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FIRE

Including Financial Independence and Retiring Early (FIRE)
TheRIT
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Re: FIRE

#1294

Postby TheRIT » November 6th, 2016, 6:45 pm

UncleEbenezer wrote:
TheRIT wrote:My plans are pretty well documented but for completeness:

Are you by any chance author of a blog, and wicao in another place?

Yes I am. I gave full disclosure of that when I introduced myself in the Retirement Investing Today thread that's also on this board. What makes you ask?

UncleEbenezer
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Re: FIRE

#1326

Postby UncleEbenezer » November 6th, 2016, 7:28 pm

TheRIT wrote:Yes I am. I gave full disclosure of that when I introduced myself in the Retirement Investing Today thread that's also on this board. What makes you ask?

Apologies. I've seen that now, hadn't realised there was a rather similar thread I hadn't read.

I guess I ask because, having seen you elsewhere online, you looked like someone I might expect to see around TMF. So, idle curiosity.

TheRIT
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Re: FIRE

#1329

Postby TheRIT » November 6th, 2016, 7:32 pm

UncleEbenezer wrote:Apologies. I've seen that now, hadn't realised there was a rather similar thread I hadn't read.

I guess I ask because, having seen you elsewhere online, you looked like someone I might expect to see around TMF. So, idle curiosity.

No need for apologies. I've been a member of the TMF forums for many years but for some reason I was never a prolific poster. I think that the main reason was that the topics I was most interested in were pretty quiet boards on TMF. Hopefully this board ends up a bit more vibrant.

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Re: FIRE

#1340

Postby pbarne » November 6th, 2016, 7:47 pm

Hi Degsy,

I see this comment a lot regarding the 4% rule being based on US research and I'm also aware of the follow on research which looks at safe withdrawal rates for a number of other countries including the UK which suggests that the safe withdrawal rate is much lower than 4%.

The research is valuable to a point but sometimes a bit simplistic (e.g. you must always take a yearly inflation adjusted rise in income and rebalance your 50:50 stock/bond portfolio). So there's a lot you can do to improve your chances of success, through asset allocation, withdrawal strategies and income harvesting. I'm thinking of keeping to a more aggressive initial withdrawal rate and accepting the need to adapt as I go.

kodokan
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Re: FIRE

#1383

Postby kodokan » November 6th, 2016, 8:51 pm

Introducing myself as part of the FIRE camp.

I was a longtime Fool poster through the 2000s, but drifted away in recent years as we moved to the US so the UK financial environment became less relevant to me. A few years ago, I came across the (more active in the US) concept of FiRE, thanks to Jacob Lund Fisker's book and the blogging efforts of MMM and others.

Hubby and I are in our mid-40s so are never going to quite hit the 'early' part of ER, but we're aiming for a finish to paid work in about 7 years, to coincide with our youngest finishing schooling. Our financial planning is a little more complex than usual, as it incorporates:
- a number of defined benefit/ contribution pensions from the UK
- state pensions/ Social Security from the UK, the US and Switzerland (we lived there for a few years before moving to the US)
- US 401k tax-deferred, age-locked pension-style accounts
- taxable assets invested in US mutual funds

These varying income streams will kick in at different points between ages 55-70, in three different currencies, subject to a variety of tax regimes and cross-border agreements. I have a huge, lovely spreadsheet covering now until I'm 100 (but even the best spreadsheeting doesn't allow for things like Brexit suddenly reducing my projected UK income by 15-20% overnight).

We are also not entirely sure where we might live in retirement, once we are no longer tied to a job-based geographical location.

Consequently, I feel I have a foot in both UK and US retirement planning camps - I lurk and semi-post on a few US ones, but am glad to find this board and hopefully be part of the discussions here too.

TheRIT
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Re: FIRE

#1388

Postby TheRIT » November 6th, 2016, 9:04 pm

kodokan wrote:Introducing myself as part of the FIRE camp.

I was a longtime Fool poster through the 2000s, but drifted away in recent years as we moved to the US so the UK financial environment became less relevant to me. A few years ago, I came across the (more active in the US) concept of FiRE, thanks to Jacob Lund Fisker's book and the blogging efforts of MMM and others.

