FIRE

Including Financial Independence and Retiring Early (FIRE)
thebarns
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Joined: November 4th, 2016, 12:56 pm

Re: FIRE

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

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?

tjh290633
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Re: FIRE

Postby tjh290633 » November 8th, 2016, 11:53 am

An interesting thread. Might I make a plea for anyone who posts an acronym or EPIC code to define it in the first instance of its use? EPICs particularly can be confusing, like when people confuse GKN and GNK (GKN and Green King).

My then employer was offering early retirement, with no reduction for taking it early, for those of 55 or over. Sod's Law decreed that they withdrew the offer shortly before I was 55. They then compounded it by making me redundant two years later. I was thinking of going it alone, doing consultancy, when I had an offer of employment that I couldn't refuse, from a firm that I knew well doing a job which I knew I would enjoy. However the difference between rates of pay and what you can command as a consultant is considerable. The major difference is in the hours or days you can get paid for. There are scales for Expert Witness work, which are not bad, but in self-employment you need continuity.

It's a long time ago now, but compared with, say, £30k a year, you could easily get £50 an hour, or more, equivalent to £80k per year but the ability to claim expenses, beyond that for an employee, made that more valuable.

There are several ways of skinning a cat, but to my mind, if you can give up your original job and find work doing something that you enjoy, then you are almost there.

kodokan
Posts: 33
Joined: November 4th, 2016, 12:01 pm

Re: FIRE

Postby kodokan » November 8th, 2016, 1:19 pm

DeBriefed wrote: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!


Not necessarily; I think it depends how co-mingled your finances are. I haven't worked for 17 years, but OH and I got together in early life fresh from university so found it easy to pool our non-existent money and treat it psychologically as one big joint pot. My not working has helped our finances enormously, indirectly - he's been able to be a rock star at work as that's all he ever has to focus on, and a sudden late night or business travel is never a problem. This has led to some excellent promotions for him, achievable by relocating both within the UK and overseas because that's so much easier to do without the added constraints of finding a new job for me, new childcare, etc, and with a spouse to manage the details of the move. So income-wise, it's worked out that we're far better off with just one career than if we'd tried to have two. We didn't anticipate that 17 years ago!

Timings-wise, we're planning for him to be done with work in 2023. Our youngest will go to college in 2022, so we're allowing a year for her to get settled and mentally detach her concept of 'home' from where we live, to her new, more independent adult identity. Then we'll sell up and start Project Travel. (My kids have moved every few years their whole lives, so this is not as much of a heartless wrench as it might be for more stable ones!).

I see myself 'retiring' from my current SAHM role once youngest is off to college, so we'll both be retiring at approximately the same time. I do, however, already feel myself experiencing some of the more psychological elements of retiring already - now my kids are teens and I'm not so hands-on, I'm a bit rudderless. Going back to work isn't a worthwhile or realistic option due to out of date skills and an irrelevant CV from another country; it's not worth paying to train up in anything new as I'd just be getting up to speed when we hit our retirement date; joint taxation here means I'd be taxed on a pin money job at his marginal rate so lose nearly 50% of anything I earned before even allowing for extra costs like travel, work clothes, lunches, etc. I read early retiring threads about finding a new role or purpose with great interest.

DeBriefed wrote: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?


I too suffer from this. I've spent the last year or so educating myself on investing, and have concluded that I'm a fairly hands-off, index tracker type. I don't seem to be able to predict what the markets will do, so I own some of everything so there is always something doing ok, or not as badly as the rest. Have you seen asset allocation quilts, like this one? https://www.mfs.com/wps/FileServerServl ... nd=default It's a very visual way of understanding why it's good to have a range of investments across the whole market. I presently have 40% intermediate term bonds, 10% cash, and roughly 10% each of US large, US extended market, international developed, emerging markets, and global REITS.

