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Retirement Investing Today

Including Financial Independence and Retiring Early (FIRE)
tramrider
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Re: Retirement Investing Today

#786

Postby tramrider » November 5th, 2016, 2:37 pm

TheRIT wrote:For full clarity the 2.5% spending plan has not actually been arrived at by looking at dividend yield. Psychologically I've just wanted to spend dividends only if possible. It's been arrived at by looking at historic total return sequence of returns. You may have heard of the 4% rule? My research suggests that is far to aggressive in my instance and I've actually gone for a 2.5% rule.


Hi, RIT,
I can fully understand your caution in the 2.5% spending plan, especially in your first couple of years of having to depend on it, to see how it works out in practice.

My SIPP pension pot is a minnow compared with yours, topping up a good final salary scheme and the state pension, so I am not too dependent on it. I am drawing about 4% from it as it is currently delivering over 6%, so I also prefer a good safety margin as you have. It is based about 3/4 on HYP shares and about 1/4 on HY ITs such as HFEL Henderson Far East Income with a forecast yield of 5.7%, which is the type of IT that might add a bit more yield for you.

Anyway, I hope your last few months of working go well and are enjoyable.

Tramrider

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Re: Retirement Investing Today

#793

Postby fireblade909 » November 5th, 2016, 2:55 pm

TheRIT wrote:
fireblade909 wrote:Nice post RIT, it makes my objectives sound even more achievable!

Can you elaborate on what you mean by your last bullet point?

Hi fireblade909

Sure, happy to elaborate as the psychological pieces are just as, if not more, important than the financial ones:
- Start. If I look back at my original plan just about every assumption I made was wrong however I still achieved the goal. So don't get analysis paralysis. Instead do some reading, do some thinking and make a start. Then with time you'll learn and get better at every element.
- Determination. This is about staying at it which sounds easy but at times in can be a pretty boring and lonely existence. Chucking large sums of money every month into index trackers month in month out for many years is not the most exciting of investing strategies. Also if I look at my friends and family I am very different. While they were ramping their standard of living with new homes, cars, general things and nice holidays I was buying trackers and figuring out how to shave 0.1% of my expenses. Every time I tried to start a discussion about personal finance or similar eyes quickly glazed over. I've lost friends over it although you could argue they weren't true friends in the first instance. That can be lonely at times and is why boards like this (and maybe even my blog) help so much as you know others are out there meaning you're not mad.
- AND. It's not about just one thing but about doing them all. Just being the best investor, unless you are very very good, won't get you to early retirement quickly. You need to earn more AND spend less AND not give it all away in expenses AND not give it all away in taxes AND ...
- Victim. This is the person who blames others or other things as an excuse for not doing something or for something not working. I can't invest now because the market is too high. I've never learnt how to buy shares so can't invest. I can't earn more money. You have to set a plan then start figuring it out and as soon as you play victim you lose.

The above might sound negative but if given my time again I would do exactly the same thing again. It really has been truly liberating.

Would you be prepared to share your objectives?



Hi RIT

Your response doesn't come across as negative to me, and I share your reluctance to discuss your hobby with disinterested peers with expensive lifestyles. Interesting to read your comments above that an investing life could make for a boring and lonely lifestyle. I don't disagree, but I must genuinely be enjoying doing all the reading and researching as I gladly choose to do that rather than go out.... hmmm not sure that's a good sign actually! I enjoyed reading your reply post above and wandered over to your blog of which I was unaware until today. reading about your quest for FIRE is intriguing to say the least, particularly as I have set off on a similar path 5 or 6 years ago, albeit with some expensive leisure purchases along the way. My objective is FIRE by 50 even though I have much to learn before my wealth building machine is as well oiled as yours

Greetings from Malta :)

TheRIT
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Re: Retirement Investing Today

#796

Postby TheRIT » November 5th, 2016, 3:00 pm

tramrider wrote:Hi, RIT,
I can fully understand your caution in the 2.5% spending plan, especially in your first couple of years of having to depend on it, to see how it works out in practice.

