Since starting this blog at 35 years of age in 2009 I have never revealed my portfolio values or targets in £ terms. Rightly or wrongly I've always believed that it was irrelevant to readers given we all have different earnings, investments, risk profiles, savings rates and target retirement amounts. This has resulted in posts that always focus on the theory and how I'm applying it but that in hindsight come across as dry and impersonal.
Today I'm going to try and change that by starting to talk in real numbers rather than percentages. My hope is that it will up the debate a little and help us all continue to learn from each other. I just hope it doesn't kill the community that has developed over the past 5 or so years. Given the name of this blog and my closeness to FIRE (financially independent retired early) the amount of wealth I am trying to accrue is probably the number that is currently most important to me and probably one of the most popular topics debated/discussed within personal finance blogs and forums. So let’s start there.
As a person who does not plan on receiving a State Pension and is not going to be receiving any sort of inheritance it is a crucial number for me as to fully FIRE it needs to be enough to last my family and I for the rest of my life. That could be 45 or more years. The methodology to calculate it was first devised back in 2007 when I first started on my DIY FIRE journey and went like this:
What I've found is that since I devised that methodology back in 2007 just about every assumption has been wrong:
However even though I was wrong in just about every assumption what I've found amazing is that if I work the scenarios with what I know today and whether that be Malta (where houses are lower cost than the UK but where I’ll pay more tax and have to pay for healthcare via Social Security Payments) or the UK (outside the expensive South East) I keep coming back to an early retirement number of £1,000,000 which will almost immediately take a financial hit when the family home is purchased.
It nicely demonstrates how sometimes the key is just to make a start on something before you know everything. It also nicely demonstrates how important it is to DYOR as I know some bloggers are chasing FIRE numbers of circa £250,000 which is very different to my million pounds. I also know of many early retirement forum members, admittedly mostly US based, who have or are chasing numbers far bigger than my own.
Today I'm going to try and change that by starting to talk in real numbers rather than percentages. My hope is that it will up the debate a little and help us all continue to learn from each other. I just hope it doesn't kill the community that has developed over the past 5 or so years. Given the name of this blog and my closeness to FIRE (financially independent retired early) the amount of wealth I am trying to accrue is probably the number that is currently most important to me and probably one of the most popular topics debated/discussed within personal finance blogs and forums. So let’s start there.
As a person who does not plan on receiving a State Pension and is not going to be receiving any sort of inheritance it is a crucial number for me as to fully FIRE it needs to be enough to last my family and I for the rest of my life. That could be 45 or more years. The methodology to calculate it was first devised back in 2007 when I first started on my DIY FIRE journey and went like this:
- I was renting in London, as I still am today and though of London as home
- I asked myself what a good salary would be that would enable me to live well including covering rent or mortgage payments. That number was £30,000
- As I worked towards FIRE I would increase that salary annually by inflation. Today that salary within my Excel spreadsheet is £37,691
- I calculated what I expected my portfolio to return annually in real terms. This number still dynamically calculates in my Excel spreadsheet every week when I update my financial position. That number after expenses was 3.8%. A number I later learnt wasn't so far from the (in)famous 4% Rule
Click to enlarge, My path to £1,000,000 and early retirement
What I've found is that since I devised that methodology back in 2007 just about every assumption has been wrong:
- My family and I no longer intend to stay in the South East of England
- We can live well today on a lot less than £37k per annum
- We want to own our own home
- I think the 4% Rule is far too bullish particularly when I look at this.
However even though I was wrong in just about every assumption what I've found amazing is that if I work the scenarios with what I know today and whether that be Malta (where houses are lower cost than the UK but where I’ll pay more tax and have to pay for healthcare via Social Security Payments) or the UK (outside the expensive South East) I keep coming back to an early retirement number of £1,000,000 which will almost immediately take a financial hit when the family home is purchased.
It nicely demonstrates how sometimes the key is just to make a start on something before you know everything. It also nicely demonstrates how important it is to DYOR as I know some bloggers are chasing FIRE numbers of circa £250,000 which is very different to my million pounds. I also know of many early retirement forum members, admittedly mostly US based, who have or are chasing numbers far bigger than my own.
