What did you want to be when you grew up?
Astronaut? Ballerina? Builder? Fairy Princess? Firefighter? Pilot? Sporting star?
No child ever aspired to be an actuary. Occupational health and safety officer. Prophet of the Church of the Flying Spaghetti Monster.
Yet our current job titles are far more likely to appear in the second list than the first.
So what happened? We grew up. Reality set in. Preferences evolved. Compromised to survive.
Lacked the desire, drive, opportunity, or skill required to achieve those childhood dreams.
Of course, as children, we had no idea that the majority of jobs existed. How many seven-year-olds have heard of behavioural economists? Phrenologists? Upscale security officers?
Even those jobs we thought we knew about, we didn’t understand the day-to-day realities. Auditions. Continual Professional Development. Meetings. Paperwork. Planning. Rehearsals. Training. The invisible hard work behind the scenes, required to make those rare magical moments a possibility.
We saw only the end product.
The hero saving the day.
Scoring the match-winning goal.
The virtuoso performance, leading to a standing ovation.
As children, our main source of career information was what we observed. Both in person, and more often, in the media. The adventures of Bob the Builder and Sofia The First informing the everyday lives of tradespeople and princesses. Given the choice, wouldn’t we all rather be Indiana Jones or Jean-Luc Picard, than Ali the Auditor or Heather from Human Resources?
Today, we’re going to play a childhood game of dress-ups.
Fear not, I won’t be asking you to enter the curious world of plushies, nor become a contestant on Ru Paul’s Drag Race.
No, today we are going to dress up as financial planners and play a game of make-believe.
You may imagine you are wearing a sharp business suit and sitting in a fancy office with a killer view.
But you shouldn’t. This would immediately set off warning bells for potential clients. How is that view being funded? High fees and advice better for the advisor than the client.
Perhaps you picture wearing a short-sleeved polyester shirt, and sitting in a run-down suburban high street office located between a betting shop and a charity store.
But you shouldn’t. The faint whiff of body odour tinged with desperation sets off different warning bells. It is unwise to accept advice from someone who achieves demonstrably underwhelming results.
Eventually, your mental picture settles on the classic financial planner stereotype.
Projecting confidence. Just enough success to be worth listening to, without raising alarm bells.
Middle-aged, because nobody listens to financial advice from a twelve-year-old with no life experience. Nor does it carry much weight coming from someone still grafting away past pension age.
Sensible car.
Sensible clothes.
Sensible location.
Diplomas and professional accreditation hang from the walls. Evidencing education. Signalling competence. Not the same thing, but subliminally reassuring nonetheless.
A photo of a smiling family posing in front of an upper-middle-class suburban home. A couple of kids, possibly a dog. The “everyman” family. Financially successful people, just like the clients aspire to be.
For this game, we will assume you are one of the rare breed: a good financial planner.
Not one who lazily hides behind a black box computer algorithm or tickbox checklist of standardised questions. Churning out pre-defined reports containing generic charts and homogenised projections, before swiftly moving on to the next paying customer.
No, while your job title may say financial planner, you are also part guidance counsellor and part sports coach.
Wanting to understand what is really important to the client?
What drivers and motivations sit behind their hopes and dreams, today and in the foreseeable future?
Looking for alignment between behaviours and stated values. Calling out conflicts or inconsistencies.
Equally comfortable providing friendly guidance or delivering tough love.
More interested in helping attain the client’s desired outcomes than in retaining their business. When done right, it becomes one of those exceedingly rare genuine win-win business relationships.
Now because this is a game, we’ll skip past the boring stuff. Compliance paperwork. Sales patter. Upselling. We’ll also assume your clients have all the basics in place. Legal will. Enduring power of attorney. Term life insurance to cover the mortgage. Up to date legacy binder.
Most importantly, that they have the means to pay for your independent, transparent, and fully disclosed fee-only advice. You are running a business after all, not a charity!
Living the average
A new client walks in and asks how to achieve financial independence?
Nothing fancy. Just leading an average comfortable existence, without the need to work.
Not a nirvana-like version, as evangelised by FIRE seekers who have not yet achieved it themselves.
Nor the humble brags on Reddit, which may or may not have been written by a troll just for chuckles.
Definitely not the sales pitch laden exploits of the select few who claim to have been there, done that, and are now touting the secret formula so that you can too. Time-limited exclusive offer. Selling fast!