My SIPP pension pot is a minnow compared with yours, topping up a good final salary scheme and the state pension, so I am not too dependent on it. I am drawing about 4% from it as it is currently delivering over 6%, so I also prefer a good safety margin as you have. It is based about 3/4 on HYP shares and about 1/4 on HY ITs such as HFEL Henderson Far East Income with a forecast yield of 5.7%, which is the type of IT that might add a bit more yield for you.

Anyway, I hope your last few months of working go well and are enjoyable.

Tramrider

Just looking at this area of private pensions it nicely demonstrates why we are working towards different drawdown rates. I have no backstop in the form of a DB pension scheme, believe the state pension will be pushed out further for my age group, also believe it will end up means tested and am not in line for any sort of inheritance. That means I just have to be more cautious than your good self. I don't think?? that's me being risk averse but is more just what it is. I have more eggs in the one basket.

As you mention sequence of returns is also going to be critical in the first 5-10 years and I do want to give myself a very high chance of success given I could be FIRE'd for 40 years.

TheRIT
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Re: Retirement Investing Today

#802

Postby TheRIT » November 5th, 2016, 3:08 pm

fireblade909 wrote:Hi RIT

Your response doesn't come across as negative to me, and I share your reluctance to discuss your hobby with disinterested peers with expensive lifestyles. Interesting to read your comments above that an investing life could make for a boring and lonely lifestyle. I don't disagree, but I must genuinely be enjoying doing all the reading and researching as I gladly choose to do that rather than go out.... hmmm not sure that's a good sign actually! I enjoyed reading your reply post above and wandered over to your blog of which I was unaware until today. reading about your quest for FIRE is intriguing to say the least, particularly as I have set off on a similar path 5 or 6 years ago, albeit with some expensive leisure purchases along the way. My objective is FIRE by 50 even though I have much to learn before my wealth building machine is as well oiled as yours

Greetings from Malta :)


You've dropped enough in there to really intrigue me. If you've been to my blog you'll probably know that we're looking to FIRE to The Med and one of the countries still in the mix is Malta. Have you been there long and I know it's going a bit of topic but I would love to hear your thoughts on the island? Over the years we've been through all seasons so know about the damp etc but its still on our shortlist albeit with Cyprus currently out in front. We've also been thinking of moving in to a House of Character. You don't happen to live in one by chance?

If you're 5 or 6 years in it sounds like you're well on your way. Do you have a view on how many more years you have to run?

It's genuinely great that there's a few like minded souls already on lemonfool.

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Re: Retirement Investing Today

#830

Postby genou » November 5th, 2016, 4:20 pm

TheRIT wrote:
ap8889 wrote:I was never fortunate enough to have a Defined Benefit Pension but I understand why you don't want to surrender it. In the modern world their akin to winning the lottery.
.


You might be surprised in a QE world. I transferred out of a DB pension. I can generate higher returns on the capital value ( high because gilts are so low yielding ) and I will be able to leave the residual value to my offspring. It is worth doing the arithmetic if you near going and in possession of a DB pension.

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Re: Retirement Investing Today

#839

Postby pbarne » November 5th, 2016, 4:34 pm

What do your saving vs investing percentages look like?

Well I've only been recording this since the start of the 15/16 financial year - and for that year my "investment" part was negative! So far this year it's a turnaround with 60:40 in favour of investments.

would you (or anybody) be prepared to say why you don't comment on the blog itself?

I'm not a very prolific poster (more of a lurker usually) - I think I just about got to 1 star in 16+ years on the old Fool! So there's no particular reason for lack of comments from me - maybe I should be less lazy!

Cheers,
P

TheRIT
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Re: Retirement Investing Today

#842

Postby TheRIT » November 5th, 2016, 4:44 pm

pbarne wrote:What do your saving vs investing percentages look like?

Well I've only been recording this since the start of the 15/16 financial year - and for that year my "investment" part was negative! So far this year it's a turnaround with 60:40 in favour of investments.