Thanks for sharing your numbers, which was surprising as I never thought you actually would!
ReplyDeleteA million is a sweet number to aim for and you have it in your sights - it seems like taking in all the various scenarios, this appears be the right number to go for!
Yes, I'm one of those aiming for £250k but a year into saving/investing properly, I realise that when I came up with this figure, I was using rather broad calculations and assumptions. True, I won't be living in or near London so can live on a much lower salary but I'm not sure I've really taken into account the sort of lifestyle I will lead, ie what if I want to travel abroad a lot?
Still, I don't think I'm massively off with my calculations , since this doesn't include my DB pension and unlike you, I'm expecting a small state pension.
For now, I'm going to continue to aim towards this number but will do a full assessment after 5 years, see where I am and whether I need to adjust my investment strategy.
Anyway, thanks again for sharing and making me consider my own number!
Hi weenie
DeleteI think also that my £1 million is very different to your £250k.
For me it is effectively everything I have of value as unlike yourself I don't current have a home (or BTL in your case) nor a Defined Benefit Pension which is a hugely valuable thing in this day and age. We would need to add those to your £250k to compare. I know your BTL is worth £70k but I don't think you've ever revealed what DB Pension you expect. As an example let's say it's £5k. For me to generate £5k I'd need £5k/2.5% = £200,000.
So in this scenario your comparable Number is more like £250k+£70k+£200k = £520k. Still less than my target but a lot more than £250k.
Good luck with it. I'm enjoying your journey.
Hi RIT
DeleteThanks for the comparable scenario - if I factor in my DB pension (which, similar to Cerridwen will lie between £7k and £12k), the figure is over £600k.
Thanks for your continued support.
A friend of mine got a figure stuck in his head from aeons ago: £100k was enough so that you'd never need to work again. But you or your widow are likely to live for aeons.
ReplyDeleteHi dearieme
DeleteThe period I and my better half could be retired is certainly one of the reasons I'm being quite conservative on withdrawal rates. I'm earning good money now but I know if I was retired for 5 years that door would be well and truly closed. Maybe I could find another similar paying profession but I'm not banking on it. Therefore better to make a little more hay now.
As a fellow London resident and someone who plans to retire eventually on my personal pension I am accumulating now, 1mm has also been my goal as something to have when I retire.
ReplyDeleteI do not plan early retirement though, as for me 40 is just half of life expectancy and it could be too difficult to change my occupation now. I also not planning moving out from UK as it has a number of advantage for a retired person with reasonably modest income.
Honestly, I do not understand why wouldn't you just get over your insecurity once you have the money to retire and then just start living with enjoyment of small things around you ... get a nice car, go on holiday, etc.... ?
Hi K.
DeleteI agree with you about the UK advantages for a retired person. It is a consideration to stay but the non-financial advantages of The Med at the moment seem to be winning.
Firstly, the UK NHS is residency based and so as I won't be earning my cost in the UK would be £0. In Malta I'll definitely be paying, most likely via Social Security Contributions (SSC's). SSC's do however also give contribution to a Malta State Pension which in the UK I'd have to pay for via voluntary NI contributions. Combined Malta will still cost a lot more.
Secondly, between NISA's, earnings tax free allowances, the new £5,000 dividend tax free allowance and CGT allowances I would be paying effectively £0 in tax. In Malta I'm sure I'll be playing some non-Domicile tunes but the rules can change (as they have in the UK in recently years and the last budget) and I'll still be paying quite a bit in tax.
This is of course offset a little by property being lower priced in Malta (particularly once you get away from the Valletta, St Julians and Sliema area) than the expensive UK. It's nothing like the advantage you'd get from somewhere like Spain though.
My numbers are:
ReplyDeleteSalary of 120K GBP tax free (banking in middle east), living on own property, the salary won't go up much if any, and a few taxes are expected to come in the region.
FIRE figure of 1.5 Million pounds + own property.
30K GBP required to live (much less if things get ugly), that is 2% per year.
