Donate to Remove ads

Got a credit card? use our Credit Card & Finance Calculators

Thanks to johnstevens77,Bhoddhisatva,scotia,Anonymous,Cornytiv34, for Donating to support the site

Defining FI

Including Financial Independence and Retiring Early (FIRE)
tieresias
Lemon Pip
Posts: 83
Joined: November 4th, 2016, 8:25 pm
Has thanked: 37 times
Been thanked: 27 times

Defining FI

#2911

Postby tieresias » November 9th, 2016, 4:45 pm

Lots of people say they are financially independent because they can pay their own way as they go, get their round in, have some money left before next pay-day and so on.

For me, Financial Independence, FI with capital letters, means:
- security of location, in my case owning my own home outright
- secure unearned income that I can reasonably expect to meet my needs now and into the future
- (maybe very specific to me!) a "splurge pot" of money to spend on travel, adventure and experiences in the first decade or so of retirement before I get old enough to see the benefits of daytime TV

Looking around at what posters here have posted and FIRE sites that have been linked, it seems others may have different views. I would be interested to learn how others define FI.

Paul

thebarns
2 Lemon pips
Posts: 220
Joined: November 4th, 2016, 12:56 pm
Been thanked: 126 times

Re: Defining FI

#2958

Postby thebarns » November 9th, 2016, 6:16 pm

Hello Paul,

I would define it in a very similar fashion as follows:

Either owning your own home which is either mortgage free or if not, then a sum of money is set aside/included in the overall capital sum needed to meet the capital and interest outstanding..... or having a sum set aside which will be used to meet rent obligations if renting is the favoured route.

Then having enough unearned income from a variety of investments which generate enough income, whether that be just plainly income generating or selling capital as and when required, that in no way relates to having to work and which generate enough income or capital return for your deemed cash needs, however frugal or extravagant they may be.

I would not separately identify a pot of capital to go out and splurge on one off things in your first 10 years, although I see where you are coming from on that.

At that point, one would have financial independence and could retire early if desired.

That is how I would define FIRE, albeit there are then a number of ways to consider in valuing or assessing the total pot of assets needed for this, the rate of return from such pot and whether that pot is needed to grow, stay static or can reduce, depending on personal goals for the pot.

Wizard
Lemon Quarter
Posts: 2829
Joined: November 7th, 2016, 8:22 am
Has thanked: 68 times
Been thanked: 1029 times

Re: Defining FI

#3009

Postby Wizard » November 9th, 2016, 8:21 pm

Sounds a good basis for a definition to me. A need for earned income disqualifies somebody from FI status in my book, not to say they won't have earned income, but they shouldn't need it.

My travel splurge pot is in the form of about a million air miles. Once the kids no longer want to holiday with us and we can use them outside school holidays I'll be able to use them :lol:

Terry.

pbarne
Lemon Pip
Posts: 52
Joined: November 4th, 2016, 7:03 pm
Has thanked: 15 times
Been thanked: 4 times

Re: Defining FI

#3055

Postby pbarne » November 9th, 2016, 10:33 pm

I think it's also useful to think about what FI looks like over different time periods in the future and what income sources are available at each stage - and to check if each piece adequate to do its job.

For instance, in my situation I split this into:

before 55 - before access to DC pension (SIPP), ISAs are main source of income
55-60 - DC pension income available
60-67 - modest DB pension kicks in
67-75 - state pension added
75+ - simplify (maybe buy an annuity with remaining DC pot?)

P

Wizard
Lemon Quarter
Posts: 2829
Joined: November 7th, 2016, 8:22 am
Has thanked: 68 times
Been thanked: 1029 times

Re: Defining FI

#3185

Postby Wizard » November 10th, 2016, 10:37 am

pbarne wrote:I think it's also useful to think about what FI looks like over different time periods in the future and what income sources are available at each stage - and to check if each piece adequate to do its job.

For instance, in my situation I split this into:

before 55 - before access to DC pension (SIPP), ISAs are main source of income
55-60 - DC pension income available
60-67 - modest DB pension kicks in
67-75 - state pension added
75+ - simplify (maybe buy an annuity with remaining DC pot?)

P


Exactly why I made the point in a different thread that I find the use of a % of capital metric as a decision variable for retirement frightening. My position is modelled in detail by year with both income and costs changing over time. That way I can see if there are periods of shortfall when I will have to eat in to capital and what impact that has on income generation in the years beyond that period.

Terry.

ben328
Posts: 11
Joined: November 4th, 2016, 3:53 pm

Re: Defining FI

#3213

Postby ben328 » November 10th, 2016, 11:25 am

For what it is worth I have recently (a couple of months ago) taken the plunge and retired. A little early at 59.