Given the generally stonking year to date we've seen for UK based investors, mainly due to £ devaluation, it's not surprising investment return is out in front. As a pseudo comparison calendar year to date I'm seeing investment return at 56% vs saving at 44%. It will be interesting to see how your mix plays out.

pbarne wrote:would you (or anybody) be prepared to say why you don't comment on the blog itself?

I'm not a very prolific poster (more of a lurker usually) - I think I just about got to 1 star in 16+ years on the old Fool! So there's no particular reason for lack of comments from me - maybe I should be less lazy!

Cheers,
P

Fair enough. There's plenty of places that I lurk also although it's starting to look like lemonfool is not going to be one of them.

Dod1010
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Re: Retirement Investing Today

#895

Postby Dod1010 » November 5th, 2016, 8:36 pm

I am having difficulty posting. I do not know why.

I think that RIT has got most of the issues covered and I want to say to him that if there were only more like him the UK economy would be a better place.

I cannot presume to comment on the current employment situation in the UK but it is rather sad that one needs to think like RIT nowadays.

The biggest risk you have (we retirees have) is inflation. That is my biggest worry and has been since I stopped working nearly 20 years ago. It has been very benign for the last few years but even 4/5% inflation is not good news for someone on a more or less fixed income or at least an income that you cannot do a lot about.

I live on around 4% of my assets and of course have a substantial cash reserve ( in my case probably too much at around 4 years of my expenses) Without drawing on these reserves though I came through the financial crisis of 2008/9 quite comfortably. I could easily draw in my expenditure if I needed to but I like decent hotels and being able to buy books and go to concerts etc as I feel like.

I wish RIT well and would think that provided he remains current, and so able to get a job if he needs to (or would like to ) he will be well set up for a contented future. I wish him well.

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Re: Retirement Investing Today

#1026

Postby TheRIT » November 6th, 2016, 10:28 am

Dod1010 wrote:I am having difficulty posting. I do not know why.

I think that RIT has got most of the issues covered and I want to say to him that if there were only more like him the UK economy would be a better place.

I cannot presume to comment on the current employment situation in the UK but it is rather sad that one needs to think like RIT nowadays.

The biggest risk you have (we retirees have) is inflation. That is my biggest worry and has been since I stopped working nearly 20 years ago. It has been very benign for the last few years but even 4/5% inflation is not good news for someone on a more or less fixed income or at least an income that you cannot do a lot about.

I live on around 4% of my assets and of course have a substantial cash reserve ( in my case probably too much at around 4 years of my expenses) Without drawing on these reserves though I came through the financial crisis of 2008/9 quite comfortably. I could easily draw in my expenditure if I needed to but I like decent hotels and being able to buy books and go to concerts etc as I feel like.

I wish RIT well and would think that provided he remains current, and so able to get a job if he needs to (or would like to ) he will be well set up for a contented future. I wish him well.

Many thanks for your kind words Dod. It's also encouraging that you came through the GFC on a 4% drawdown and without drawing on your cash reserves. Would you be able to explain how you did that as my plan during the downturns is to actually spend dividends (assume they get cut and don't meet my spending needs in severe bear markets) + cash reserves which then get re-topped up during the bull markets.

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Re: Retirement Investing Today

#1028

Postby TheRIT » November 6th, 2016, 10:35 am

ap8889 wrote:It is amazing how FIRE is viewed with some hostility when brought up in conversation in the real world.

People get quite threatened with the idea, it's almost as if they are wasting their life working for the Man, know it deep down, but have psychologically blocked out the issue.

Quite fascinating.

I thank my lucky stars that I have meaningful work, but for those performing paper shuffling in cubes, seeing a coworker FIRE must rankle.


Interesting that you have also seen 'hostility'. Please see my comments in the FIRE thread on this one.

On the topic of 'seeing a coworker FIRE must rankle'. I'm now not far off resigning and am yet to decide how I'm going to do it for this reason. One option is to just be transparent and say I'm retiring early. Given what I've seen with friends and family when I've just dipped my toe into the FIRE water discussion I'm not confident that will go well. I'm therefore just considering saying I'm going to live off investments for a while and will see what comes out of that break which is both true (a while could be forever or I might indeed work again in some form) and maybe more palatable. The negative to this is that by doing that somebody may miss out on hearing that retire at <insert State Retirement Age here> is not the only way.

