Friday, 2 August 2019

reFIRE and a 2019 Half 1 review

A few months after returning to my industry, albeit in a different role in the pursuit of meaningful work, I’ve left the company and am back to FIRE.  Soon after joining it became very obvious that while there were some pieces of meaningful work (where I define work as something you do for purpose) the vast majority of what I was going to be doing was just a job (which I define as something you do because you need the money) and right now I don’t need a job.  The excellent tool over at Engaging Data clearly shows that provided history rhymes my biggest risk now isn’t running out of money but running out of life.

Is the risk running out of money or running out of life
Click to enlarge, Is the risk running out of money or running out of life

Reflecting on this I think a few themes are emerging...

Firstly, some people can learn by brainstorming or thinking while some people learn by trystorming or doing.  I now see that I learn the best when I can do the second.  So going forwards I need to always find ways of experimenting before going all in.

Secondly, I deliberately went back to a similar role that I had done a number of years previously which at the time I felt was the highest level of meaningful work I had ever experienced.  Living it again enabled me to see that the role, my industry and my own needs had changed beyond recognition and at some point, much like the boiled frog, my meaningful work / career had actually predominantly become just a job with me just not noticing.

Reflecting on this change... I originally pursued FIRE as back in 2007 I saw some changes starting to occur that made me think my job at the time would eventually be outsourced to a low cost country.  Faced with no job I came up with the choices of FIRE or retrain into a new career.  I took on FIRE.  Looking now at what had forced many of the changes to my industry, making me also now incompatible, it was largely driven by what I initially saw.  That is globalisation requiring extreme cost reduction and reduced quality achieved by investment reduction, partly achieved by outsourcing, while at the same time ramping expectations far faster than answers could be found.  So while the changes occurring didn’t directly take my job directly by the time I FIREd they certainly helped reduce the level of meaningful work.

I have also changed a lot.  Having achieved financial independence I no longer need a job and having been FIRE’d for 6 months I also came back into the game with fresh eyes.  I guess it’s much like a battery chicken knows no different but if they were able to try free range life they would I expect look upon a return to the battery very differently.  My needs had clearly changed and I suspect even if the work had been unchanged it is still likely it wouldn’t have provided the same motivation levels that it once did.

My big learning in all this is for any readers out there who say I love my work and so I never intend to retire I’d now say great but it’s still worth pursuing financial independence as either that work or you might change in the future making it not so meaningful.

Thirdly, the ermine who is far more experienced at this early retirement lark than myself has in the past made a good point which I’m now buying into.  To paraphrase - only make one major change at a time and let that stabilise before doing another.  My first attempt at FIRE had me leave my job, leave my home and leave my country all within the space of a few days.  This time around I’m going to follow his good advice.  Instead of now figuring out how to now get closer to meaningful friends / family quickly I’m just going to enjoy what’s left of the British summer and be a ‘human being’ rather than a ‘human doing’ for a while.  After that it’s off to visit some meaningful friends and family to do some extended trystorming.

The past 9 months has seen a lot of change in the RIT family.  Let’s now look at how this has affected the personal finances.  The short answer is that between proliferate spending since FIRE, a short job experiment and Mr Market wealth is up £78,000 since I retired the first time to the end of June 2019.  Let’s look at the details since I closed out 2018.

SPEND SENSIBLY

Half 1 2019 spending has been crazy averaging £3,935 per month.  Not unsurprising when you move from Cyprus back to temporary accommodation transitioning to longer term rented accommodation in the South East of England.  You can see the overspend play out in the rental and miscellaneous categories in the chart below.

Looking forward I see this reducing greatly in the back half of 2019 to something like £2,400 per month which will still be higher than what I have planned to spend in FIRE which is more like £2,000 per month (£24,000 per annum).  There is no need to panic here though as I can see that this will be solved with a home purchase either in the UK or in one of two other locations.  This time around we think we’ll be looking for the location with the most meaningful friends and family as that’s now risen to one of our highest priorities.

