This week I found myself in a high street store. Surrounded by teeming hordes of people. The horror!
Even worse, it was a discount retailer. The sort of place where unsold stock goes to die. End of season. Factory seconds. Remainders. Perishable goods at or beyond their “used by” dates.
Frequented by mobs of frugalistas, poverty tourists, and those who have no other options.
The shopping experience was a combination of all-in-brawl, cage match, and rugby rolling maul.
Pushing and shoving. Elbows thrown. Threats made.
Social mores giving way to primal behaviours. The thin veneer of civilisation regressing to base instincts. Fight or flight. Succeed or starve. There can be only one winner.
The experience provided a disheartening reminder of exactly who the average “everyperson” really was.
The tabloid readers. Reality television watchers. Football fans. All-inclusive package holiday takers.
Those who favour the easy answers provided by unquestioning acceptance and strongly held belief, over any form of independent research or critical thinking.
Those whose votes determine the outcomes of elections, referendums, and the outcome of jury trials.
Eventually, I made it to the front of the queue. The shop assistant wore the same thousand-yard stare sported by first responders the world over. Honed by a daily existence that involved seeing humanity at its absolute worst. Expectations so low as to be virtually non-existent. Nothing left to surprise.
Yet surprise her I did.
I placed the item I wished to purchase on the counter.
In the tone of voice normally reserved for addressing a retarded toddler, the shop assistant informed me that the item was part of a 3 for £1 special. I should go and get two more of them.
I shook my head. No thanks, I only needed one. One was enough.
The shop assistant blinked. Raised an eyebrow. Gave me a “does not compute” look.
She tried again. Switching to the slower, louder voice often used to address a non-native language speaker. I could have two more of the items. For free. F.R.E.E.
I shook my head again, thanking her kindly for informing me of the offer. I understood, but had no use for three. I barely wanted the one I was attempting to buy.
The shop assistant gawped. Concluding that I must be on drugs or was a care in the community case, she tried again. What colours did I want? She would go and get them for me. No charge.
Once more I shook my head. Somebody else could have the free ones, I didn’t need them.
At once the small semblance of order to the queue behind me degenerated into a retail mosh pit. The prospect of free stuff generating a frenzy among the other shoppers not unlike fresh meat being thrown into a shark tank.
Much to the disbelief of the shop assistant, I placed a £1 coin on the counter and exited the shop with my solitary purchase. Enough was enough.
A seemingly incomprehensible decision.
One that I was content with.
Finding enough
Personal Finance evangelists, experts, shamen, and shysters all talk about the big risks of retirement.
Outliving your money. The longevity risk.
Poorly timing your exit. The sequence of returns risk.
Spending for today instead of investing for tomorrow. The “you only live once” risk.
Forgetting to enjoy the journey, then running out of time. The delayed gratification risk.
Imagining the life you think you want, then finding it wanting. The unrealistic expectations risk.
By definition, the future is uncertain. Our best guess. Based upon past experience and current expectations. All of those risks involve balancing individual tolerance versus perceived reward.
While many commentators are happy to describe the problems, few choose to offer actionable solutions.
The decisions we make to manage and mitigate those risks involve understanding scarcity. Comprehending that time cannot be stored or refunded. Our lifespans are finite. Our cognitive function, health, mobility, and stamina all inexorably diminish with age. Use it or lose it.
Those decisions also require an appreciation of opportunity cost. That we can have anything but not everything. Free time or earning wages. Our young and responsibility-free years are also our most important wealth compounding years. Prime earning potential coinciding with prime mobility.
Most importantly of all, those decisions require an understanding of ourselves. Self-awareness.
Recognising that we constantly adapt and evolve.
Abilities grow or diminish.
Desires shift. Relationships change. Some stories will end. New adventures may begin.
Hopes and dreams are pursued. Achieved or abandoned, soon replaced by something new.
Priorities change. Single. Half of a couple. A dependent family. An empty nest. Single once more.
