Friday 14 April 2017

I can smell the sea - 2017 Q1 Review

I couldn’t have asked for a better start to 2017.  From a Mediterranean home research perspective we spent some time on the Costa del Sol exploring from just east of Marbella through to Gibraltar.  We viewed possible homes, walked/ran on the beach, soaked up some sunshine and also took a few days to put some charge back in the batteries in readiness for the final push from FI to FIRE.

All I can say about this part of Spain is that I could very happily grow old in this part of the world.  The final fight between this part of Spain and Cyprus really is on but to be honest I expect I’ll be very happy in either location.  I just feel so fortunate that this is now possible and is really about to happen.

Click to enlarge, The view from one of the properties within our budget

On the financial side of things the world is also good with savings and investment returns putting more icing on the cake by adding another £75,800 to my wealth.  Let’s look at this in a little more detail.


I unapologetically continue to define Saving Hard differently than most personal finance bloggers.  For me it’s Gross Earnings (ie before taxes, a crucial difference) plus Employer Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Saving Hard divided by Gross Earnings plus Employer Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.  I finished the quarter with a reasonably healthy Savings Rate of 52.2% against a plan of 55.0%.

RIT Savings Rate
Click to enlarge, RIT Savings Rate

Saving Hard score: Conceeded Pass.  I can’t give myself a pass as I’ve missed the target but when I’ve saved £51,800 (admittedly including a very healthy bonus) and only spent £6,500 I’m also not going to beat myself up about it too much.


Quarter 1 2017 (07 January 17 to 08 April 17) investment return closed at 2.7%.  Given that I’m now carrying a lot of cash in readiness for the non-mortgaged home purchase I’m happy with that.

While on the subject of cash I’ve managed to increase my cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) from £267,000 at the end of 2016 to £310,000 today.  At today’s exchange rates I now have enough for the Mediterranean home purchase and am well on the way to a few years of cash buffer.

I’m also trying to ‘ensure’ I can live off dividends alone in FIRE.  They’re also coming on nicely with £4,452 already in and 2017 shaping up to be north of £22,000.  With Med FIRE spending expected to run to EUR21,439, at an exchange rate of 1.123, that would give me a cover of 1.15 to ride out the inevitable corrections or crashes.  Filling my ISA in quarter 2 will give me a little more dividend potential so this is also shaping up ok.

RIT Annual Dividends
Click to enlarge, RIT Annual Dividends

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 now consisting of:
  • 44.3% held within Pension Wrappers with the majority being within a Youinvest SIPP and Hargreaves Lansdown Vantage SIPP
  • 8.8% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 11.2% held within a TD Trading ISA.  

Tax efficiency score: Conceeded Pass.  At the end of 2016 this was 65.8% and is now 64.8%.  It’s not surprising that this is falling away as I’ve somewhat backed away from pension savings as I’m now potentially banging on the door of the Lifetime Allowance (LTA) and I’m also caught up in the contribution Annual Allowance taper.  Additionally, I’m also now at peak pre-FIRE earnings meaning I’m also at peak savings which then means I have cash to spare even after piling into ISA’s.  Already this year I’ve stashed £5,000 into my ISA and £10,000 into Mrs RIT’s.  Before I FIRE to the Med I’ll be sure to make sure they are both filled to £20,000 and I can’t do much more than that.

Investment expenses also continue to be treated like the enemy.  They’ve come down from 0.25% at the end of 2016 to be 0.24% today.

Minimise expenses score: Pass.  A small reduction which can now only be improved significantly by selling off some early investment mistakes.  These are non-distributing active funds so a move to Cyprus and a no Capital Gains Tax environment would enable this to be cleaned up quite quickly.  If it’s Spain then I’ll continue to be unable to sell but real life is about more than just minimising expenses and taxes...

In the scheme of a lifetime of investing this quarter 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.  I’m happy with my long run nominal 7.0% which is a real (using RPI) return of 4.2%.  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 real return of 4%.  4.2% is nicely above that but in the back of my mind I’m also continuing to wonder if this bull market is becoming a bit long in the tooth.  For now I’ll continue to take the glory and do the victory laps.


I’ve proven that combining Saving Hard and Investing Wisely gives Early Financial Independence and the option of Retiring Early.  Both the theory and my personal experience says that if you want FIRE it’s the first of those that is the priority.  This is the contribution I’ve personally seen from each element.

RIT Contributions from Saving Hard and Investing Wisely
Click to enlarge, RIT Contributions from Saving Hard and Investing Wisely

I’ve now been on this journey for nine and a half years and all that Saving Hard and Investing Wisely adds up.  My progress to FIRE looks like this:

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

That’s £1,204,000 of wealth that has come from nothing more than hard graft, considered spending and taking some time to focus on some selected investment fundamentals.  It’s plenty to live happily ever after.