RIT Spending
Click to enlarge, RIT Spending 

Spending Sensibly score: Fail.  Spending far higher than planned but I have been saved by the work experiment.  Net salary from that minus spending over plan results in a positive number so while it’s a fail no financial harm has actually been done.

INVEST WISELY

2019 (05 January 2019 to 06 July 2019) investment return closed at +10.3%.

Investment wise the portfolio continues to be positioned for FIRE drawdown.  Cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) for a non-mortgaged home purchase and to give me a few years of cash buffer as I enter FIRE now sit at £320,000 (was £342,000 at the end of 2018).  The difference is largely explained by a decision to fill my stocks and shares ISA for 2019/20 rather than draw the dividends from it.  Depending on where we finally purchase I may need to extract that as cash again.

Living off just the dividends remains important.  My drawdown plan was based on spending the lesser of a ‘safe’ withdrawal rate (SWR) of 2.5% or 85% of the dividends received.   2018 total dividends were £28,704 which drove the £24,000 annual spending plan.  In contrast the 2.5% SWR would have allowed £30,000.  Positively, dividends in 2019 are shaping up to be closer to £32,000 meaning under the dividend rule I can now be spending closer to £27,200.
 
RIT Annual Dividends
Click to enlarge, RIT Annual Dividends

For completeness this is what my asset allocation looks like today.

Current RIT Asset Allocations
Click to enlarge, Current RIT Asset Allocations

I continue to invest as tax efficiently as possible with my tax efficient holdings from a UK perspective now consisting of:
  • 44.5% (was 43.5% at end 2018) held within SIPP's
  • 8.1% (was 8.7% at end 2018) held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 16.9% (was 14.6% at end 2018) held within a Stocks and Shares ISA.  

Tax efficiency score: Pass.  At the end of 2017 this was 66.3% and at the end of 2018 was 66.8%.  Today it’s 69.6%.  If we stay in the UK I’d now expect this to gradually improve as I tax efficiently spend down non-tax efficient investments, continue to try to bed and ISA where possible before finally starting to spend down my ISA which will eventually lead to spending down my pension once that’s available.

Investment expenses also continue to be treated like the enemy.  2018 finished with expenses at 0.22% and today they are slightly lower at 0.21%.

Minimise expenses score: Pass.  A small reduction that has come about by reinvesting dividends in low expense investment products.  Additionally my pension expenses are now capped at £100 and £200 per annum respectively so any wealth growth dilutes this cost.  0.01% doesn’t sound like much but given my current wealth it now means £142 a year staying in my pocket.  I’ll take that.

In the scheme of a lifetime of investing this year is insignificant.  I’m all about time in the market and not timing the market so let’s zoom out and look at my performance since I started down this DIY road.  My long run nominal is 6.7% which is a real (using RPI) return of 3.9%.  The chart below tells the story.  Note that the chart assumes a starting sum of £10,000 which was not my portfolio balance at that time but is instead simply a nominal chosen sum to demonstrate performance.

RIT Portfolio Performance vs Benchmark vs Inflation
Click to enlarge, RIT Portfolio Performance vs Benchmark vs Inflation

Long term investment return score: Pass.  My whole investment strategy since 2007 has been about generating a long term annualised real return of 4%.  A real 3.9% is right on the money.  The big question now is will this sustain.  Some news recently doesn’t sound very bullish and that’s before I talk about Donald Trump and Boris Johnson.  Only time will tell.

RETIRE EARLY

Wealth as I write this sits at £1,425,000 which is up a little from the £1,304,000 when I first FIRE’d.  My complete journey is shown in the chart below which is now segmented to show my whipsawing in and out of FIRE.  From where I sit today I am so glad I did my One More Year(s) and didn’t go into a lean FIRE scenario requiring geographic arbitrage.  That extra buffer feels really good as I wrestle with purpose knowing we have enough wealth to experiment including living near one of three groups of meaningful friends and family as a next step.

RIT Progress Towards Retirement and In Retirement
Click to enlarge, RIT Progress Towards Retirement and In Retirement

Piecing everything together and we end up with the drawdown tracker below.  The spending explosion of quarter 4 2018 and quarter 1 2019 can be clearly seen but positively it only culminated in an annual drawdown of 3.2% of current wealth which is still less than the much talked about 4% Rule even after I consider my investment expenses.