I set out to create a 60:40 portfolio, but have discovered along the way that I can't at present bring myself to take stocks above 50%. I don't know if that's a long term thing for me, or a response to the last couple of years of market/ economic weirdness and worries about the market being 'too high'. I've only had a portfolio to actively play with for the last two years, as prior to that we had most of the money in a house (and before that is different because other countries/ tax regimes). Given the short time frame until our retirement, compounding is going to be largely irrelevant anyway, so I have some years to get more comfortable with my risk level and come up with something with which to go into retirement. I feel I need to go through a sharp downturn before I really know what that is.

Wizard
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Re: FIRE

Postby Wizard » November 8th, 2016, 10:26 pm

Interesting thread, I never realised this was such a well discussed / blogged topic. Well, this is me...

I am very late 40s - big five-zero next year! About eight years ago I left my last employer and set up my own business. The business has been successful but we pretty much stuck to the lifestyle we had at the time I left my last employer. This meant at the peak of the business we were only spending about 1/6th of the annual profit in the business.

According to my own calculations I was financially independent a few years back, but I am still working part time. I continue to work for two reasons: one, I actually enjoy what I do and I am pretty much in control of how hard I work and when I do it; and, two, I am fortunate that it is pretty lucrative and I like the margin of safety the last couple of years of extra earning has provided. I expect this situation will continue for maybe another six to eight months. However, we did invest some of the company's surplus funds in a property development opportunity and I will probably switch my focus on to that at that time. What I do after that is completely up in the air.

I have found the discussion of 'this percent' or 'that percent' as a benchmark for a safe date to retire both interesting and concerning in equal measure. My own analysis and projections are in the form of an MS Excel workbook with many individual sheets covering modelling assumptions, income generation and outgoings. All this is modelled on a year-by-year basis because our outgoings are projected to be far higher while the children are still in education (both currently in private schools with combined fees of c.£40k pa). Base annual income requirement is modelled at about £100k pa.

Of course there are a number of flexed scenarios where various assumptions are varied, but what I currently consider to be the base scenario shows us being able to hit a hundred years old with something left to pass down to the next generation. But what is not explicitly modelled is a lengthy period in a nursing home at the end of our days. The costs are frightening. My mother spent her last decade in a nursing home, not due to age but chronic ill health. We looked at various homes and anything costing less than about £1200 a week in today's money was frankly somewhere I would not let my dogs live in, let alone my mother. Do others consider this when considering when it is financially safe to retire?

Terry.

kodokan
Posts: 33
Joined: November 4th, 2016, 12:01 pm

Re: FIRE

Postby kodokan » November 8th, 2016, 10:56 pm

I have my imaginary life mapped out that we're reducing our portfolio gliding down to age 70, then it's stable or increasing after that as more of our income comes from pensions. My worst case scenario, barring the last minute meltdown of the global economy in which I'd still be relatively better off than most around me, shows me having at least $800k at that point. It'll almost certainly be higher, as I tend to estimate amounts and returns very conservatively. I also have made no assumptions about receiving an inheritance, even though it's almost mathematically impossible that we won't given the financial position of our parents.

Having a quick squint at numbers over here, I could probably fund a care home for a decade. If I need full-on residential care beyond that point, I'll likely be at the stage where a trip to Oregon for legal euthanasia would look an awfully tempting option.

thebarns
Posts: 37
Joined: November 4th, 2016, 12:56 pm

Re: FIRE

Postby thebarns » November 8th, 2016, 11:43 pm

Re Nursing homes and factoring it into FIRE.

I do not have the exact stats to hand and can only go on what I have read before and also based on own personal experiences.

So these are not exact figures.

As I recollect, something like 1 in 3 or 4 currently end up in a home and the average stay is 2-3 years.

Personally, it plays no part in my FIRE thinking and calculations.

However, that is because the current family home plays no part in the projections in generating any income for FIRE.

The mortgage will however be paid off as I reach FIRE.

At that point there will exist a significant mortgage free asset which if either my wife or myself are unlucky enough to need care and additional funds are needed over and above FIRE levels of income, then the house can be lifetime mortgaged or downsized, depending on what the healthy spouse and children decide is best.