What we worried about a decade ago is likely quite different to what is important to us today. Earnest then. Cringeworthy now. A natural cycle. Obvious in our choices of diet, exercise, fashion, and music. Less visible, but just as true of our approach towards cash flows, investment returns, and wealth.
This raises an interesting conundrum.
If we accept that the future is unknowable with any reasonable degree of certainty.
If we also accept that our past performance ably demonstrates that the accuracy of our personal forecasting abilities have ranged from the unpredictably accurate to the laughably bad.
Then how can we possibly determine the answer to that most personal of all personal finance questions: how much is “enough”?
A question with a notionally quantifiable answer.
Yet one determined almost entirely by qualitative subjective factors.
A question with no definitively correct answer, but plenty of provably wrong ones.
Financial Independence is a paradox. The desired outcome being independence from finance. Recognising that what we seek is control of time, the denomination by which true wealth is measured. It was never about the money.
“Enough” is a similarly misunderstood concept. A state of mind, not a monetary amount.
Having enough food to eat and clean water to drink.
Having enough to live in a home that is safe, warm, and dry.
Having enough to be able to do the things that we enjoy doing. The things that make life worth living.
Having enough that we are content with what we have. Without constantly yearning for more.
A personal perspective, not a quantifiable figure. A moving target, not a number set in stone.
Most of us have will have experienced the feeling of“enough” from time to time. The happiest amongst us have figured out how to design their lifestyles in such a way that this feeling of “enough” becomes a constant.
Intersection
Where things start to get interesting is looking at the intersection point between “enough” and financial independence. Where our needs and wants are met without our having to spend scarce precious time doing things that we don’t enjoy.
How much does it cost to lead that lifestyle of “enough”?
A figure driven not by earnings or budgets, but actual expenditure.
How much is required to generate a total return capable of financing that lifestyle? A figure that must account for the impacts of inflation, investment expenses, and taxation.
Reliably.
Repeatably.
Sustainably.
Year in, year out.
Until we are 100+ years of age? Boasting of being a statistical outlier is no fun if we are broke and too old to do much about it!
The 4% safe withdrawal “rule” wasn’t designed to answer this question. It ignores costs and taxes by design. Engineered not to be exhausted within a period of 30 years, rather than lasting for a lifetime. Based upon asset allocations entirely concentrated on the US markets.
Society offers some instructive guardrails, based upon where it defines the social security safety net.
A single adult is deemed to be destitute if they earn £70 or less per week, after housing costs. Once upon a time, the poverty line was drawn at 60% of median earnings after housing.
An unemployed adult receiving universal credit earns less than £75 per week, after housing.
Old folks receiving the full state pension get more than double that amount, nearly £180 after housing.
What if I to decide to join the ranks of my fellow weekday discount retail shoppers? How much would those government benefit income streams be worth to me?
Adjusting for inflation, using the long term historical average, in today’s money the income stream provided by Universal Credit needed to get me to state pension age is worth nearly £100,000.
Were I to live to 100, the inflation-adjusted full state pension income stream would be worth a further £445,000 at today’s purchasing power.
In both cases, housing costs extra.
My Benefits-FI kind of life might additionally include a generously provided council flat, but only if I managed to survive the 10+ year waiting list to receive one in my neighbourhood.
Would that be sufficient to provide a lifestyle of“enough”?
If some of the parents I interact with each day at school drop off are anything to go by, it would appear so. Maintaining low expectations, helped in several cases by never having known any different, may well be the secret to lasting happiness.
Their existence is far from secure. Only ever an illness, injury, or government rule change away from financial oblivion. Yet, outwardly at least, they appear to be just as content as any of my work colleagues or members of my social circle.
Which suggests that having “enough” may be more about acceptance, expectations management, and self-awareness. And less about hoarding an enormous pot of gold, as we finance our gilded cages by performing well-remunerated tasks that we may not find particularly enjoyable or fulfilling.
What if we want more? Better? Different? That too costs extra.