How has 2017 started off for you?

As always please do your own research.


  1. That's a nice add for Q1, congratulations. Where you mention Employee pension contributions, do you mean employer contribution - since employee contributions normally come from gross? I had a good Q1 since some 2016 annual and Q4 profit shares / bonuses came in. My employer pension contribution is a % of the total package, so that was good, I always forget these bonuses give an additional add. I'm not nearly as organised with my total portfolio as you but well past the £1m mark so could FIRE myself if I sort it out. Seem to be stuck in 1 more year syndrome and adding safety margin. It's interesting reading your blog and seeing your approach - thanks for sharing.

    1. Hi Anon

      Good spot. Employee changed to Employer. Just to clarify my employer contributions are a percentage of my basic salary only so bonus is not pensionable.

      Good luck with figuring out how much is enough and sorting the portfolio. The former in hindsight is probably the most difficult part of FIRE planning IMHO.


  2. In the immortal words of the A-Team's Hannibal "I love it when a plan comes together".

    I'm really pleased for you that your 10 year plan has just about reached a successful conclusion. Your approach is more grounded and sensible than many in the FIRE blogging world, particularly regarding calculating savings rates and differentiating the results of saving versus investing.

    Good luck with the pinning down a location for the next phase of your life!

    Will you declare victory and finish your blog at that point, or do you think it will morph into a post-retirement commentary of life as a sun seeking British expat?

    1. Hi SlowDad

      The accumulation phase is only a very small part of the total FIRE journey. I therefore hope to continue into FIRE. TBH the first few years of FIRE are going to be some of the most critical years as my life will change significantly during that period. It will become even more critical if we get a severe bear market during that period.


  3. I just don't understand. How can you increase your holding of NS&I Index Linked Savings Certificates when they haven't been on sale for years? Thanks for your help.

    1. Hi Nigel

      You are correct that they are no longer on sale but if you do own them they continue to spin off interest capitalisation, index linked return plus as 3/5 year issues mature you can reinvest back into new issues.

      Additionally, I always lump my cash and NS&I together as their capital valuations won't 'ever' fluctuation downwards. Combined they are therefore my home purchase plus my spending during inevitable bear markets.


  4. Very impressive. Your expense ratio just beats me, I'm at 0.26%. All the best.

    1. Just did some quick maths. If:
      - we pick Cyprus so no CGT problems;
      - after the home purchase;
      - recent adds to expensive DC company pension transferred to SIPP; and
      - active funds sold and replaced by low cost ETF's trackers;
      I should be down to about 0.19%. That's about as low as I can get for my current investment strategy.

      I'm held back by European Property at 0.4%, Gold ETF at 0.39% and Index Linked Gilts at 0.25% to name but 3.

    2. Hi, iShares have a Physical Gold ETF with 0.25% TER.

  5. Since Dec 31st 2016

    Non Pension Assets increased by 4.97%
    Pension Assets increased by 8.69%

    Pot approaching FIRE trigger pulling.

    1. Impressive returns Anon. Would you be prepared to share the asset allocations so that we can compare risk profiles? If they're the same then I'm clearly doing something wrong.

    2. It appears that holdings such as ASL and BRSC and MFM slater growth have done well recently. At the moment my portfolio is IFA managed, defined as medium-high risk, there is quite a lot of exposure to UK high conviction. I was surprised when I calculated the 3 month gain, typically I have had a about 10% net year on year since 2003 or so. I would be happy to share more if you have an email address. I am interested in sharing knowledge with people on a similar journey. I have a difficult decision to make, right now I pay in IFA fees what someone could live on and if I was confident enough to row my own boat I could FIRE today. Cheers

    3. I'd be more than happy for you to share your portfolio publicly. Maybe just state the percentage holding of each asset class and then the funds/ETFs/etc within that class. For example:
      - 10% UK Equities (VUKE)
      - 15% UK Smaller Companies (...)
      - etc

      A brief check indicates the first 2 are similar UK smaller company trusts. The third holds a concentrated portfolio of mainly UK companies. Expenses look really high on this one. It will be interesting to see how big a percentage of your overall portfolio these are.