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Re: Retirement Investing Today

#1047

Postby Dod1010 » November 6th, 2016, 11:28 am

RIT
I made at least one good strategic call which was to sell most of my bank shares in January 2008 and I bought or reinforced my holdings in other defensive shares. That saved me a lot of heartache. I then pulled in my spending quite a lot. I recall that it was quite worrying for some time seeing capital values drop. I was/am however a devotee of the concept of a High Yield Portfolio and that pushes an investor towards defensive shares anyway.

But I just held my nerve and got on with it.

As far as investments are concerned I do not try to time the market but I do think you need to keep abreast with what is going on and be prepared to take action. No-one will get every move correct but I do think that as you gain experience you will get more right than wrong.

Good luck to you anyway.

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Re: Retirement Investing Today

#1065

Postby TheRIT » November 6th, 2016, 12:02 pm

Dod1010 wrote:RIT
I made at least one good strategic call which was to sell most of my bank shares in January 2008 and I bought or reinforced my holdings in other defensive shares. That saved me a lot of heartache. I then pulled in my spending quite a lot. I recall that it was quite worrying for some time seeing capital values drop. I was/am however a devotee of the concept of a High Yield Portfolio and that pushes an investor towards defensive shares anyway.

But I just held my nerve and got on with it.

As far as investments are concerned I do not try to time the market but I do think you need to keep abreast with what is going on and be prepared to take action. No-one will get every move correct but I do think that as you gain experience you will get more right than wrong.

Good luck to you anyway.

Thanks for coming back on the question Dod.

In my own situation I won't get the strategic call but I will have the option of pulling in spending pretty severely as discretionary spend is about 30% of my planned budget before I start deferring things like home maintenance/car replacement. I'm also well familiar with your HYP leanings and while I've diverted somewhat from the HYP path I still do have some although probably no longer sufficient to offer any sort of protection. I am however fully prepared to spend down cash reserves and back testing shows that 3 years should be enough, given my planned spending % to divi yield %, provided it doesn't get any worse than it's been previously.

And good luck to you as well good sir.

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Re: Retirement Investing Today

#1073

Postby TheRIT » November 6th, 2016, 12:24 pm

1nv35t wrote:Hi RIT.

Found your web pages via your signature ... interesting and thanks for sharing. I've only very briefly browsed your web pages so far but have every intent to return.

I was in a similar position to you more than a decade and a half ago. Since having 'retired' (in my early 40's) I've transitioned from a more diverse (complex) original set of assets (similar to yours), to a more focused/simplified variant. The original move was quite frightening, but with time such fears faded and frugality (but not excessively so, more a case of being careful with money rather than frivolous) has helped endure capital expansion rather than contraction. Original copious amounts of free time has however moved the complete opposite (when commonly known you have 'free time' its amazing how much of that gets eaten up by others requiring your services/time).

You put property as being midway between stock and bonds. For me property and stocks compare. Count share price only appreciation alongside house price appreciation, and then add in dividends and imputed rent benefit ... and broadly they're comparable (broadly they correlate as well). I count both equally as 'equities'. For me, owning a home avoids having to pay rent to someone else. I could sell, invest the proceeds in stocks and perhaps the dividends might cover the rent, whilst share price appreciation might compare to house price appreciation. Owning however is less risky (liability matched), easier to ride through bad times (all rent in effect paid in advance).

Bonds are good when on a gold standard (convertible), but when off the gold standard bonds are riskier. A 50/50 stock/gold barbell (extremes) centralises towards a bond bullet (but the stock/gold barbell is more volatile over interim periods - which is meaningless (paper figure only) unless you are forced to sell)).