In today’s money, those inflation-adjusted median earnings through to state pension age would cost £766,000. Supplementing the state pension income to maintain that median earning level through to my centenary would consume another £982,000 in today’s coin.
All told, £1,748,000 at current purchasing power.
Which probably sounds like an impossibly large number to someone earning the median £29,900 today.
However, if we invest our wealth to generate a total return combination of capital growth and investment income, then we could achieve that same outcome off a much smaller base.
My 30+ years of investing experience suggests that consistently achieving a 4% real return, after fees and taxes, is doable. At those returns, a capital base in the region of £750,000 should prove sufficient to support an “enough” equivalent to median earnings.
Still a lot, but a lot less. It is worth noting this figure excludes non-productive assets like owner-occupied housing, and depreciating assets such as cars or furnishings.
How much is enough?
So, how much is your “enough”?
This thought exercise has revealed that for me it resides somewhere above Benefits-FI, if only to avoid having to regularly run the gauntlet of bargain hunters at the discount retailer.
My financial record keeping tells me it also sits above median earnings. My twin vices of peak season school holiday travel and trips home to visit family combine to consume considerable cash flow.
Yet a glance through those numbers also revealed “enough” was achievable at a much lower income level than I had expected.
Pension contributions, savings, taxes, and work-related expenses account for a sizeable chunk of my current earnings. All things that greatly reduced or ceased altogether each time I switched to seasonal semi-retirement mode in the past.
References
- Gov.uk (2021), ‘Housing Benefit‘
- Gov.uk (2021), ‘The new State Pension‘
- Gov.uk (2021), ‘Universal Credit‘
- Office of National Statistics (2021), ‘Average household income, UK: financial year 2020‘
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Impersonal Finances 24 November 2021
Excellent question–and not one that I’m sure I have an answer to just yet. For now, enough is still more than I have haha.
Such willpower passing up on a 3-for-1. I’m not sure I could do it, just on entrenched frugal principles alone!
{in·deed·a·bly} 24 November 2021 — Post author
Thanks Impersonal Finances.
The default state of being for most of us, I suspect.
As for the 3-for-1, much like all you can eat pizza or using Excel to solve every business process shortcoming, just because we can doesn’t mean we should!
David Andrews 24 November 2021
Enough is difficult to quantify.
One of my team has handed in his notice and I suspect it will start a chain reaction. The great resignation / reset has created a lot of opportunities for the skills of my colleagues.
I’m pretty sure I have enough but I’m crippled with one more year syndrome. High inflation, coupled with a potential asset value bubble rather worries me but in reality it shouldn’t as I feel I’m as protected as I can be.
For the past couple of years I salary sacrificed 90% of my salary into my pension to use up some carryover. If I stopped saving / investing and started using the funds for drawdown and living expenses I think I would have enough. IHT and LTA threshold figures suggest the government think I have more than enough.
{in·deed·a·bly} 24 November 2021 — Post author
Thanks David.
There seems to be a bit of that resignation fever going around. A wave hit my workplace recently, after a “bums on seats” edict brought an abrupt end to the urban myth that flexible working had become the default.
One more year syndrome I see. For what it is worth, I suggest taking a bit of time to identify and work through what you’re really worried about. It probably doesn’t have much to do with inflation, or restricted travelling opportunities during term times, or even a disgruntled spouse plotting governmental downfall over punitive freelancer tax policies. It probably does have more to do with questions of identity, fear of the unknown, confronting the void, or finding yourself with lots of alone time during the work day while the rest of the world are off productively working or studying. Your mileage may vary, but it will be time well spent that hopefully heads off bigger issues when you eventually do take the leap.
The Rhino 24 November 2021
I watched ‘The Hermit of Treig’ on iPlayer the other day. He didn’t have much, but at the same time had possibly enough? A 50+ mile walk to post a letter did seem a little extreme though?
My brief foray into early retirement was tumultuous to say the least, a far cry from the Elysian Fields of Monevator’s experiences. Nearly killed me.