Hubby and I are in our mid-40s so are never going to quite hit the 'early' part of ER, but we're aiming for a finish to paid work in about 7 years, to coincide with our youngest finishing schooling. Our financial planning is a little more complex than usual, as it incorporates:
- a number of defined benefit/ contribution pensions from the UK
- state pensions/ Social Security from the UK, the US and Switzerland (we lived there for a few years before moving to the US)
- US 401k tax-deferred, age-locked pension-style accounts
- taxable assets invested in US mutual funds

These varying income streams will kick in at different points between ages 55-70, in three different currencies, subject to a variety of tax regimes and cross-border agreements. I have a huge, lovely spreadsheet covering now until I'm 100 (but even the best spreadsheeting doesn't allow for things like Brexit suddenly reducing my projected UK income by 15-20% overnight).

We are also not entirely sure where we might live in retirement, once we are no longer tied to a job-based geographical location.

Consequently, I feel I have a foot in both UK and US retirement planning camps - I lurk and semi-post on a few US ones, but am glad to find this board and hopefully be part of the discussions here too.

Clearly a very well travelled couple. I know you say you don't know where you'll end up in FIRE but would be interested to know if you have a shortlist?

I ask as I'm at a critical point where where I'm between FI and FIRE and it's now time to pick our next 'home' as we no longer want to be in the South East of England. For many years we'd targeted the Med with the shortlist down to Cyprus (Paphos area), Spain (Marbella area) and Malta. We'd then been working our way to a final choice with selected visits. Then Brexit appeared and brought into question healthcare arrangements at State Pension age, uplifting of State Pensions, simply getting a visa and a big £ devaluation making a home purchase all of a sudden a lot more expensive. Since then we've investigated Herefordshire and loved it. So right now the world is about to become our oyster and we're a bit deer in headlights.

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Re: FIRE

#1403

Postby pbarne » November 6th, 2016, 9:21 pm

Hi Kodokan,

Thanks for your perspective from the US - interesting. I too bought a copy of the ERE book - and it certainly helped me get my thoughts together on the whole FIRE thing...

but even the best spreadsheeting doesn't allow for things like Brexit suddenly reducing my projected UK income by 15-20% overnight

Ah yes the "B" word! From a UK investment perspective, on the face of it, it looks like we've benefited from markets rising in the short term, but I worry that we will ultimately suffer from our exit - even if it's only rising inflation that offsets these gains.

I have actually increased my FIRE net worth target since the vote in anticipation of this. I wonder if others have done the same?

kodokan
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Re: FIRE

#1421

Postby kodokan » November 6th, 2016, 9:54 pm

No shortlist as such, RIT.

Part of our desire to become FI is to be able to relocate temporarily to wherever we're needed/ wanted, so it'll depend on where our kids end up living as adults, how much help our aged UK parents might need, etc. Government-y stuff like healthcare and tax regimes will play a part too. We too had been eyeing up somewhere in Europe as a possibility, but that'll depend on how the next few years play out. There are Central/ South American options - Mexico and Panama seem very popular over here with retirees wanting to benefit from geographical dollar arbitrage - and then of course places like Malaysia, with their interesting retirement visa.

We do have a list of things we would like to do in retirement, which will also drive location; neither of us cares particularly about having a fixed address, at least in the early years. First up - RV travel. We spent a couple of months traveling in a camper throughout the US and a smidge of Canada last year, as a family (hubby was between jobs, and I don't work) and we LOVED it. There will be some years of that, definitely in the US and perhaps in Europe, visas permitting...

We also talk about renting a tiny city centre apartment, as centrally as possible, and spending 6-12 being car-free city dwellers and enjoying having entertainment amenities on tap. We haven't been out that much as a couple in the last decade or so - young kids, no family nearby - and think we'd like being able to be spontaneous about theatres, restaurants, museums, coffee shops, etc.

Another plan - go back to university and study something just for the pure personal interest of it. Many US states have Silver Student schemes where the over-55s can do degree courses tuition-free. You don't get the official piece of paper at the end, but you attend classes, do the work, and get graded like everyone else. This could be combined with the city living plan above; US degrees are entirely modular so you don't have to do full-time in one subject, you can instead just do courses in Spanish and Electrical Engineering and Philosophy, if you want to.

Hubby also has a vague desire to recapture his youth and build/ compete in rally cars. If he wants to do this, we could go to somewhere like Ireland for a year, rent a shambles of a place with outbuildings, and I could play around with vegetable patches and chickens.