I have a big spreadsheet which shows year by year when the state pensions are added, I have this year taken a small DB pension. The other income is planned to be from ISA's (HYP) and UFPLS's from SIPP's. I have assumed that the capital values and the income does no more than keep pace with inflation. I know what my outgoings are planned to be and these I have also assumed will go up broadly with inflation. Over the top of all this is a nice annual contingency.

I don't have a 'splurge fund' as such, but my outgoings are planned to be well in excess of what I currently spend. This is for travel etc. This extra becomes smaller past age 85, when I might allow myself to slow down a bit! Although I believe possible nursing home costs are covered too, in part through the sale of the house.

When you actually come to make the decision it is not easy. What scale of Armageddon do you plan for, a 20% reduction in your dividend income, 30%, 50%? But I came to the conclusion that you can keep working until you drop and then you never do the travel etc. you want to do. But if you are prepared to consider dipping in to the capital 'in extremis', and reduce what you pass on, then the pension freedoms do make it easier I think. You don't have to forgo the capital forever to buy the annuity.

Raptor
Lemon Quarter
Posts: 1621
Joined: November 4th, 2016, 1:39 pm
Has thanked: 139 times
Been thanked: 306 times

Re: Defining FI

#3355

Postby Raptor » November 10th, 2016, 4:39 pm

My first attempt to "retire" was 13 years ago when I was 49. Got made redundant and was quite happy with that as had not been happy for a couple of years. At the time had enough savings etc to actually do it, knowing a previous company pension could be taken at 50. Lasted 2 months when the weather broke and was "climbing up the walls" after years of traveling a lot. Decided to "bum" around part-time. Worked well as I could, at that time. also claim Child Benefit for my daughter, WTC and CTC, getting NHS free helped. In the end went back to full -time work in a completely different sector. Lucky I did as a previous venture that went belly-up came to haunt me with a "large" demand from HMRC.
Then 2 years ago, had enough and took the plunge again. Now working 16 hours/4 days a week, mornings only. An inheritance expanding the pot and "drawdown". Do not need to work but need to keep the mind ticking over, not sure how long will do that as have started volunteer work as a befriender. Mind you working does help pay for holidays and have got used to 4/5 star vacations. Have bookmarked working for another 4 years, when the Pension should kick in, but who knows at 62, I do not want to give up the social side of working.

Raptor.

Wizard
Lemon Quarter
Posts: 2829
Joined: November 7th, 2016, 8:22 am
Has thanked: 68 times
Been thanked: 1029 times

Re: Defining FI

#3771

Postby Wizard » November 11th, 2016, 2:39 pm

Raptor wrote:...Now working 16 hours/4 days a week, mornings only...


Think I need to retire, had to read that twice as I could not work out how you could fit 16 hours into just a morning :oops: :lol:

Terry.

Wizard
Lemon Quarter
Posts: 2829
Joined: November 7th, 2016, 8:22 am
Has thanked: 68 times
Been thanked: 1029 times

Re: Defining FI

#3772

Postby Wizard » November 11th, 2016, 2:39 pm

Raptor wrote:...Now working 16 hours/4 days a week, mornings only...


Think I need to retire, had to read that twice as I could not work out how you could fit 16 hours into just a morning :oops: :lol:

Terry.

TUK020
Lemon Quarter
Posts: 2039
Joined: November 5th, 2016, 7:41 am
Has thanked: 762 times
Been thanked: 1175 times

Re: Defining FI

#4101

Postby TUK020 » November 12th, 2016, 11:12 am

Does one need a separate "care home" pot in reserve?
I'm married, and if one of us had to go into care, it would be a bit of a shock for the other to sell the house to pay for it

TheRIT
2 Lemon pips
Posts: 146
Joined: November 4th, 2016, 10:44 pm
Has thanked: 27 times
Been thanked: 50 times

Re: Defining FI

#4104

Postby TheRIT » November 12th, 2016, 11:17 am

For me the definition is simply that paid work is truly optional.

Stonge
Lemon Slice
Posts: 523
Joined: November 4th, 2016, 3:15 pm
Has thanked: 62 times
Been thanked: 116 times

Re: Defining FI

#4481

Postby Stonge » November 13th, 2016, 2:03 pm

I have a slightly different take on FI. Maybe FI Lite.

In 2001 at the age of 48 I was. at last, made redundant from a profession that I didn't want to continue with. Over the years we had overpaid the mortgage to the extent that my redundancy payment was sufficient to pay off the mortgage.

We had no other debts.

That meant that any minimum wage job would pay me enough to live reasonably well. So I considered that effectively I was FI.

