Willfull Ignorance

I was listening to a podcast from MoneyBox called the Death of Retirement the other day with a growing sense of annoyance and, possibly, outrage. There were a variety of reasons for this, most of them boiling down to ignorance, most of it my own.

For a start, the podcast kicked off with a panel of “experts” interviewing a “millennial” who was in her early twenties and was looking for some advice on pensions, as she suspected she wasn’t saving enough into her plan at the moment.

“How much do you currently contribute?”, asked the kindly host.

“Well, I looked at my last wage slip and I’m putting in nine pounds a month”.

“FFS!!! Are you raving mad!!!???”, screamed the host. “You’re heading for abject poverty!”

Oh sorry, that wasn’t the host screaming. It was me. You see, the host and panel, in a fantastically polite and paternal BBC fashion, were far too sensitive and non-judgemental to make any such uncontrolled outbursts. Instead, they gradually tiptoed toward the suggestion that maybe, possibly, depending on her circumstances and an uncertain future, this might not be enough.

“Do you know what your employer is contributing?”, gently prompted the host.

“Well, unless it’s about five hundred quid a month I’m totally screwed”, joked the young girl. No, sorry, that was me again, and I wasn’t joking.

When it comes to this stuff I think I’m in a state of willful ignorance, because I kind of assume that, by now, surely, 99% of the country are aware of the financial catastrophe that old age is going to bring with it and are taking steps to avoid it? Okay, maybe not 99%, but 75% must be?

Alas, a quick Google search on “What is the size of the UK average Pension Pot?”, pours cold water on this notion. It’s currently sitting at 50k, according to the This Is Money website. (Pause to remind myself that this is the TOTAL POT and not what it’s going to give as an income every year). A 50k pension pot currently pays an annual annuity of about £2,500 a year.

I’ll admit, I find this frightening, but then I do live a rather gilded financial life. Many people have to survive on incomes of around £10,000 a year so, if you combine a 50k pension pot with the state pension, then you’re heading for that amount. Plus (I believe) there are other government support mechanisms available to supplement this income, such as housing benefit.

This is a good thing, I think. I want to live in a society that provides a social security net for all, providing everyone is contributing in a fair manner. (I did try to expand on what I would define as “fair” in this context, but that turned into a bit of a rant that included dreaded words like “Brexit” and “NHS”.)

So, setting a lot of political issues aside, I see “fair” as being a bit of “give and take”. You put something in as does your employer and the government. That’s pretty much what we have at the moment. It’s not a perfect system but it’s better than nothing. The key, for me, is the first part of the sentence, “YOU put something in.” Part of the reason why a lot of people are heading for a State Pension and very little else is because they failed on that first step – they put nothing in.

The BBC seemed easily enough to find young people who are still bridling against the notion that they need to contribute to a pension. “I just don’t trust pensions”, says one. Another “Just can’t afford it”, and objects to the fact that her employer can decide where her pension money goes. Against this, perhaps the young millennial putting away nine pounds a month is to be congratulated –  at least she’s doing something!

How can this situation be changed? Well, if you listen to this series of podcasts, it seems that enrolment of employees in company pension schemes has been a success. There clearly needs to me more of this kind of thing. But, for me, the pensions “industry” has to become much simpler, transparent and fair. And it needs to have the same attraction that investing in property has. It should be publicised as being just as safe and just as beneficial as having a roof over your head. But, at a nine quid a month contribution to a pension, the roof will be falling in as opposed to holding up.

 

FIRE Dog

As I settle into my fifties, counting my cash, it’s comforting to find myself in the fortunate position of thinking that, financially, I should be pretty set. I look at my personal pensions, investments and tell myself to relax, it looks sorted. Even if we go through another 2008 and everything drops by 40%, I’ll probably survive.

That’s the upside, sitting warming my hands by this financial fireside. But there’s a downside. I’m stuck! Okay, I can survive a 40% decrease in my pile in any given year, I suppose, but I’ll probably NEVER see a 40% upside over that year in those same funds. Why? Because to get that return, I’d have to risk a sizeable element of my funds to get it. And risk is not something I want to entertain when it comes to the money I’ve amassed to date.

I find this quite sad, in a way. I think I’m thinking this way at the moment because I’m reading “Shoe Dog”, the autobiography of Phil Knight, the founder of Nike. His story of building the company up from nothing is exciting, dramatic and full of life. It feels like he never had a dull moment, although his early days of building the business were mostly full of stress, flirting with bankruptcy, dealing with corrupt suppliers, ruthless competitors and even more ruthless banks. He risked everything to build his company, and now – he’s worth over $28 billion dollars – he’s sitting on the rewards.

In my current job, I’m dealing with quite a few start-ups and spend a bit of time with the “entrepreneurs” behind them. Generally speaking, they’re a colourful bunch who are driven to get things done. There’s always a way for them to continue to move forward, get what they want and they’re prepared to put their money where their mouth is. They have to. Most of their money goes into their business and not many of them are living flash lives – as neither did Phil Knight for decades either. I don’t envy them the stress of what they’re trying to achieve, but I do envy their willingness to take the risk.