So I guess for me the question 'where do you want to live' has to be prefaced by 'what will you be doing in retirement - how do you picture A Retirement Day?'

kodokan
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Re: FIRE

#1428

Postby kodokan » November 6th, 2016, 10:04 pm

pbarne wrote:I have actually increased my FIRE net worth target since the vote in anticipation of this. I wonder if others have done the same?


Sort of - I've downgraded my expectations of the income that'll be triggering in our 55-70 age period, to more of a pessimistic viewpoint. This has pushed the likely retirement date out from an 'optimistic 6, probably nearer 7 years' estimate, to more of a 'definitely 7 years' one. It's all a moveable feast anyway until we get within striking distance, when I shall do much more detailed assessments of likely pension incomes and portfolio returns, based on information available then.

For now, we just keep shoveling it away. I have a global asset allocation strategy and assume a 4% real return from my portfolio, so hopefully there'll be something in the world doing well enough to provide uplift at any given time.

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Re: FIRE

#1433

Postby TheRIT » November 6th, 2016, 10:11 pm

kodokan wrote:No shortlist as such, RIT.

Part of our desire to become FI is to be able to relocate temporarily to wherever we're needed/ wanted, so it'll depend on where our kids end up living as adults, how much help our aged UK parents might need, etc. Government-y stuff like healthcare and tax regimes will play a part too. We too had been eyeing up somewhere in Europe as a possibility, but that'll depend on how the next few years play out. There are Central/ South American options - Mexico and Panama seem very popular over here with retirees wanting to benefit from geographical dollar arbitrage - and then of course places like Malaysia, with their interesting retirement visa.

We do have a list of things we would like to do in retirement, which will also drive location; neither of us cares particularly about having a fixed address, at least in the early years. First up - RV travel. We spent a couple of months traveling in a camper throughout the US and a smidge of Canada last year, as a family (hubby was between jobs, and I don't work) and we LOVED it. There will be some years of that, definitely in the US and perhaps in Europe, visas permitting...

We also talk about renting a tiny city centre apartment, as centrally as possible, and spending 6-12 being car-free city dwellers and enjoying having entertainment amenities on tap. We haven't been out that much as a couple in the last decade or so - young kids, no family nearby - and think we'd like being able to be spontaneous about theatres, restaurants, museums, coffee shops, etc.

Another plan - go back to university and study something just for the pure personal interest of it. Many US states have Silver Student schemes where the over-55s can do degree courses tuition-free. You don't get the official piece of paper at the end, but you attend classes, do the work, and get graded like everyone else. This could be combined with the city living plan above; US degrees are entirely modular so you don't have to do full-time in one subject, you can instead just do courses in Spanish and Electrical Engineering and Philosophy, if you want to.

Hubby also has a vague desire to recapture his youth and build/ compete in rally cars. If he wants to do this, we could go to somewhere like Ireland for a year, rent a shambles of a place with outbuildings, and I could play around with vegetable patches and chickens.

So I guess for me the question 'where do you want to live' has to be prefaced by 'what will you be doing in retirement - how do you picture A Retirement Day?'

Thanks for the detailed response. If you do decide to camper van through Europe then the website ourtour.co.uk might be of interest. They've FIRE'd in their early 40's, have given themselves a tiny (they call it the cooler) residence in the UK and spend their retirement travelling through Europe. So far they've done 4 'tours' with the latest one being 10 months travelling through northern Europe. I believe they're now doing a small recharge (MOT, van service, repairs) in the UK before heading back to Europe but this time south. They publish most days and I've found it quite an interesting way to spend FIRE. What I'm particularly interested in seeing is if they maintain it as I know I once backpacked for about 3 months and was ready to see a place called home by that time.

Interesting you mention Malaysia and their MM2H visa. My better half loves that part of the world and we made it as far as reading up a little about it but didn't get much further. We'll more than likely settle on The Med then do a couple of extended backpacking periods there so haven't taken that too seriously.

Good luck with it all.

TheRIT
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Re: FIRE

#1439

Postby TheRIT » November 6th, 2016, 10:16 pm

kodokan wrote:
pbarne wrote:...
For now, we just keep shoveling it away. I have a global asset allocation strategy and assume a 4% real return from my portfolio, so hopefully there'll be something in the world doing well enough to provide uplift at any given time.