Currently at 38 years old 60% achieved, the goal is to retire between 42-45 years old.
Thanks for sharing Anon
DeleteThat tax free element has to put a smile on your face as it will be really accelerating your journey to FIRE.
I'm PAYE in the UK, have worked hard to increase my earnings over time and now work very hard to maximise what I earn. Combined it results in a very good gross salary but the taxes I then pay are the biggest drag on my wealth building that I have by far. It's one of the reasons I always talk about my savings rate in Gross terms where other PF bloggers typically use Net. Every time I do it I'm reminded of just how much tax is slowing me down but unfortunately I can't do much about it from where I sit today.
Good luck on your journey. I hope you continue to share progress.
Thanks for putting a number in RIT. I think that it definitely does help people who are trying to get to the same place if they can benchmark their targets against those of others, even though we do all have different lifestyles etc.
ReplyDeleteBoth my husband and I have modest public sector DB pensions (his is £12,000 and mine is somewhere between £7,000 and £13,000 - depending on how long I work and when I take it) .We're also fairly confident that the state pension can play a part in our planning. My "freedom" number is therefore calculated in the form of an annual net income, rather than an amount. It stands at £30,000 which, given what we currently spend, is probably a little over the top, especially as we do own a studio flat and our home outright which could be used to release equity if needed. My work is around trying to get together the funds to be able to leave work before 66 when my pensions become payable and, if possible, preserve some capital for post-retirement "emergencies". I did have a figure when I first started this process but, as for you, things have changed since then (and keep on changing :-)) so I should probably re-visit this.
Your own steady progress to your target, and how you have documented the journey in this blog, is an inspiration to us all and seeing the actual figures you're working with makes things even clearer. We're all rooting for you to cross that line.
Hi Cerridwen
DeleteThanks for sharing. Those DB Pensions are hugely valuable and not so modest when you compare them to equivalent wealth required for FIRE. For every £1 I plan to take each year in salary I need £40 in wealth - a 2.5% withdrawal rate. Doing the same for your possible £25k total is straight away a Million.
On top of that you currently have £94k in ISA's/SIPP's etc. Then you also own a studio and a home. So in comparable terms you're chasing well above my million.
Thanks for the wishes and good luck with the final part of your journey. I look forward to reading about it blow by blow.
Thanks RIT, Yes. Of course our pensions are hugely valuable and we do recognise that. In the past public sector pensions were often regarded as "deferred salary" to some extent. For example my husband finished his 35 years in HMRC as a Higher Executive Officer on £32,000. Not a high salary considering the responsibility he carried and the revenue he brought it. Part of the benefit also comes from the fact that you were in pension from the minute you started work without having to give it much consideration - very few people would bother to opt out. I absolutely do appreciate your point though - someone in a DC pension situation, like yourself, has to work very hard and have great determination to get to the same place.
DeleteYour comments do make me wonder if maybe I should try to re-work things a bit although life's a bit unsettled at the moment with the "opportunity" of VR hovering over me.
At the end of the day when you get to "almost there" as we have, it probably has to come down to whether work makes you miserable, is bearable, or has some positive effect on your quality of life or a combination of all 3 and in what proportion. :-)
Thanks for sharing RIT.
ReplyDeleteOver the past year my plans have changed quite a few times and I have got more things wrong than I have right. But I have sorted out increasing my savings rate and realised that this is one the most powerful, if not the most, powerful tool in this journey. Just starting is better than waiting to 'get it right'!
I am(/was) aiming for £625k, so around £25k using the good old 4% rule. But I think we currently live off far less that this, so the £25k is prudent rather than the 4%. I will keep this as the carrot for now, but review it at some point as things are sure to change. I'm too scared to have a look at the impact kids would have :)
Mr Z
[Although the wrong article, on moving to Malta. I was born in the UK, but grew up an expat. Then came back here for university. I got home status as a student but then things got a bit funny and I couldn't get a student loan. Could be worth looking into if you plan on sending kids back for university... I know plenty of people I grew up with got student loans fine, so perhaps it was just the local education authority where I was... ]
Nice update, RIT.