In the end, there would be plenty there, it would just potentially reduce what the kids may inherit.

But I certainly would not take longer to reach FIRE just because I thought it necessary to consider funding care home fees, it would prolong such date, for an event that has only a possibility of happening and in any case could be funded by the family home, which plays no part in FIRE funding.

TopOnePercent
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Re: FIRE

Postby TopOnePercent » November 8th, 2016, 11:47 pm

thebarns wrote:£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 am sure many at or contemplating FIRE will be looking at considerably smaller capital sums.



Out of interest, would any posters close to or post FIRE care to divulge the minimum capital sum they'd consider necessary?

Wizard
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Re: FIRE

Postby Wizard » November 8th, 2016, 11:51 pm

TopOnePercent wrote:
thebarns wrote:£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 am sure many at or contemplating FIRE will be looking at considerably smaller capital sums.



Out of interest, would any posters close to or post FIRE care to divulge the minimum capital sum they'd consider necessary?


I think that is an almost impossible question to answer generically as it depends on the level of income required / desired.

Terry.

thebarns
Posts: 37
Joined: November 4th, 2016, 12:56 pm

Re: FIRE

Postby thebarns » November 9th, 2016, 11:24 am

I am inclined to agree with Terry in that it is a difficult one to answer.

There would be some significant personal variants which would have a material impact on the sum, such as....

Have you got the family home paid for or if renting that will need to be covered.

Are you single or have another half to consider.

Are their children and how much assistance do you wish to give them with the large financial issues in life.

What are the views on inheritance and leaving a large sum intact or being comfortable with running it down.

How you value pensions in calculation of the total sum.

How frugally or not you wish to live on FIRE re holidays/cars/the more expensive discretionary spends.

Without getting into daft sums of FIRE income to blow on whatever you want, I estimate FIRE will range from the very highest £5M as one poster mentioned earlier in this thread to around £500K (for someone with property needs sorted).

I further guess the majority will look for somewhere around £750K- £1.5M.

kodokan
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Joined: November 4th, 2016, 12:01 pm

Re: FIRE

Postby kodokan » November 9th, 2016, 2:39 pm

thebarns wrote:I am inclined to agree with Terry in that it is a difficult one to answer.

There would be some significant personal variants which would have a material impact on the sum, such as....

Have you got the family home paid for or if renting that will need to be covered.

Are you single or have another half to consider.

Are their children and how much assistance do you wish to give them with the large financial issues in life.

What are the views on inheritance and leaving a large sum intact or being comfortable with running it down.

How you value pensions in calculation of the total sum.

How frugally or not you wish to live on FIRE re holidays/cars/the more expensive discretionary spends.

Without getting into daft sums of FIRE income to blow on whatever you want, I estimate FIRE will range from the very highest £5M as one poster mentioned earlier in this thread to around £500K (for someone with property needs sorted).

I further guess the majority will look for somewhere around £750K- £1.5M.


Being in the US, I have additional wrinkles to your list:

How UK political decisions might wipe 20% off my projected UK pension income.

And a fun new one today, how health insurance might be $1k a month more because the subsidies, along with the rest of the healthcare legislation, is repealed.

Just two of many reasons why I haven't got a fixed Number just yet, still being 6-8 years out. My approximate Number, meanwhile, has spent 2016 inching ever upwards.

pbarne
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Joined: November 4th, 2016, 7:03 pm

Re: FIRE

Postby pbarne » November 9th, 2016, 3:57 pm

thebarns wrote:I further guess the majority will look for somewhere around £750K- £1.5M.


A rough and ready reckoner of income in retirement discussed a few times on the other place was:

12K for a very basic existence
24K for a moderate lifestyle
36K for a good lifestyle with some luxuries

Assuming a range of 3% to 4% drawdown that would equate to a range of 300K to 1.2M.

All assuming your "pot" would need to finance all your income.

tieresias
Posts: 28
Joined: November 4th, 2016, 8:25 pm

Re: FIRE

Postby tieresias » November 9th, 2016, 4:24 pm

DeBriefed wrote: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?