My portfolio is nothing clever crudely consisting of a global diversified asset class 'age in bonds' type portfolio albeit one focused very much on minimising expenses and taxes. Like you I also assumed a real 4%. 9 years on and so far I've actually managed a real 4.1% including the GFC so it doesn't seem a bad assumption.

kodokan
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Re: FIRE

#1455

Postby kodokan » November 6th, 2016, 10:50 pm

TheRIT wrote:Thanks for the detailed response. If you do decide to camper van through Europe then the website ourtour.co.uk might be of interest. They've FIRE'd in their early 40's, have given themselves a tiny (they call it the cooler) residence in the UK and spend their retirement travelling through Europe. So far they've done 4 'tours' with the latest one being 10 months travelling through northern Europe. I believe they're now doing a small recharge (MOT, van service, repairs) in the UK before heading back to Europe but this time south. They publish most days and I've found it quite an interesting way to spend FIRE. What I'm particularly interested in seeing is if they maintain it as I know I once backpacked for about 3 months and was ready to see a place called home by that time.

Interesting you mention Malaysia and their MM2H visa. My better half loves that part of the world and we made it as far as reading up a little about it but didn't get much further. We'll more than likely settle on The Med then do a couple of extended backpacking periods there so haven't taken that too seriously.

Good luck with it all.


Oh yes, I found that blog a year or two back - I shall have a read, and what they've been up to lately. My parents took a 'retirement sabbatical' and did a few years of Euro camper touring in their 50s/60s, interspersed with being campsite hosts for the holiday season. So I've had a long term peripheral interest in this sort of lifestyle choice.

'A place called home...' I don't know where that might be. When we did our camper tour last summer, it WAS our home - we'd sold a house in Arizona, put the furniture into storage, and were No Fixed Abode for some months before ending up in Ohio. We had plenty of our own clothes, iPads to read on, and we packed our really good coffee maker from home - I didn't have any sense of missing anything :) I think it's far easier for us, as we've already moved away from our home town and families, and have then relocated every few years. So there'd be much less of a sense of leaving something or yearning to return to it; hubby and I are pretty self-contained and used to setting up new lives from scratch.

kodokan
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Re: FIRE

#1465

Postby kodokan » November 6th, 2016, 11:03 pm

TheRIT wrote:
My portfolio is nothing clever crudely consisting of a global diversified asset class 'age in bonds' type portfolio albeit one focused very much on minimising expenses and taxes. Like you I also assumed a real 4%. 9 years on and so far I've actually managed a real 4.1% including the GFC so it doesn't seem a bad assumption.


Oh good - nice to have real-world confirmation of my suck-it-and-see guess on returns! I'm mentally aiming towards a 60:40 portfolio, but am currently 50:50; the stock portion is half US, half international. I only really started very deliberate investing since arriving in the US five years ago - you know, the sort where you actually know how much you have invested and what in, rather than blithely contributing to a pension scheme at work - so I want to go through a market downturn and watch some of the pot evaporate before I really know where my risk tolerance lies. YTD is 6.2%, which is better than the Vanguard 60:40 lifestyle portfolio I'm benchmarking myself against (at 5.6%), so even though they're raw, pre-inflation numbers, I'm quite pleased with that.

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Re: FIRE

#1685

Postby argoal » November 7th, 2016, 1:42 pm

There are a couple of sites that I find really useful when thinking about strategies for safe withdrawal in retirement:

1. Wade Pfau's blog. https://retirementresearcher.com/
He has discussed the 4% rule and a number of other withdrawal strategies and their pros and cons.

2. Portfolio charts https://portfoliocharts.com/
Like Pfau's blog this is a bit US focused but has a number of cool portfolio visualisation tools that give you a real feel for how different portfolios behave historically. The commentary section is also well worth reading as it explains a number of the tools and the strengths of various portfolio ideas.

The thing I like most about both of these authors is that they are generally agnostic about which approach is 'best'. Pfau is skeptical about whether the 4% rule will hold in future but doesn't dismiss it outright. They are also pretty realistic about the limitations of the models they use in relation to future returns and any real life application which, in practice, incorporates more flexibility than they can reasonably model.

Personally, I have set my wife up with a portfolio that has a natural yield of a little over 4% which she lives on. I will be FI in around a year or less and will be changing career to something without a guaranteed income stream so may be relying heavily on income from investments if that doesn't work out.

I'd feel pretty confident with the RE part taking 3.6% per year - providing I could see an option to suppliment that income if things didn't pan out as expected. At 54, I'm expecting to receive some kind of state pension as a safety net and we always have housing equity that can be tapped.