ReplyDeleteIt is a pretty solid figure to aim for and the fact that you seem to come out with this figure again and again certainly helps to confirm that this is a good crystallised target. Targets can and do change of course,but it looks a solid one so far!
I have left my main target very flexible at the moment. Right now I could live off £10,000 quite easily which would mean if my investments were yielding 4% overall I would "only" need £250,000 in assets. However, I anticipate that--over the medium-term--my expenses can only really rise meaning a £10,000 income may not be quite enough for FIRE. We will see!
Keep up the good work!
Thanks for sharing the monetary terms you're looking at RIT. I appreciate the openness, and as you can see above it's opened the floodgates of opinion's on the SWR/FI figure.
ReplyDeleteI sit in a camp close to D2 above. I live on less than £10,000 currently as well, and I plan on aiming for a £250,000 portfolio of Income generating stocks that produce more than 4% in dividends. This will see me past the £10,000 expenses I need to survive.
I'm not sure what my expenses are going to be in 2-10 years time. My biggest expense by a mile is my mortgage, which I hope to completely destroy over the time frame stated. However, other expenses - bills, living costs are likely to rise. Only time will tell where it ends up and I won't spend too much time concerning myself with it now. Let's shoot for £250k and see where I am and what happens when I approach it.
I will never 'retire' and do nothing in any case. I plan to work on projects I enjoy and continue to earn money and invest while I do so. This will have a big bearing on my FI plans. For example, if my Kindle Income reaches £100k a year, which isn't impossible in 2-3 years, that's going to change everything. The chances are, if I'm earning that money from Kindle alone, my coaching, courses, motivational speaking earnings will be high as well and I have no idea what type of money I could be on, and subsequently investing.
£250k is my first goal - complete, passive income that covers my expenses (currently). Next I want to earn enough passive income to allow me to continue investing so I can spend 50% of my invested income and further invest the rest (50%) to accumulate more income. Then I can start changing other peoples lives - Family, friends, and charitable causes.
Finally, I just wanted to say - Great quote in the tail-end of the post:
"It nicely demonstrates how sometimes the key is just to make a start on something before you know everything."
I wonder how many people are standing still to work this stuff out. Don't get me wrong, this stuff is worth sitting down and calculating, but not at the detriment of earning, saving and investing itself.
The government made a new law allowing £5,000 of dividend income tax free per year. What will they do in 10, 20 30 years - who knows. I'll just keep growing and accumulating for now until it becomes more of a possibility.
I wish you the best of luck with the home straight of your journey. Your strategy looks very thorough and sound, and thank you once again for being so open!
Cheers
Huw
Thanks for sharing the specific number. I find it very reassuring and inspiring. I have made a very similar calculation to you, but am 1 year (and 10%) into my journey, from where 1 million looks like an awful lot of money - especially as the wife is at home with the small children.
ReplyDeleteAdditionally. If there is a light at the end of the UK property tunnel - that is not an intercity express, would you change your plans for relocation?
ReplyDeleteHi RIT,
ReplyDeleteA great post and thank you for sharing your real numbers, for whatever reason I’ve found your blog this week very reassuring. In return, here are my own plans and numbers.
So for quite some time I have thought my income once retired is likely to be the equivalent of about £25,000 per annum. This assumes the mortgage is paid off and we continue to live in a property we own.
To achieve my £25,000 I already own a £160,000 commercial property in a tax efficient SSAS that achieves an income of £12,000 pa (7.5%). This income is currently topping up a passive portfolio of global equities of about £120k. On top I have ISA’s to the tune of another £80k sitting in cash for either another commercial property opportunity or market crash opportunity. I currently add £15k pa to the ISA’s and use the rest of my spare income to pay off the mortgage.
I hope to pull the trigger in 6 yrs time when I reach 55yrs of age, at which time I will still own the commercial property, should be mortgage free (house worth circa £600k) and have a tax efficient passive portfolio of about £450k.
I hope the commercial property income should still be the equivalent of £12k pa and that I will achieve a 3% return from the passive portfolio.