Now trying a stepped approach. Not ideal, but possibly least worst. Least worst seems to be strategy of choice of late..
{in·deed·a·bly} 24 November 2021 — Post author
Sounds like you’ve been through the wringer there Rhino, sorry to hear you’re still struggling.
Least worst is not a bad place to start, hopefully the only way is up from here. Take care of yourself!
A 24 November 2021
As others have said, and you eloquently articulate in this thought provoking post, ‘enough’ is a nebulous, subjective and constantly evolving concept. The inputs in any attempt at calculating a figure based on changeable assumptions, the choice of discount rate an educated guess on which small changes move the needle drastically. The result a single number absurd in it’s precision given reality will be the result of the interaction of dynamics too numerous, complex and unquantifiable for any calculation to quantify. So much based on how you feel at any point in time.
For the young naive me foolishly caught up in city culture, enough was simply feeling successful, based on meaningless comparisons
With time it became do I have enough to feel safe trading in a well paid job I don’t enjoy for the uncertainty of a different, more flexible, happier path
Now a couple of years after taking the leap, having acquired two children, a greater level of life satisfaction, a higher cost base, having gone past the initial joy of shedding said corporate shackles, thoroughly inspected the greenness of the grass, so far failed to come up with an answer I feel good about to the question of ‘what is it you actually do now’, experienced how tough it is to actually start something from scratch, the question of enough takes on a new form again
On an assets as a multiple of expenditure basis, mainstream opinion would say we have enough, especially so given both my wife and I want to keep working, just in less lucrative fields. But the reality is I expend more of my new found time wealth stressing about valuations, inflation, return expectations, reduced employability the longer I am out of the corporate world, will I be able to help the kids in future, climate change, nuclear apocalypse etc than I would like so on the test of ‘enough money not to think about money’ I certainly fail. I suspect few truly pass that test though!
{in·deed·a·bly} 24 November 2021 — Post author
Thanks A.
It sounds like you’ve been on quite the journey of personal discovery. That question of identity, particularly for those who once viewed their profession as an extension of themselves, is a recurring challenge amongst recent retirees.
Some folks conquer it. Others surrender to it, returning to the fold. Still others continue to wrestle with it until they find an answer they are comfortable with.
How much of your increasing worries about current events do you think is down to simply having more time to worry? Some folks manage to find something to worry about regardless, removing the daily stress of a job, commute, mortgage, etc simply frees up the mental capacity to start worrying about new things (climate change, world peace, supply chain shortages, etc).
Steveark 24 November 2021
As an engineer I would have had to take all three and would have dropped two off at a charity that could use them. Just because two more had no utility to you did not mean they couldn’t be useful to someone in need. But that’s a quibble. The US Social Security program, the only tax funded pension in the US, will pay my wife and me a combined total of nearly 54,000 pounds in four years when we start to draw it, and it will be adjusted up for inflation each year. That’s above the median family income here and will provide over half of our annual expenses. I was kind of shocked to find it paid out so well. We don’t need it because I never planned to depend on any government support since it can be taken away without recourse. But it will be nice to get it and hand more down to our grown kids someday.
{in·deed·a·bly} 24 November 2021 — Post author
Thanks Steveark.
Hopefully whichever lucky shopper survived the melee to claim the extras enjoyed them. I did wonder about donating them to my son’s school (it was for a primary school art project), but the quality was so spectacularly bad that I would have felt guilty. I guess I can’t complain too much, as it only cost a £1 so expectations need to be moderated accordingly.
That’s a very generous government pension, the equivalent in the UK pays out only one third that amount to a qualifying couple. I hope you and your wife enjoy it.
John Smith 24 November 2021
When 1% of population has 95% of global wealth, then the governments can only spread the rest of 5% wealth to the rest of 99% population. With finite earth resources, climate change and unknown fertility, then migration influences taxes to keep the privileges of the few.
The petrol-dolar is continuously issued from thin air by a USA private entity FED. Other countries play the printing QE game, to keep in the race of devaluation of currency. So the exchange rate is not predictable. Thus the FU fiat-money number is useless in any currency, because unknown profile evolution for tax and inflation.
