The Typical RIT.com Reader

When presenting my current financial situation or giving quantitative examples about financial problems (whether as thought experiments or actual experiences) regular readers will have probably noted that I typically always try and talk in percentage terms rather than absolute numbers.  Why do I do this?

Firstly, let me demonstrate what I’m talking about with a simple example.  Let’s say in Early Retirement I have calculated that my spending will be £20,000 per annum before tax and I've decided that I will drawdown on my wealth at the rate of 2.5%.  Running the maths tells me that I’ll need to accrue £20,000 / 2.5% = £800,000 of wealth before I'm financially independent and can take an early retirement that doesn't require any extra earnings other than those that come from the portfolio in the form of dividends, interest or capital gains.  I’m still a bit short of the target at the moment having only £500,000 stashed away in various asset classes.  There would be two ways I could present these facts:

1. Simply state that I’m going to draw down at 2.5%, will therefore need £800,000 and have currently amassed £500,000; or
2. State that I have now accrued 62.5% of the wealth I need to Retire Early which requires a little more work.  The calculation is simply £500,000 / £800,000 = 62.5%.  I choose to present this way.

So back to the original question, why only talk percentages rather than absolute numbers?  Simply because every reader including myself is an individual with different earnings, wealth targets, wealth requirements, needs and wants.  Therefore the fact that I have £500,000 currently invested is completely irrelevant to every reader but me.  However some of the principles or theories that I or other readers valuably contribute via the Comments could be very relevant making it worthwhile to go off and conduct further research.  What I have however found is that when I stray away from percentages the thought I’m trying to get across can be lost amongst the discussion about the numbers used.

This happened again last week when I was trying to show how important I have personally found it is to Live Well Below Your Means.  Instead of discussing the theory we ended up getting side tracked on whether someone could actually live on c£10k.  Firstly Anonymous stated “Do you really think that’s possible for a single person?” and then Huw from Financially Free by Forty and snuffleupagus stated that they were both doing it.  This then resulted in some challenges amongst readers which took us away from the point of the post itself.

With this in mind I thought I’d try something a little different today.  Let’s try and demonstrate just how different every Retirement Investing Today reader really is by answering 3 simple questions.  They can be seen in the form of 3 polls in the right hand side bar.  All I’m asking every reader to do is take a couple of minutes to answer each of the questions.  On average each of my posts is read about 1,500 times within the first 2 weeks of publication.  If every reader (or at least a good number) were to participate I might even be able to run some analysis to see if we’re on the average the same or different to the whole of the UK which might make an interesting follow up post.   Apologies in advance if this falls flat on its face...

So let’s look at the 3 questions:

• Question 1 asks what are your gross earnings?  This should be your annual salary before tax and employee pension contributions are deducted.  You should also include any bonuses that you typically receive.  You shouldn't include any returns that come from your wealth.  It also shouldn't include any salary from your better half.
• Question 2 asks what is your annual after tax spending?  This was what caused last week’s brouhaha.  This is simply calculated by taking your gross earnings from Q 1 and then subtracting the tax you pay, National Insurance you pay, any pension contributions you make from your salary (whether salary sacrificed or otherwise) and any additional savings made.
• Question 3 asks what is your annual savings rate?  Firstly sum any employer pension contributions (not included in Q1 or Q2 as usually they can’t be added to salary or spent), pension contributions you make from your salary, contributions to ISA’s and any other savings which are being made for a long term goal (not necessarily financial independence or early retirement).  Now divide this by your gross earnings from Q1 plus any employer pension contributions.

If I've been unclear please drop a note in the Comments and I’ll try and clarify.  I hope you choose to participate as the more that do the more interesting and significant the result.

Cheers
RIT