Looking at your (tip, try triple clicking to highlight, and the right click and select open in new tab)

https://2.bp.blogspot.com/-K0YQbZcoCJ0/V2V9ieXhaBI/AAAAAAAADLg/xggVwIPh96odB7ihRc1J17H0Jb7HuHZOwCK4B/s320/160618-5.png

image, I see a general form of 65/35 type equity/bond type allocation with the 65 equity being comprised of property, UK/Aus, EM and International; And the 35 being comprised of cash, bond and gold. If the 35 was more gold heavy than that could mentally be combined (as a barbell) with a equal amount of equity to form a bond bullet combination.

https://www.portfoliovisualizer.com/backtest-asset-class-allocation?s=y&mode=2&startYear=1972&endYear=2015&initialAmount=10000&annualOperation=0&annualAdjustment=0&inflationAdjusted=true&annualPercentage=0.0&rebalanceType=1&portfolio1=Custom&portfolio2=Custom&portfolio3=Custom&TotalStockMarket3=100&LongTermBond1=34&TwoYearTBills1=33&Gold1=33&Gold2=100

Another factor is costs ... which include taxes. If interest rates/inflation are up into double digits, and taxes up to perhaps 33% type basic rate, then costs can be excessive. Tax risk tends to automatically increase at the worst possible time and can compound to significant amounts. In the present day low interest rate/taxation environment that risk can easily be glossed over, however over 30+ years of investment horizon sooner or later that risk could easily become more evident. And you don't want to be stuck with having to (enforced due to ongoing cost) make adjustments (sell/buy) to reduce such costs at the worst possible time (more highly taxed capital gains applied in having to swap assets around).

Personally I'm content to have minimised ongoing taxation (dividends/interest) and instead take income via DIY control of top slicing out of total gain as and when I determine. Something like a three way own home, gold, US stocks ancient Talmud style (third each in land, merchandise, reserves) combination that generates very low levels of ongoing (potentially taxable) income streams. As a interesting exercise add gross rental yields to the house price index figures you already have on your web site and combine that with say BRK-A as a no-dividend US stock index type proxy, along with gold ... and run your own assessment/measure of such a Talmud type asset allocation. I suspect you may be surprised.

Many thanks for a thought provoking post. Far too much in there to respond to all immediately but plenty for lots of DYOR and hopefully thoughtful debate/discussion going forwards. Some initial thoughts that immediately come to mind though.

On the topic of property being mid-way between equities and bonds I believe I took that concept from some work by Tim Hale in Smarter Investing. I will revisit though.

I hear you on the capital appreciation front. All of my backtesting is always based on worst case historic sequences. I actually did some backtesting in August of this year (which I freely published for scrutiny/debate/derision) which showed that if history repeated and I didn't alter spending then in 40 years in real terms average wealth could be 2.9 times what I have today with the median, which is probably the more sensible to use, at 2.2 times. Positively (and not surprisingly given I always look worst case) at no time did I deplete my capital.

Regarding personal property. I'm currently renting but will buy very soon after FIRE'ing (6-12 months). From a financial perspective (there are lots of personal reasons to do it) the way I think about it is that if living off capital we are very exposed to sequence of returns risk particularly in the early years. If I keep the capital and stay renting then that is also exposed to sequence of returns risk where if I buy it isn't. So in a way I see home ownership as a risk reduction measure in FIRE.

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Re: Retirement Investing Today

#1099

Postby Kantwebefriends » November 6th, 2016, 1:10 pm

"I focused on living well below my means".

Ah, but do you mean 'I focused on living far below my means' or 'I focused on living well, below my means'. I think we should be told. :)

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Re: Retirement Investing Today

#1106

Postby Kantwebefriends » November 6th, 2016, 1:17 pm

genou wrote:
I transferred out of a DB pension. I ... will be able to leave the residual value to my offspring.



If you are early-retired you must be guessing at what IHT law will be many decades from now. You may win on such a gamble, or rather your heirs may, but it does seem risky to me to put your heirs' potential inheritance above your own provision for retirement.

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Re: Retirement Investing Today

#1114

Postby Minerva » November 6th, 2016, 1:25 pm

Hi RIT,

I had not come across you, your blog or even for that matter the acronym FIRE until today, but have read your posts with interest.

