Minority Report

Over the last few weeks I’ve been delving back into the blogs, articles and podcasts posted by the FIRE community which I always find interesting, full of good advice and, occasionally, inspirational. But, after a month of it, I’m beginning to wonder if all that can be said about the subject has already been said? As ever, you can make anything over-complicated and repeat basic tenets in a million different ways, but it seems to me that FIRE boils down to a few simple concepts: avoiding debt, spending less than you earn (and the more you earn, the better) and investing regularly into passive Index Tracking funds over a longish term – so add to that the fact that the earlier you start, the better. Pretty soon it feels that it’s all rather obvious, common sense and hardly news to anyone.

Sometimes I have to pause and tell myself that no, hardly anyone is talking about FIRE and the subject is still a minority report. The evidence isn’t hard to find. List ten well-known blogs about FIRE – well, you could probably do that without too much difficulty. List ten well known UK blogs about FIRE and that’s a bit more of a challenge, although most of us on these sites could have a good go at it. I’m well aware, however, that I’m preaching to the converted here in the blogosphere – you’re reading this, no doubt, because you’re interested in financial matters and connected affairs.

What signs are there that the wider world is interested? A small test could be to go to the library and try to borrow five books on FIRE. Not Amazon, where you could easily find five books focused on the subject of the sex lives of Patagonian grasshoppers, but the local library. There will be a few books available that are devoted to investing and general money matters, but investing or being astute with money are not the same thing as Financial Independence, although they’re strongly connected.

As far as books on Early Retirement go, I’ve never found any at the local library. Sure, you’ll find a few books on retirement in general, but pretty much all I’ve seen are aimed at pensioners.  

What other sources do we have in the mass market that are talking about FIRE? At the weekend, I always have a good two hours reading the Sunday Times and have done this for years. After browsing the main paper I turn to the supplements, and my second choice of reading is always the Money section. I often wonder how many people do likewise, because when I visit the gym (where they stock free daily newspapers in their cafe) it’s generally the Money section that’s available to read, sitting unopened and unloved on the rack while just about everything else is either missing or well-thumbed.

For a few years now I’ve looked forward to reading something about FIRE within the Money pages, but it’s yet to happen. I wonder why not? To me, it’s an interesting and appealing concept and I know I’m not alone in this. It touches on loads of the subjects that are featured regularly in the Money section – pensions, investments, property, taxes and so on – but as yet FIRE doesn’t seem to have a mainstream market even within the broader financial community.

This may be changing. I recently wrote about our guru, Mr Money Moustache, being profiled in the New Yorker and he’s recently been interviewed in the much downloaded Tim Ferriss podcast. I’ve also seen him being interviewed on American TV, so if the FIRE movement is going to have a Buffett-like figurehead and cheerleader then it looks like he’ll be the one. Which is great, but I’m not so sure that the coverage will necessarily be as focused on the subjects that most of us are likely to hope it will be. TV is much more interested in image over message and style over content. Nobody will really care about how MMM reached his goal, they’ll be more focused on what it means in terms of what he has got – how big is his house? What’s he got in the bank? What does his wife look like? Does he have a big flat screen TV?

Recently, like some other UK bloggers, I’ve been approached by a UK TV company who seem to be interested in making a pilot about Early Retirement. I doubt I’ll participate, but I would be interested in seeing the output of the show, and I would hope they’d focus on the simple principles that underpin FIRE which I outlined in the first paragraph. It’s about clearing debt, spending less than you earn, saving hard and investing simply but astutely. Even I’d admit that these aren’t very sexy or appealing concepts. They look like hard work and they are hard work, done over a long term. There’s no quick wins, instant celebrity, millions to be made overnight. Nothing that TV really likes. I’d hope it would be a positive show, but I fear it could be a “Look at this guy, living on lentils and knitting his own socks in an effort to retire at thirty five”. (Either that or “Matched Betting Ruined My Early Retirement Dream”)

In fact, thinking about it, I’m not sure I’d want FIRE to become mainstream. Would I want to be bombarded by adverts in the Money section promising to help me retire at forty? Would I want to see Mr Money Moustache torn to shreds in some sort of “You’re alright Jack” expose that unpicks the financial underpinning and background to his story? Would I want the Daily Mail to reveal how FIRE is just an upper middle class dream that’s basically impossible for anyone earning the UK average wage these days?

No, I think I like it as it is at the moment, where the people interested in the subject are interested in it for the right reasons. After all, isn’t it true that the best clubs are the more exclusive ones, the best bands were always better before they became popular, the best books are seldom bestsellers and the best films are either indie, arthouse or foreign? The mainstream ruins everything, doesn’t it, so maybe we should keep FIRE to ourselves?

 

 

Maggie, Maggie, Maggie

A couple of times this week I’ve read the same statistic, that a young person leaving University to begin a career that pays enough to allow them to start repaying their student loan is going to be taxed at 41% from Day One they cross the earnings threshold of £18.5k.  Simply put, it’s 20% basic income tax, 12% National Insurance and 9% student loan repayment.