In the area where I live there is no shortage of minimum wage jobs. Of course this would be a different story in some other parts of the country.

Perhaps this could be considered the first stage in achieving true FI. It certainly felt good to me, knowing that I owned my house outright. I believe it was a worthwhile goal in itself.

Snakey
Lemon Pip
Posts: 73
Joined: January 29th, 2017, 1:31 pm
Has thanked: 97 times
Been thanked: 118 times

Re: Defining FI

#30974

Postby Snakey » February 12th, 2017, 1:59 pm

Do we have an unofficial policy on thread necromancy? I know this one's three months old but this part of the board doesn't seem to be moving that fast at the moment.

I have a series of FI milestones.

The first is to have paid off the mortgage and have enough in the bank to fund minimum subsistence (bills plus food) between now and when I can access my pension pot. That gives me peace of mind, the knowledge that if something went terminally wrong at work I'd be OK - albeit living in the style of when I was ten i.e. can't have most of the things I want, but there's no question of going to bed hungry (or having to jump through hoops for State benefits).

The second is closer to "classic" FI - the point where I have enough in the bank to fund myself at my current level of net income (excluding amounts I would have put into savings) until pension access age. It's higher than the paragraph above but it doesn't allow for lifestyle changes, just a reasonably comfortable day to day living. Contrary to received wisdom, I can't see my expenditure falling if I stop work. It's only three quid a day on the bus, and presumably I'd still want to get the bus to other places! And the saving of not having to buy a work wardrobe will be more than soaked up in extra heating bills for being at home during the day.

The third is my FIRE - where I have enough in the bank to fund myself as above PLUS a grand or two a month for travel and fun. At that point, it becomes foolish to carry on working.

(My pension is over-funded compared to my non-pension, which is why my planning tends to stop at age 55/57 with a vague handwave of "I'll probably be OK after that".)

Longtermyieldman
Lemon Pip
Posts: 92
Joined: November 10th, 2016, 4:39 pm
Has thanked: 52 times
Been thanked: 33 times

Re: Defining FI

#37014

Postby Longtermyieldman » March 7th, 2017, 8:47 pm

I think it's pretty easy to define FI - financial independence. It's the ability to live on income from investments, making work optional.

R - retirement - can mean doing nothing that could be construed as work, but I think it can also mean stepping away from a mainstream career to do work for reasons of enjoyment rather than income.

E - early - is the one that seems hardest to define. Some people achieve FIR in their early or mid-30s. To do so I think requires at least one of four factors: inheritance, the sale of a business, a hugely well-paid career (investment banking, Premiership football) or extreme frugalism. Quite a few, myself included, achieve it in our mid-40s. Personally, I think retiring when you're able to draw on a conventional pension (50 for some legacy defined benefit schemes, otherwise 55, though this will rise in the future) isn't especially early, not because it isn't an achievement but because it doesn't require special provision by making sizeable early contributions to an ISA or dealing account.

saechunu
2 Lemon pips
Posts: 176
Joined: December 14th, 2016, 5:46 pm
Been thanked: 36 times

Re: Defining FI

#37344

Postby saechunu » March 8th, 2017, 7:33 pm

Longtermyieldman wrote:Some people achieve FIR in their early or mid-30s. To do so I think requires at least one of four factors: inheritance, the sale of a business, a hugely well-paid career (investment banking, Premiership football) or extreme frugalism.


That may commonly be the case but those factors didn't apply to me: very well paid career (but not investment banker or top footballer territory), leaving sufficient headroom above a decent spending level to still permit a high level of saving; these savings were directed into investments in property and equities where I enjoyed some very high levels of return that were rapidly compounded. They key thing was having the choice, or scope, to be able to take risks (calculated, not do-or-die ones), some of which paid off extremely well.

I'd summarise it all as: some ability + graft/persistence + calculated risk taking + plenty of luck. That's a formula that seems to cover many successes I've seen others enjoy. Some have huge ability, others maybe not so much, but they're usually resilient and persist at something, and often enjoy a good dose of luck at some point that helps convert their risk taking into positive results.

There's much to be said for "the harder I practice the luckier I get" school of thought but in my experience it's not quite that simple. The luck aspect may often be underappreciated, perhaps because it's the victor (& their ego) who gets to writes the history books. And luck compounds also. I was lucky to be born in the 20th century to bright parents in a western democracy free of war, to have enjoyed good health and fee healthcare, access to decent education through to university level, no prejudice, a largely positive economic backdrop giving access to high quality employers, etc. The list goes on and (fingers crossed!) will hopefully continue to do so.


Return to “Retirement Investing (inc FIRE)”

Who is online

Users browsing this forum: dpcarey123 and 4 guests