Donate to Remove ads

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

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

FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

Including Financial Independence and Retiring Early (FIRE)
tjh290633
Lemon Half
Posts: 8209
Joined: November 4th, 2016, 11:20 am
Has thanked: 913 times
Been thanked: 4097 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413021

Postby tjh290633 » May 18th, 2021, 4:59 pm

xxd09 wrote:Further down the track than most posters here aged 75 retd 18 years
A few lessons I learnt
Your retirement income stream must match your working income -we spent the same in retirement as working-more time more travel

But ít is your NET income that should be the same. Post retirement age you have no pension contributions to pay, no NICs to pay, no commuting costs, etc.

Agreed that you may spend the same amount, but you may well have several sources of income - occupational pension, SIPP, investments, part time earnings, etc. Expensive holidays are a discretional expense.

TJH

mark88man
2 Lemon pips
Posts: 234
Joined: January 28th, 2017, 11:58 am
Has thanked: 315 times
Been thanked: 87 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413061

Postby mark88man » May 18th, 2021, 7:52 pm

So in summary
- if you are ready to go then GO
- If you are not, then ONE more year is likely to give better returns than playing funny games with your pot
- don't forget that once you have jumped you may not need to spend as much on youth/work stuff like mortgage, NI, children, pensions, etc
- the marginal value of a year at 60 for someone living to 80+ is marginal, but that is unknown and your circumstances may (sadly) vary

Now why does it not feel that easy!

My target is summer 23, but spring 24 isn't the worst thing in the world - 9 less months to make the pot last, and 9 more pay-cheques + possibly 1 more bonus (if I push it to April) received.

Lanark
Lemon Quarter
Posts: 1321
Joined: March 27th, 2017, 11:41 am
Has thanked: 595 times
Been thanked: 582 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413067

Postby Lanark » May 18th, 2021, 8:27 pm

One little data point to consider is pulling the plug in the autumn rather than in spring, so you have 6 months of earnings against 12 months of tax allowances.

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413118

Postby Itsallaguess » May 19th, 2021, 6:12 am

tjh290633 wrote:
One thing that has not been mentioned is the possibility of working part time after official retirement, in the case where someone enjoys the work that they do.


Thanks Terry - that's a very good point, and one that I really should have covered in my opening post, because it is something that I've been considering as an option too..

The main driver for thinking about an 'interim period' of part-time working between being full-time and actual retirement comes down, for me, to these key points -

1. In my current position, which I imagine might be quite common towards the latter years of many people's working lives, a relatively smaller and smaller chunk of my monthly wages are actually required for 'normal living expenses', with a relatively large and growing section being regularly allocated for 'investment or buffer-building purposes' at this stage.

2. If I get somewhere near where I want to be in relation to my 'investment pot and buffers', then full-on retirement will of course remove that source of working-income that's needed for my 'normal expenses', also remove that source of 'additional investment or buffer capital', and crucially, *at the same time* it would start to eat into my existing 'retirement pot' to then begin subsidising that complete removal of working-wage income...

3. The option of part-time working would, for me, potentially allow my ongoing 'normal expenses' to still be paid from a 'still-working-but-much-less-hours' working wage, where the part-time hours would be planned to deliver the monthly capital required to cover those 'normal living expenses', but completely disregarding the working-hours needing to cover any additional 'investment capital' that used to be delivered by my previous full-time role.

4. Part-time working would also, crucially, remove the requirement for any 'existing retirement pot' having to be drawn down at that stage - and that 'existing retirement pot' could continue in it's 'level position' (in terms of getting no further wage-based additional monthly capital), but still be allowed to continue 'internally snowballing' in terms of any internal-investment-income getting slowly and broadly raised (hopefully...), and also being allowed to re-invest any investment-delivered income that occurred during that part-time-working period...

For me, the above benefits do seem like a good 'half-way-house' step into the retirement phase, and, perhaps crucially, might also maintain an *option* to return to full-time-working during that period, as an insurance against 'bloody-hell-my-calcs-are-wrong' errors, and perhaps also any 'critical market issue' events, that might alter a given position on the subject of complete-retirement during that part-time-working phase....

Thanks again for raising this very important point, which has allowed me to flesh out my own thoughts on the subject and present some personal reasons why such an option remains an attractive card that's very much still on the pre-retirement table...

Cheers,

Itsallaguess

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413121

Postby Itsallaguess » May 19th, 2021, 6:50 am

Darka wrote:
I may be unusual in that for me investing isn't and never has been about the money; money to me is only about freedom, hence my interest in FIRE.

This is also one of the reasons that I chose Income based investments over total return, so that I could more easily see how close I was to replacing my salaried income; I don't care about being rich but do of course need sufficient income to be able to retire and for that income to grow during retirement.

My wife is older than me and suffered from cancer a few years ago (in remission), the cancer caused complications requiring a hip replacement in the same year - this of course highlighted the fragility of life as I could have so easily lost her; her daily medication (for 10 years) is an ongoing reminder of this.

She retires in September this year and my "current" plan has me resigning at the end of October, being finished with work at the end of January after my 3 months notice (I will be 52).

I could of course work "one more year" and I'm still very much undecided about that - I REALLY don't enjoy my job so it's very, very unlikely unless I have to financially; and so far it looks like I don't need to.

But to me the greater risk isn't about money.... It's that I miss out on the early parts of retirement with my wife, whilst trying to earn a little more money and there is a risk of course that she might not be here when I have all that money to enjoy.

None of us know how long we have, and so far this week I heard my neighbours boss died (lung cancer - was told he had 3 months to live last Friday, was dead on Monday) and also found out a colleague at work was diagnosed with stage 3 bowel cancer in February.