I guess on balance my plan isn't too different from your own plans except I'm quite a bit older.
Anyway, thanks for the blog – it’s a great weekly read.
Thanks for the post this week. I've been a silent reader for a while but this post has been particularly thought provoking.
ReplyDeleteI have been very vaguely mulling over my overall target for some time now. I have sort of settled on £500k for the time being but without any great calculations to back that up. That would be a combination of pensions and ISAs but not the house I live in.
What I haven't sorted out in my head is whether the target amount is a joint target between my wife and I. If it's not too personal can I ask if your figures are calculated with the total household retirement income in mind or whether Mrs RIT has her own target completely separate to the above?
In recent years we have hammered away at the mortgage and have now reached the point where that is almost gone and a more structured investment plan is needed. We're well on track but a probable redundancy is a slight spanner in the works. I'm not overly worried about that but it will make me ponder what I want to do next and where. A redundancy payment could clear the mortgage which for me takes a huge financial/mental pressure away and leaves me wondering if I want another high pressured job or if it's already a chance to ease back on the hours or maybe focus on doing something a bit more satisfying.
A couple of comments above claim that being retired in the UK has its advantages. What do you think these advantages currently are?
Thanks for all the work you put into this site. I enjoy reading it.
As far as I can work out the £1 million you are aimning for includes the money for the house so this is leaving you maybe £800k generating an income of £400 pw at your withdrawing rate?
ReplyDeleteThis doesn't seem an awful lot to live on to me, even in Malta, and doesn't leave much of a buffer for things to go wrong (e.g. house, car, health, £/stock market/bond crash). Note your post on sequence of returns risk a few weeks
In your early forties you are proposing to give up maybe five peak earnings years before you become old enough to be less attractive to an employer
After maybe 18 months of early retirement trying to get back to the high earning job you left behind will become quite difficult
Personally I would stick it out another 3/5 years at the coalface just to have a bulletproof amount of capital behind me
I think we're about 3/4 years older than you and mrs rit as far as I can work out and worth about 3-4x as much, but we'll do a few more years yet before retiring
The UK is in the middle of a thumping big central bank induced boom and it makes sense to make the most of it while it lasts, because it won't
RIT, I don't know about 'killing the community', but you will lose a few readers, myself included. You have worked very hard to get where you are and I wish you all the best for the future, but 'I earn a fortune and didn't spend it all' isn't really a story that many people can relate to (or emulate). The compulsive creation of your own indices, valuation metrics and focus on cost all make sense now.
ReplyDelete@RIT, I will generate about £20K in dividends this year. I have no mortgage and my kids are going through Uni. With £2K per month I can live fairly comfortably (eat well, pay bills, occasionally eat out). With £3K per month I can live a full life (holidays, eat out frequently etc). Once my personal pension starts to generate an income at 55 years old I will easily be > £4K per month and my dividends will be silently compounding anyway. Also one should take into account their partners salary, especially if that person enjoys there work and has no FIRE ambitions. Regards, Jon
ReplyDeleteHi RIT - judging by your blog contributors -you have had a fairly dedicated following . Inevitably - you declaring your financial situation more explicitly ( ie numbers rather than %'ages ) is going to alienate some - and maintain interest from others .
ReplyDeleteIt is clear that your contributors all have their own financial situations and decisions to deal with - and have their own " world views " to incorporate .
You have manged to generate much discussion - and have also challenged your readers to apply some of your diligence to their own situations - which must be a very positive outcome .
However - your current situation and future plans do place you towards the edges of an average UK Gaussian distribution curve - here I am mainly referring to you not being a UK property owner - and your apparent determination to emigrate once you obtain FI .
I am glad that you have revealed your " numbers " - as it clearly is very relevant to your readership who can either relate to the situation you are in - or not.
Also - I think it gives you more freedom when you are writing your posts - knowing that your readership know more clearly where you are coming from - as well as ( apparently ) where you are going to !.
