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?

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.

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.

I “early retired” aged 50, and still put the term in inverted commas because (a) I never really convinced myself I had retired and (b) I went back to work a year after the event, so maybe I never really did retire in the true sense of the word.  And (c) does being aged 50 really qualify as “early retired” when for many years, that was quite a common exit point from the world of work? In fact, I was really surprised to learn that the government only changed the rules to make minimum pensionable age 55 from 50 in 2010!

I reflected on this subject as I was listening to the Mad Fientist’s most recent podcast where he was interviewing Mrs ONL from the Our Next Life blog. Toward the end of the hour, Mrs ONL made this cogent observation:

….my advice is, every day of freedom that you can steal back from 65 is a win. And so even if you are retiring at 64 ½ or 62, that’s still huge. And that’s still a lot more life that you get to live on your own terms than most people will ever get to say. Or just even being able to retire on your own terms is huge.”

She also commented on something I’ve noticed about the competitive nature of Retiring Early, where you now have bloggers claiming to have attained FIRE in their twenties. Soon enough you’ll be hearing some blowhard down the pub spouting “Yes, as a foetus I implemented the 4% rule and effectively retired”. To be fair, in Britain I think that’s a long way off. Occasionally during my year out I did tentatively mention to peers that I was “retired” and half expected to get the response, “Oh, I could have done that, but I just wasn’t ready for it in my fifties”. I expected this to happen much more frequently than it did. Coming to think about it, I can only recall the one occasion where I got this response and that was from a bloke whom, if he hadn’t reacted in that way, I’d have been devastated. He’s one of these guys who, when you tell him your car had a flat tyre on the motorway, will comment, “Oh yes, did I tell you about the time I had three tyres simultaneously blow out on me on the M25, when I was doing 98 mph? In the rain? And when I pulled over, Kylie Minogue stopped to give me a hand to change the tyres?” And he’d be quite serious.

The most common response was some sort of positive rejoinder accompanied by a kind of puzzled look, as if people were wondering if you were winding them up. (Not surprising when half the time I was wondering if I was winding myself up!) Nobody really asked for any further detail, preventing me from spreading the word about passive investing, Index Trackers and the list of inspirational websites that had helped me decide that Early Retirement was the lifestyle choice I wanted to experience.

I now find myself asking what I learned from that year and what I’ll do differently as I approach – or am forced to approach – my next retirement date. The first thing I think I’ve learned is to absolutely have a structure to the days, preferably written down in a spreadsheet, of what I want to do and when I want to do it. Definitely the most difficult retirement days were when I drifted through them, nothing to do and all day to do it, when walking to the local Co-op to buy a loaf and a pint of milk seemed to be a worthwhile objective. This was particularly true in the afternoons between about one o’clock and six in the evening, when I found it hard to motivate myself to do anything. I’d generally spend a lot of that time aimlessly surfing the internet in the vain hope that I’d find a hobby or pastime to occupy myself with that might also earn me a wee bit of cash on the side – then it’d feel more “worthwhile”. But if earning money was partly what I wanted to do, then why didn’t I just get back into the kind of career I once had and (generally) really enjoyed? In the end, that’s what I did.

It’s clear to me now how much routine and structure were important to my days and it now dawns upon me how, for almost thirty years, work provided it. Work also helped define the days that you weren’t at it  – weekends were special, holidays an oasis in the desert. Before that, it was school, with your scheduled timetable, the play time bell and the ever longed for summer holidays. It’s not really a surprise, or it shouldn’t be, that when that structure vanishes and every day is like Sunday, then it’s quite a shock to the system. It’s therefore not a failure to seek a structure to replace what you’ve known for literally most of your life to that point. In fact, it’s almost a requirement that you replace the old solid routine and structure with one that’s equally robust.

So what I learned was that it doesn’t really matter how late, or early, to the game you are if you’re really not prepared for it. In fact, the more months and years you have to start laying the foundations for outside interests, hobbies and pastimes that are an alternative to work, the better it will be. Don’t make the mistake of waiting until you have time in retirement to work on all those things because, in my experience, it just ain’t as simple as that.

I liked the recent blog post from The Escape Artist that should, in my opinion, be printed in every Money section of the weekend newspapers in the country. Or better still, the mainstream papers like the Daily Mail or The Mirror but I know that’s way too much to hope for. Finance? Who’s interested, versus who’s dress showed the most cleavage at the Oscars, or whatever they were going on about on Monday?

I’m one of these strange people who read the Money section of The Sunday Times straight after I’ve covered off the columnists in the main section. The finance paper has some good columnists too – Hunter Davies and Ian Cowie, for example – but they couldn’t write as straightforwardly as TEA in order to get their point across. Hunter Davies hates all fund managers and finance companies after a disastrous experience with the Equitable Life and his personal pension. He comes from a generation where frugality was the norm and, despite being quite possibly a multi-millionaire, still rummages in neighbourhood skips to see if someone has thrown out anything of value that he could use. A man after my own heart. Ian Cowie often alludes to the attraction of passive investing, but is a bit of an “Active” dabbler himself (or seems to be, maybe it just gives him something to write about!) Meanwhile the rest of the paper buries any worthwhile information under reams of other material that suggests maybe your savings would flourish under this fund or that fund, or in property – but I never read the Home section of the Sunday Times, clearly unlike many of their readers given property is given a whole weekend supplement to itself.

I accept that this agenda is probably driven by the advertisers – i.e. the big financial institutions – and I wonder how many articles’ recommendations are basically driven by a bung? Or to court favour with some fund manager who might lead them to a better story somewhere down the line if they turn out to be the next Neil Woodford.  Or Anthony Bolton (remember him?)  The financial industry and the financial press seem to have this need to find “investing heroes”, the David Beckhams of the Stock Exchange. I kind of understand the marketing psychology behind it, but it’s pretty ephemeral as the Anthony Bolton story demonstrates. Except for Warren Buffett, of course. There is a cynical view is that he is merely the fund managing monkey that typed the works of Shakespeare, or that maybe he’s just the financial equivalent of Highlander –  there has to be The One, doesn’t there, and he’s it. But Buffett himself tells you not to do what he does, but do what he says, and what he says is that you should invest in tracking funds, not stock pickers. I’m happy to follow this sage advice.

Extreme Brain Love

(Saying that, however, if Merryn Somerset Webb recommended I sink a few grand into the Ecuadorian Peanut Futures Market ETF, I’d be setting up the Direct Debit tomorrow as I am, I’ll admit, madly in love with her and her brain.)

No matter how the Money supplements try, however, the Passive Investing movement is building. I hope that the eventual outcome of this will be that good fund managers will eventually charge the same fees as a tracker funds, although I’m not holding my breath. There would still be plenty of cash in the racket if they did, and I have to admit that I would be tempted to give some of my savings to someone dedicated to trying to pick winning companies and gain an investment edge. After all, we trust professionals in other areas of life and knowledge and experience are surely worth something – it’s just that in the City, they’re not worth what they’re asking. TEA’s example of how to turn a £1m investment into £450k by simply giving it to some Champagne Charlie to manage for a 2% fee should be common knowledge to every schoolkid who can sit an arithmetic O level (if they even have these any more at school.)

It’s supposed to be that common sense is not so common and, to me, tracker funds struck me as complete common sense the very first time I read about them. I think that many people would think likewise, if only they could get past the “mystique” of investments and equities. Fund managers and IFA’s need to keep that aura of complexity alive as their fees depend on it, as do the firms that they represent. Independent financial bloggers – and Warren Buffett – can rise above such concerns, so let’s keep doing our best to get the message out there.