FIRE

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

Postby TheRIT » November 13th, 2016, 5:32 pm

Wizard wrote:
ap8889 wrote:Umm 4% is the real return...


OK my misunderstanding. I saw previously people using the 4% as a gross number, or at least that what I interpreted it as.

Terry.

The 4% in the 4% Rule is neither a nominal or real return. As I described above it is the withdrawal rate you start drawing down at. Ie you take your wealth in £/$/etc's and multiply it by 4% to get a withdrawal rate 'salary' in £/$/etc's. Then you uprate that 'salary' by inflation each year. Remember the 4% Rule as published actually resulted in wealth actually running out in some cases (the risk piece) before a 30 year period was up.

Can't embed images but I have the tables on my blog http://www.retirementinvestingtoday.com/2013/02/calculating-that-important-retirement.html and it shows for example that if a US based investor had 50% in US stocks and 50% in US bonds then looking historically they would have run out of wealth prior to 30 years of drawdown in 4% of cases.

Also remember it's US based. The table I have here shows how that historically changes for different countries http://www.retirementinvestingtoday.com/2014/05/further-exploration-of-safe-withdrawal.html. For example a UK investor with 50% in UK stocks and 50% in UK bonds could only withdraw 3.05%, before investment expenses, if they wanted "100% historic success" over a 30 year period. With global stocks and bonds it improves slightly to 3.26%, before expenses.

TahiPanas
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Re: FIRE

Postby TahiPanas » November 16th, 2016, 3:21 am

I use the 4% Rule only as an income target. Many would consider that to be almost low yield but everyone's circumstances are different.

I am 72 and retired. Almost all our income comes from shares. We have no state pensions but my wife has a 5k pa civil service pension. In addition we have NSI Pensioner Bonds, an emergency cash fund, a balancing fund for dividend fluctuations and about 1 years income in cash. That's it.

My low-ish 4% yield target allows me to include safer low earners such as RB, ULVR and DGE. Our income portfolio has a mix of HYP shares, Luni's ITs, and ETFs, all for diversity.

We never intend to sell any of our investments if at all possible. We live off our income and fortunately that is greater than our natural expenditure. We will return to the UK next year from a much more expensive location so, even allowing for higher tax, we should be better off. In any case, in the unlikely event that our income drops very significantly below our current expenditure, we have ample scope to trim costs.

My wife and I feel blessed to be in this fortunate position which I think is largely due to the excellent advice I received from TMF. Thank you all so much.

funduffer
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Re: FIRE

Postby funduffer » November 17th, 2016, 3:40 pm

Thread has gone a bit quiet, but I thought I would add my experience of FIRE.

I FIRE'd at 58, which is not that young, but I would still class as retiring early. I am now 61, and live off a DB pension and my investments (mainly dividend-paying shares and IT's, mainly in ISA's). However, I thought I would mention a few non-financial aspects of FIRE:

1. Get social. Unless you have a very active social life already, you will find you miss the day-to-day office banter with work colleagues. Go and find some clubs/organisations/voluntary groups to join for the social interaction. If they are during the working week, you will find you are amongst the youngest in these groups, so be prepared to interact socially with people 10 or 20 years older than yourself. I have joined a male voice choir, and have made many new friends from this.

2. Keep active. You should have more time, so use some of it to get fitter and healthier. I now walk to many places I used to drive to, and also cycle and swim. I have lost a fair amount of weight since retiring and feel much healthier than when I worked (which was basically a sedentary job in an office).

3. Be intellectually challenged. Keep your brain active, by taking part in something that stretches your mind. This might be further education, or some club with an intellectual challange - eg discussion groups. I joined a local discussion forum, and a medical research committee, from which I have learned a lot and kept my brain active.

4. Be worthwhile. Do something to maintain/gain self-esteem, which is all part of your overall personal well-being. Voluntary work is the obvious thing here - I volunteered for the local Air Ambulance charity as a speaker, which took me to all sorts of places, and made me feel I was still being useful to society.

5. See the world. If you can afford it, go and see the world, or the country, or your local region. Do it before you get too old. Start with long haul, as your horizons will reduce as you age. I have identified about 10 places I want to visit before I reach 70.