Not sure why this should put any regular readers off. I think most FIRE bloggers with families are aiming for fairly similar figures (I am assuming this is the household figure - I don't really understand how any married couple keeps their finances totally separate, or how one partner can plan their own early retirement - you will get their faster together and have more fun once FI). Unless you have a defined benefit pension, or are planning to live extremely frugally, it seems very risky to aim for anything lower.
ReplyDeleteI agree. Bizarre why anything you wrote should put anybody off reading. It was fairly apparent that you were looking at a £1m ballpark from your accumulated posts over the years. Also, you have already made it clear that you earn a respectable amount as a professional, and save a lot. No idea where the anon comment is coming from a few posts back. Earn and spend amounts are all relative to personal expectations. The thriftiest pauper can run their finances with the same philosophy as the wealthiest skinflint. What they do in their lives will be very different but their saving style may not be. Your posts have always been about not wasting money and sensible investment. 'I earn a fortune and didn't spend it all' has to be the story of anybody sensibly looking at FIRE.
DeleteThis comment has been removed by the author.
DeleteAnother anon reader (Where did we all appear from?)
ReplyDeleteI'd always assumed it was around £1m. To support a wife, family, and buy a modest house, that seems fair. I think some of the comments forget that you are covering a family, where as many other blogs cover just a single retiree.
Our family figures are close. Both aged early 30s.
Target is paid for house (250k) + Final salary & additional pensions (500k) + savings to get from 40 - 55 (250k).
I'm glad you mentioned state pension. So few personal pensions forecasts even refer to it! Yet the fact is for someone with a SWR-appetite of about 2.5% it is equivalent to £600k to a couple. Mrs Anon and I have worked in several countries for years each and aren't likely to get much of a UK pension if any especially if we retire early (we'll have about 15 NI years each). And then its likely I'll retire overseas, and I'm not confident SP will be around in 20 years to those who don't live here. So effectively I have to get to 600k just to break even with the the hoi polloi who have little or no pension/savings. FWIW my UK born mother has lived O/S for 40 years, worked about 10 years in the UK in the 50s/60s, and receives about half a UK pension.
ReplyDeleteSo my number is more like house plus 1.5m providing a household monthly income of £3k. It would be House plus 1m if I could rely on a SP. At 43 I've got the house in London paid off and 300k savings. Lucky enough to forecast 90k savings per annum. 10 more years, factoring in investment growth and I should be there. I am well aware I'm in the 1% of top earners, so I just don't fathom how joe public will manage in retirement.
I'd always imagined your target around the 1m mark too.
"I just don't fathom how joe public will manage in retirement."
DeleteEasy...they will work to 70 and then keel over and die within a decade...
@Gordon I am in similar circumstances where I am accepting a voluntary redundancy, with the redundancy payment going a long way to clearing the mortgage payment for my main property (not my residence) If I wished. In my case my number comes to about £500k for myself and 2 little kids. Currently a large chunk of this is tied up as equity in property but I am building at least a fifth of this in a stocks ISA portfolio. Seperate to RIT, I also arrived at the decision to migrate to Malta a few months ago and was quite excited when I came across RIT's similar plans as well. I am not certian my current stash would be enough until the end, but like Huw, I am quite excited to pursue other ventures. At 41 years old, I feel if my new small ventures fail, I would still be able to get back into the 9-5 grind after a year or 2 and view this as the very last resort! I think I am a combination of several of you all :-)
ReplyDeleteKeep up the great blog RIT!
I just sat down withe "first half of 2015" review post and worked out you earnt c. £140k in the first half of 2015 including an annual bonus
ReplyDeleteTherefore it seems you are probably earning about £200,000 a year currently
Do you feel your "early retirement in 6 years" message is relevant to works outside the 1%?
I worked out about £215k. Doesn't really matter what the number is, it is the staggering ability to accumulate 1% of your FIRE number each month or 12% a year or about 8 years total that stands out. Can't be very many people in that boat. I earn a very high salary and worked out 5 years ago I had 86% to go and it would take 12 years (about 0.6% per month) so I'm amazed at the ability to do it so much faster.
DeleteAnyway thats all by the side, because I don't think it matters to readers of this blog whether the author gets 1% of the way each month or 0.1%, or whether the target is £1m or £250k. The value in the blog lies in the rigour and dedication and philosophy the author displays and inspires.
