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.

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.

Sobering retirement income drawdown demonstrations – 12.5 years in

Another year has passed for our UK early retiree.  A year ago I wrote that in the worlds biggest economy, the United States, Donald Trump was starting trade wars and the S&P500 cyclically adjusted price earnings (CAPE) ratio was sitting at 32.0 against a long run average of 16.9.  A year on it’s almost déjà vu with the trade war with China still rumbling along and the S&P500 still on a high 30.4.  Closer to home I wrote that we had a Brexit shambles playing out in slow motion that might just ruin the economy for a long time.  A year on and the whole Brexit situation has moved on to become a joke with politicians continuing to promise unicorns while the FTSE100 has fallen 2.8% in nominal terms.  Of course dividends continued to be paid which will have dampened that fall.

Against this environment it’s unlikely a UK early retiree who has opted for a higher withdrawal rate will be dancing for joy but let’s take a look.

This update of the drawdown demonstrations now has our retiree some 12.5 years in to retirement.  It assumes our retiree is not one of the lucky ones sitting on a defined benefit pension (although it’s likely they’d need some other income source in the early years if they’re going to FIRE), isn’t intending to buy an annuity (again, not likely for the early years of FIRE) and isn’t planning on living off the State Pension (although 12.5 years in to retirement our UK retiree might just be starting to get to an age where there might be some predictability in what they might receive here so they might want to start baking a portion into their models).

We are now fast approaching the half way mark that the 4% rule is based upon and this simulation assumes retirement was taken on the 31 December 2006.  If this date sounds convenient then you’re right.  The date was deliberately chosen as it is the year prior to the commencement of the global financial crisis and so hopefully represents a modern worst case.  Someday it may even go down in history as one of the time periods which saw a poor sequence of returns however of course that will only become clear when we are firmly looking in the rear view mirror many years hence.

PF101

Personal Finance is a major hobby of mine.  I’ve now been absorbing everything I can about saving, investing and financial independence since late 2007.  In November this year I will have also been blogging about it for 10 years!  When I go on holidays I’m also the one reading Wall Street Revalued  and not that latest John Grisham novel

In my last post I mentioned the Ikigai model and if I apply that to personal finance I get the following...

Click to enlarge, Source

What you LOVE:

• Sad I know, but I never have to force myself to read a personal finance book, read the latest post from great blogs like Monevator or fire up Excel on my steam driven laptop.  In fact it’s the opposite for me.  I gravitate to this stuff so yes I’d say I love it.
• If I think about my previous (and even current to some extent) work/job I also used to love enabling others with training, coaching, process improvement and then with light touch sitting back watching them succeed.  I always took little satisfaction out of my own success but I took a huge amount of satisfaction out of watching my team succeed over and over.  I think this is why I’ve also stayed blogging for so long.

What you are GOOD AT:

• I am reasonably good at maths and now have more than 10 years of personal finance knowledge under my belt.  Sure, I’ve made mistakes and I’m sure will continue to do so but on the whole I think I’ve managed to get more things right than wrong.  I don’t think I would have achieved financial independence in 8.7 years if that wasn’t the case.  So yes, I’d say I’m good at it.
• In my previous day job I was also pretty good at teaching and developing others to succeed.  In some of my later roles it would have been impossible for me to do my job well if that wasn’t the case.
• While not being a fantastic motivational speaker I am pretty confident in smaller training / workshop environments where on many occasions I’ve been successful in getting the message across.

Back to powerful FI

6 months after taking the FIRE (financially independent retired early) leap I can confirm that (for now) I’ve reverted back to FI (financially independent) mode.  That’s right, we’ve left Cyprus, are back in the UK and I’m working and/or have a job.  More on that in a minute.

It’s been a long time between posts and a lot has happened so to try and get the story out in a succinct manner I’ll post some questions to myself.  I’ll then likely follow up with more detail in subsequent posts if people are interested.  So here goes...

Did Cyprus not agree with you and Mrs RIT?