Yes, more or less.

Excluding a deferred defined benefit pension from previous employment (which I cannot realistically value), my breakdown in terms of capital is 34% property (my UK home), 60% securities (mostly equities) and 6% cash.

As a "toe in the water" for securities investments, some sort of index-tracker is an easy way to get going.

For friends and family who are UK residents, I advise setting up a Legal & General stocks and shares ISA and putting £50 a month into each of their UK Index Trust and their International Trust (equities in the rest of the world excluding UK). It may not be the cheapest but charges are reasonable, L&G is a household name, the process is straightforward and it gets you started.

I know nothing about YouInvest specifically, but I believe it's a broker and therefore you could buy index-tracking ETFs (Vanguard, iShares,...) which give you wide coverage of the global markets at very low cost. Monevator has some suggestions about allocating your money in trackers, well worth a couple of hours browsing.

DeBriefed
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Re: FIRE

Postby DeBriefed » November 9th, 2016, 5:31 pm

Thanks for the responses!

tjh290633
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Re: FIRE

Postby tjh290633 » November 9th, 2016, 6:15 pm

TopOnePercent wrote:Out of interest, would any posters close to or post FIRE care to divulge the minimum capital sum they'd consider necessary?


I always contend that it is income that you need, not a certain amount of capital. That is why I invest in higher yielding shares and minimise my exposure to cash deposits, avoiding fixed interest altogether.

Fundamentally you need an income which rises at least as fast as inflation, which means that you have to invest in equities.

Back in the 1990s, when I retired, accepted wisdom was still to move gradually into fixed interest as you neared retirement. It was bovine excrement then and even more so now. I concentrated on building a flow of dividend income, reinvesting dividends until I needed to start to draw some income, which is still only a low proportion of the whole. If your flow of dividend income is above the amount you need to live on, then you have reached Financial Independence. You do not have to Retire Early of course. A surplus is always useful, because as in 2009-10, dividends can fall as well as rise, and need time to recover. That is when the surplus comes in handy as a cash buffer.

You can invest in shares, ITs, ETFs, Unit Funds, or whatever gives you that rising income flow. Don't forget that 1% of ongoing charges means a 20% reduction in a 4% yield from the gross amount. That's why individual shares, held inside a tax shelter like a SIPP or ISA, are likely to do better than any collective investment.

TJH

TopOnePercent
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Re: FIRE

Postby TopOnePercent » November 9th, 2016, 7:53 pm

pbarne wrote:
thebarns wrote:I further guess the majority will look for somewhere around £750K- £1.5M.


A rough and ready reckoner of income in retirement discussed a few times on the other place was:

12K for a very basic existence
24K for a moderate lifestyle
36K for a good lifestyle with some luxuries

Assuming a range of 3% to 4% drawdown that would equate to a range of 300K to 1.2M.

All assuming your "pot" would need to finance all your income.


Thanks all, for the responses.

On one hand then I may need 10 more years rather than 5. On the other, assuming 2.5% income from the assets, I could FIRE today on the very basic existence level. I'm fortunate in that I enjoy what I do for a living, even though ageism will see me out of a career sooner rather than later, but with children to see through school & university, I'll probably still be working in 15 years :-O

I'm going to refocus on things outside of my pension wrappers going forward as governments playing politics with my retirement date I already tiresome. Hopefully in another 5 years I'll be reaching the moderate lifestyle FIRE range. Enjoy the well earned early retirements those that take them: I for one salute you!

weenie
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Joined: November 6th, 2016, 1:38 pm

Re: FIRE

Postby weenie » November 9th, 2016, 8:37 pm

Another person aiming for FIRE here, though less of the 'RE' seeing as I didn't hop onto the bandwagon until I was in my mid-40s!

No children to pay for and if all goes well, I hope to be in a position to choose not to work at the age of 55 or 56. I have a DB pension (21 years' service) which will kick in when I'm 65.