It seems that Jeremy Corbyn has twigged to this, and thrown the abolition of tuition fees in the ring as a potential vote winner, and this will certainly appeal to a lot of people. But my question is: where are all the young people protesting about this phenomenal tax burden they’re going to have to carry? Ye Gods, when I was at University, every single time our student grants were threatened we were out on the streets, stopping traffic, chanting “Maggie, Maggie, Maggie, Out, Out, Out” and occupying the library until it was clearly time for a deserved pint or six down the Mandela Bar (i.e after about twenty minutes of sitting in the library cafe.)

To me, it’s absolutely incredible what has happened in terms of the cost of education with, as far as I can see, hardly a peep from the general public or the students themselves. Okay, maybe it’s killed off the Liberal Democrats in the short term, but the fact that Clegg felt he could renege on his promise to end tuition fees as quickly as he did just shows the complete disdain and disconnection many politicians have for ordinary people. Clegg and his ilk are from a background where thirty thousand pounds of debt is play money. Surely most people spend around that amount each year on holidays?

But, after a short vent of middle class fury against Clegg taking them for a ride, it seems that everyone has accepted that we’ll just have to get on with it. When you think about it, if your degree does help you gain a decent career, then actually the loan system is fantastic value for money. Isn’t it?

Well, maybe. But when you take the 9% repayment, lump in a further 32% of taxes, then add whatever you’re going to have to put by for a pension – and you’re absolutely going to have to put by for a pension, unless you’re insane – well, if I was a youth today, I’d be damn angry about it. Especially if I read blogs like mine where Baby Boomers in their fifties ponder early retirement and the most tax efficient ways to drawdown their pensions while wondering if they can be bothered taking two long haul holidays a year? A Baby Boomer, that is, like me who was given a fantastic free education, who took out a mortgage as soon as he started working (required deposit, fifteen hundred quid and a 95% loan) and sat back to watch property rocket over his working lifetime. Nice work, if you can get it. Which you no longer can.

The repayment burden of student loans is one thing, but the underlying message that debt is necessary, and maybe even a good thing, is even more outrageous. Debt is the one thing that everyone should be trying to minimise and avoid. Instead, what we have is a system that’s telling us that debt is fine, it’s manageable, it’s a fact of life and it’s nothing to be frightened of. Your Student Loan debt, it’s just like a mortgage really – which, dear student, you’re never actually going to have, unless the bank of mum and dad step in. As far as I am aware, your outstanding student loan debt will be taken into account whenever you’ve finally scraped enough together to put down a deposit on a property. In your forties. When most half decent “starter” homes are going to be coming in at around two hundred grand. Good luck with that. (They’re probably already more expensive than that in London.)

Corbyn will probably win a few votes in promising to abolish tuition fees, but I doubt it will make much of a difference to the election result. Why should I get angry about though? It’s not my problem. I’m alright Jack. I think. But I see Theresa May is starting to muck around with pension commitments. She better watch out. We are Thatcher’s Children in more ways than one. There really is no such thing as society, except the Baby Boomer’s pensioner one, and these days we don’t protest on our feet, we do it at the ballot box with a pen.

 

Le Triple Lock


I see that one of the carrots being dangled by Marine Le Pen before the French electorate is a retirement age of 60. Meanwhile, here in Blighty, we are looking at ending the “Triple Lock” on pensions as the Tories realise that even the Oldies probably won’t vote for Corbyn under (m)any circumstances. Time to fill your boots, raid the pension pots of the great British public while kicking the more thorny problem of how to tax Google, Facebook, Starbucks, the banks et al into touch. It would make you puke. The paucity of original thought and ideas in Government is breathtaking. It’s a never ending retread of the same paths where the outcome is always that Joe Public will pay. Meanwhile a pint of milk or a gallon of petrol costs the same for Philip Green as it does for my old mum. This is what we voted for. Or rather, this is what we voted for?

Hey ho. Enough of politics. Retiring at 60 for everyone though, is that a good idea? I’m not sold on it. I think we need to be thinking more about how people’s lives after 60 can be more worthwhile and can be seen in a more positive, fulfilling way than merely putting the feet up in retirement. Ageism is a massive issue and was something I had a taste of myself when I tried to re-enter the job market in my fifties. When your CV covers more years that the headhunter interviewing you has been on the planet, you can’t help but feel a wee bit uncomfortable. This suddenly dawned on me when I explained a project I’d once led to a young “recruitment consultant” and realised that she was probably four years old when I’d completed it. But, to me, it seemed, and still seems, like recent history. To return to politics for a second, Tony Blair being elected for the first time seems like yesterday, never mind it was twenty years ago. Twenty years ago!!

Deep sigh, there I go, sounding like Grandpa Simpson. It was a lot better in my day, mostly because I was twenty years younger then! Those years have gone by quickly and, based on experience, the next twenty to come will speed by even faster. I always liked the Tony Robbins statement that the only sure things about your future years is that you’re going to live through them, so how do you want them to look? Thoughts like that keep me going to the gym on a regular basis and, to be fair, the pub. I want to be healthy enough to still enjoy a decent pint of ale down my local in my seventies!