We didn’t leave Cyprus because of Cyprus.  In fact quite the opposite.  Cyprus was absolutely brilliant and we saw it at its worst as we were there during one of the wettest / coldest winters on record.

There was so much relatively unspoilt nature with the picture above hopefully being a nice example of linking human occupation with nature.  Just around the corner from there is where turtles actually nest.  It was a walkers / hikers / cyclists paradise.  So much so that I managed to lose 10kg in relatively quick time.

The people and the way of doing things were also incredible.  On various forums I’d heard the term for Cyprus being siga siga which means slowly slowly.  I didn’t find that at all.  What I found was that things were done differently but in a good way.  For example to buy car insurance I went to the insurance company and sat across from the person who was going to sell it to me.  Over a good coffee and with no pressure the forms were duly completed and a quote was generated.  Hands were shaken, the forms were signed and I was done.  All over in about 30 minutes.  Give me that over automated menus that can’t understand me and a call centre if I press the right buttons correctly any day.

Managing Retirement Drawdown

As a 46 year old now in Early Retirement it seems worthwhile to now share more detail on how I have as tax efficiently as possible tried to build my wealth so that I run out of life before I run out of wealth.  For some time now at a high level I’ve used the following approach, which of shared on a number of occasions, to know when to pull the trigger.  Track my spending religiously then adjust that spending to add new expected retirement spends while subtracting non-retirement spends such as costs associated with work.  With my retirement spending defined at £24,000 per annum I then retired when that spending was the lesser of 85% of dividends received from the portfolio or a safe withdrawal rate of 2.5%.

This sounds relatively simple but it’s actually a more complicated problem than that as I actually have my wealth and earnings sitting in four buckets which have differing rules, including the age with which I can gain access.  These are:

• £225,000 sitting in savings accounts ready for a home purchase.  This is accessible now.
• £521,000 sitting in savings accounts, NS&I index linked savings certificates (ILSC’s) as well as bonds, gold, listed property and equities within trading account and ISA wrappers.  This is also accessible now.
• £578,000 sitting in bonds, gold, listed property and equities within pension wrappers.  This currently cannot be accessed until age 55.
• A State Pension promise according to my latest forecast of £5,353 per annum.  The current government promise is this is accessible at age 67.

So all in that’s wealth £1,324,000 and a government ‘promise’ of £5,353 annually at some point in the future.  Let’s look at each of these in turn.

£225,000 Home Purchase

We are currently renting but intend to buy and the money sitting in savings accounts ready for the purchase has no access restrictions.  The risk I carry here is if house prices rise at a rate greater than the interest after tax I can earn then I’m losing housing opportunity.  If my interest after tax is greater then I’m winning.  I see this approach as a less risk than if I invested this wealth into bonds, listed property or equities as the likely erosion should be gradual when compared to what bond and equity markets can do over a relatively short period.  That said I don’t want to wait too long.  From where I sit today there are no negatives to buying as if house prices fall we still have the home where if they rise we are losing quality of life that will come from our dream home.  We’ll therefore be buying as soon as we find a region to call home.  That might be Cyprus but we won’t know that for a few more months.

So far so good.  I have enough wealth to buy a home.

2018 In Review, Let Decompression Commence

The fourth quarter of 2018 contained the pivotal moment of my FIRE journey so far – FIRE day.  Financially it represented the transition from rapid wealth accumulation to hopefully well managed wealth decumulation or drawdown.  As I write this though more importantly it also represented the start of what seems to be called the decompression phase of retirement and I’ll freely admit I’m finding this really difficult.  Prior to FIRE I had 60 – 70 hours a week either commuting or in the workplace where I would be seeing new data that would require action every 15 to 30 minutes.  I would then be paid reasonably well for this effort on a monthly basis with some being spent to live well while the majority was saved.

Now we get to do what we want when we want and there is no need for urgency but also if we want to eat I now need to withdraw from my wealth that will only be renewed passively.  I can’t speed it up without taking more investment risk.  So what emotions have I been experiencing?  Initially, mainly a lot of stress caused by giving a good work handover and pushing too hard on our relocation plans to Cyprus.  That has now subsided with us now having been here for about 6 weeks.  After the stress left I experienced euphoria!  I’d done it, I can now do whatever I want and am free to be where I want when I want.  That also has now subsided.