RIT’s Drawdown Tracker
Click to enlarge, RIT’s Drawdown Tracker

My first 9 months of FIRE has been quite eventful, brutal and brilliant all at the same time.  I’m looking forward to what I learn over the rest of this year as I become more of a ‘human being’ while trying to experiment more.  That should lead us into a plan for 2020 as the year closes out.

As always please do your own research.

25 comments:

  1. It's hard to go back.

    Another option is to reduce your hours enough that you can pretty much only do the fun stuff. That is going to be my plan over the coming years. But given how much time you've spent in the workplace over the last decade, I think you deserve some extended R&R or Try & R.

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    1. I wish you well in the hours reduction quest. I like the Try & R concept. That defines what I'm about to do next well.

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  2. Life happens when you are busy making other plans. - John Lennon

    At least if you're rich you can go back and start over.

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    1. Funny you mention that quote which I think is a good one. I actually put it into the original post draft but then removed it while reviewing. I'm also still slowly updating my book for a 2nd edition and have it included there as I think it describes a lot about me in both a good and a not so good way.

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  3. Thanks for sharing this detailed post, RIT. It comes as no surprise that your short time away from work would have changed you, yet you didn't notice until when you went back to work.

    Your plan of leaving your job, home and country, although made for great reading, had me feeling stressed on your behalf so I'm glad to hear that you will be taking a leaf out of the ermine's book and will be taking things one step at a time! When it's my time to retire, I intend to take a very long time decompressing, which for some people will mean not doing a lot and just staying at home!

    It now appears that you're not deciding which country to live in but probably what county?

    I hope the RIT family are all ok and settled with the current changes.

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    1. Hi weenie

      We have 3 countries where we still might end up with the UK definitely in the mix.

      For now we're going to enjoy the UK summer not forcing anything and then will spend some quality time with friends and family. Watch this space after that. I wouldn't like to even guess where we'll end up but I know we will no longer be rushing it.

      Reading Borderer's comment, re-reading livingafi and now with my own experience I agree that a long decompression with limited changes sounds like a very good idea.

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  4. I think 'decompression' is the least understood (and discussed)topic in the FIRE blogosphere.

    Perhaps this is because it's different for each individual.

    If I may say so, RIT, you appeared to have done anything but 'decompress'. In my case it's been over 2 years since I RE'd and I'm still going through the process.Leaving job, home and country all at the same time may have been a step too far.

    My advice, for what it's worth, is buy a 2nd hand campervan, tour the country, sell it when you get back home, and relax.

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    1. I agree with you Borderer but as I mentioned to TA why is not much written on the topic... From my experience it is a massively important phase and I'm starting to think if not played right it could even derail FIRE, particularly if the person is going with a lean'ish FIRE with a high'ish WR. I'll probably bore readers to tears but (at the risk of embarrassing myself) I'm going to continue to share my journey warts and all for my own historical reference but maybe to also give a little flavour of what it's all about.

      I also agree with you that in hindsight I haven't embraced decompression at all. I tried to force it and it's backfired a little but no harm has been done to anybody. Time to reset and just enjoy the ride.

      Given you are 2 years into the journey would you be prepared to share what a typical day looks like for you at this point vs say 1 year into FIRE?

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    2. Mmm. After the initial euphoria of not ‘having’ to do anything, I found myself looking for some kind of routine – after so many years of living a structured life (up at 6, shower, shave, breakfast, out, commute etc etc) I felt at a loss.

      Perhaps fortuitously (it was‘forced’ on me due to personal circumstances) I reduced my working week some 7 months before finally retiring. I think that helped a little.

      So, I started to fill my day with those little jobs that I never seemed to find time to get around to when I was working. But eventually, I was bored.

      I stepped up going to the gym, read a lot more, but really had an almost aimless life, to the extent I actually rang around a few contacts to see if there was any short-term temporary work available to give me something to do.