The thought also pertains to my work. When I “retired” at fifty, I found I really wasn’t psychologically ready for it. I still wanted to work, to contribute, to be part of a team and to be rewarded for a job well done through a pay packet. After all, that is what I’d known, and on the whole enjoyed, for the best part of thirty years and, when it disappeared, I missed it. I also didn’t choose it, because I lost my job through redundancy, and perhaps that was part of my problem. Now that I have returned to work, however, it often hits me with a start that I only maybe have a good ten years of a career left, if I choose to stay in it (or my company allows me to stay). Ten years? That’s a blink of an eye. For me, part of a job was always trying to progress within it, gain the next rung of the ladder, take on more responsibility and stretch myself. It still is, but I recognise – have to recognise, maybe – that perhaps I should now try to progress in a different way. What I should be looking for is maybe not the next promotion and wage increase, but to gain the next set of skills or network that will help me better when I next face “retirement”. Mentally, I can’t see myself much different in ten years from where I am today. My mum, facing eighty, still maintains that she thinks like a twenty year old, despite all the evidence against it. She still is who she is and will always be who she was. Why will I be any different?

 

 

My post last week was about how people in general are frightened to invest in the stock market while I, daring rebel that I am, have been shelving all my spare cash into equities for years. At the weekend, however, I read through this post by Jim Collins where he talks about the Wealth Accumulation stage of your life versus the Wealth Preservation stage. There’s no doubt that I am in the latter camp but, it struck me, I’m still acting as if I was in the former, because I’m still about 95% invested in equities.

I read what Jim has to say on Wealth Preservation – that basically I should now have about 25% in bonds – and think that he’s right (providing that you keep reallocating to this ratio as the market moves.) The trouble is, equities have been so good to me over the years (I think) that my own personal strategy of “do nothing” always kicks in when I think about making any changes to where I put my money. Leave it be. It ain’t broke, so don’t fix it.

Funnily enough, Jim also backhandedly supports this strategy when he mentions that Fidelity recently did a survey of their most successful investors:

Word is, Fidelity reportedly conducted an internal performance review of accounts held between 2003 and 2013 to find which did the best. The results:

  • First: Dead people
  • Second: People who forgot they had the account

I’m not sure if those dead people were 100% in equities or not, and reading that survey leads me to think, “You know, life’s too short. Why not go and spend some of your damn money while you still can!”, which immediately sees me following The Rhino’s advice to go and take a cold shower and calm down. Spend it? We can’t have that.

Anyway, my other balance against switching equities into bonds is my Defined Benefit pension scheme. God Knows how that’s all invested and, for all I know, He might care about it too. I don’t. I just want it to pay out, solidly, securely and forever, as it said it would. For me, that’s the really passive, conservative part of my investment portfolio that I’m never going to tinker with.

And then there’s the not to be sniffed at State Pension too, which I often forget about. Providing that me and my Darling Other Half both get to draw upon that, it will provide around fourteen grand’s worth of household income every year. That’s actually quite a bit of cash. With those two “bankers” to come (plus my wife’s NHS and Council DB pension schemes too) surely I can afford to “gamble” whatever else I have on the markets?

The State Pension, when I do think about it, does lead to me ask what I think I’m going to be doing with my money at sixty seven years old? For me, that’s about fourteen years away and those fourteen years are going to be, probably, the best I’ll have in terms of health in both body and mind. Shouldn’t I sprinkle some of the sugar of wealth on top of that while I still can? Because I can already see signs that my world is beginning to shrink. I used to happily take two long haul holidays a year. These days I can hardly be arsed taking one. I just can’t be bothered with the hassle of flying ten hours somewhere to be confronted by a McDonalds or KFC, the same traffic jam I just left, adverts for HSBC or Barclays and another bleeding slew of shops selling the same tat that I can buy in Aldi, Lidl, Debenhams etc etc.. As for heading somewhere unsullied and uncommercialised, well, the Scottish Highlands offer that in spades. Am I rushing there every spare weekend? No, so why would Peru or Nepal be better? Seen one mountain, you’ve seen ‘em all. I mean, if that’s how I’m thinking now, how likely is it that when I’m sixty seven I’ll suddenly be jumping on a flight to Auckland just to hear the pilot announce “Welcome to New Zealand. Please adjust your watches back twenty years” which allegedly happened when one of my mates holidayed out there. And, when I asked him how he found it, he replied, “It’s a bit like the Scottish Highlands”.

Given that, maybe I’ll just continue to try and enjoy my life and investing on pretty much the same trajectory as I’m on now. It’s served me well so far and, when you think about it, choosing to “do nothing” is still “doing something”, isn’t it?

Smash the System

As ever, I perused through the Money sections of the magazines over the weekend where they tend to throw out facts and information that, as a FIRE advocate, you feel should be on the front page of the main newspaper. Fascinating fact this week: over 80% of ISA’s held in the UK are held in cash accounts.