My own circumstances are different as being about 15 years older I graduated in the late seventies into a depressed UK of miner's strikes, political upheaval and inflation, so went abroad to live and work. Like you, it was in my early thirties that I had an epiphany when chatting to a US banker over a drink she introduced me to what she called FUM, not funds under management but FU money. What one needed to be able to do what one wanted and be prepared with an answer for anyone who thought otherwise. FIRE by another name perhaps? Certainly my subsequent conclusion was that it was around 40 times what was a comfortable level of income/expenditure.

Over the next nine years, I moved back to the UK and worked in the City, saving what we did not need to spend and investing in a range of assets. After seven years in the City I had reached (and passed) my FUM point and had enough of the macho culture and greed, so left my job, cashing in my DB pensions and switching to SIPP. Then went to live in Spain and have some fun.

I write this to you as my situation then is where you find yourself close to now and perhaps my experience since then may serve in some way.

I would say there are three things I failed to anticipate that changed things.

Firstly at 41 when I left the City I was a very different person than I am now, leading to a very different concept of what is important that inevitably impacts expenditure (in my case a positive as it is way lower but could have been the reverse).

Secondly a painful and expensive divorce more than offset any contingencies I had built into my calculations.

Thirdly living off income is fine but finding a new raison d'etre was actually really important. I have been lucky in that I found that by buying into small growth companies, acting as chairman and guiding young managers through the minefield of growth and internationalisation has provided some useful income and more importantly a sense of achievement that had been missing since leaving "work". Fortunately it has also meant a significant increase in my Funds Under Management.

Good luck as exciting times appear to lie ahead

TheRIT
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Re: Retirement Investing Today

#1141

Postby TheRIT » November 6th, 2016, 2:16 pm

Kantwebefriends wrote:"I focused on living well below my means".

Ah, but do you mean 'I focused on living far below my means' or 'I focused on living well, below my means'. I think we should be told. :)

I'd say both with I think one being a subset of the other. Let me give a trivial but simple example. We love to hike/walk/stroll/meander during the fairer months which will often culminate in a picnic for lunch. We do this as we know what we are eating, it offers convenience as we are ready to eat wherever we are at the time and we also are able to prepare what we like. This is living well for the reasons I gave and also living below our means as we could so easily eat at a local restaurant. We are also living far below our means as that restaurant could also easily be a Michelin starred restaurant.

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Re: Retirement Investing Today

#1153

Postby TheRIT » November 6th, 2016, 2:31 pm

Minerva wrote:Hi RIT,

I had not come across you, your blog or even for that matter the acronym FIRE until today, but have read your posts with interest.

My own circumstances are different as being about 15 years older I graduated in the late seventies into a depressed UK of miner's strikes, political upheaval and inflation, so went abroad to live and work. Like you, it was in my early thirties that I had an epiphany when chatting to a US banker over a drink she introduced me to what she called FUM, not funds under management but FU money. What one needed to be able to do what one wanted and be prepared with an answer for anyone who thought otherwise. FIRE by another name perhaps? Certainly my subsequent conclusion was that it was around 40 times what was a comfortable level of income/expenditure.

Over the next nine years, I moved back to the UK and worked in the City, saving what we did not need to spend and investing in a range of assets. After seven years in the City I had reached (and passed) my FUM point and had enough of the macho culture and greed, so left my job, cashing in my DB pensions and switching to SIPP. Then went to live in Spain and have some fun.

I write this to you as my situation then is where you find yourself close to now and perhaps my experience since then may serve in some way.

I would say there are three things I failed to anticipate that changed things.

Firstly at 41 when I left the City I was a very different person than I am now, leading to a very different concept of what is important that inevitably impacts expenditure (in my case a positive as it is way lower but could have been the reverse).

Secondly a painful and expensive divorce more than offset any contingencies I had built into my calculations.

Thirdly living off income is fine but finding a new raison d'etre was actually really important. I have been lucky in that I found that by buying into small growth companies, acting as chairman and guiding young managers through the minefield of growth and internationalisation has provided some useful income and more importantly a sense of achievement that had been missing since leaving "work". Fortunately it has also meant a significant increase in my Funds Under Management.