I do however, have the hurdle of getting myself a similar/higher paying job in the new year as I'm getting laid off in December but this shouldn't derail my plans for FIRE.

I've been following TheRIT's blog for a couple of years now and he is an inspiration! :D

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


I'm aiming for just £20k a year - I live on less than that now. (Manchester is a lot cheaper than London!)

I'm also of the view that once I've 'retired' (early or not), I won't be working, not even part time. If I choose to do a bit of work, then I'd be 'semi-retired'! :lol:

dspp
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Re: FIRE

Postby dspp » November 10th, 2016, 1:00 pm

pbarne wrote:
thebarns wrote:I further guess the majority will look for somewhere around £750K- £1.5M.


A rough and ready reckoner of income in retirement discussed a few times on the other place was:

12K for a very basic existence
24K for a moderate lifestyle
36K for a good lifestyle with some luxuries

Assuming a range of 3% to 4% drawdown that would equate to a range of 300K to 1.2M.

All assuming your "pot" would need to finance all your income.


Glancing through https://en.wikipedia.org/wiki/Income_in ... ed_Kingdom and http://visual.ons.gov.uk/uk-perspective ... in-the-uk/ it seems that median UK incomes are somewhere in the £21k - £25k range depending on factors such as whether it is household or individual, earnings or income, etc. Assume £22k @ 4% total return (after inflation) and you need a £550k pot, which is median individual gross earnings for all, inc part time & full time. But if you take off state pension of £6k you need a £400k pot. Further knock off the fact that by the time most people would retire they've got the mortgage to zero (avge mortgage is £85k, so avge payment will be about £8k/yr) so needs are £22k - £6k - £8k = £8k/yr from private savings, which is £200k. So if you wish to retire early, after paying off mortgage but before receiving state pension, then calculate #years of gap x £6k/yr and add to £200k. And that is before taking into account the fact that many who might be contemplating this will likely have some level of private pension provision and can obtain extra income from e.g. spare room rental.

It really is possible at quite modest levels of saving provided of course one is willing to live a median lifestyle.

regards, dspp

mickeypops
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Re: FIRE

Postby mickeypops » November 10th, 2016, 2:55 pm

Like many people here I suspect, Mrs MP and me will have several sources of income when we FIRE - in our case the RE part is minimal because we didn't get together until our forties and started out with little or no capital for reasons unconnected with this board. We plan to retire in June 2018 when I'll be 63 and she 60.

This is how I've calculated what our "number" should be for FIRE. My starting point is to replicate our net earnings that we receive now, after deducting the amount we put into our investments each month. We will be more tax efficient also so I've built that into the arithmetic.

- we are fortunate enough to have Defined Benefits from prior employers which will contribute about 35% of this amount
- our state pensions (we've had the estimates from the government) will contribute 25% of this amount. I have a fund separate from our pensions/isa investments put aside to "pay ourselves" the equivalent amount until we reach state pension age (66 for both,)
- the remaining 40% will need to come from our pensions / ISA investments. I'm a "natural yield" type of investor by inclination, and have a collection of ITs and funds that average a 4% yield, so our "number" is 25 times this 40% equates to.

Hope this example helps / is of interest.

MP

ap8889
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Re: FIRE

Postby ap8889 » November 11th, 2016, 6:33 am

I think getting your expenses under control is the key to FIRE. As many FIRE bloggers have pointed out, optimising expenses to give you the lifestyle you choose is a double whammy because the capital required is much lower with much lower expenses.

I think with paid off housing one needs very little to live a good life. If I get 36k a year post tax that will be more than plenty for us as a couple: I dont need much to be happy, an Internet connection, a kettle and tea, and I am set.

My biggest investment area that I think I need to work on before retirement is building social capital in the form of friends and family nearby. My mother in law passed away unexpectedly last week, having never left her hometown. At the funeral and wake it was really brought home to me that all the people she kept close with in her life had made it rich, full of good times, despite sometimes little money and serious health issues.

You can have too much financial capital, but I don't think you can ever have too much social capital.


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