DeBriefed
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Re: FIRE

#1747

Postby DeBriefed » November 7th, 2016, 3:57 pm

Hi All - another would be FIREr here.

I'm 41, working full time with one child and expecting my second baby in the spring. Have a good level of savings and have always LBMM (due to good income and not particularly spendy inclinations, including an allergy to standing orders/direct debits, rather than particular sacrifices). My ideal is to be able to stop my full time job when my kids hit school age so that I can be there to pick them up, drop them off, etc. If I can find something interesting that pays for a few of the hours they are out of the house then all well and good: if not then I have about a million projects I've been putting off due to working and childcare that can finally get a bit of time and attention. I'm a big fan of Simple Living in Sussex and LivingaFI, among others.

My OH is a similar age, also a very good saver (though we keep our finances mainly separate). However, he is much more nervous about retirement and i think has less idea how he would want to spend his time if he wasn't at work. That may well mean I am constrained to staying in/around London, which obviously makes retirement a more expensive prospect, but I think doable.

My weakness is that I am always underinvested as I just don't spend enough time researching new investments, and also I am naturally very cautious. This means I missed most of the major downturns as I extracted myself from the market before: but also means that I've missed plenty of upside, so I suspect overall I'm in a similar or worse position to if I'd just ridden the market as it played out.

My caution also means I currently assume a 0% real rate of return in all my planning spreadsheets. I think (hope!) this is waaaay too conservative, but if I retire in my mid 40s then (health permitting) I may be a long time retired, and thinking about how much the world has changed in the last 20-30 years I think it's good to have some extra headroom if you are trying to plan over such long timescales. For example, I can absolutely imagine a wealth tax being brought in over the next few years (or a additional tax on income from assets rather than labour, which I think was suggested by one of the Labour Party leadership candidates). So I need to make sure I am covered for that: either by keeping enough flexibility to earn more money in the future, or by having a bigger cushion when I start out so I can afford for more of it to be taxed away. I definitely don't feel comfortable assuming a 4% WR.

My other caution is that I only have one child at the moment, and she leaing aside childcare she is pretty easy on the wallet (lots of handmedowns due to being older parents!) - But I know from friends that children do cost more as they get older, and I don't want to be in a position where I am holding her back from doing things in 15 years time because of a financial decision I made now. So that makes me cautious again. I'm hoping as our household finances stabilise over the next few years I'll be in a better position to predict what I really need financially.

A lot of FIRErs do seem to be in the US or without kids, so it's hard to find a precise model for what I want to do: I just need to find my own path, but hopefully making some more sensible and proactive investment decisions along the way!

DeB

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Re: FIRE

#1826

Postby kodokan » November 7th, 2016, 5:54 pm

DeBriefed wrote:My caution also means I currently assume a 0% real rate of return in all my planning spreadsheets. I think (hope!) this is waaaay too conservative, but if I retire in my mid 40s then (health permitting) I may be a long time retired, and thinking about how much the world has changed in the last 20-30 years I think it's good to have some extra headroom if you are trying to plan over such long timescales. For example, I can absolutely imagine a wealth tax being brought in over the next few years (or a additional tax on income from assets rather than labour, which I think was suggested by one of the Labour Party leadership candidates). So I need to make sure I am covered for that: either by keeping enough flexibility to earn more money in the future, or by having a bigger cushion when I start out so I can afford for more of it to be taxed away. I definitely don't feel comfortable assuming a 4% WR.

My other caution is that I only have one child at the moment, and she leaing aside childcare she is pretty easy on the wallet (lots of handmedowns due to being older parents!) - But I know from friends that children do cost more as they get older, and I don't want to be in a position where I am holding her back from doing things in 15 years time because of a financial decision I made now. So that makes me cautious again. I'm hoping as our household finances stabilise over the next few years I'll be in a better position to predict what I really need financially.

A lot of FIRErs do seem to be in the US or without kids, so it's hard to find a precise model for what I want to do: I just need to find my own path, but hopefully making some more sensible and proactive investment decisions along the way!

DeB


I wouldn't do a straight 4% either, especially not at the age some of the USers are doing it. It would also concern me to call it quits and start living off an income that's deriving from a portfolio invested in a market that's been on a straight-up ramp for 7+ years and is edging into a level unsupported by fundamentals.