Isn’t that just gobsmacking? I mean, given current inflation, a lot of those “Savings” are effectively losing money. Why is it this way, when most of us who are piling our cash into stocks and shares saw our investments grow in mainstream index trackers  by fifteen percent plus (probably) last year?

Is it fear? Are people frightened of losing money if they invest in stocks and shares? I’d like to think that this was the case – this would be an indication that people had at least thought about their savings choices, although they might not have looked into the detail. I’d like to bet if you ask most people about the stock market, however, the main thoughts they’ll have about it are the Great Crash of 1929, the Dot Com boom and bust, or whatever it was that happened in 2008 when Northern Rock almost collapsed, or something. And yes, those were scary stories which, we are told, we’re pretty much guaranteed to see the likes of again in our lifetime. “The value of stocks and shares can go up as well as down”, is a mantra that almost everybody can quote, the equivalent of “Here be dragons” on one of those old maps you see in the movies.

The Movies. They’ve probably got a bit to answer for too. “It’s a Wonderful Life”, “Trading Places”, “Wall Street”, just to name three that spring immediately to my mind that don’t paint a very flattering picture of the stock market. All of those, and probably several more like them, warn that the market isn’t really for people like us. Unless you know what you’re doing in Orange Juice or Pork Belly Futures, steer clear.

The same people who shun the markets because they don’t understand them are often the very same people who’ll happily tell you that investing in the housing market is a safer bet than investing into a pension. At least that’s what the regular “Minor Celebrity Answers 20 Questions on Money Matters” interview attests to in the Sunday Times. Week after week I read someone answering the question of whether to invest in “Property or Pension” by stating definitively “Property”. About one week in ten someone answers “Both” and anyone answering “Pension” is an even rarer occurrence than that.

There’s another factor in the UK that might be keeping people away from the markets, and that’s a subject particular to Britain that I’ve mentioned here before: Class. I was educated in a Scottish mainstream comprehensive and I can honestly say that the thought of entering a career in finance, aside from accountancy, never crossed my tiny mind. Stockbroking, Merchant Banking and Fund Management? I’d never heard of those careers and, if I had, I would have classified them in the same career choice option as I’d have put “Astronaut”. At least I could have named an astronaut. I knew nobody who knew anybody who worked in the City. I wouldn’t even have known that term. If I had, I might have been interested, but the whole subject was so far from our little world that it was never discussed. Or, if it was, it would have been in an Economics class, and who listened in those anyway? Stocks and shares just weren’t for “people like us”, it was as simple as that.

These days we’re supposed to be more of a meritocracy, and lads from a working class background can make a big deal in finance. Blokes like Nick Leeson and Fred Goodwin, for example, where we all learned about their humble origins immediately after they almost wrecked the system. I do wonder what the background to the high earners in the banks look like? How many simply have the right network and connections? How I snorted with derision when I read how the (excellent) author Michael Lewis (Liar’s Poker, The Big Short etc..) broke into a career in the City. He happened to attend a dinner in London where he spent the evening sitting next to the wife of a partner in Goldman Sachs (as you do). She wangled him an interview, no doubt charmed and convinced he was the “right sort”.

To continue on this theme, I recently read an interview with a City investment guru who recounted that old chestnut about knowing when to sell “when my plumber and taxi driver start giving me share tips”. If this happened in New York, you’d shrug and move on, but in London the story smacks of class division – oh yes, when the ignorant masses start dabbling in the markets, it really is time to sell up and head for Saint Kitts.

Fortunately when I hit my thirties I came across The Motley Fool UK Investment Guide which, for me, deconstructed and poked fun at a lot of this “It’s not for the likes of you” rubbish, and I never looked back. These days I hope that the growing popularity of some of the web based bloggers and investment platforms allows that opportunity for millions more.

 

Retirement Society

In my last post, I talked about the importance of knowing where your money goes and, in the way of these things, I chuckled when I heard a guru of “expenses tracking” – Vicki Robbin, co-author of the classic Your Money or Your Life – being interviewed by the Mad Fientist on his most recent podcast. I almost gave up on listening right through to the end of this interview however because, to be honest, this woman is a verbal Duracell Bunny on amphetamines. She just won’t shut up! The Fientist was lucky to get two dozen words in edgeways as the ideas, stories, recollections and events of Vicki’s life just poured forth like a torrent. It didn’t help that when the Fientist did actually lever a question in, she’d answer, “You know, that’s such a GREAT question”, an American cliche in interviews that’s becoming so common (like beginning sentences with the word “So”) that it’s almost an insult.

So I stuck with it, and in the end was glad I did, because as the podcast came to a close, Vicki began to talk about some subjects that I’d like to tackle myself in my blog, about some aspects related to retirement finance that you don’t necessarily think about. Or don’t want to think about. Top of the list was a comment she threw out from the welter of information she’s gathered over the years. “Loneliness is expensive”, she stated, and went on to talk about how vital it is to have a developed network of friends and community around you as you grow older. This was in the context of quite a lot of other material about community living and how to develop and look after yourself in retirement once you have the finances covered.

