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FIRE

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

#7603

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

#7641

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

#7649

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

#7656

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

#7684

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

#7692

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

#7725

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

#7773

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

#8499

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

#9401

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

#9859

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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Re: FIRE

#9867

Postby TahiPanas » November 29th, 2016, 4:49 am

TopOnePercent wrote: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.

TopOnePercent,

I will do so, thanks. However, my understanding is that UK residents are liable for their worldwide income. I have read nothing so far over the years that suggests there are any, hrmmmm...legal, loopholes. What features were you thinking of?

LadyGagarin
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Re: FIRE

#9904

Postby LadyGagarin » November 29th, 2016, 9:19 am

TedSwippet wrote:Being in the 40% tax bracket from savings/pension income alone means that doing any paid work at all garners me less than 60% of the benefit, whereas someone else in lower tax brackets will extract much more value for themselves from the same effort.


It must still be worth it though, if you can command a high enough income to enter the higher tax bracket. It's increasingly hard to retire at all if you are a BR taxpayer, let alone early. I suspect the more common pattern, in future, will be to carry on at least part-time into old age. This regardless of whether you find your job intellectually or socially stimulating, but because it's economically necessary. I can't see how someone earning say £14,000 p.a. could, however frugal, save enough to sustain a 40 year retirement - especially given they will still, realistically, be paying rent. If you have the opportunities and qualifications to earn 4x that and one day not have to either pretend you agree with things that make you angry, or sit bored at home with that third sweater on...why wouldn't you?

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Re: FIRE

#9931

Postby scotview » November 29th, 2016, 10:33 am

I retired at 52 and have a couple of company pensions which provide our main income and other investments which provide additional income for little luxuries like travel and hobbies. Once in early retirement there are unforeseen events which cannot be planned for. Let me give you a few practical examples which have affected us recently.

1 I will start drawing the "new" state pension next June. I thought I would be receiving £150 per week but a forecast shows that it will actually be £133 per week because I was contracted out.

2 Not only will I be receiving a lower old age pension but it will be taxed at 40% which will give me nett £79 per week, quite a difference ! My feeling is that the old age pension should not be taxed.

3 From the autumn statement, it looks like UK taxpayers will have the 40% tax allowance raised in stages during the coming years, thus helping those early retirees in the UK tax system. I, however, now have a Scottish tax code and it seems likely that the Scottish Parliament will NOT be raising the current 40% tax threshold.

4 We had thought my wife would receive her State Pension at 60, but she has missed the cut-off date and will not receive her pension until she is 66. She is a non taxpayer, so that is a loss of about £43K of tax free income over that six year period because of the change to womens' state pensions.

I use the above to illustrate that things can happen outwith your control once you are in retirement.

swill453
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Re: FIRE

#9932

Postby swill453 » November 29th, 2016, 10:40 am

scotview wrote:4 We had thought my wife would receive her State Pension at 60, but she has missed the cut-off date and will not receive her pension until she is 66.

As I understand it, it wasn't a simple "cut-off date", but actually spread over 4 years, wasn't it?

Scott.

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Re: FIRE

#10121

Postby TedSwippet » November 29th, 2016, 5:33 pm

LadyGagarin wrote:... and one day not have to either pretend you agree with things that make you angry, or sit bored at home with that third sweater on...why wouldn't you?

Because that's a false dichotomy. Now free of work, I indeed don't have to pander to whatever whim or fantasy my manager or anyone else at the same employer has dreamed up this week.

But neither do I just "sit bored at home". Life after retiring early is actually much, much richer than before, not least because I can now live with agency and intent. I can honestly say I have not been bored at all. Freedom to structure life as desired is a gift. For me, relinquishing some of that for less than 60% of the financial benefit from doing so is not a worthwhile value proposition.

LadyGagarin
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Re: FIRE

#10147

Postby LadyGagarin » November 29th, 2016, 6:44 pm

TedSwippet wrote:Because that's a false dichotomy.


But you see my point though? I.e. that a retirement short of funds may mean your opportunities for entertainment are somewhat curtailed.

LadyGagarin
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Re: FIRE

#10149

Postby LadyGagarin » November 29th, 2016, 6:47 pm

swill453 wrote:
scotview wrote:4 We had thought my wife would receive her State Pension at 60, but she has missed the cut-off date and will not receive her pension until she is 66.

As I understand it, it wasn't a simple "cut-off date", but actually spread over 4 years, wasn't it?

Scott.


Yes that's correct - however it did add up to a later retirement age than expected when his wife started work.

TedSwippet
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Re: FIRE

#10154

Postby TedSwippet » November 29th, 2016, 7:09 pm

LadyGagarin wrote:But you see my point though? I.e. that a retirement short of funds may mean your opportunities for entertainment are somewhat curtailed.

I can see that in the general case a person's retirement opportunities might be curtailed through lack of funds. But... I'm not short of funds.

My pension and investment incomes together tip me into the 40% tax band before considering paid employment. So anything that I do, even one day a week, would see more than 40% of that compensation lost to tax. I have employment offers, but this level of remuneration loss disincentives me to accept any. Especially as a younger and/or less 'pensioned' person could extract more value for themselves from this work.

TopOnePercent
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Re: FIRE

#10194

Postby TopOnePercent » November 29th, 2016, 9:08 pm

TahiPanas wrote:
TopOnePercent wrote: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.

TopOnePercent,

I will do so, thanks. However, my understanding is that UK residents are liable for their worldwide income. I have read nothing so far over the years that suggests there are any, hrmmmm...legal, loopholes. What features were you thinking of?


I've genuinely no idea for personal taxation. With companies I know how to do a lot of things. I suggest advice only because I'd bet a professional could unearth a few options.


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