PS: In case of war, volcano eruption, epidemic, the SWR is useless for how much you will pay to get out of there.
A Buddhist monk can fully pass the test of enough. (His) Enough, same as poverty (in other eyes), is just a state of mind. Yes, I know was already said. FI is about (perceived) freedom of time and (pursuit of) happiness. Not about money hoarding obsession. There is a (subjective) threshold of money, over which happiness will not increase. YMMV.
HariSeldon 29 November 2021
How much is enough when it comes to FIRE, less than you think (or fear) from my single experience.
I agree fully with your conclusions of investing on a total return basis.
It’s curious that conventional thinking values the state pension of around £9.500pa as a present day valuation of £445,000 or so. I don’t disagree with how you obtain the sum, using the assumptions frequently made today , but retiring at 67, live to 100, 33 years of £9,500 is just £313,500
If I wish to provide £9,500 in 32 years time with a real rate of return of 4% and I started with £2,708 then I should make it, to provide £9,500 in 31 years time the sum of £2,816……..for the first year I need £9,500, there is a degree of uncertainty about investment returns for a short period of time but longer term there is a high likelihood of performing to expectations.
If one performed a mental trick of seeing an investment portfolio not as one lump sum but a series of mini portfolios, each to provide an income for a set year in the future, then we would see less of people proposing that they will work with a SWR of 2% and negative rates of return over decades.
After 17 years of investing/saving prior to Financial Independence in November 2007 ( hard to pick a worse time in recent history…) and being a very average investor. I look back and see that in real terms, my portfolio after 4 years was about where it started. The subsequent 10 years after taxes, fees and a comfortable lifestyle, with a lot of travel (and unnecessary spending) has more than doubled, for a real return of around 7.5%, plus of course those living costs of around 3% or 4% plus inflation, fees, taxes etc.
I am a not good investor, a litany of errors, I even manage to repeat the same mistakes, (thats one habit I must break…)
My investment aim over 30 years was a real return of 3% to 5% and it has been exceeded, despite my stupidity.
We don’t know what comes ahead, but a degree of flexibility and optimism lets you cope…
If basic living costs are X , then 2X is great, 4X is even better, but no happier than 1.5X in my experience.
{in·deed·a·bly} 30 November 2021 — Post author
Thanks for sharing your experiences Hari, it sounds like things have worked out nicely for you.
To address your numbers question, the £445,000 is roughly what it would cost in today’s money to purchase a cash flow stream with a purchasing power equivalent to the state pension today (i.e. £179.60 per week). So in a year’s time, £179.60 purchasing power would cost £181.30. In 10 year’s time, it would cost £197.05. And so on.
Of course those numbers are based on some assumptions about inflation rates and a constant level of governmental generosity, which is perhaps a tad naïve.
I think our conclusions are similar, find a level of “enough” that works for us, then anything over that is a bonus. The generosity of the state may mean that number is perhaps not quite as daunting is it may at first appear on a simple spreadsheet projection.
Dividend Power 1 December 2021
Enough is always more for most people. I think I have enough but then I think maybe not.
{in·deed·a·bly} 1 December 2021 — Post author
Thanks Dividend Power. We can only truly know for sure whether it was enough in hindsight, and by the time we discover we had undercooked our number it may be too late to recover from that optimism.
zeromatt 1 December 2021
Loved reading your story, it’s amazing how most of us default to wanting the most we can get, rather than take time to think about what would be enough.
I can certainly say from my own experience that settling on an idea of enough (even though it might change over time) has given me so much confidence in defining my boundaries in life. I’m almost at my number, and it’s just close enough that I am able to start prioritising my values in life rather than someone elses.
I’ll definitely be checking back here from time to time to read more. Keep up the great work, and thanks for linking back to me too!
{in·deed·a·bly} 1 December 2021 — Post author
Thanks for the kind words zeromatt, glad you enjoyed it.