    4. Here is just my pension portfolio:

      Cash 2.54%
      Aberforth Smaller Companies (ASL) 5.45%
      AXA Property (APT) LIQUIDATING 0.78%
      Barratt Development (BDEV) 1.33%
      BlackRock Gold & General D (Inc) 4.52%
      BlackRock Smaller Co Trust (BRSC) 5.88%
      BlackRock World Mining Ords (BRWM) 0.83%
      CFP SDL UK Buffettology Institutional (Inc) 7.80%
      Empiric Student Property Plc Ords (ESP) 5.26%
      F&C UK Real Estate Investments Ord REIT (FCRE) 1.00%
      Fundsmith Equity Fund Class I (Inc) 5.12%
      GCP Infrastructure Investments Ltd Ord (GCP) 3.05%
      John Laing Environmental Assets Group Ltd Ords (JLEN) 3.25%
      Lindsell Train UK Equity Fund A (Inc) 7.28%
      Lloyds Banking Group (LLOY) 0.78%
      MFM Slater Growth Fund P (Acc) 7.99%
      Newton Global Income Inst W (Inc) 4.85%
      Persimmon (PSN) 0.46%
      Picton Property Income Ltd Ord NPV (PCTN) 6.93%
      Royal Bank of Scotland Ord (RBS) 0.16%
      Schroder Real Estate Investment Trust Limited REIT (SREI) 6.61%
      South32 Limited (XASX:S32) 0.02%
      SSE Plc (SSE) 0.18%
      Standard Life UK Small Co Inv Tst (SLS) 5.30%
      Starwood European Real Estate Finance Limited Ord NPV (SWEF) 4.51%
      TwentyFour Dynamic Bond Class I Gross (Inc) 3.29%
      Veritas Global Equity Income GBP Class A (B/S 1.5k) (Inc) 4.84%

      There are one or two individual shares in there that I bought years ago, but the larger holdings are recommendations from an IFA

      The pension fund recently exceeded 1.5M in value.

      I have a number of taxable accounts and ISAs, there are some funds that in both, I did have a spreadsheet that processed all of this such that I would know in total over how much I have in a particular fund across accounts and platforms but I have been too busy to maintain this, however I have a spreadsheet where I input the totals from the various accounts and track and chart that, so I know how much my wealth has changed week to week but to find out which investments are the agent of change then I have to drill down.

      Over all platforms this is my wealth:

      Pension 1536K, 53%
      P2P 90K 3%
      Cash 300K 10%
      VCT/EIS 130K 4%
      ISA 330K 11%
      Taxable accounts 552K 19%

      Total £2,938K

      I get mocked so badly in FIRE community for paying high charges which I admit are getting ridiculous, then again I am enjoying reasonable performance year on year.

    5. Firstly, many congratulations on amassing £3M. That's quite a feat.

      Too much in there, that I have no knowledge of, to even have a stab at estimating your risk profile without doing a lot of due diligence. I haven't even heard of some of those funds/trusts but then again I'm a simple passive kind of guy. All I'll say is that you do like your active investing.

      Let me turn it on it's head for a minute though. Now take this with a pinch of salt as you're clearly kicking my backside performance wise (how we'd compare in a bear market is a different consideration of course) and I'm no financial adviser. If you were to convert your £3M to a passive portfolio (which of course you couldn't fully do for CGT reasons I expect) with expenses of circa 0.25%, structured it as approximately 50% 'equities' : 50% 'bonds', offloaded the FA by going DIY and if history were to repeat that £3M would allow you to draw down circa £75,000 (assuming a draw down of 2.5%).

      That is a lot of money and certainly a lot more than most in the FIRE community that I frequent. Congratulations again!

    6. Thank you, it was not easy, but I was too busy to notice. A combination of lots of hard work, some risk taking and a little luck too. The pension was built by paying myself very little 7K PA and everything else went into the pension. I had some huge contributions just after 'A' day. The pension has exceeded LTA £1.5M but rather than de-risk it I am going to maintain the risk level as I have quite a few years to go before I am 55, and although I may end up paying a lot of tax then at least I will get amount above the LTA that is not taxed which is better than not having it, if that makes sense.

      The IFA defines me as medium-high risk.

      The securities in my ISA/Taxable accounts is lower risk (probably why it grows at a lower rate)

      Your comments about drawdown are of course correct, I could just go VWRL 90% cash 10% and not worry about it, and that is kind of tempting and the kind of thing I am wrestling with.

      I have come to the conclusion there is no perfect portfolio, I feel that with the amount I have and taking a medium - long term view I am likely to be better off having greater exposure to equities (probably diversified across markets and regions) providing that I can come to terms with the volatility and have say 5 years in cash (or near cash) to ride out any major downturn.

      I am not quite as fanatical about charges as the FIRE community in general, I don't like charges, but I have done OK, yes the IFA is getting wealthy, but as am I, so far, not as well as some in the FIRE community in terms of growth PA but I am not a very good investor if left to my own devices and have made some mistakes in the past.