As has been discussed a number of times on the blog/comments by others, I would not stop at 100% and age 43 with that earning potential, i'd have a few more years at it, or go part time for a much reduced rate for a few more years, and maybe reach 150% by age 50.
Thanks for sharing your numbers. I hope it doesn't alienate too many readers. My records date back to 1994 when I had a portfolio of £6k, a mortgage of £33k and a salary £14k and I was paying into a DB pension. Now £300k portfolio, the same house (my only one) is rented out and generates £5k gross, salary £36k. The pension if I take it at 60 will be about £12k. I tend not to include my partners wealth into my thinking as if anything happened to her then her kids would inherit and I'd be fending for myself!! But if I include her figures it's something like combined income £70k, portfolio £500k houses £600k and Db pensions of £22k.
ReplyDeleteWe had planne on going earlier but for various reasons intend to work until next year. We could have reached FIRE earlier had we not taken 2 and 3 career breaks respectively and not had quite so many skiing holidays.
Whilst you clearly earn well above average, others can achieve Fire on more modest salaries, at least out of the south east.
I am fortunate to have a DB pension on the horizon but bridging the gap between ending work and claiming it is an issue.
Fatlaksh
So what's the aim with early retirement and your 1mill?
ReplyDeleteAt the young age intended, you'll get bored very quick.
Why not save yer money as you are, do/get what you aim to get/do.. and also research a small biz/pastime that can earn a few quid, while you're "retired" (here or abroad). It will help pay the bills and keep your mind active, not creeping to an early grave.
I too had the fanciful notion of retiring to some idyll but as I get older I become more and more comforted by the existence of the NHS. Something we are all increasingly likely to need on our journey to the grim reaper
ReplyDeleteOne can perform some actuarial contortions to cost loyalty to the NHS. It's possible to get idyll-based private healthcare and it should be factored into decisions to relocate.
ReplyDeleteI think the £1M figure is reasonable, particularly if you do consider a UK State Pensions for both you and your partner at a later date (cannot really imagine why you would not, as a PAYE you will be entitled to a UK state pension).
ReplyDeleteA few years a go we took a 27-Months career break to travel and pursue our mountaineering, skiing and climbing passions and averaged £2K a month expenditure.
We are now in the process of finishing work completely, with my wife having just left her job and me finishing at Christmas. We are both 48 years old and have net worth of £955K (£500K house, £370K SIPP's, £85K Cash). To fund the first 7-years we will rent our house for £1200 a month and run the cash down, whilst travelling and living abroad. From 55 we start to run down the SIPP's and may move back into our house if we have had enough of travelling and living abroad. Between 60 and 67, we have various DB pensions and State Pension starting to pay out, which by the time we are 67 generate £41K pa between us.
With regard to SWR, I do not think it is as black and white as just blindly drawing down a set amount each year, rising with inflation. In practice, you could vary the amount drawn down, depending on the performance of the stock market, smoothing the income with a large cash buffer. This would prevent selling stock during a stock market downturn.
I think you need to talk actual numbers, assuming most readers live in the UK there is going to be a minimum floor of assets required to own a property outright and provide an income covering essential household bills and food, and the things that make life worth living. For me income alone isn't the sole driver, if living a relatively frugal life you will be spending a lot of time at home and in your local area. So it is essential to your happiness and wellbeing that you don't live in a complete dump, even if that means buying a property that sucks up a fair % of your total net worth.
ReplyDeleteSo a million sounds about right, if not living (in retirement) in London or expensive parts of the south east, in which case you'll want a fair bit more.
You could probably do it for a bit less, but assuming a minimum of 250k for a house and a 4% drawdown rate, anything much less than 750k total net worth (e.g. 500k investment pot) and quality of life would start deteriorating down to the level of benefits claimants.
Wow - you are absolutely smashing the cash in - had no idea you were such a mega earner on several hundred k a year.