When I had my year out sampling early retirement, this was something that struck me personally quite hard – just how much my community, my network and several of my close friends, were actually all connected to my workplace. When that vanished, well, they didn’t exactly vanish too, they just receded rapidly over the horizon! People I’d spoken to every working day for several years were suddenly out of reach. Clearly I couldn’t call them on a daily basis just to chew the fat, but I made the effort to keep in touch maybe once a fortnight. Which then dropped to maybe once a month. Meanwhile the casual acquaintances at work, whose company I often enjoyed even if in small doses, well, they did vanish, only to be glimpsed occasionally on Linkedin as a reminder of the community I once had.

Okay, this seems obvious now, and I was cognisant of it when I was at work too – my workplace pretty much was my community. But leaving it was something I hadn’t really prepared for, nor was it something I was ready to pragmatically replace. I’m not, and never have been, a great fan of clubs or societies. I never liked the Scouts or the Boys Brigade as a lad, so thoughts of joining a “club” like the Round Table, or the University of the Third Age, or the local Historical Society, really didn’t appeal to me. Even clubs I was a member of, like my local golf club, I’d no interest in getting more involved with. In fact, the guys I do golf with, we all take an almost perverse pride in how little we join in with any of the club’s activities, slagging off our perceived notions of just how small-minded and parochial, if not downright snooty, that culture seems to be.

What other community interests and ventures could I take part in? I tried some voluntary work when I was retired but, ye Gods, after coming from the world of “real work” the way these organisations seemed to do things quickly drove me scatty. They were like how I thought the worst of the public sector might work. Meetings that would drag on and on with nothing really decided, or done. Hours spent discussing the organisation of a coffee morning or a checkout collection at the local village Tesco, while I’d be sitting there thinking “There are seven Tescos in our town, why don’t we do all of them, every day, for a week! Now that would raise some real cash!” When I voiced this opinion, the (elderly) members just looked at me as if I’d gone insane. Soon we’d be back focusing on the more important things, like who was going to organise the tea and coffee for the next meeting? And which biscuits should be bought, given the budget situation.

My wife’s managed to develop a wide circle of friends through her attendance of classes at the gym where I’m a regular member too. But, I don’t know, I find gyms really quite unfriendly and distant places, at least for men. Are blokes slightly embarrassed to be there? Or are the type of men interested in developing their fitness quite insular and introverted? Are we too competitive and proud to be friendly? I really don’t know, but in my experience gym’s are just not overtly sociable places. Perhaps this is the old “How did you find the people in the last village?”* adage, but I don’t think so. There’s more to it than that.

As I write this, I think, “Maybe I’m just becoming a crotchety old git?”, Victor Meldrew over the back. But surely he was such a strong and popular character because he ciphered some hard home truths to people about how they might become if they’re not careful? Victor Meldrew is seriously no role model for retirement but not because he’s ridiculous. It’s because we see in him traits that we can see in ourselves but find difficult to face up to. As you grow older, your tolerance bandwidth shrinks unless you work to enlarge it.

To return to the podcast, Vicki talked about how we’ve put work and money on a pedestal while sacrificing just about everything else before it. We’ve no time, or energy, or inclination to nurture much outside of family – if we actually get to see the family much itself, after the commute and long day at work.  There’s some statistic that about 50% of us don’t even know our neighbours names these days. Arguably that’s a good thing but, if I take out the facetiousness, it clearly isn’t a good thing at all. Especially not for older people.

There’s now some interesting data being punted around about how the biggest division in society is between people who leave their home town and those who don’t. People who value community ties before the career path. Guess where the Brexiteers and Remainers sit? Well, forget the cliched politics of the stereotyping that this debate has grown out of, I find it a relief just to read of a way of looking at our society that’s not fixated on class, money, status and the individual. If Brexit sparks a debate about the importance of culture and community outside of the economic factors then that’s a good thing, is it not? As we grow older we need a social and community support network almost more than we need cash. Given that the generation coming up isn’t going to have much of the latter, we need to think an awful lot more about how to nurture the former.

*The Parable of the Two Villages
A man who was traveling came upon a farmer working in his field and asked him what the people in the next village were like. The farmer asked “What were the people like in the last village you visited?” The man responded “They were kind, friendly, generous, great people.” “You’ll find the people in the next village are the same,” said the farmer.

Another man who was traveling to the same village came up to the same farmer somewhat later and asked him what the people in the next village were like. Again the farmer asked “What were the people like in the last village you visited?” The second man responded, “They were rude, unfriendly, dishonest people.” “You’ll find the people in the next village are the same,” said the farmer.

Tales of the Unexpected

 

I read an interesting article recently where a journalist was saying that she’d noticed a growing division amongst her friends, between those who were heading toward their sixties financially comfortable and those who weren’t. It wasn’t that the latter group were heading toward poverty, or anywhere near it (she’d have to head North to have friends like those!) they were just realising they wouldn’t be able to keep up with their very nice middle class lifestyles once they stopped earning. From the skiing week  in Courchevel before the big long haul holiday in the summer, to the odd bottle of half decent red most evenings and the spontaneous weekends away, such middle class dreams often require a salaried funding. When it stops, or radically reduces, these people sometimes find they have been living well beyond their future means in quite a big way.