      For your own situation, you have down really well, and I think a similar trajectory to my wealth generation years, and although you probably are really looking forward to getting out of the rat race, and as I am sure you know only too well, knowing when to press the button is a very difficult decision to make, I would urge you to consider if what you have is enough. You have good earning capacity and with a couple more years, what you already have can grown and you can add to it, maybe a target of 1.5M, 500K for a property and establishing it, 1M for living off. I have a minimum expenditure requirement of 40K net and comfortable at 60K, I don't consider that high living but I do want to enjoy the fruits of my labour.

      I have looked at Cyprus as a destination. Great weather, food etc and brilliant from a tax point of view. However, a bit too close to loony tune land for my liking and you cant drive to it. Spain would be my next choice, a nice quiet part a few miles inland not far from where you are looking where the property is not too expensive and somewhere where their is a chance to better integrate with the locals which is very important IMO.

      However due to my wife having a say in the matter, it will probably be France, which is why I need 3M and not 2M as the French will do a damn good job of taxing the hell out of me.

    7. I agree with you re no perfect portfolio. This is far from an exact science.

      It's interesting you bring up one more year (or 2 more years, which I don't think I have the constitution for). It's actually something I'm seriously considering and will likely write about it once I make a final decision.

      The way I'm thinking about it is that once you have enough (FI) then one more year is just gravy. It 100% gives either opportunity for 'fun' at some point in the future or insurance against enough. In my case I could add possibly £150k in a single year if Mr Market behaved. That is a lot and something I'd never get if I re-entered the work force post FIRE. Certainly food for thought...

      Interesting you've also had Cyprus and Spain towards the top of the list. Beautiful parts of the world. Neither of us have the least amount of affinity with France which is fortunate given the taxes.

      Do you have a view on when you will actually FIRE?

    8. Hi,

      When will I FIRE? Mentally I have mostly. When you have the FI bit sorted then the pressure starts to fall off, its taken a while but I could go at anytime and I would be OK with it.

      I do enjoy the regular pay checks which basically are paying for my kids uni-education which I would otherwise have to pay for out of my capital/passive income streams.

      If my employer was giving me a hard time I would walk immediately, no notice. Think of Robert De Niro in Heat where he said don't get involved in anything you cant walk out of in 30 seconds.

      I am still employed only because it suits me now whilst I am making other plans. I wonder if you cannot start to apply this logic and start to care less? It might be the case that you have more value in your organisation than you give yourself credit for, perhaps go to your management and suggest that you need to take it a little easier and you need support.

      Its quite empowering to be able to articulate to an employer (in a respectful way) that I have a choice and I pretty much back heel anything that doesn't interest me now.

      As a destination I also considered Belize (very good for retirees, and based on English common law).

      I think need some clarity on the effects of Brexit before moving abroad, even then I would keep my house here. I know of too many examples of people that have moved to very nice places, had fantastic lives and for one reason or another seem to head home eventually.

      Just because you set youself a target of 1M, it doesn't mean you cant change that, its not a loss of face or anything just because you made that a goal and advertised it publicly on this blog, you have to do what is right for you and your family.

  6. I think this is all very interesting and I applaud your approach. It's exactly what I'd be doing if, and here is the key bit: "if I didn't have kids".

    And most people do have kids. The main thing that keeps people near urban centres is access to "good" schools. Good is subjective hence the quotes, but it means you can't drop out.

    Therefore whilst I think your case is great it's also at the extreme because for the majority case it's not viable, though we could all learn from applying many of your lessons to increase saving we cannot take the same path.

    1. I hear you about "good" and "bad" schools but I don't understand why there is a direct correlation between urban and non-urban. In my example, I personally went to a tiny school well away from a city centre and while it wasn't the best school in the world (was near top of the class continuously because of it) I still ended up ok.

      I see three options:
      - if the kids are young enough you can send them to a local language school. Positively select your FIRE location to ensure you find a good one. When I was just in Spain I definitely met Expats doing this.
      - if the school is a bit iffy, or there is a risk of it, make sure you budget for some private coaching.
      - send the kids to an international school particularly if they are older. Costs are not that ridiculous. For example the Paphos International School starts at EUR3,600 for Reception and goes to EUR6,800. You then get an 8% discount if you pay up front. They follow the English National Curriculum. Again, you'd need to budget for it.

      Have I missed something? Genuinely interested as this is an important topic.