6. Stay solvent. The biggest thing approaching FIRE is to understand what you will spend, and therefore what income you will need. I under-estimated how much cheaper it is to live after FIRE, and have generally been too cautious in my spending. I hadn't quite realised how much tax, NI and work expenses were taking from my income when I worked. Also, after FIRE,you have more time to scrutinise what you spend, and I have found I have made very large savings in what I spend simply by finding bargains, changing bank accounts, switching energy suppliers and the like. I have been so successful, I am now struggling to spend up each month without generating new savings that I do not really need. The change in mindset from saving/investing as much as possible in achieving FIRE, to spending to enhance your quality of life has taken me some time to achieve.

Overall, enjoy FIRE - I do.

FD

ap8889
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Re: FIRE

Postby ap8889 » November 17th, 2016, 6:54 pm

Thanks funduffer, great post.

TheRIT
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Re: FIRE

Postby TheRIT » November 19th, 2016, 11:50 am

A great thoughtful post funduffer. Should be compulsory reading before anybody is allowed to FIRE.

OLTB
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Re: FIRE

Postby OLTB » November 20th, 2016, 6:43 pm

I'm really concerned that the FIRE option is too late for me (if I'm realistic). I have a small deferred DB scheme that is currently due to pay approx £4,600 from normal retirement age (62) and a simple guess at inflation will make this worth approx £6k at that time. My only other pension is my HYP and although I'm really trying to build this up, not too sure how much power compounding will have between now and 62 (15 years). Perhaps my plan of achieving FIRE at 62 will have to move, but interested to see how much in retirement is required. I would like to do all the expensive stuff first in retirement as I am aware that my DB scheme and State Pensions (alongside Mrs OLTB's) will increase each year and as I reach my late 70's / early 80's. run the risk at that time of income exceeding expenditure. Have considered transferring my DB scheme away to my HYP as I'm sure that over the next 15 years, the income reinvested could exceed the estimated £6k - the transfer value is really meaty and becoming increasingly tempting. Foolish? perhaps, but don't want potential to disappear! Will respond to any positive feedback be that a virtual arm round shoulder saying everything will work out / a Ferguson type hairdryer treatment telling me to man up!

Cheers, OLTB.

grimer
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Re: FIRE

Postby grimer » November 20th, 2016, 10:00 pm

OLTB wrote:Have considered transferring my DB scheme away to my HYP as I'm sure that over the next 15 years, the income reinvested could exceed the estimated £6k - the transfer value is really meaty and becoming increasingly tempting.


I expect the current value with be very tempting, given current interest rates - but perhaps equities are about to crash? I'm 100% invested in equities via HYP, trackers and ITs. I'm aiming for full retirement at 55, but would like to build up enough to 'survive' if I my career hits a dead end before then. 55 is 17 years away, for me and I think this is enough time to keep investing through any downturns, buy shares while prices are depressed and hopefully ride any recovery in asset prices. I don't really see any other options for building my retirement pot, but that could probably just be ignorance on my part.

I think that compounding will have enough time to build up my portfolio pot to somewhere between £800k-£1.2million depending upon return and dependent upon contributions continuing at their current level - i.e. no career ending redundancy. I may actually be able to increase my contributions, if something at work pans out in my favour. If that happens, my pot might be substantially larger.

Ultimately, I have no idea what the future holds. My savings rate is currently 40% gross and any future earnings will be earmarked purely for savings and investments, so it could rise to 50%+. If that isn't enough, then there are going to be tens of millions living in abject poverty in their old age.

TheRIT
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Re: FIRE

Postby TheRIT » November 21st, 2016, 9:25 pm

grimer wrote:I expect the current value with be very tempting, given current interest rates - but perhaps equities are about to crash? I'm 100% invested in equities via HYP, trackers and ITs. I'm aiming for full retirement at 55, but would like to build up enough to 'survive' if I my career hits a dead end before then. 55 is 17 years away, for me and I think this is enough time to keep investing through any downturns, buy shares while prices are depressed and hopefully ride any recovery in asset prices. I don't really see any other options for building my retirement pot, but that could probably just be ignorance on my part.