Those friends of the journalist who were facing a financially restrained future had often had unforeseen events happen to them that subsequently hobbled their plans.  A messy divorce, an illness that didn’t want to wait on NHS for treatment,  a hoped for inheritance being rapidly burnt up in care home expenses or a sudden and unexpected end to employment. Well, such calamities happen, but having a level of spending that they just hadn’t realised they were burning through on a week to week basis is less excusable. No, strike that, it’s just NOT excusable, and most readers of this blog will probably nod in agreement. How can you NOT know what your spending levels are, or where the money goes on a month to month, if not day to day, basis? The people who are going to be caught out are financially in the “Unknown unknowns” zone, and they only have themselves to look at when this realisation dawns. How many are in this situation? Well, when I was talking to a headhunter friend recently he was telling me  how depressing it was to meet with fifty something executives, desperately pleading with him to help find them a job paying “Just fifty or sixty thousand a year, that’s about all I need”. They’ve no idea how difficult it is to find those roles once you’re a certain age. “And Jim”, he went on, “these guys are living literally from pay cheque to pay cheque, you’ve no idea how many of them I see. I tell you, the desperation sets in pretty quick”.

(Believe me, I could write, and will write some day, about the job market for the over fifties. It’s horrible in so many ways that I’m afraid if I start, I might finish myself off!)

I often hear my friends jibing each other about employment in the private sector versus the public one, and there’s an increasing edge to it as we approach pensionable age. This is because the public sector workers often have the iron clad, defined benefit pension pots that will simply never run out until their dying day. The guys who are in private employment generally now have defined contribution schemes (the self-employed blokes, I’m afraid to ask). With a DC plan, it’s beginning to dawn on them, from Day One of  their retirement that pot starts to run out. How to ensure it doesn’t? Buy an annuity? Seriously? Those who have done the calculation often feel their jaws drop at the paucity of the returns. Surely they must get more than that?

I’m lucky, I have an experience of both with a DC and a DB pot. But I still fret about the future. What if my DB company scheme gets into severe difficulty? It’s already carrying a substantial deficit that I’m frankly too scared to look into. What if my self invested DC plan implodes in a market meltdown? Having lived through the internet bubble and the 2008 crisis I’ve seen the latter happen, but in those dismal days I was earning and buying the cheap market month after month, pound cost averaging and keeping my fingers crossed. Once retired, that avenue of earning won’t be open to me, or potentially not in any easy or financially significant way.

With both types of pension to hand, I can be a bit sanguine about the potential financial impact of unexpected events. Other consequences of them, who knows, and I find I really don’t want to dwell on subjects like divorce, bad health, ageing parents and the rest. Old age is not an unexpected event all the same, and at least I did plan a bit for when it arrives, although the older I get that harder it is to define when Old Age is actually going to happen to me. It’s always about twenty years away, isn’t it? So that gives me plenty of time to plan…..

 

 

 

 

Spread the Word

I overheard a conversation in my work the other week, which went along these lines:

“So I intend to overpay on my mortgage by £250 a month and get it down as fast as I can”.  I was surprised – people talking openly, and seriously, about personal finance in the office?! I wandered over with my cup of coffee to join in.

“I know”, replied the colleague. “I have money sitting in a cash ISA doing nothing. I think maybe I should pay a lump of the mortgage off with it instead, but it’d make such a small dent in the scheme of things.”

It was at this point I felt I must rip my shirt open to display my blue T Shirt with MMM (Or ERE) – that’s Mr Money Mustache or Early Retirement Extreme – emblazoned across the chest.

“Ehrm, why would you want to do that?”, I asked. “If your mortgage is costing 2% and you could invest the money and get maybe 7%, wouldn’t you be better sticking it into a stocks and shares ISA?”

“Well”, replied my colleague, “I understand mortgages. I don’t have a clue about the stock market”. The other bloke nodded vigorously in agreement.

I asked them if they’d heard of of Index trackers?” Blank looks. Passive investing? Nada. Getting a life? (only kidding). We chatted on for a few minutes with me thinking that this was one of the few informal conversations about finance and investing I’d ever had at work. I offered to send across some links that might let them look more into things and paced back to my desk.

Now, what to send my colleagues to get them started on the road of passive investing? Well, Monevator of course, but when I clicked over to the site and looked at it from the perspective of a complete newbie I wondered if it was ever so slightly intimidating? I picked the post entitled “Five Reasons You’ll Love Index Investing”, and noticed that almost by the second paragraph references were being made to ETF’s, something that I don’t fully understand myself. Was it already getting too complicated?

I sent the link anyway and tried to resist sending any more. They’ll either be interested or they won’t, and if the easy and straightforward style of Monevator doesn’t grab them, what will?