Good luck as exciting times appear to lie ahead

Thank you for a very valued perspective.

On your 1st point this is of course a risk. I've written previously that I no longer know if my natural behaviour is really me or if its been shaped by my work environment. My first FIRE plan is to decompress for 6-12 months and make no major changes other than a move to The Med (where we'll rent just in case) plus get significant bicycle miles/ocean swims in. Only then will we decide the next move. Most of the reading I've done suggests most people actually end up spending less in FIRE but there is a risk my true call is sports car racing. It's positive that you also affirm spending less than planned.

Your 2nd point is of course a risk given current UK/global statistics. Right now we're very happy but I'm also not naive. The million pound question is then do you plan for it (which ads further risk that it becomes a self fulfilling proficiency) or do you take some risk. What I do know is that my spending profile if I was single is far less than that of my better half but I'm not sure that helps much.

To your 3rd point I don't currently know what that is. Once decompression is over I'm hoping I however can find it. If I don't and realise that what I am currently doing is actually my raison d'etre then providing I don't leave it more than a year or so I'm sure I could return. The difference would be that at least then I know which is very important plus I'd certainly be able to speak pretty freely which as a FI I'm already finding liberating and beneficial.

genou
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Re: Retirement Investing Today

#1157

Postby genou » November 6th, 2016, 2:37 pm

Kantwebefriends wrote:
genou wrote:
I transferred out of a DB pension. I ... will be able to leave the residual value to my offspring.



If you are early-retired you must be guessing at what IHT law will be many decades from now. You may win on such a gamble, or rather your heirs may, but it does seem risky to me to put your heirs' potential inheritance above your own provision for retirement.


As to guessing about IHT, that's true; but it's likely leave more than nothing, which is what the DB pension would do.

I'm not putting them ahead of me - you've edited out the fact that I am generating more income for me than the DB would provide. I repeat, current interest rates mean that DB CETV's are potentially more valuable than the pension, if you are someone who is willing to accept a degree of risk for the reward available.

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Re: Retirement Investing Today

#1203

Postby TheRIT » November 6th, 2016, 3:51 pm

1nv35t wrote:...

Since 1981 the Talmud as I've outlined provided a 8% annualised real total return, excluding imputed rent benefit. Rental yields averaged more than 4.5% during those years, so with a third exposure to that you're looking at least a additional 1.5% on top of that 8% if imputed rent were considered. 9.5% to 10% real total type benefit. That is however somewhat of a distortion aided by the transition from very high inflation/interest rates down to very low inflation/interest rates over those years. 5% or 6% real is perhaps a better figure to assume IMO. Which subject to personal circumstances, can be very tax efficient (imputed rent isn't taxed nor are there capital gains tax on your primary home). Gold legal tender coins are VAT and CGT exempt. BRK pays no dividends so no withholding taxes and if held until death avoids CGT (step up). One risk factor however is that if you hold more than around $60K US assets then you (or rather heirs) are expected to file a US estate tax form. The UK/US tax treaty is such that we have the same allowance as US individuals i.e. around $5 million below which you're 0% rated. Whilst the financial risk is low (unless you're very wealthy), there is the risk of complexity in having to file such notice.


Most interesting.

Thinking aloud if you add a few years cash to ride out the downturns isn't the Talmud heading towards a Permanent Portfolio? Although one of those (albeit for a US investor) has only produced a real 3.5% or so return since 1972 (https://portfoliocharts.com/2016/07/25/thinking-beyond-stocks-can-fortify-your-accumulation-plan/) albeit with some of the best volatility compared to other portfolios.

One thing I'm a little wary of is that you're referring to the period since 1981 for those stonking returns. I'm conscious that in backtesting drawdown simulations looking for bad sequence of returns, where the early years are critical, you don't focus on starting periods post 1981. Instead, again US based (http://www.cfiresim.com/) you're looking at some years in the 1960's, then some in the 1970's, then some in the 1900's, then some in the 1910's and then your into the 30's. Do you have any long run references? Conscious BRK wasn't probably around but maybe large cap US equities could be a proxy.


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