I think that compounding will have enough time to build up my portfolio pot to somewhere between £800k-£1.2million depending upon return and dependent upon contributions continuing at their current level - i.e. no career ending redundancy. I may actually be able to increase my contributions, if something at work pans out in my favour. If that happens, my pot might be substantially larger...

17 years is a bit longer than my 9 years but make sure you model what you might expect compound interest to deliver as I received quite a surprise as only 38% of my wealth came from compound interest while 62% came from saving. It was so surprising it prompted me to explore it further here http://www.retirementinvestingtoday.com/2016/11/wheres-snowball-why-youd-better-save-if.html if anyone is interested.

grimer wrote:...Ultimately, I have no idea what the future holds. My savings rate is currently 40% gross and any future earnings will be earmarked purely for savings and investments, so it could rise to 50%+. If that isn't enough, then there are going to be tens of millions living in abject poverty in their old age.

A person after my own heart. A few years ago I was at 60% of gross but as my salary grew and my tax rate increased it's reduced to 53% in the last 12 months.

If I understand correctly your 38 years old today, your at a 40% gross savings rate and you only think you can FIRE in 17 years. With a bit of critical thinking I'd challenge if you might just be able to do a bit better than that. In comparison I started when I was 34, became FI only 9 years later at age 43 and will FIRE next year under current plans.

UncleEbenezer
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Re: FIRE

Postby UncleEbenezer » November 21st, 2016, 9:44 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.

Who is posting those figures?

So much depends on what you're used to. My parents retired on a lot less than £12k, but nevertheless with much more money to spend than they had had when bringing up a family and servicing a mortgage. I find it hard to spend that much, despite having upgraded three years ago to a much better house, and taking little luxuries like the whole of last week in a four-star hotel in Seville (in my youth, a Youth Hostel would've been far too expensive). Now that £12k is tax-free, it looks like a particularly attractive plan - though sadly it seems my pension pot would only stretch to half that at today's annuity rates, so I'd need to buy a house and eliminate the rent.

grimer
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Re: FIRE

Postby grimer » November 22nd, 2016, 8:30 am

TheRIT wrote:17 years is a bit longer than my 9 years but make sure you model what you might expect compound interest to deliver as I received quite a surprise as only 38% of my wealth came from compound interest while 62% came from saving.
....

If I understand correctly your 38 years old today, your at a 40% gross savings rate and you only think you can FIRE in 17 years. With a bit of critical thinking I'd challenge if you might just be able to do a bit better than that. In comparison I started when I was 34, became FI only 9 years later at age 43 and will FIRE next year under current plans.


Unfortunately, I'm not earning as much as you did before you FIREed. If the pay rise pans out, I'd be able to save an additional £20k, which would reduce my working life substantially. Without the extra income I'm going to need to rely on compounding to build the po tover a longer timeframe.

By my projections a ten year period would see 50% of returns come from 'interest'. That pot of 150% would then double over the next ten years, due to compounding. I'd then add another 150% by investing and growth during the second ten year period. This would give a total of 450% - of which 250% would be growth.

This is based upon a return of 7% and a 20 year investment period. The ftse 100 has an average return of 9% over the past 40 years.

Dod1010
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Re: FIRE

Postby Dod1010 » November 22nd, 2016, 10:20 am

If I may say so funduffer's post makes absolute sense. In fact it pretty well describes my life in the last 15 years. For instance I was treasurer of the local branch of a national military charity, took a maths degree with the Open University, travelled at least twice a year, once to Europe and the other to the US, went to a lot of shows, ate out quite a lot .........and then? My wife who was nearly 15 years younger than me contracted cancer and died earlier this year. So one thing that funduffer forgot to mention was as long as you and your partner are given good health take advantage of it and that I think means 'front loading the activities. I am fortunate in that apart from having a couple of hips replaced, I continue to be in good health in my mid seventies but the incentive to travel for instance is now much diminished as a result of my personal circumstances.