  7. "cash like holdings (NS&I Index Linked Savings Certificates predominantly)": I once drew up a matrix for ILSCs showing how they and other assets (cash, Fixed Interest Gilts, Index-Linked Gilts) responded to changes in interest rates and in inflation rates, both expected and unexpected.

    I concluded that sometimes ILSCs behaved like cash, sometimes like FIGs, sometimes like ILGs, and sometimes uniquely. I concluded that it would be wise never to part with them except under extreme financial duress.

    You might like to have a go at it just for the fun.

    1. I just treat them like real wealth preservation. No real gain (the interest capitalisation is now derisory) or loss is possible. For completion: You would gain in one unlikely scenario, deflation, as I understand the index linked return cannot be negative.

      When I buy the home I'll first use cash in savings accounts and only once that's gone will I start selling down ILSC's. I will definitely have a significant portion remaining after that.

    2. Finally caught up with backlog of posts and posting in real time! Many congrats on reaching your FIRE level, RIT. I came across this blog around 6 or 7 years ago and was immediately impressed by your sheer determination and quantity you were saving. A lot of your investment philosophy chimes with mine - i.e. minimise investment expenses and very difficult to beat market, which is why (outside of house/portfolio of direct overseas shares holdings - fortunately these did very well) my main savings are through low cost trackers in my work DC scheme.
      I've just bought your book - least I could do for all the insight you've provided over the years - I always like your PE/CAPE analysis posts!

      I've also read your post about offering Financial Advice/coaching and I completely get where your coming from. If you ever want to sell your spreadsheets of historical data you've used to generate some of the historical charts I'd be happy to provide a contribution to your retirement fund!

      Back on topic - If I owned them I'd hold ILSC to the death now. Unlike ILG, which now have a c1.5% negative real yield, I believe ILSC have a minimum real yield of zero. This is a fantastic spread for what is effectively a risk free investment.

      The lack of an investment with a guaranteed real return of zero is one of the reason I'm struggling to work out how much before I can FIRE.

    3. Many thanks for the extremely positive hat-tip Prospector. It makes the hours I put into sharing my journey an extremely worthwhile pursuit.

      If you think the book has given you some value I'd really appreciate an honest Amazon review. Unfortunately, a couple of people haven't thought it brought value resulting in some poor reviews. All I want is for as many people as possible to see what might be possible if they run against the herd. Then if they decide it's not for them then I'm 100% ok.

      Your last couple of paragraphs ring very true:
      - The US CAPE has only ever been higher during the dot com and GFC bear markets with even the great depression not seeing CAPE's so high;
      - The US 10 year is circa 2.3% while US inflation is 2.7%; and
      - Closer to home FTSE 100 dividends exceed earnings, to name but three.

      So if I was buying lottery tickets I'd be betting on future returns being lower than average and this is where it then gets interesting. My FIRE strategy has been about 'surviving' the worst case historical sequence of returns. I'm at 100% success rates using backtesting calculators like cFIREsim. So the question then becomes will the future present a scenario which when looking in the rear view mirror will go down in history as the worst sequence of returns? In amongst this one then has to make the FIRE decision safe in the knowledge that the life clock is not stopping while this is all playing out. Interesting times indeed...

      What withdrawal rate are you thinking is 'safe'?

    4. The actuarial view (assuming you want to preserve capital) would be to divide your annual cost of living by real yield on index linked gilts (or other government guaranteed index linked bonds that you have confidence will repay and is reasonable reflection of the currency of your liabilities).

      Sadly the level ILG of prices that would actually allow you to compute a sensible answer to this corresponds to a state of the world last seen about a decade ago.

      So the honest answer is that I don't know. I have a lot of sympathy for being able to live off dividends. My wife and I kept careful track of spending and ploughed every disposable cent into the local stock market when we were oversees - at that time we were planning to retire there too and the government there didn't issue any IL bonds (nor any debt with a term greater than 1 year for that matter).

      The real issue I see in coming up a safe withdrawal rate is that (conditional on current state of the world) we face a potentially nasty scenario where dividends won't necessarily increase in real terms. I like your analysis of the peak to trough and I suspect ultimately the answer requires me to do something similar. Alternatively I might try approaching from a slightly different angle:

      Build a model of prospective returns capturing at least equity dividend yield, capital growth and inflation.
      Then use this to project inflation vs real dividend growth in various scenarios. Define risk appetite level that you would be happy to live within eg need to cover real cost of living in all but worst 5pc of scenarios. Then select scenario that corresponds to this level of probability and make sure initial wealth is sufficient to cover it.

      Suspect this is easier said than done as output hugely sensitive to the assumption you make about relationship between dividend growth and inflation and thus is the thing you care most about.

