Only three weeks ago I was writing about my 75% of the wealth required to retire milestone and now as I sit writing this post, drinking a tasty homemade coffee which is helping me save hard ( ), it’s time to write about yet another.
Today my top level asset allocation looks like this:
The detail behind this is still very much in line with my strategy that I first published in 2009. Between the 04 January and 02 August 2014 (funny dates as I record my financial position weekly) this investing wisely portfolio returned 3.9%. Move forward to today and that year to date return has morphed into 7.0% in around a month. Should long run history repeat to average this portfolio should return about 4% per annum in real inflation adjusted terms over the long term (it’s returned exactly that since I started this journey in 2007) going forwards.
On top of that I continue to work on methods to save hard:
Even with me continuing to fail to save 55% of gross earnings, which I define as Savings plus Employer Pension Contribution divided by Gross Earnings (ie before HMRC takes their portion) plus Employer Pension Contribution, at 52% this month the combined wealth building effect of this plus investing wisely is boosting my wealth by 12.3% year to date:
Of course Mr Market might take that and more away tomorrow but for now it’s baked into the cake. That all pushes my wealth to a point where I have just over 79% of the wealth I believe will make me financially independent and give me the option of early retirement:
That level of wealth, a savings rate broadly in line with what I'm hitting today plus historical average investment returns moves financial independence day to just under 2 years. Another significant milestone.
I still don’t know whether I will retire early or just treat it as FU Money given I’ll be less than 45 years of age but I'm going to prepare for “Early Retire by 44” years of age to ensure I have the option open to my family and I. The current 2 year timeline means I now need to start making a strategy change – securing enough very low risk (and I acknowledge low return) wealth to enable my family to purchase a lovely home.
For non regulars I'm currently a renter and to save hard (maximise earnings less minimise expenses) my family chooses to live in a 1 bedroom flat in an “up and coming area” of London for which we pay exorbitant rent. We’re all happy with this today but going forwards we ultimately want a home.
Within our planned budget and should we choose to stay within striking distance of the place we currently call home then this is our house future:
The upside is it’s close to jobs in London and ... mmm ... not much else.
Of course if I'm financially independent and retired early I won’t need to be close to high paying jobs so it will be time to move. There are of course much better value properties in the Counties far from London but as I've telegraphed previously we’re thinking a little further afield.
This is the sort of thing we’re considering for similar money in Malta:
Plenty of upside but the downside is that for our budget we’re going to be limited for outside space.
This is the sort of thing we’re considering in Italy:
Our budget won’t stretch as far in Italy as our taxes will be higher (and likely to get further higher given Italy’s current economic state) and it also looks like we’ll also need to pay for private healthcare for 5 years before attaining the same rights to the Italian NHS as an Italian.
After renting in country for 6 months or so to ensure it’s where we want to be I want to pay cash (from bank accounts and NS&I Index Linked Savings Certificates) for our new home and I don’t have enough of that for the type of home we want today. This means that’s it’s time to alter the strategy slightly and start directing a lot of my new money and dividends into “low risk” investments which today will include multiple (to ensure I stay below the £85k FSCS limit) very poor interest savings accounts and a bit more RateSetter which so far seems to be working out well.
Today my top level asset allocation looks like this:
Click to enlarge
The detail behind this is still very much in line with my strategy that I first published in 2009. Between the 04 January and 02 August 2014 (funny dates as I record my financial position weekly) this investing wisely portfolio returned 3.9%. Move forward to today and that year to date return has morphed into 7.0% in around a month. Should long run history repeat to average this portfolio should return about 4% per annum in real inflation adjusted terms over the long term (it’s returned exactly that since I started this journey in 2007) going forwards.
On top of that I continue to work on methods to save hard:
Click to enlarge
Even with me continuing to fail to save 55% of gross earnings, which I define as Savings plus Employer Pension Contribution divided by Gross Earnings (ie before HMRC takes their portion) plus Employer Pension Contribution, at 52% this month the combined wealth building effect of this plus investing wisely is boosting my wealth by 12.3% year to date:
Click to enlarge
Of course Mr Market might take that and more away tomorrow but for now it’s baked into the cake. That all pushes my wealth to a point where I have just over 79% of the wealth I believe will make me financially independent and give me the option of early retirement:
Click to enlarge
That level of wealth, a savings rate broadly in line with what I'm hitting today plus historical average investment returns moves financial independence day to just under 2 years. Another significant milestone.