      We considered buying an overseas property and even went through the horror of viewing over 50 Spanish properties in 1 week!

      Pretty lost, actually.

      But slowly and surely, probably after about 18 months, I began to embrace this new lifestyle. Up until then, it was all about ‘filling my day’. I came to realise that I didn’t need to.

      Now, I ‘fill’ my day by doing anything, or not doing anything, at all. Because of the type of personality, I am, I still feel more comfortable with some structure, but no longer feel quite so oppressed by the lack of it.

      This, for me, was the turning point.

      Ironically, I now am busier than ever, but without the time table. I like to go for a walk very early in the morning, but if it’s raining, I might go to the gym, or read a book, or even read Monevator or Retirement Investing Today :-)).

      I’ve taken up photography, play golf, and am taking an OU undergraduate course currently studying ‘Discovering the arts and humanities’ – I have 16 years to finish.

      And, of course, my beloved garden.

      We’ve just got back from a river cruise visiting Prague, Vienna and Budapest – fascinating.

      Many people talk about ‘discovering yourself’ in retirement. I feel it’s more about exploration, with no set goal, just a vista of possibilities.

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    3. Conversely, for me the need for 'decompression' is over-stated. FIREd over two years ago in my early forties, with no thoughts (yet!) of returning to work, nor angst about finding my 'purpose'.

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    4. @Scott

      I think you just illustrate that retirement is different for everyone. I envy you that you could take to retirement like a duck to water. I certainly couldn't.

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  5. Another quote that comes to mind: "Don't just do something, stand there!"

    Decompression is perhaps the process of finding out who we really are when work no longer tells you what to do. Going all in is always a risky move so I'm heartened that you're considering a life strategy that's as cautious as your financial strategy: "I’m just going to enjoy what’s left of the British summer and be a ‘human being’ rather than a ‘human doing’ for a while."



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    1. Loving the quote TA and I am very quickly beginning to agree with you on what decompression is all about. I know in the FIRE space not many people are actually at FIRE but I'm still surprised not much is written on the topic. The ermine has written on it and livingafi also shared some interesting experiences but that's about it.

      Everybody else who is post FIRE never even really mentions it which surprises me given how 'difficult' I'm finding it. Maybe I'm a bit weird/extreme but I suspect not. I'm wondering if it's because their version of FIRE was actually more about downshifting into paid work that they enjoy so they didn't get the what's my purpose hit. Instead they knew their purpose as they went into retirement.

      How much longer before you think you'll be at FIRE? I very much look forward to hearing about your experience.

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    2. Early Retirement Dude writes some unconventional stuff and of course Sex Health Money Death found adapting very difficult. More of these stories seem to be coming to light. I wonder if anyone is writing about decompression in the journal section of the ERE forums. I'd be very interested to know how livingafi is getting on. He knocked blogging on the head not long after FIRE, but I suspect he'd tell a textured story if only he'd come back for an encore.

      I should be ready to go in three years, four if I do OMY which I'm inclined to. I'm thinking intently about how to manage the transition. I don't think it'll be smooth, I'm likely to rollercoaster and it's been a long time since I had real freedom. Strong chance I'll be all over the show.

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  6. have you had any further progress wrestling with purpose other than meaningful relationships need to feature? Asking for a friend....or myself!

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    1. Hi Nick

      No and as you've probably seen from this post I'm also not going to try and force it either. Every time I try to force something in FIRE it falls apart so for now I'm just going to be. I very much like TA's quote above. That's exactly what I'm going to do.

      So what am I planning on filling my time with in the near term:
      - lots of exercise. The forest near me is absolutely beautiful right now including plenty of squirrels, rabbits and deer. I'm spending hours there and plan to spend plenty more. Already I'm noticing I'm seeing and interestingly hearing it in a very different light. I look forward to learning more.
      - family and friends including some travel.
      - the personal finance education idea I had a few weeks ago didn't gain much interest. What did get some interest is coaching and over the next couple of weeks some readers and myself are going to pursue that. I'm really looking forward to it.
      - I still want to update my book and dabble a little here and there. It's not a priority right now as I know the work on it has an end date rather than it becoming me in the long term.