I mulled other options though. What if I offered to host a “Canteen Coffee House Investor” morning one day before the nine to five day starts? These guys were in by eight fifteen anyway, maybe they’d be interested in chatting informally about investments, or shares, or pensions once a month? I know I would, and maybe one or two others in the office would too? Mind you, what if they became enthused, and sank their life savings into a US Tracker just as the market uncovers another Lehman Brothers? Would they hold me responsible for ruining their financial lives? Would they remember my warnings, between slurps of coffee, that the value of investments can go up as well as down? Or that they need to work on a five year horizon?

Apart from that paranoia, however, I like the idea. I sometimes feel that it’s a lonely life being British and interested in this sort of financial stuff. It’s not really who we are, is it? We’ll conveniently ignore the reality of The City and tell ourselves that money is a private matter and that discussing it openly is really rather vulgar. It’s so much easier to pretend we’ve no interest in it because our lives are so much more bright and vibrant while we’re just “getting by” and being happy with that, instead of being some sort of dull bread-head counting every penny and comparing the size to your pile to everyone else’s.

Sometimes I scan the UK and US forums for meet-ups of like minded British people, but they seem few and far between. I did attend one of Huw’s (Financially Free by Forty) organised FIRE Escapes, but only because it was right in my home town. It was really enjoyable too, but would I travel miles to attend one? Stay overnight somewhere? “No” has been the answer to that so far. Perhaps this is because although I’m interested in financial matters, I don’t think I’m THAT interested. Yes, I could meet up with a bunch of people for a few drinks maybe once a month, but in between I’d rather get on with my passive, non-financial life. As for flying to Ecuador for a Chautauqua, I’m sorry, that verges toward cultish, Jonestown Massacre, behaviour. Which is probably a very British way of looking at it too, but there you go.

I don’t see myself as an organiser, starting a Club or forming a Society, but I have to admit I am tempted with regards to investing basics. Why? Because it’s important, and because it changed my life for the better. I think people should know about it and that they would benefit from it too. Perhaps that’s why I continue with this “Early Retirement” blog even after I went back to work. At least I had the choice to do so, and it was Financial Independence that afforded that choice – and continues to offer it. Surely that’s information that’s worth spreading?

Hard Graft

I was reading an article over the weekend that highlighted the fact that the new ISA  limit has been increased to £20,000 a year and that this amount, if invested over 25 years at 5% growth, would make you a millionaire. That’s a nice soundbite, but the article then dug itself into a hole by pointing out just how much saving that twenty grand a year would require – £1,666 a month, every month, for twenty years. And £1,666 is the total monthly average take home pay of a full-time worker earning £27,000 a year.

In other words, for the average Briton, a shitload of cash. In fact, it’s all of their cash, so it’s just too tall an order – most Britons won’t save themselves into millionaire status. Look on the bright side though, the article went on, if you could save just £100 a month into an ISA and return 5% over twenty years then at the end of that period you’d have at your disposal a total pot of……£41,000.

Excuse me, but does anyone else find that calculation somewhat uninspiring? Saving £100 a month for twenty years – that’s seems to me a pretty big commitment and somehow I was expecting it to be rewarded better than that. But then maybe I have swallowed the blue pill when it comes to compound interest, the miracle ingredient of investing. I barely question its efficacy, I just “know” it leverages wealth in a phenomenal way. I think, however, that the examples I read of how compound interest works were somewhat more inspiring than the “£100 a month” example above.

This leads me into an area that I find tricky when discussing FIRE with myself – just how much of a middle class, relatively high-earning ambition is it? It seems that the problem here is that £100 a month is just too small an amount to invest to promote sexy, head-turning results. Maybe the sum of £500 a month should have been used – that would deliver a sum of over two hundred thousand in savings. Unfortunately, I heard someone on the radio recently state that the majority of Britons couldn’t put their hands on a hundred quid cash if you gave them the morning to do it. They just don’t have a spare hundred quid lying around, never mind five hundred. The sad and brutal reality for many people is that even saving £100 a month is a stretch and, if the “prize pot” at the end of it is forty grand, then honestly, why bother?

The FIRE ambition is stoked by “disposable income” and a lot of the blogs I read focus on the first half of that statement i.e. what are you doing with the disposable element? How are you spending your cash? Are you squandering it on daily Starbucks frappuccinos? Is spending £100 on a decent Saturday night out second nature for you? Must you have a new, or relatively new, car when a trusty ten year old Honda, or even better, a Raleigh bike, would free up oodles of cash for you?

It seems to me, however, that it’s the income side that drives and realises the FIRE ambition, and that many of the bloggers are less inclined to discuss that, myself included. Our biggest icon, Mr Money Moustache, makes no secret of the fact that both he and his wife were high earners before they “retired” from the workplace. Yes, that’s a fact, and he’s open about it, as are many of his fellow flag-wavers. The point, however, is how much of that income was saved and invested, that’s the important thing.

Well, I beg to differ. I think that it’s the income that’s the important thing and that’s a more difficult thing to address than whether or not to buy a Starbucks frappuccino tomorrow morning. I’m not saying that the FIRE blogs ignore this aspect – there’s a lot of focus on side hustles and increasing earnings – but putting your shoulder to the wheel at the workplace deserves more attention than it is given. The fastest way to increase your savings is to ask for a rise at work, or work out a way to get it, and then bank the lot of it. Or work in a pub over the weekend and bank all of that ongoing. Yes, it’s hard, it’s graft, and it will cause pressure and stress that you might rather not have, but it will work faster for you in terms of increasing your savings than just about anything else.