So what am I experiencing right now?  That’s have we done the right thing and should we persist.  There is certainly some fear in there as well.  Fear of running out of wealth, fear of not having enough wealth to meet our quality of life ambitions for the next 40 or so years, fear of my skills quickly becoming stale and not being able to re-enter my career when that occurs...  At one point I even thought about asking my employer if they’d take me back and I have also looked briefly at what jobs are out there.  Thankfully, I’ve bitten my tongue and moved on for now.

2018 HYP Review

A little over 7 years ago (late 2011) I started to build a UK High Yield Portfolio (HYP).  It was a much talked about strategy back in the Motley Fool forum days and today still gets plenty of attention on the Lemon Fool forums.  I continued building the portfolio until July 2015 by which time I’d amassed 17 shares across multiple sectors.  That included a token amount of Royal Mail Group (ticker: RMG) during the initial public offering in 2013 and the spin-off of S32 by BHP in 2015.

Today the portfolio is down to 16 shares because of the forced Amlin sale in 2016.  It was set up to be close to a low tinker portfolio with only a few mechanical rules that would be triggered if there were big changes to a share.  For example if the actual value of a holding became 50% larger than the median share holding I would sell 25% or if the actual dividend yield dropped below 50% of the FTSE All Share (I’m looking at you Pearson, ticker: PSON, although I didn’t follow my own rules when they cut the dividend in late 2017 and the share price is up 27% since making me think my rules might actually be rubbish).

There were no buys (or sells) in 2018 (making the maths pretty easy this year).  The complete HYP and the respective values of each share are shown in the chart below.  The purchasing rule that I followed was the amount of the next purchase was the median share value of the current portfolio (with the exception of RMG and S32).

Click to enlarge, Retirement Investing Today High Yield Portfolio

Merry Christmas

The organisation I up until recently worked for closes its year at the end of December.  With shutdowns between Christmas and New Year it meant that the run in to the Christmas bank holidays were always absolutely manic.  It meant long hours and little time to soak up the Christmas spirit until the physical bank holidays were upon us.

Christmas 2018 is my first FIRE Christmas and things have changed somewhat.  We’re already reasonably settled in the Med with our rental home for the next 6-12 months.  All our possessions have now arrived so there was only one thing for it.  We put up the Christmas tree and spent a couple of hours decorating it.  Then I felt inspired...

In years gone past we’ve always bought a Christmas Cake and / or Christmas Pudding from the supermarket.  Not so this year.  I attempted to make a Christmas fruit cake from scratch.

Click to enlarge, One dodgy looking fruit cake

Moving to Cyprus from the UK (Part 1)

It hasn't been all bureaucracy

It’s been 3 weeks since I FIRE’d (financially independent and retired early) and we are now logistically pretty much settled in Cyprus.  I thought it might be worthwhile to capture some learnings for those that might want to someday follow in our footsteps as well as showing a little of how it’s all fitting into the principles that I’ve been espousing on this site over the years.

Prior to moving we made a few preparations. About a year prior I joined a number of Cyprus forums, initially just lurked and then started to participate as our move date approached.  There are some really helpful people on these (you very quickly learn who) and they certainly helped simplify the process we have just been through.  Two notable ones were Paphos Life which is relevant for the Paphos side of the island and the Cyprus Eastern Forum which is relevant for the Famagusta side of the island.  There are some common themes so both were worthwhile pursuits.

I also started the process of gaining us private medical cover.  The company we went with were thorough in the screening process but I’m told by those that have made claims that they don’t quibble when you need care.  It included questionnaires as well as physical check-ups which had to be done in Cyprus for those aged over 40.  This was not a quick process taking us a little over 3 weeks from advising we’d like to proceed to being fully insured.  I’m therefore glad that I did as much as possible from the UK as it minimised our non-cover period in Cyprus.