No, the client wants evidence-based facts. From a qualified professional. Backed by indemnity insurance.
What would you tell them?
What evidence might you provide to support your advice?
Backtested Monte-Carlo simulations using historical data?
Free web-based calculators, which confidently spit out indecipherable magic numbers?
Peer reviewed academic papers?
Pseudonymously written blog posts, whose content is regularly interrupted by confidence undermining random advertisements for haemorrhoid cream, lottery tickets, and Mongolian throat singing lessons?
What risks and issues might the client face on their journey?
What alternative approaches should they consider?
Before you answer, consider the ask: “an average comfortable existence”. The median percentile.
“Average” varies by locale, so let’s consider the English version, as told by the statistics.
A white 40-year-old man. Married to a white 38-year-old woman. With two school-aged children.
Living in a commuter town somewhere in middle England. Home is a three-bedroom, 720 square foot, house worth £249,000. £96,000 remains outstanding on the mortgage.
Their pensions, investments, savings, cars, and other possessions are worth a combined £133,600.
Giving them a total net worth of £286,600.
Their household annual income was £38,550 before tax, resulting in a disposable income of £29,900.
This means they house, clothe, feed, and entertain the whole family on £81 per day.
Through the looking glass
Let’s do some simple calculations to explore what it would take to replicate those median earning levels today, using investments rather than work.
At the time of writing, the dividend yield of a low-cost global index tracker was 1.34%.
Were they to rely upon the natural yield from a simple one fund investment portfolio to replace their earned income, it would require a portfolio size of £2,876,865. 10x their current net worth. Yikes!
Of course, we should always focus on total returns rather than yields alone. Capital gains can be taken at a time of the investor’s choosing, and are often taxed more favourably than dividend income.
The average annual total return for the S&P500 has been roughly 8% since the index began in 1957. After inflation and fees, that annual average return is more like 5%.
Suspending disbelief about past performance being a proxy for future returns, the client could potentially replace their earned income with a portfolio of £771,000. A trifle over 2.5x their current net worth.
The wisdom of the internet would have us believe that annually consuming up to 4% of our initial capital, adjusted annually for inflation, should see us run out of time before we run out of money.
If true, the client would require an initial portfolio of £963,750. A slightly more intimidating 3x their current net worth.
A common trap for FIRE seekers is including home equity in their initial baseline portfolio value when calculating withdrawal rate amounts. Should they intend to remain living in their home, then it is unlikely they will sell off 4% of it each year. In that scenario, home equity does not belong in that initial portfolio balance!
Correcting for that mistake, the required portfolio multiple increases to more than 7x their current net worth excluding home equity.
Higher returns are possible, requiring more risk and are hard to achieve repeatedly. Actively managed funds. Business ownership. Landlording. Leverage. Private Equity. Stock picking. Venture Capital.
The client shuffles uncomfortably at the intimidating size of that ask, looking somewhat ill. They admit that much of their current net worth is held in the form of depreciating assets like cars and furniture. Items that lose value over time and generate no income.
Their next question is how might financial independence be achieved?
You trot out the personal finance greatest hits.
Earn more.
Spend less.
Invest the difference.
Rinse. Repeat. And wait.
Use tax advantages where practicable, being mindful of any strings that might be attached.
Before the pandemic, the median household consumed £27,305 of their £29,900 disposable income. A savings rate of just over 8%.
The poverty line is drawn at 60% of median disposable income, or £17,940. This highlights there is only so much belt-tightening that is safely possible, frugality has a hard lower limit. At median income levels, a savings rate exceeding 40% would see that average family living like those in poverty.
Earning more is potentially an option. However, not everyone has what it takes to earn megabucks. Founding a unicorn. Torturing computers. Trading complicated interlinked leveraged financial instruments that few fully understand.
Many of us start at the bottom, gradually climbing the career ladder as we develop our skills, experience, and network. Sooner or later, we top out professionally and our wages plateau. Few careers offer a snowball effect of endlessly compounding wages or stock options. Most peak, then flatline.
Some turn to side “hustles” or second jobs to try and boost earnings. It is important to evaluate the toll these take on quality of life however, as in practice few offer a good return on the time invested.
An inconvenient truth is that even with modest expectations, the help of geographic arbitrage, and a great deal of luck, financial independence is beyond the reach of many of us. An impossible dream.