BTW I retired more than 20 years ago at the age of 52. Remember also that when we are quoting figures for annual income in retirement, we are usually using net of tax figures, In fact as most of my income is from dividends, I pay very little tax anyway. I would not disagree with the £12,000/£24,000/£36,000 figures someone quoted although of course it depends entirely on one's own lifestyle and sort of house you choose to live in.

grimer
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Re: FIRE

Postby grimer » November 22nd, 2016, 10:38 am

Dod1010 wrote:If I may say so funduffer's post makes absolute sense. In fact it pretty well describes my life in the last 15 years. For instance I was treasurer of the local branch of a national military charity, took a maths degree with the Open University, travelled at least twice a year, once to Europe and the other to the US, went to a lot of shows, ate out quite a lot .........and then? My wife who was nearly 15 years younger than me contracted cancer and died earlier this year. So one thing that funduffer forgot to mention was as long as you and your partner are given good health take advantage of it and that I think means 'front loading the activities.


I'm sorry to hear that Dod.

A very close family friend had planned to retire at 55, but pushed it back to 60 to 'secure' his retirement. His wife died of Leukaemia shortly after their retirement and he now regrets waiting those extra years - he sees it as five quality years they could have spent together.

Their situation has certainly made me think in terms of 'the sooner the better' when it comes to FIRE.

Dod1010
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Re: FIRE

Postby Dod1010 » November 22nd, 2016, 10:56 am

grimer

Thanks. My wife died of another less well known blood cancer, myeloma. Of course you can't go through life thinking about that sort of thing but if you are to retire early you might as well do it whilst you are both fit and well. In one sense we did well but my wife being much younger than me (and a second marriage for both) was full of energy and ideas and I know was very good for me. I now need to avoid becoming an angry old man!

The point though is to grasp opportunities whilst they are there. Carpe Diem!

funduffer
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Re: FIRE

Postby funduffer » November 22nd, 2016, 11:59 am

Dod1010 wrote:Remember also that when we are quoting figures for annual income in retirement, we are usually using net of tax figures


I absolutely endorse what Dod is saying.

This was my moment when I realised that I could FIRE - look at net household income, not gross. I realised the household income from the pensions & investments of me and my wife were, in total, not much different from my sole take-home working income (my wife having already stopped work). Essentially, we traded one HRT income for 2 BRT incomes plus ISA'd investment income, and of course no NI. The difference this makes to take-home v gross income is remarkable.

The harder part, for us, was estimating the household spend post-FIRE, given our ambition to travel. This turned out fine, as I remarked earlier, because you have more time to take action to reduce unnecessary spend.

FD

swill453
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Re: FIRE

Postby swill453 » November 22nd, 2016, 12:10 pm

A couple in pension drawdown can have an income of £29,333 this tax year, and pay no tax or NI at all. This is by taking the maximum UFPLS payments to not exceed the personal allowance.

That's roughly what we're doing, and it also (roughly) equates to our annual spend, which incorporates doing plenty travelling etc., and we feel there's nothing we desperately want to do that we can't afford.

I agree with the sentiment of the other posters, live (sustainably) for the moment, you never know what's round the corner.

I retired at 53 2.5 years ago in the full knowledge that we would probably have to dip into capital before the state pension kicks in. As it happens, we haven't needed to yet and our net worth has increased since we retired.

Scott.

pbarne
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Re: FIRE

Postby pbarne » November 22nd, 2016, 1:10 pm

UncleEbenezer wrote:
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.


Who is posting those figures?



See the following for an old thread on the subject where these sorts of figures are discussed (an interesting read in itself for those considering FIRE):

https://web.archive.org/web/20140615035 ... sort=whole

thebarns
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Re: FIRE

Postby thebarns » November 22nd, 2016, 2:19 pm

Some good posts here both on the financials and non financial aspects to FIRE, some thought provoking stuff.

As many on here, I've had my thinking partly influenced by the early age passing of friends or relatives which definitely shapes an earlier intended date of RE, irrespective of the fact I could still earn from work a pretty sizeable annual sum.

I grapple with the concept of just giving this up but the early passing of friends/relatives always seems to trump giving up these annual earnings.