    5. I 'd be interested to see your results if you do build that model but it sounds a bit like crystal ball gazing particularly when you try and add in your sequence of returns. Have you tried just using something like cFIREsim which admittedly is US focused.

      In a nutshell I've really ended up with:
      - A diversified portfolio where hopefully when some zig others will zag.
      - A withdrawal rate that would never have failed historically.
      - Then bolted on top of that an ability to historically just live off the dividends as long as I take 3 years of cash into FIRE and only spend about 85% of the dividends paid on day 0.
      - Then bolted on top of that I have plenty of fun money in my spending money. At the moment that's about 30%.

      The problem with this is the withdrawal rate starts to look low. If Mr Market behaves at FIRE I'm predicting my overall withdrawal rate could be actually below 2%. Even my non-pension withdrawal rate, which would only have to get me to private pension age, could be 4.3%.

      Compared to many this is very conservative and I'm still asking myself is it enough? I guess my problem is I have no family backstop, no defined benefit pension, no inheritance due, likelihood of no State Pension (or a crazy age) and potentially a very long FIRE so I'm conservative to the point of nonsensical.

    6. Yes with markets at current levels it does feel like determining a withdrawal rate leaves you are caught a bit between a rock and a hard place. On the one hand you can use historical backtesting which feels like driving using the rear view mirror, on the other hand prospective analysis is crystal ball gazing!

      My mine concern is that most historical analysis treats inflation as a (constant) input. Had a quick look at cFIREsim (not come across this before - thanks for the tip) and this too treats inflation as fixed. If you have absolute faith in central bank's ability to keep a lid on inflation and believe there is only a weak link between inflation and investment returns then this sort of tool can give you a fairly good idea of what kind of WR you need.

      But if you are like me and think that current negative real yields are telling you something about future investment returns I think you need to make some kind of allowance for this. Perhaps a pragmatic solution is to adjust historical returns by difference between real yields that pertained during that period and the real yields we are seeing today.

      Had a quick look on the net - looks like Bernstein provides a link to a an aptly named article "The Retirement Calculator From Hell - Part II" (")

      This references a suite of tools by David Wilkinson amongst which is one called MCRetire which seems to operate along the lines that I was thinking ( MCRetire provides "a built in adjustment model for inflation, expenses and taxes" - although going by the date on the webpage doesn't seem to have been updated for some time. It does come with a 30 day trial though so think I'll download it and see what's what.

    7. I do not believe cFIREsim treats inflation as a fixed input. It simply uses all data, including inflation, in the sequence that it historically came. The chart that it creates presents the data in inflation adjusted terms but you can also get access to a lot more data. Below the second chart in the output there is a button for you to download the year by year spreadsheet. The second column of that spreadsheet shows how it's treating inflation for each year. Can you have a look at that and give me your thoughts as I am currently thinking differently to your good self?

      For me the problem with cFIREsim is that it is historic (can't do much about that as crystal balls don't yet exist) and that it uses US data which IMHO is historically bullish. Otherwise I find it a very useful tool.

    8. Sorry I had skipped through to cFIREsim does indeed allow for historical inflation in the same sequence as the investment returns.

      Having run through a 50 year projection there are only a handful of sequences where the (arithmetic) average of the real bond returns was negative and in those scenarios the obeserved equity risk premium (defining loosely as excess return of equities over bonds) is double my view.

      So I'm in similar place as you: use of historic data means that if you want to backtest scenarios where you expect negative bond returns there aren't that many historical sequences with which to do so.

  8. Congratulations RIT. The hits keep coming.

    I've just turned 55 and achieved FI, (not sure if it counts as RE).

    A large part of the FI comes from the recent Pensions deregulation which means we can get our hands on DB pensions built up in the 80s and 90s when they were more of a thing than they are now. This gets us more than halfway to our target 30K pa, the rest coming from a combined ISA and SIPP fund of around £200K.

    However to echo Ben F, we'd have achieved this considerably earlier if it weren't for our one offspring, now in his second year at University, supported by BOMAD. It's not just school costs, the
    Centre of Economic and Business Research estimate the cost of raising a child from birth to age 21 as £230K. That's >10K a year not available for saving and investment….

    1. Many thanks for the wishes Phil and many congratulations on FI. You say not sure if it counts as RE. Are you still working?

      I 100% get that children cost more than just a couple which in turn costs more than just a single person. That I think is undebatable. My problem is the numbers that are bandied around. You're at the back end of child rearing. Do you really believe it costs £230k to raise a child to 21? Maybe it does in a consumerist society focused on standard of living but in an environment focused on intentional quality of life living I just cannot see how the costs can blow out that much. Happy to be proven wrong of course.