I don’t know too much about their personal circumstances – have they a pile of cash sitting somewhere they can fall back on? Do they have a pension? Is their partner a secret millionaire? Are they secure in the knowledge of a big inheritance eventually coming their way? It’s possible, but even if this was the case, why not live a cushy life instead of throwing bundles of cash at something that has a damn good chance of ending in misery?

Now, in my fifties, I wonder if I’ll ever know that excitement that I feel must be involved in throwing yourself into trying to build a business? In my career, I chose the corporate life and can’t knock it for the relative security it gave me, and the perks I enjoyed too. And I often asked myself just what kind of business I’d have to build to pay me the kind of benefits I eventually enjoyed in that role? It would have to have been pretty damn successful, I know that.

Over my career I used to think and chat about having the chance to build my own business, but latterly I used to qualify this dream by stating I’d loved to have had the chance to “build my own really successful business!”  There was no guarantee of that, which makes all the difference. I have two personal friends who pretty much ruined their lives trying to realise their own dreams on their own terms. Phil Knight is a winner, I suppose, so it’s their histories we read about and envy. Real life for the rest of us is often very different and it was partly the “real life” that I saw that helped keep me where I was.

I have the option, of course, of scooping some money out of my savings and plunging it into a new venture that, potentially, could pay me millions in ten years’ time. Or at least will give me an interest and side income in my next shot at “retirement”. After all, the brilliant podcast, “How I Built This” showcases loads of people who have done just that, often with a lot less than big bucks to start with. I don’t have to risk a massive amount – the first “How I Built This” interviews the first female billionaire business woman who, I think, started with an idea and five thousand dollars she’d saved. The rest was hard work, more hard work and a bit of luck.

So, that whelk stall down the front of Scarborough could be in for a new owner soon.

 

Vested Interests

Homer Simpson once asked himself, “Kill my boss? Dare I live out the American Dream?” That particular dream is not exclusively American, of course, but generally, and unfortunately, it’s the boss who’s funding our dreams one way or another. Even if you’re self-employed, the customer is the boss, and I know many small businessmen who’d love nothing more than to nuke their customer base.

I remember reading Paul Allen of Microsoft telling of one of the major problems he and Bill Gates encountered as their company began to really take off. In order to attract the best software engineers, they’d offered potentially incredible share option packages to lure employees to rainy Seattle from sunny California. In addition, to make these options even more attractive, they gave them a relatively short time frame to mature to a point where they would become the employees’ property and could be sold on the market. In American parlance, when an employee gained their shares, they’d be “vested”.

Allen and Gates became concerned that when the first big tranche of options they’d given out became tradable, many of their key employees would become multi-millionaires overnight. Perhaps they’d all leave and retire? How could they continue to retain them?

Soon, however, they had an almost bigger problem when their employees started cashing in their options. These key people didn’t leave or retire. They became a different type of employee. Allen turned up to a meeting once to meet an engineer wearing a T Shirt stating “F*** You, I’m Fully Vested”. The message couldn’t have been clearer.

This may well be where the phrase “F*** you money” originated from. As far as I remember, Microsoft started firing any employee demonstrating what they saw as this “Couldn’t care less what you think” attitude. It was a real problem and probably still is. When you don’t need the money, do you need the boss and his crummy opinions?

Biting the hand that feeds you can become an option as you near your FIRE goals. In retrospect, I was affected by it in my own employment but it had a slightly different effect on me because it’s such a gradual process and, psychologically, I never fully believed it (probably because, unfortunately, I wasn’t made a multi-millionaire overnight.) I’d admit, however, that as the salary became less of a life support for me at work, I became more cantankerous, more prepared to say what I really thought in meetings and more critical of how things were – or how I perceived them to be – in the office. In retrospect, I think I made it quite obvious that I didn’t need, or want, to be there and that, as I’ve blogged before, is the quickest route out the office.

Most of us will take years to reach a position where we can walk out of a job and never look back, but increasingly as we stick to our saving strategies we will be approaching that point. This brings about a “So near, and yet maybe so far” frustration, because our calculations are based on an uncertain future which might mean we DO need to work a little bit longer. There’s a line that we hope to cross, but as we near it the line becomes a lot more fuzzy and indistinct. Worse, we are relying on our employer to give that line a more solid definition. You begin to spend time wondering how you could negotiate a severance package to sweep you over, and that is a dangerous road to travel. Your mind morphs over from doing a good job to focusing on what a good job it would be not to have to work. You become increasingly unsettled and discontented and it begins to show. You don’t wear a T Shirt, but you start to focus on when you can buy one.

This “Should I stay or should I go now?” question promotes the  “Just one more year” promise that you make to yourself when you feel that you could probably retire today, but begin to feel that maybe a further twelve salary cheques will provide a financial buffer to seal the deal. The buffer, however, is more likely to be in your head as opposed to the bank. Really, if a year is going to make that much of a difference then you don’t have enough to make the move, regardless of the money in your bank. Something else is holding you back.

These are things to bear in mind as you work toward your FIRE goals. The journey will be easier if you continue to appreciate the people other than yourself who are enabling it – your customers, your workmates, your employer. This would be an appropriate point for me to thank all my own previous employers for the help and money they gave me in realising my ambitions.

But you know what, I put a lot of that salary into index trackers, so *@*! ‘Em, because I’m fully (in)vested. 😉