Regardless of how many times they read the Trinity Study or say they've allowed for sequence of returns risk, I bet there are going to be some very sleepless nights when some of the younger RE bloggers experience what for them will be the first significant portfolio downturn in their adult lives. Younger Me watched my pensions gyrate about a bit, but didn't care overmuch as it was not-real money that I didn't need for decades, and it was only relatively small sums anyway, and I was rich in human capital. I think my comfort level for watching a virtual portfolio loss on our current much larger savings pot, at this much later stage of life (mid-40s), is up to 20%. I recently read through posts on the US early-retirement forum spanning 2007-2009, and it was a fascinating insight into investor psyche, and helped me think through how I am likely to react to significant downturns.

I AM assuming 4% as my investment return and working on a 4% withdrawal rate, at least for our initial years, but I have quite a few advantages that a lot of the US bloggers - and UK ones - don't. We'll be in our early to mid-50s, so fewer years to cover. We'll have income kicking in from a large number of government and private pensions across multiple countries/ currencies - so they can't ALL go bust or get means-tested out of existence! - and I've also made very conservative estimates as to the value of that income; I'll have a clearer steer once 6-7 years closer. More than half of our 'traditional retirement age' income be coming from those pensions, which will be index-linked and provide 50-100% for a remaining spouse. So once we're 70 our withdrawal rate will drop to less than 2%; as long as we can get comfortably across the 15-year early retirement bridge, we'll be fine.

We do have kids, two of them, but ours are older than most young blogger families and will all be 18+ so few future unknown parenting costs. We're planning to pay for their undergraduate education, as we were fortunate enough to get free degrees and start life unemcumbered, and it's worth doing some generational arbitrage - my OH doing an extra year or two at his far higher salary - to give them a clean slate for adulthood and not have debts equating to a second mortgage for a decade or more.

And we'll have the enormous advantage of geographical arbitrage too - we'll be dual UK/ US citizens, so will be able to make visa-free living decisions across multiple countries (hopefully some European ones...) based on what governments are doing in matters like taxation, healthcare, etc.

But yeah, the young blogger families with 1-3 kids who are budgeting $25k a year concern me. None of their budgets seem to include any slack for helping their kids out with ANYTHING in the future beyond food and clothes: nothing for extracurriculars or sports during school (which are hugely important here culturally, and part of the college application decision even for academic kids); none of their kids will apparently ever need help like private tutoring or counseling or physical therapy, or have a passionate and life-enriching gift like music or robotics that should be nurtured; none of their kids will be having their own mobile phone or computer, which in a few years will be the equivalent of us growing up in a house with no car or TV, ie, perceived as dirt-poor or bizarrely eccentric.

You're very right to be thinking that kids come with extra, often unforeseen future costs, and that although you can always be sure they will have food and shelter, it's foolish to make a choice to deliberately impoverish them of opportunities that can't yet be imagined by fondly watching a 5 year old content with splashing in puddles and a 'stick' sword.

Very few bloggers seem to do monthly or annual accrual for anything either; hardly any of them will apparently ever be replacing their cars/ household appliances/ computers during their remaining 50+ years, let alone buying technology that doesn't even exist yet (the non-existent ER bloggers of the 1970s and 1980s weren't including any costs for internet service, mobiles and computers in their monthly budgets...)

Still, I admire their desire to want to live their lives more deliberately and to question the main cultural paradigm, and I've learned an enormous amount from their tireless calculations and research.

kodokan
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Re: FIRE

#1828

Postby kodokan » November 7th, 2016, 5:58 pm

Talking of geographical arbitrage, this popped up in my newsfeed this morning and I thought of you, RIT.

https://www.theearthawaits.com

It's a calculator where you can plug in how much you have to spend monthly, desired standard of living, number of family members, acceptable to you levels of crime and pollution, etc, and then it tells you where in the world you could live. I can currently live in quite a few places in Mexico, and most of Eastern and some of Southern Europe, which is nice to know :)

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Re: FIRE

#1855

Postby zxspectrum48k » November 7th, 2016, 6:50 pm

Another potential FIRE candidate. My situation is early 40s, married, two young children, working in London financial services. My target retirement FIRE income is £60k/annum. In addition, I ring-fence £800k for school/uni fees for the children. To provide house deposits for the children, I'm assuming that we downsize the current unencumbered 5 bed house in London, around 30 years from now to provide the necessary funds.

