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.
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.
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.
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.
- 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‘