    2. I was more pondering on whether 55 counts as 'early' ;-)

      Not quite mentally prepared to quit work; I feel more semi-retired. I work on a contract basis, currently 12 months a year but my plan is to lengthen the gaps between contracts so I'm working 9 months a year then 6 then 3 then none....

      But things rarely work out exactly to plan ... non? And its a good feeling to know I can be selective.

      The £230K number came from a study for insurance company LV who of course want to sell you financial products, there are always assumptions in these things and they probably went 'worst case' to emphasise how much you need to protect your wealth. Yes, you could do it for less, indeed a lot of people on modest or even average income with a large family have no choice.

      But not a lot less, I don't think. Parents tend to want 'the best' for their offspring, and will balance their finances accordingly. Then there are costs not immediately apparent: for example while your kids are of school age you are constrained to take your holidays outside term time, which can easily add a four-figure sum for a family of four.

      Then there's university....I took my own advice and when junior came along set up a regular payment into an index-tracking fund in a 'bare trust', which has done well enough to ensure he will graduate debt-free and some left over for a house deposit. [He doesn't know this yet but I don't think he reads RIT ;-)]

      Best wishes

    3. In a world where many millennials will be retiring at 70 (or more) I'd say 55 counts as early. I'm starting to think that I'm just very early at age 44 which has me a little concerned as by being a minority you're open to government pillaging or pulling up of drawbridges.

      How about private pension age 5 years below State Pension Age to start ( MPs in the Work and Pensions Committee seem to think that might be a reasonable way forward. So our poor millennial given this and other recent reports now gets the State Pension at 70 and access to their own Private Pension at 65.

      From what I can see I'm still Private Pension at age 55. State Pension for me could be anywhere between 67 to 69 if the recent Government Actuary report gets the nod. I don't need the State Pension but I do need the private pension. In back testing my model works providing I can get my Private Pension at 60 (I thought an increase of 5 years on current would be sufficient to allow for government tinkering). Am I actually far enough from Private Pension access to end up with 69 - 5 years = 64 years for private pension age...

      I hear you re wanting the best for the kids. 100% understandable. I guess my question becomes if you're giving them a high quality of life rather than high standard of living is that the best? I think it is and so I still challenge that £230k.

      Sounds like your work to FIRE balance is in a pretty good place with a soft trajectory into it. I'd actually quite like that but my work gives me an all or nothing approach so I'll take the all and see how I get on.

    4. Isn't the estimate of the cost of a child dominated by what you assume about Ma's earnings with and without a sprog?

  9. Well done again RIT.

    If you're struggling to find a home for extra savings have you considered gold bullion coins? I myself have a holding on the basis of "keep some and pray it never goes up in price". However, gold sovereigns or britannias have an added edge, in that they're free of CGT and VAT on purchase.

    And as an interesting aside they seem to beat gold ETFs into a cocked hat. Britannias (which I own) trade at a premium to the GBP gold spot price of about 5%. Over the last year gold ETF 'PHAU' has returned 3.68% but britannias 19.29%.

    Maybe worth thinking about?

    1. Hi Borderer

      Be careful with your gold comparatives. You seem to be measuring your Britannias in £'s but PHAU is measured in $'s. For £'s you need to be using PHGP (which I own). How do they compare performance wise? I can't see why they shouldn't be very close with the gap being just expenses to hold.

      I understand why people hold physical coins but I don't like them for 2 reasons:
      - security. A few lying around as insurance is no problem but if you start getting to quantities that show up meaningfully in a decent sized portfolio surely the risk of theft etc starts to come into play.
      - buy/sell spreads. When I've looked at this in the past they've been very high which is not surprising of course.

      Also as I don't plan on staying in the UK Britannias/Sovereigns aren't going to help me. Like other assets in Spain I'd see CGT and in Cyprus I'd see no CGT.

      Are you holding significant quantities? If yes, could you share how you manage the security side of things? Safe deposit box etc but then they also carry a cost.

    2. Good spot RIT. Goes to show that I don't monitor the 'performance' of my bullion coin holdings - as I said, keep em and hope they don't go up (because if they do everything else is coming down!)

      My point really was that coins might be useful as a non UK tax haven for money that you can't get into a tax free wrapper. They are eminently portable and exchangeable anywhere.

      Security is an issue. I hold about 5% of my portfolio split between a home safe (up to insurance value) and a bank deposit box at £150.00 pa.I think this is a special rate as I've been a customer for years - I hear of charges up to £300 pa - even so its a fraction of a percent.

      Although I own britannias in hindsight an amount of sovereigns may have been handy. Whilst I don't own a tin foil hat - you never know!