In terms of modelling I assume:
Life expectancy 100 years+: I thus see my portfolio more as a perpetual endowment, preferably not to be drawn down.
Zero state pensions, we also have zero DB pensions and zero potential inheritances.
Nominal portfolio returns of 6%, with 10% volatility, Inflation 3%, inflation vol 3%: so an effective 3% real return, gross of fees and taxes.
Blended tax rate at 30% on all non-wrapped assets. NAV drag due to fees at 0.5%.
Based on those assumptions, then for a 90% success rate, the Monte Carlo throws out a required investment portfolio of around £4.2mm, plus £800k for school/uni fees for a nice round £5mm target. I don't like the SWR concept but it's equivalent to an implied SWR of around 1.5%.

Currently, my investment portfolio is around 80% of target. My investments are diversified but I'm pretty risk averse, so my portfolio tends to be light equity trackers and heavier on safer investments such as low-correlation hedge funds, bridge lending etc. These also fit my knowledge base. Tax wrapping investments is a struggle since I took fixed protection in 2012, so I can't add anything to my SIPP. My better half doesn't work so no pension contributions there. I''m using an offshore life insurance bond to provide another tax wrapper but this comes at the cost of 0.5%/annum.

I like some UK blogs such as Simple living in Sussex and Retirement Investing Today, plus Monevator. I'm skeptical of the blogs which seem to be focused on generating revenues from the subject of FIRE (MMM, TEA, LiberateLife). I do think FIRE blogs tends to ignore the financial realities of children, possibly because they don't have them or they expect them to simply fend for themselves. I find that rather unrealistic in a world where a high quality education is vital but expensive and housing in London/SE is now almost virtually impossible to attain without the Bank of Mum and Dad.

thebarns
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Re: FIRE

#1978

Postby thebarns » November 7th, 2016, 11:22 pm

£5 million for FIRE and pay the children''s schooling/uni !

For 60k pa.

Strikes me as an enormous sum, well beyond the attainment of your average or indeed considerably above average investor and would put off the vast majority from ever considering FIRE !

I appreciate these are particular to your own circumstances and you must have a very well remunerated job to be so far on the way and well done on that.

I am sure many at or contemplating FIRE will be looking at considerably smaller capital sums.

DeBriefed
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Joined: November 4th, 2016, 1:24 pm

Re: FIRE

#2068

Postby DeBriefed » November 8th, 2016, 10:09 am

I think whether you have a working/financially independent partner also makes a huge difference too this. I couldn't plan to be FI nearly so soon if my OH wasn't financially secure himself. The fact that we are both on a good path means that we have some built in insurance against some of the risks we face. As a single person without kids I could FIRE now *but* probably wouldn't have the guts to do it!

How much we will need to live on is a tricky one with kids though. We are currently planning to send my DD to a private school to begin with at least, because we are in central London and the local state schools are not great (apart from the religious ones that wouldn't have us), so that's a chunky extra cost. But if I and my partner both FIRE I think we would move out of London to somewhere with decent state schools, so that expense would be gone - and if he keeps working so we stay in London, then that additional money should pay for school fees. So I'm not planning to assume that I have to pay anything for schools after the kids are 8 or 9 (don't really want to move them any later than that if we can help it). But at this stage, when DD is only 2 and DS not even born yet, it's so hard to know what their needs will be, so I'm keeping an open mind. Similarly, we just bought our first car, so expenses for that are pretty much an unknown.

And as kokodan says, the world in 30 years could look so different, there are bound to be needs and expenses from today that no longer exist, but others that we haven't envisaged. It's very hard to guess whether the total will be higher or lower. That's why the idea of "keeping my hand in" with a bit of work, at least to start with, appeals to me. But finding a non-soul-destroying job that fits in with child care/school days is a whole different challenge.

My real challenge in the short term is to get over some of my caution and get more invested. I put in the annual limits on contributions to ISAs and my SIPP, but beyond that I am pretty terrible at actually getting into the market and staying there. I have a YouInvest account (no tax wrapper) and my SIPP is with HL, so I have two ways in... but no idea what to invest in! Especially after Brexit and with all the uncertainty of the US election (which I would love to think will all end tomorrow, but it feels we are entering an era of nationalism and trade barriers that may be hard to reverse).

So can I ask all the FIRErs here... are you fully invested? And if you were trying to move from cash to equities (or bonds I suppose) now, what would you be looking at?


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