ReplyDeletecan see why you say you will never be able to have a similar job once you quit - competition must be feirce at that rarefied end of the market
good luck with it - i once had a mini retirement in my mid-twenties, went and lived in the sand dunes and windsurfed every day. One thing I learnt is that anything done to excess will become boring. I craved having a job and using my brain by the end of it. Variety, balance and sustainability is the key.
Good luck
Long time lurker here. How much is enough? Reading the trail above, it is clear why RIT has held off from revealing the numbers for so long. What you want from the future is firmly rooted in what you have today and what you earn and have earned. If you are in the 1% and have the ability to save large chunks of your income, stepping off the wheel is very hard. Every month or year you carry on adds hugely to your net future. Another year and another (say) £30,000 in the pot is a spare £2k a year for 15 years. Not to be sniffed at. Moving from adding to ones net worth to drawing on it is a massive step and takes bravery to deliver the letter of resignation. I think most readers of this blog are obsessive planners and probably pretty risk averse so we plan for the worst and it will probably be OK. A couple of thoughts:
ReplyDelete1) income profiling in retirement needs to take inflation into account (of course) but also needs to tail off as one gets older. Cash needs at 85 are very different from 75, 65 and 55. Very old people don't spend very much.
2) disclosure: we have over £2.5m in net assets (property, cash & equities, DC pensions) and it still scares me to step off. I'm planning to do so next spring at 52 (Mrs is a year older and kids have flown) but the temptation of just another year is huge. Working (in London FinTech) whilst knowing that you can actually walk out tomorrow takes much of the pressure off and ironically helps keep you there.
re 1) up until the point you may move into a care home, then you're effectively paying 5star hotel rates full time - cost is astronomical.
DeleteRIT is not talking 10s of k a year, its 100s of k a year socked away
The chart above with no.s rather than % shows a few years where net worth has increased by almost 200k - that is mind-blowing stuff, and as you say - very difficult to walk away from. It does sound a miserable and all consuming occupation from his description though, so I hope he does!
Also a long time lurker and agree a number is helpful. £1m is what I thought was a sensible target too. I have realised that at SWR of 2.5% I need £100k capital today just to pay my current council tax bill. That puts things into perspective...
ReplyDeleteSlightly off topic... but an anyone share an excel template to record incomes and outgoings.
ReplyDeleteMuch appreciated,
J
I am in the position where I have passed FIRE and kept going. Slightly perverse but there is method in the madness.
ReplyDeleteFirst off the figures all of which are in € as we are UK expats living overseas.
Key retirement income comes from defined benefit plans:
Defined benefit pension 1. c. €15,000 in today's money
Defined benefit pension 2. c. €48,000 in today's money
Meaning around €63k in pensions which start at 63. Given your "2.5%" criteria that gives a gross equivalent value of c. €2.5 million. Which really seems like a lot to me!
Secondly I have a deferred income pot (future value) of c. €800 k lump sum which will start paying out at age 60. This has built up over a number of years of voluntary salary contributions but as its defined in payout terms then inflation will diminish the value of that money over the next 10 years. When I started paying in the scheme was guaranteeing had fixed returns of 5,5% which looked pretty average when I started paying in but look pretty good in today's terms. Hopefully inflation will stay pretty low.
So those are the future income streams and effectively we need a cash pot to provide for us between now and when we start drawing (I'm 51 now). Currently we have a cash / share pot of around €1.3 million.
Which means a total 'cash equivalent value' of around €4.5 million.
We own a modest house valued at c. €500k with no mortgage.
So why still working (aged 51)? A very good question!
Well....those DB pensions worry me. They are very expensive for my employer and I worry that the funding could become difficult in an economic crash / global financial crisis. Both schemes have already had benefits available to new joiners severely reduced over the last 5 years and its a concern that if financial conditions continue to deteriorate at the same rate we could see a day when benefits are curtailed for existing scheme members.
Secondly, whilst I see lots of people saying they need 25-30k to live in retirement. I want to make sure I can do all the things years of work has deprived me of - notably travel. My plan for retirement is to spend €75-80k per annum.
I know its horses for courses but I just want to illustrate there are different ends of the spectrum.