At these income, expenditure, and savings rate levels it would take that average family somewhere between 21 and 56 years to accumulate a sufficiently large investment portfolio capable of sustainably replacing their earned income.
Given their current ages, that average family would reach retirement age well before that point. Their earned income potentially replaced in part by some combination of state and workplace pensions.
The client visibly deflates.
Challenge the premise
Remember earlier, when we said you were one of those rare good financial planners?
You don’t let the prospective client shuffle dejectedly out the door at this point, feeling like a failure at the mathematical infeasibility of their financial hopes and dreams.
Nor do you make unrealistic promises about helping them achieve their stated goal, providing they hire you to manage their wealth, generating you a recurring income stream of fees and commissions.
Instead, you dig into the motivations behind the stated desire for financial independence.
Financial independence is a milestone, not a destination. An enabler, rather than the ending.
It provides control over time investment decisions, free from the financial imperative.
Often sought as an escape. Financial distress. Horror commute. Pointy headed boss. Unfulfilling job.
Sometimes addressing a work/life imbalance. More time spent on “have to” chores or jobs than invested in “want to” activities or projects.
Perhaps a change in priorities. Recognising that time is a finite commodity. Children grow up and leave home. Cognitive decline and physical frailty catch up with all those who live long enough.
Many of these underlying motivators will be things that can be addressed today, at least in part. They needn’t wait until full financial independence has been attained.
Clarifying priorities.
Aligning behaviours to desired outcomes.
Making better choices. Each one taking the client a little bit closer to achieving their goals.
Finances certainly play a role in this, but only a small part. Few answers reside in spreadsheets. Located instead in our everyday decisions.
Now it’s your turn to play make-believe. How would you advise your new client?
UPDATE: The UK Value Investor recently raised a very valid point:
Without thinking about it very hard, I think those average stats are bogus.
You can’t just say that the average person is white, 40, owns a home worth £250k, has £100k left to pay off, etc, just because those components are average within their own datasets.
He is absolutely correct. To be completely accurate, our picture of “average” would need to be compiled by asking the exact same sample population all of the questions from the various statistical surveys conducted by the ONS and Which? Unfortunately, that isn’t how the survey process works.
Acknowledging that shortcoming, the composite picture of “average” presented here is merely intended to provide a straw man for the reader to consider their own financial circumstances against. Nobody actually lives the average. Thanks to John for calling this out.
References
- Bank of England (2016), ‘A millennium of macroeconomic data‘
- BBC (2017), ‘Didcot is ‘most normal town in England’, researchers claim‘
- Child Poverty Action Group (2021), ‘Measuring Poverty‘
- Disney Television Animation (2012), ‘Sofia the First‘
- Garber, S. (2018), ‘Shrinking homes: the average British house 20% smaller than in 1970s’, Which?
- HIT Entertainment (1997), ‘Bob the Builder‘
- Listen To Tax Man (2021), ‘UK Tax Calculator 2021/2022‘
- Maverick, J.B. (2020), ‘What Is the Average Annual Return for the S&P 500?’, Investopedia
- Networthify (2021), ‘Early Retirement Calculator – 8% saving rate‘
- Networthify (2021), ‘Early Retirement Calculator – 40% saving rate‘
- Office of National Statistics (2019), ‘Household debt in Great Britain: April 2016 to March 2018‘
- Office of National Statistics (2019), ‘Research report on population estimates by ethnic group and religion‘
- Office of National Statistics (2019), ‘Total wealth in Great Britain: April 2016 to March 2018‘
- Office of National Statistics (2020), ‘Birth characteristics in England and Wales: 2019‘
- Office of National Statistics (2020), ‘Families and households in the UK: 2020‘
- Office of National Statistics (2020), ‘Population estimates by marital status and living arrangements, England and Wales: 2019‘
- Office of National Statistics (2020), ‘Population estimates for the UK, England and Wales, Scotland and Northern Ireland: mid-2019‘
- Office of National Statistics (2021), ‘Average household income, UK: financial year 2020‘
- Office of National Statistics (2021), ‘Family spending workbook 2: expenditure by income‘
- Office of National Statistics (2021), ‘Median house prices for administrative geographies: HPSSA dataset 9‘
- Paramount Pictures (1981), ‘Raiders of the Lost Ark‘
- Paramount Television (1987), ‘Star Trek: The Next Generation‘
- Vanguard (2021), ‘FTSE All-World UCITS ETF (VWRL)‘
- World of Wonder Productions (2009), ‘RuPaul’s Drag Race‘
Featured by
soicowboy 16 May 2021
On paper, I should never have made it to FI. Throwing all my savings at the stock market in a s*it-or-bust fashion over a 25 year period was what made it come about . Ignoring spreadsheet jockeys and not having kids are key requirements IMHO.