It's a complicated issue of course, in the end I think working "one more year" might be a good thing, but if you have enough, then I think time is more important.


Hi Darka,

Thanks for being able to post such a personal and sobering reminder that playing around with numbers on a spreadsheet isn't the be-all and end-all, and life is still there for the living, of course.

On some days more than others, this really is something that's close to my heart in many ways too, and is perhaps one of the many long-term drivers of my underlying passion for the whole idea of early-retirement in the first place, that both kick-started my initial drive to get going with a long-term plan all those years ago now, and has also meant that I've been able to keep focussed on it over my long-term working life...

Situations like your own do really bring it home though, and remind us all that time is the one thing that we really can't snowball to our benefit, and if anything it constantly seems to snowball in the other direction as we get older, away from us in a faster and faster fashion...

I've said before that if there's one single silver-lining from this God-awful COVID-induced period that we've all had to endure, and that we've no doubt all got scars from in our own personal ways, it's that we've perhaps been allowed to *really* prove to ourselves just how little we really need to actually *survive on*, given that spending options have been severely curtailed so forcefully for so long, and I think one of the few blessings is that those of us in a lucky position to be able to even be thinking about things like early-retirement have been able to more firmly generate *some* level of 'minimum spend' over a given 12-month period that we now at least know is *do-able* and *survivable*, even if it means us pulling our belts a little tighter than we'd perhaps normally prefer.....we at least now know that we can *do it* with such a low level of spending, rather than just think that we might be able to.....

And if that single benefit makes it's way into our long-term retirement calculations, and allows us to grab *some* very precious time-benefit from those calculations in a way that might not have happened with such confidence before COVID came along, then I'll grab that 'benefit' with both hands at the moment, and see it as perhaps the best silver-lining of this whole damned period...

Thanks again for sharing your situation Darka, and I wish you both a long and happy retirement when you're able to finally walk away at the end of this year.

Best Wishes,

Itsallaguess

Itsallaguess
Lemon Half
Posts: 9129
Joined: November 4th, 2016, 1:16 pm
Has thanked: 4140 times
Been thanked: 10023 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413122

Postby Itsallaguess » May 19th, 2021, 7:03 am

TahiPanasDua wrote:
For those hovering fearfully on the edge of the big decision, let me offer a true tale of how unexpected events at the extreme can unfold and how man's adaptability can result in a happy conclusion.


Thanks TP2, and your welcome contribution has given me the opportunity to say something that I've sadly not yet taken in my earlier replies here, which is to really thank everyone for their rich and varied engagement on this particular subject, both on the investment side *and* on the more personal 'non-investment' side of things too, which from some of the stories unfolding here should clearly be taken into account of with as much seriousness and awareness as any Excel spreadsheet might do...

You're absolutely correct though in what you're saying, and where my opening post was trying to concentrate on the potential for squeezing the best 'peak output' out of any given 'human capital' situation *whilst still working*, it should also clearly not be forgotten that even when in a 'non-working phase' of life, such 'human capital' is still a really quite phenomenal resource, and with a fair wind, still 'available for use' if push comes to shove at any future post-work stage....

Thanks again for your great post - a sober reminder to us all that we need to lift our heads up from our spreadsheets and just get on with it sometimes, instead of trying to 'polish the cannonball' as they say....

Cheers,

Itsallaguess
Last edited by Itsallaguess on May 19th, 2021, 7:10 am, edited 2 times in total.

xeny
Lemon Slice
Posts: 450
Joined: April 13th, 2017, 11:37 am
Has thanked: 233 times
Been thanked: 154 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413124

Postby xeny » May 19th, 2021, 7:09 am

rhys wrote: Her main concern is that I'm setting a bad example for our children by not seen to be 'going out to work'!


I think this is worth being aware of. My father retired when I was 5 (FIRE clearly isn't a new concept), and it left me with a slightly strange perspective on the relationship between work and money (as dad didn't work and there was comfortably enough as I grew up), which I don't think did me any favours at University - I wasn't really engaged with job hunting for example, as it all seemed a little unreal, despite having had holiday jobs etc through 6th form and university.

Depending on their' age, I'd be tempted to at least discuss the matter with the children, perhaps look at some job adverts together, and talk about what kind of income gives what kind of lifestyle, so they understand the relationships between £ and challenge/stress/importance of a role.

Wuffle
Lemon Slice
Posts: 496
Joined: November 20th, 2016, 8:14 am
Been thanked: 213 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413140

Postby Wuffle » May 19th, 2021, 8:06 am

The children thing has other implications in this context.
If the extra year is a margin of safety then they are likely to end up with it aren't they.
So does that reframe the question of the extra year?
Are you in effect saying 'nope, you have had enough from me'.
I say this as a non parent. Through this lens it seems that the extra year is a no lose option.
I have got to try and hit precisely zero on my checkout!

W.

JohnB
Lemon Quarter
Posts: 2497
Joined: January 15th, 2017, 9:20 am
Has thanked: 677 times
Been thanked: 997 times

Re: FIRE and 'human-capital' XIRR returns - the 'One More Year' question....

#413153

Postby JohnB » May 19th, 2021, 9:00 am

Working purely for your children is an odd idea. On that basis you'd never retire, but your children might be keen you did. Or you could continue working forever and donate the money to Oxfam, and many, many children would benefit.

As regards the work ethic, my dad retired early when I was 11 (and mum went out to work for 6 months a year for a bit, but for pin money really), and while it didn't discourage me from getting a job, watching him potter happily round the house for 30 years convinced me that FIRE was a good idea, and I achieved it 8 years earlier still, mainly by not having children myself.


Return to “Retirement Investing (inc FIRE)”

Who is online

Users browsing this forum: No registered users and 12 guests