I still don’t know whether I will retire early or just treat it as FU Money given I’ll be less than 45 years of age but I'm going to prepare for “Early Retire by 44” years of age to ensure I have the option open to my family and I. The current 2 year timeline means I now need to start making a strategy change – securing enough very low risk (and I acknowledge low return) wealth to enable my family to purchase a lovely home.
For non regulars I'm currently a renter and to save hard (maximise earnings less minimise expenses) my family chooses to live in a 1 bedroom flat in an “up and coming area” of London for which we pay exorbitant rent. We’re all happy with this today but going forwards we ultimately want a home.
Within our planned budget and should we choose to stay within striking distance of the place we currently call home then this is our house future:
Click to enlarge
The upside is it’s close to jobs in London and ... mmm ... not much else.
Of course if I'm financially independent and retired early I won’t need to be close to high paying jobs so it will be time to move. There are of course much better value properties in the Counties far from London but as I've telegraphed previously we’re thinking a little further afield.
This is the sort of thing we’re considering for similar money in Malta:
Click to enlarge
Plenty of upside but the downside is that for our budget we’re going to be limited for outside space.
This is the sort of thing we’re considering in Italy:
Click to enlarge
Our budget won’t stretch as far in Italy as our taxes will be higher (and likely to get further higher given Italy’s current economic state) and it also looks like we’ll also need to pay for private healthcare for 5 years before attaining the same rights to the Italian NHS as an Italian.
After renting in country for 6 months or so to ensure it’s where we want to be I want to pay cash (from bank accounts and NS&I Index Linked Savings Certificates) for our new home and I don’t have enough of that for the type of home we want today. This means that’s it’s time to alter the strategy slightly and start directing a lot of my new money and dividends into “low risk” investments which today will include multiple (to ensure I stay below the £85k FSCS limit) very poor interest savings accounts and a bit more RateSetter which so far seems to be working out well.
If you settle abroad will your UK tax shelters still be tax shelters? What if the Maltese govt takes the view that as far as it is concerned they are just taxable investments like any other?
ReplyDeleteNot an accountant and will definitely get clarification as I get closer but this is my understanding today.
DeleteThe double taxation agreements between UK and both countries should keep my pension sheltered. So no problem there.
ISA's and NS&I ILSC's will definitely be taxed in Italy including a wealth tax.
Malta is a more complicated example because they offer non domiciliary exemptions. So for example dividends within the ISA will be taxed but only if they are remitted to Malta. Also all overseas assets are not subjected to capital gains tax even if remitted to Malta which should also help a little.
Dont want to sound rude but I guess the main question would be what you will be doing sitting in that house from 45 till your death... writing blog how to survive with the rest of your money in your retirement?
ReplyDeletePlan to work until I am employable. Just returned from beach holiday... 10 days... but how boring...
K.
Hi K, it's been a while.
DeleteYour example is an extreme but it's a very valid point. It's particularly relevant as I'm the type of person who just can't and won't sit around and do nothing. It's for this reason that I also say "I still don’t know whether I will retire early or just treat it as FU Money" as slowing down while feeling like a positive move is also a concern in some areas. In life I've learnt that nothing comes for free. What I can say is that I definitely won't be sitting in a house watching daytime television. That is so far from what I'm chasing.
I've been pretty consistent about this from day 1 - this is really all about work becoming optional allowing me to pursue interests where whether or not a pay check comes in is of no concern. I still have some time to work out the final details but I have some ideas coming together nicely that I probably won't publicise (at least not yet). What I will publicise is that I really like writing so one thing I would definitely want is some more time to build a decent website (as opposed to this lame attempt which occasionally gets a couple of hours) as a hobby. That won't be the primary idea but I'd like 8 or so hours a week to give it some decent attention. I also definitely want some extra hours per week to devote to family. That still leaves plenty of time for other interests - they just won't consume the 60 or so hours my current job does.
If Italy, I'd would decompress for a few months and then I would first focus on becoming fluent in Italian. It's a fabulous language and one of the attractions of moving there. That would delay my next move but I think would be thoroughly enjoyable and is one of the attractions of the country.
If Malta I'd still decompress but could move onto the next stage much sooner.
Yes, doing something creative which was not possible due to the need to earn money sounds like an attractive idea...