{in·deed·a·bly} 16 May 2021 — Post author
Thanks soicowboy.
I think many folks who reach financial independence benefit somewhat from the market gods smiling upon them, a kind tailwind speeding up the compounding flywheel.
Conversely, very few folks could realistically save their way to financial independence. It is the investing returns that make all the difference. That said, you can’t invest what you don’t first save.
gettingminted.com 16 May 2021
Mr Average at age 40 is not in a good position to reach FIRE. An adviser could only advise on what could realistically be achieved by the state pension age of 67, i.e. A version of FI but not RE.
{in·deed·a·bly} 16 May 2021 — Post author
Thanks GettingMinted.
An advisor must consider whole of life, the need for money doesn’t suddenly cease at state pension age. For a median income earner it would be a big drop to go from that £81 per day to the maximum £51 per day that a married couple receives on full state pensions (assuming both fully qualify).
But a good advisor will have factored that in, potentially resulting in larger draw downs in earlier years because the state pension will supplement earnings in later years. It is a similar story for the mortgage, this should eventually be paid off, significantly reducing outgoings on housing.
Other life changes should also be considered, for example the kids growing up and leaving home, reducing bills for food and clothing.
That said, for an uncomfortably high number of us, if we haven’t already “made it” by the age of 40 then there is a material probability that it isn’t going to happen at all.
The truly alarming thing is fully half the population find themselves in a worse financial position that this “average family“. Forget seeking financial independence, many are struggling just to survive.
gettingminted.com 17 May 2021
I think someone in that average position at age 40 will need all the time and effort up to age 67 in order to have some measure of FI. Those seeking and achieving FIRE are a small minority.
Observer 22 May 2021
Owning a home, they’re at least in with a fighting chance. Being the wrong side of 40 and faced with buying that 300k home and clearing the mortgage (total = ~500k) while trying to hit that retirement fund figure would really be dire.
Housing is the great decider.
{in·deed·a·bly} 23 May 2021 — Post author
Thanks Observer.
Certainly makes a big difference to how liveable the state pension might be. £179.60 per week excluding housing costs is a very different proposition to £179.60 that also needs to cover rent/mortgage payments.
Jon 24 May 2021
Agree with this comment…the secret of FI that many people don’t like to admit is that you need to be a high enough earner to pay for both your lifestyle today AND your lifestyle tomorrow. There’s only so much cutting back you can do before life becomes intolerable.
{in·deed·a·bly} 24 May 2021 — Post author
Well said!
Steveark 16 May 2021
I’d advise her to find a monetizable set of her skills that she can use to achieve mastery in a career the marketplace has awarded a high value to. That will make work fun and provide her with many multiples of median wages. With only moderate frugality she’ll have millions in investments over time, but will likely keep working anyway, because it’s fun. At least it worked for me.
{in·deed·a·bly} 17 May 2021 — Post author
Thanks Steveark.
I think that is fantastic advice. Given the “average person” client is already aged 40, expectations should probably be tempered on the “millions” part, as it will be easier said than done. Not impossible of course, but age discrimination will start to apply and there is less time remaining for compounding investment returns.
That said, your suggestion is probably the most accessible option available for many of us. Working in someone else’s firm. Getting paid (hopefully well) to help achieve someone else’s vision. Letting someone else assume most of the financial risks.
The Bludger 17 May 2021
As a Financial Advisor you’re going to have to do it by the book. Even by the FIRE book the numbers you propose (if I did my numbers correctly) will have the husband reaching FI by 67.
Not a early retirement…..
What I have realised is that I (and I would assume) others can be trapped by your own (others?) thoughts. Perhaps, somewhere along the line they have been captured by the thought they need to escape and the only solution they need financial independence.
What you are asking is coaching or even spiritual. You would need to ask:
Why they want to retire? What do they want to escape from. Is there any other non-financial options (career, job change etc)?
Financially, are they willing to downsize in the future?