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  7. Apologies if this has been asked before, but which ETFs are you using for your exposure (if any) to corporate bonds, gilts or index linked gilts? Thanks

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    1. My corporate bonds are ISXF and my index linked gilts are INXG. I don't have any gilts.

      Part of that bonds allocation includes my NS&I ILSC's which will be partly/fully sold down to buy the home.

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  8. @RIT - great post - thanks for sharing. I can empathise with a lot of this - especially the 'change one thing at once' dynamic.

    Random Q: why do you maintain such a high Aus allocation? Are you still retaining, consciously or unconsciously, the option of moving there? Or do you have an 'edge' in that market? Or something else?

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  9. Great update. Sounds like you've settled on a new plan. You portfolio is nice. Markets have been kind in 2019. I like your portfolio, nicely diversified. I put the totals through an amortisation calculator, and see what I can afford to spend. You can't take with you. I'd increase the spending, and risk it, but that's me.

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  10. I re-read. Good to see your post FI plan take shape. Noticed you spend ext to nothing on clothes! One more for your to do list :)

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  11. Hi RIT,

    Have been following your journey for a couple of years but have felt compelled to get involved recently to say a few things:

    1. Congratulations on doing it! It really is an incredible achievement and I have huge admiration for the way you have done it (partly because I doubt I could quite bring myself to do it the same way!). Was excited myself to see you do it - shame that you have had some negative reactions but that is down to their own fears/regrets/jealousy. Understandable in a way, and I would not take personally.

    2. Really glad you're back posting. Don't underestimate how interesting this part of the journey is to us too. I am unfortunately too far away from your stage to imagine what it must be like, let alone grapple with the day to day realities. So very curious to see how it is for you!

    3. Might be misjudging tone here a little bit, but I feel like there is an air of disappointment/negativity in some of your recent posts and in the comments. I really think you should go easy on yourself - as it seems you will this August. Of course, it would have been great if Cyprus was paradise and it would have been well earned. The fact it didn't go to plan is unfortunate but in no way a failure. I would almost ban the word from anything you try now. When I justify FIRE to myself and others, I often say it would allow me to try things out, live in different ways and actually just think about things - things I can't do at the moment because the best hours of my day are sold to the highest(ish) bidder. I think getting to ask these questions, brainstorm/trystorm, etc - is part of the reward for all your hard work. I hope you get to enjoy that process and find some answers(though I never believe in any perfect solution). I do think you will need to give yourself a bit of a break as part of that though.

    4. On the subject of enjoying the process/fruits of your labour, I think there is some good advice in the comments here. I reckon time reading/thinking about it (as you are doing - I love the japanese venn diagram thing) is well spent. This post is long enough so I won't bore you with my suggestions in detail, but I would say exercise, making things, learning things, giving back - and often with other people - can give a lot of joy. But I think you are going to become much wiser on this than me, and look forward to finding out what you discover!

    With best wishes and thanks for posting all of these years

    Freedom FIREter

    (Rubbish name but first post, so bear with me)

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    1. Nice put. The comments here are good quality and as inspiring like the blog itself.

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    2. Great comment. Especially the idea that noodling around with different life plans is the reward.

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  12. Decompression is a thing, particularly for people who leave the workforce. FWIW it took me clearly two years, but there's an argument it's taken me 4, 6, even now perhaps I haven't completed the process. I worked for 30 years, to expect to unwrite that quickly is perhaps optimistic ;)

    TBH your schedule, there was one post you had in what your working day looked like and doing anything other than that was going to be a hell of a challenge.

    Although I can't find the reference, I think it was Sun Tzu in the Art of War who said give battle on the fewest fronts possible. Can't fault your ambition, but finding a new use for your 24hrs a day, moving home and some of the other things you changed was going to be a tough ask.

    Interesting dichotomy you cite between work and job. Perhaps I became a cynical old devil in the latter reaches of my career, but things moved much more towards job from work. Too many pen pushers and bean counters. I am glad I am shot of all that game.

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