DeleteAnother aspect of moving to another country is local social connections, some are easy at this, some are not, also depends on the place and difference between cultures (saying as someone who lived and worked in 4 countries).
Glad that you remember me though, if you live near SW18, we should get together for a coffee ;) ... would be interesting to check my skills in "rendering" the actual person from the blog :)
K.
Your point about social connections and culture is incredibly important and is one of the attractions of Italy from my families personal experience. I have some concerns Malta wise (just because I don't have as much knowledge rather than any specific cultural issue) and that is one of the reasons I would rent for 6 months or so first in both countries. During that time I would work hard to integrate as opposed to live as an expat.
DeleteJust to share some of my experience:
Delete- 6 months is way too long, I would say 1-2 months is enough to form an opinion about the place
- avoid big cities, this is the last place to make easy social connection especially if you are mature person with well established character and life preferences
- a small town/village could be the best place for retirement in my opinion. But it very much depends on how locals would see you among them... I would choose a village in Switzerland among rich old ladies if I could afford it.... the best place in the world for retirement after 60.
K.
"fluent in Italian. It's a fabulous language": it certainly is - it has eight words for "some".
ReplyDeleteIt's striking how much this is all dependant on the uk remaining in the eu
ReplyDeleteI don't have a crystal ball of what the future holds. I therefore plan around what I do know or what I can think could happen that would seriously damage my financial situation (for example I don't plan on receiving any State Pension - that is all potential upside).
DeleteThe UK not being in the EU might require a plan change but it shouldn't damage my financial situation. If it did happen it also might not stop my families emigration to one of these countries for many reasons. Some of which possibly haven't even been invented yet. If it did I just replan and look for the next best option.
If in two years you feel you have much more freedom to work, or not, and to work wherever you like, why not go somewhere with a kinder climate but where they speak English. Nelson at the top end of South Island NZ is such a spot: lemon groves, sandy beaches, and still in a world that appreciates rugby and cricket. The food and wine are more than decent too. No archaeology, I'll grant you, but you can't have everything.
ReplyDeleteBe careful that the grass always seems greener. I believe I would pretty quickly hate to live anywhere corruption and laziness was worse than what I was used to in the UK (I could mention one of the countries RIT has suggested).
ReplyDeleteIt never ceases to amaze me how rubbish many people are at retiring. If you have the ability and desire to learn then move to the countryside, open your eyes, sniff the air and there is so much to do outside your own front door, and you will also experience less of the negative aspects of our society (for me, these are mostly associated with dense population). Hobbies and activities to do with natural history, local history and your local countryside are usually very cheap, very interesting, can be useful and involve 'growing' and 'building' concepts; very healthy and satisfying to most balanced humans. Socially, there are many associated societies, clubs, like-minded people and loads of voluntary positions of responsibility if you want to give yourself some pressure. People are also generally more friendly and happier away from dense brick, and have more community spirit. Oh, and a lot of people completely miss one of the most fantastic things about the UK geographically, and that is the changing seasons, but you have to be in the countryside to get the pleasure from that. You will not have to slow down.
But if that doesn't rock your boat then leave; the UK could do with some more space to make way for the quarter of a million immigrants (net) we are getting every year thanks to being in the EU.
FU money! I took a year out of work. It was great but the most challenging thing about it was that...well...no one else was taking a year off work. Freedom doesn't feel like freedom when you're the only one who has it!
ReplyDeleteWhen you've reached 100%, RIT, how do you plan to lock it in so you don't lose it? (There's no point taking further risks if you don't need further reward for them.)
ReplyDeleteHi,
ReplyDeleteCame across your blog recently, nice work! A pretty similar approach to investing to what I am looking to set up. Thanks for being so open with all the information here!
Just discovered your blog - you're an inspiration!
ReplyDeleteDan
Hi rit. Love the site and remain very impressed with your logic and discipline . Although can't wrap my head around your relative to global weighting extreme overallocation to aus. Having looked into the index it's heavily weighted toward Commodities and banks. Time for a reshuffle
ReplyDeletecan I ask a rude question, how much is a place in Malta like the one above?
ReplyDeleteHi JG
DeleteThe photo above is a 4 bedroom, 3 bathroom House of Character and from memory it was EUR390k. We're now in the situation where we won't be looking to spend as much as that. We still want a House of Character or old Farmhouse but we think 3 bedrooms will now be more than adequate.
Cheers
RIT