My own biggest emotional pull in not going for an earlier RE is that of being a parent of two school age children, yet to make their way in life, a life which does appear, in a financial sense, to hold more challenges than my generation.

I could RE almost any day if I was prepared to either reduce the income they need now/next 10-15 years or indeed draw down on the capital sum that they would inherit down the line.

I find it extremely hard to pull the trigger on RE because of this, but I will not leave it too late because I am aware and have experienced the early passing feeling that also drives the decision.

Mapfumo
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Re: FIRE

Postby Mapfumo » November 24th, 2016, 10:44 am

Pleased to find this thread here, as I never found much similar discussion over on TMF.

I found MMM and similar blogs a couple of years ago and came up with a plan which would have seen us reaching FI in 2019. Takeover of my employer resulting in a significant uplift in the value of my shares, plus the post-Brexit fall in the pound and corresponding uplift in the value of our overseas investments (in £ terms at least) means that we passed the original target in September this year.

Fairly comfortable with going with a 4% withdrawal rate in my mid-forties. I have not taken the state pension into account, nor the fact that I suspect both my wife and I are likely to do at least occasional paid work, or that I imagine (as some retirees have pointed out) that our income requirements are likely to fall over time. We also have a family home which will be significantly larger than required for a couple, so there is the potential to downsize and raise funds if things went badly.

I'm still working, for several reasons. One is that with investment income pretty much covering outgoings, I can bump up the size of the pot quite quickly. More importantly, with two children about to go to university, continuing to work for a while will allow them to have a very good financial start to adult life. Some of the things we want to do when retired (e.g. travel) aren't really compatible with 'A' levels etc. Mainly, though, it's because I've hit my magic number sooner than expected, I haven't really had a chance to make firm plans.

spiderbill
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Re: FIRE

Postby spiderbill » November 27th, 2016, 3:19 pm

I'm right in the middle of the decision to do the RE part having spent the last year assessing if I am really FI. I'm now pretty sure that I am FI but just have to work out the details of switching assets to generate the anticipated income.

Single (divorced) and 61 (which was always my aimed-for retirement date), I own my own house in the UK and one in Slovenia which I plan to move to for at least half of the year. I spent 4½ months there this summer/autumn arranging modernisation work and can't wait to get back there. I've been a self-employed internet consultant for the last 7 years and can work from there but am gradually reducing my client base and considering when to finish altogether. Living costs in Slovenia are mostly a little cheaper than the UK - excellent local wine at 5-6 Euros a bottle being a major plus point! - though until I fully understand their tax rules and implications I'll probably avoid going over the 6 month tax-residency point; spending 3 months in the UK and 3 months in the Netherlands with a close friend. However if Brexit screws things up I will move there permanently whatever the cost. I want to enjoy the mountains while I'm still fit enough and continue my landscape photography.

I have a HYP portfolio and a cash ISA that I'll be switching into it shortly, and rental income from my father's house. I'm about to inherit another house that will be sold in the spring. I reckon that with all that and my pensions I should be able to generate about 25k income if I can get a 4% return.

I have to decide two things: whether they are best asked here on on the pensions board I'm not sure. Suggestons on a that welcome.

1. What to do with my two pension pots (one 110k and one 20k) - basically take drawdown or swap into a SIPP and manage myself (and then what to invest in - more HYP or look at ITs/ETFs).

2. What to do with an OEIC accumulation ISA - swap into an equivalent income-focused fund or take income by selling down.

All told I'm looking forward to not having to worry about my next job!

TopOnePercent
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Re: FIRE

Postby TopOnePercent » November 28th, 2016, 11:18 pm

TahiPanas wrote:We will return to the UK next year from a much more expensive location so, even allowing for higher tax, we should be better off. In any case, in the unlikely event that our income drops very significantly below our current expenditure, we have ample scope to trim costs.


Perhaps I might suggest speaking to a good tax accountant? That you are relocating to the UK does not necessarily require that your assets do the same, and repatriating only what you require to spend may allow the remaining income to legally find a tax free home on some shady island.


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