mentally with the David Lloyd £120 per month membership. So I found one costing £32 with a monthly rolling contract instead.
We don’t have expensive tastes. That’s probably a good thing. An £8 bottle of red is good enough for us.
In the longer-term we are giving serious thought to moving to Spain or Portugal. The older I get the more I like spending time in shorts and in the sun!
Porto, Portugal
Your money mindset
When did you first start thinking seriously about money and investing?
I grew up fairly poor on a council estate in the North. Since money was always short, I’ve always being focused on getting more of it. Probably over-focused.
Being relatively poor shapes you and your thinking, and it’s hard to change. I gambled quite a lot in my 20s but stopped when I started earning good money.
My 20s were focused on kids, career, and trying to get housing security. We spent five Christmas Days in five different houses. Tough with three kids.
Late 20s saw earnings increase. I took advantage of Save As You Earn share plan schemes (SAYE) to the tune of £250 per calendar month. This was probably my best decision as within a couple of years they were worth £60,000, though only briefly. I settled for about £30,000 in the end.
My 30s were about career, bigger houses, nicer cars, and a move from final salary pension to a money purchase DC pension.
From 40-45: my career, the four BTLs, and I started an ISA and maxed it every year since.
Around 45 I left work, downsized property, and tried to invest the proceeds sensibly.
Did any particular individuals inspire you to become financially free?
Mostly it was just that strong desire not to be poor – and to never be poor again.
What is your attitude towards charity and inheritance?
Seeing my father-in-law deteriorate quickly aged around 80 led my to see that the phrase “go-go years, slow-go years and no-go years” is probably correct.
I plan to help the kids into their own houses. One has already bought a buy-to-let off me, with a 25% discount. As an aside, filling their LISA accounts is great tip for free money from the government.
We also currently help with childcare, holidays, after school activities, and so on. I see this continuing.
An inheritance unknown is the grandchildren. We have about eight, but the number grows! They are aged between 3-23. My gut says to focus on their parents as they are not comfortable enough and let them sort out the grandkids.
Most of my giving or charity is within the family. This may change when I’m older and the kids are sorted. I admire those who tithe but I’d worry about what if I need it later myself? Growing up poor stays with you.
What will your finances ideally look like towards the end of your life?
My assumption is I have 25-30 years left.
I’m aiming to spend or give away down to around £1m in the ISAs and then maintain at that level. We will also probably have £1m in property – which is above the inheritance tax (IHT) main residence allowance – so there will be IHT to pay. I haven’t really given IHT enough thought, I tend to over-focus on income tax.
When we have a greater understanding of our spending patterns as we age, I can see gifting accelerating, because my DB and State pension together should be more than enough.
Mental abilities fade so I want to simplify and de-risk in later life. I’ve thought long and hard about selling the DB pension, as it dies with us. But keeping it also simplifies things. I can’t spend it, I can’t lose it, and it’s guaranteed (mostly).
My ambition is to give my kids the option to retire a little early. Two work in the NHS and should have decent pensions. I’d like them to be mortgage-free by 60 and have the option to give up work 5-10 years before the state pension. I probably don’t have enough to make that happen but I should be able to help.
The money game took a lot of my energy and focus from a young age. It’s funny how once you have ‘enough’ it’s just not important anymore.
Perhaps I’m lucky not to know many very rich people. I can see how that would make you more competitive.
But if £2m is your ‘enough’, and you have £3m, then wasting your life (and time) chasing £10m seems a bit nuts to me.
Lots of life lessons in there readers. Of course John’s balance sheet is at the higher end of the FIRE spectrum and will be out of range for many. But equally lots of our readers might well get there in the long-term. Besides, enough is enough, whatever your enough is, as John concludes.Questions and reflections welcome. As usual please remember John is not a regular Internet commenter and he is just sharing his story to inspire others, not to provoke nastiness. Of course you can disagree on practical matters constructively, but please keep that in mind. One particular person’s situation isn’t a comment on yours. Thanks!