From the UK we also booked ourselves 2 weeks in a serviced apartment as well as a hire car for the same period.  In hindsight we probably put ourselves under stress that we really didn’t need to by doing this for such a short time.  The removal company shipping time turned out to be 3 weeks which means we actually did the move in two shipments effectively camping in our UK flat for a week so that our belongings would arrive in a timely fashion.  It also meant we had to find somewhere to live quickly.  Having done plenty of online rental research I thought this would be easy but once on the ground it became apparent that a lot of the online inventory was already rented / ‘didn’t exist’, had been taken by very good photographers or were ‘winter lets’ which I guess are then put on Airbnb (or similar) over the summer.  Finding a place therefore took some time and caused some short term stress.  While costing a little more, if I had my time over I would have booked temporary accommodation for at least 3 weeks and probably 4 weeks as this was the main problem area for us so far.

Is the visible FIRE movement changing for the worse

When I started my journey to FIRE (financially independent, retired early) in late 2007 there wasn’t much on the topic in the public domain.  To my knowledge at that time the term FIRE hadn’t even been coined and the US based Jacob at Early Retirement Extreme was just getting going with his blog.

When I started this blog in late 2009, which was predominantly aimed at holding me accountable, learning from others and sharing my journey to early retirement in the small hope it might help some others, even Mr Money Mustache hadn’t yet arrived on the scene.  To my knowledge that didn’t occur until 2011.

Even at that point the UK FIRE blogger scene was still pretty quiet.  Of course the great Monevator was running full steam ahead but at that time my feeling was that his site was more investing focused for which I must once again tip my hat and say a massive thanks for everything he has taught me.  To my knowledge the UK FIRE blogs didn’t really start to ramp until around 2013 after which blogs like The FIRE Starter and Quietly Saving appeared who each continue to put their own unique and interesting spin on things.  This has continued to the present day with new unique blogs like Young FI Guy, Ms Ziyou, Gentleman’s Family Finances and Fire v London all sharing something new regularly.

FIRE day!

“Retirement is the withdrawal from one's position or occupation or from one's active working life. ...  Retirement is generally considered to be "early" if it occurs before the age (or tenure) needed for eligibility for support and funds from government or employer-provided sources. Early retirees typically rely on their own savings and investments to be self-supporting, either indefinitely or until they begin receiving external support.” Source

It’s an exciting time in the RIT household as I’m now calling myself FIRE, Financial Independence Retire Early.  I’ve worked my notice period, completed a professional handover of responsibilities, was given a fabulous send off by the company I worked for, surrendered my identification card and then walked out the door.

I guess that confirms I’m now jobless but am I really FIRE?  Do I really have enough savings and investments to be self supporting ‘indefinitely’?  Let’s start with the level of wealth that I go into the next stage of my life with:

Click to enlarge, RIT progress towards FIRE

That’s just a whisker over £1.3 million.

NS&I loses some lustre

In recent weeks there appeared to be a glimmer of hope appearing that I might be able to get a little more interest on my cash and cash-like (NS&I Index Linked Savings Certificates) holdings.  This was of interest to me as I currently have in excess of £300,000 in these products in readiness for a home purchase and to help me live off dividends only in my soon to be early retirement.

It started with Goldman Sachs entering the UK savings account market with their Marcus account paying an annualised 1.5%.  Nothing to get excited about given, that after I pay my additional rate tax of 45%, that reduces to 0.83% meaning in inflation adjusted terms I’m still going backwards at a rate of knots with the RPI currently sitting at 3.3%.  Even for those with a basic rate tax of 20% this account still sees you going backwards in real terms, both before or after you've used your £1,000 basic rate tax free personal savings allowance, as you’ll only end up with 1.5% (within the tax free personal savings allowance) or 1.2%  (post the tax free savings allowance) in your pocket.  Still better than a poke in the eye with a pointy stick as it puts an extra £222 into my pocket annually when compared to the savings product I ditched.

Then Charter Savings Bank popped in with a slightly lower annualised 1.4%.  Again, nothing to write home about, but better than what I did have meaning an extra £153 in my pocket annually.