 

Leave My Pie Alone!

In the way I used to go bed on Christmas Eve and think “Oh Santa please be good to me!”, I went to bed last Tuesday night thinking “Oh Mr Chancellor, please be good to me!” Or, more accurately, “Oh Mr Chancellor, please don’t muck with my pensions!”

This was partly inspired by something I mentioned in my last blog, that it wasn’t so long ago that a Chancellor decided you just couldn’t retire and claim a pension at 50 any.more, you’d have to wait until you were 55. Five years onto your working life, at a stroke. If, on Wednesday, the chancellor had announced that he’d decided you now couldn’t claim any pensions until you were sixty, that would so screw up my forward plans I can’t actually bare to think about it.

If there’s one thing I increasingly focus more on than my Isas and investments, it’s me and my wife’s pensions. And you need to because, compared to Isas, pensions are a complicated, maddening, mess of regulations, tax laws, restricted stipulations, sneaky stealth moves and, to be fair, generous loopholes that drive you insane.

As my wife and I approach 55, I’m really starting to think hard about our options. I thought I had devised a simple but cunning plan to transfer some of our ISA savings into a SIPP for my wife in order to grab the twenty percent tax bonus offered by the government for doing so.

I planned maybe a fifty grand deposit to be matched by the twenty percent rebate, which was certainly worth having for making a few mouse clicks. After all, I could invest in the exact same Vanguard 60/40 Lifestyle Fund in the SIPP that I was planning in the ISA anyway.

That was Stage One of the plan. Stage Two was that she would then draw around ten grand a year from the SIPP tax free over the next five years. When she reached sixty, she could then access her NHS pensions, at her “Normal Pensionable Age” and therefore maxing the benefit over time. Ya beauty. Simple, elegant and straightforward, eh?

Not a bit of it. First restriction: it turns out my wife can’t deposit more in a SIPP than she actually earns in a year. Which is nowhere near fifty grand, more like fifteen. And she can’t deposit fifteen either, because her current work pension deposits also count toward that fifteen limit. And the fifteen includes the tax rebate too.

Okay, not as straightforward as I thought, but nothing that my ‘O” level arithmetic and a bit of research can’t handle. With some quick moves, I can deposit into the SIPP this tax year, next tax year and the tax year after that – it’s not the fifty grand total I planned, but it’s close. Except, it turns out, it’s not that simple! If she gives up work on her 55th bIrthday then she’ll only have worked eight months in that tax year, and therefore her earnings and contributions have to be adjusted down accordingly. FFS. More research, more arithmetic.

Then I have my own pension to worry about. Have you heard of the LTA? Given you’re reading a blog like this you probably will have and you better start trying to focus on whether or not it applies to you – because it probably will.

The LTA is basically the amount you can have in all your pension pots before the government taxes the excess at fifty five percent. Fifty five percent!!!! Rod Stewart emigrated to avoid tax bands like these and by no stretch of any imagination in any direction – money, hair, leggy blonde birds – am I Rod Stewart. But I am in danger of exceeding the current LTA on my pensions. Or I think I am. “Think” because about six weeks ago I wrote to Aon Hewitt asking them to give me a cash equivalent figure on the pot that will fund a defined benefit pension that I have. I’m still frigging waiting on a response, despite calling them, writing via snail mail and chewing my nails that the chancellor would reduce the limit again in the current budget.

No doubt you’d be able to claim some sort of protection against such cuts, and maybe people were given a few years to get their head around the fact that they couldn’t retire at fifty any more. It’s not the first time that the LTA has been reduced, and each time you have had an option to apply for protection on your funds against the allowance being cut again. I wonder what percentage of the population have done so? Two percent? With the rest grazing on the grass contentedly, like sheep waiting to be fleeced by HMRC.

Honestly, when I see what has happened over university tuition fees, I think the Chancellor could pretty much do what he wants on pensions if all he took notice of was the general public. If he decided to tax all pots greater than 250k at seventy percent, the general population would ask, “Yeah, but did you see Kim Kardashian on telly last night?”  The only reason he even thinks about the consequences of such moves are because The City wants more coming into their coffers rather than less. They want people in pensions so that they can rake in more on fees. Any moves that have people looking elsewhere, like putting their cash under a mattress, or even worse, putting it into those upstart P2P funds, need to be stomped on at birth. Who wants more cash from your pension pot, the Government or The City? Probably the Government wants it more but The City won’t let them have it, not in any straightforward way. Hence the labyrinth of rules and regulations you need to get your head around to protect yourself or, even worse, try and make some sensible financial moves to benefit yourself when it comes to your life savings. Oh yes, they want to encourage you to provide for yourself in the older years, but only if they can take a slice of your pie on the way through. It’s up to you to make sure that slice is as small as possible.