  10. Great update RIT, another step closer to that warm Mediterranean climate! I for one would be interested in continuing to read about how you get on post FI, not only just to see some nice photographs but to see how you go from accumulating to spending.

    1. Great to hear from you weenie and I was pleased to see you make your 3 year blog-o-versary. That is a milestone that few bloggers make. I'm looking forward to hearing about you soon gaining that well paying job and continuing to power ahead towards FIRE.

  11. Six years ago I realised that my dividend plus rental income was enough to live on. Rather than rely on each lot of income as it came in, I built up a 'pot' of 18 months of living expenses. Three term deposits each with enough to cover the next six months. I'bve now got 24 months of the fund which gives me breathing space should anything drastic happen with the income stream. It hasn't yet so in addittion I've been able to build up a separate fund for my daughters uni fees that will come along in a few years. Cheers and all the best Early Retired Kiwi

    1. Many thanks for sharing ERKiwi. Dividends/Rental Income exceeding spending plus some cash buffer is very aligned with my approach.

      Retiring 6 years ago you must have seen massive wealth gains to now. I can imagine if you calculated your withdrawal rate it would be very low and you must be in a great place historically with smiles all round?

  12. I'm interested that you like both Spain and Cyprus and am ambivalent about which of the two to retire to. Have you looked into the differences in taxation between the two? I would have thought that would be the clincher, in favour of Cyprus.

    1. Hi Mark

      Yes, at this time (which of course could change in the future) Cyprus is far more beneficial from a tax perspective given our circumstances. That is from an 'income' tax on dividends/interest, CGT and tax on future private pension perspective.

      Life is about more than taxes though. If I look at our current scorecard comparing the two which includes head and heart priorities it's actually pretty much a dead heat right now. If we state our preferred without looking at the analysis Mrs RIT is at Spain and I'm at Cyprus. I'm far more head as a person and she is far more heart so it's not a surprising outcome for us.

      TBH we are incredibly fortunate to have either opportunity and so both of us would be very happy to be in the others preferred. We're still a few months away from having to make the call and we'll therefore let it stew until we really have to make a call.


    2. Think I'd rather learn Spanish than Greek - at least the alphabet is recognizable!

  13. Hi RIT,

    I've been following your blog with interest, as I've been following a similar path, although having started a couple of years later than you. I was planning FI by 2020 - but investment returns have exceeded my expectation - so Mid 2019 is my current target. I am curious about one thing in your summary above, though. You say you want to live on dividend income - yet the majority of that seems to come from your SIPP - which you wont be able to access for another 11 years. So what will you actually do for your income over then next decade? How will it work in practice? I'd love to know - as the majority of my stash is in a SIPP (currently about 800k, generating about 33k in dividends a year)


    1. The method I'll use is fairly simple:
      - Spend the non-pension dividends.
      - Sell down capital (the most overweight asset class) in the non-pension part to the value of the dividends in the pension. Spend that capital.
      - Buy capital (the most underweight asset class) in the pension part with the dividends accrued in the pension.

      So I'm only spending the value of the dividends while also using it as a rebalancing method.

    2. Ah - get it - thanks. PaulF

  14. Hi RIT,

    Huge congrats on your FIRE acchievements.
    In terms of where you choose to base yourself I would be firmly in the Spain camp but mostly because my wife is Sapinsh and we regularly visit her huge family!
    I would definitely recommend the Murcia region as I am vey familiar with it but also because of the relatively cheap housing costs and extremely friendly locals.
    Inland properties can be extremely cheap but if you are looking for a coastal property I know of plenty of Spanish people who have had some very nice residences on the market for a long time and have yet to sell. This is often because they have a second home at the beach which has been in the family for a long time and are looking to sell in order to prop up pensions which have been hit hard by "la crisis".
    The other advantage of Spain to my mind is that is a fantastic and varied country where once you away from the inner cities has some virtually empty motorways.You can spend some of that hard earned RIT pension on discovering some great places. Imagine being in Cyprus - such a small area to spend the next 40 Plus years without taking flights or ships for a change of scenery.
    For me I'd choose a Spanish area and learn the language asap. It's a cliche but for me you will get a lot more out of life by spending it mainly with the locals. They love a good time and are very generous. You might find though that your parsimonious habits will have to be moderated as your new friends simply don't live like that. They even have a saying "En Europa se existen, en espana se viven y en Murcia de puta madre"! I think you get the gist.
    Best of luck whatever choice you make!

    P.S I have some ex pat friends with children in both state and international schools and can find out more specific info if you need it but won't rattle on any more for now.