I would also note that as parents their expenses will reduce in 10 or so years. This could compress the timelines.
Explore some Coast FI ideas?
{in·deed·a·bly} 17 May 2021 — Post author
Thanks Bludger.
That is a great observation about having to do it by the book as a qualified and regulated Financial Advisor. Does that mean we should a higher standard when paying for advice? Does that in turn mean there is a deficit in the quality/completeness of the advice available for free? It is an interesting thought, given how many people appear to base their own financial plans on the thoughts espoused by bloggers and forum members.
You’ve made an assumption here on the Early Retirement front. The client said they wanted to be free of the need to work, which isn’t quite the same thing as definitively wanting to retire early. I think many folks conflate the two when evaluating financial independence, it is often enough just to have the option.
Some great questions around downsizing and whether their expenses will reduce after their children leave home. At least until they get tapped as the Bank of Mum and Dad for help with tuition fees and house deposits anyway!
themoneymountaineer 17 May 2021
Somewhere between startled, depressed & encouraged after reading this.
I just happen to be 40yrs, my partner 38, and we have a 1yr old baby. Luckily, our financials are significantly rosier than this ‘average’ chap – which is a good job, because my tolerance for the 9-5 is not going to last another 27 years.
The depressed response was I think somewhat on behalf of Mr. Average – makes you realise how privileged many of us are. And yet, even being in a much better position – I sometimes feel like I’m right in the middle of that great grey ocean, rowing slowly towards the horizon (hat tip to The Accumulator).
The encouraged response was from The Bludger’s helpful prompt to finally Google ‘Coast FI’. I had incorrectly assumed maybe it was something to do with retiring to a cheaper location, near the sea! As it turns out, I had kinda recognised the £ number to achieve Coast FI for my family, when studying our pension statements recently, but I’d never really twigged as to the significance – that I could ‘relax’ a bit and that perhaps there is an alternative to working myself to death until I reach a full FIRE number. Although I still want to achieve full FIRE one day, it’s a helpful waypoint to aim for that’s a little more within sight.
Now I study the numbers – we’re probably already at a (very, very) thin Coast FI now, so that makes the great grey ocean seem a little bluer, and perhaps the tides a little more favourable (more options at least – part time work etc).
Pretty sure I’ve stretched that analogy too far. But hey, thanks for the perspective – what with the baby induced sleepless nights, lockdowns, and work pressures – I need all the help I can get.
MoMo.
{in·deed·a·bly} 17 May 2021 — Post author
Thanks MoneyMountaineer. Reaching that Coast-FI milestone is a significant achievement. Congratulations! Perform the victory dance.
With your family’s long term future looking (mostly) financially assured, you now have a lot more control over how you choose to invest your time from here onwards. That may well involve more of the same, but it will hopefully feel less pressured as a conscious choice rather than a mandatory obligation.
That’s what Financial Independence is really all about: choice. The early retirement part is a bit of sexy marketing fluff designed to make an otherwise dull topic alluring to the masses!
Bob 17 May 2021
From my experience the big cost is families. I have seen many colleagues retire on time and then taking a second job to finance their children. That is an understandable choice. But some of the children seemed quite demanding. From the outside they appeared like cuckoo chicks who grow to twice the host parents size. (I did not express those thoughts out loud)
{in·deed·a·bly} 17 May 2021 — Post author
Thanks Bob.
Bank of Mum and Dad risk should be taught in parenting school, with house prices as insane as they are in many markets it seems to be a recurring theme amongst the elder tales. Big cities in Australia, Canada, New Zealand, Singapore, and United Kingdom all seem similarly afflicted.
These days, inheritances often come at too late an age to be much help to the kids directly. Would probably be of more use skipping a generation, helping out the grandkids at the stage of their lives when they are struggling with childcare costs, student loans, and house deposits.
freddy smidlap 17 May 2021
i would come with the tough love of needing to make more money in order to retire better/sooner. i had a friend at my house the other day. i work in the factory with him. i do technical support and he’s a factory worker without a college education. he has made $100k USD in the past with overtime. a person can make that in some un-glamorous occupations in the 1st year or two here in the states. then the questions becomes: is it worth it to sacrifice nights and weekends for 10 years to get his money? the client would have to decide that. most of these things involve some kind of trade, don’t they?
{in·deed·a·bly} 17 May 2021 — Post author
Thanks Freddy.
Your friend either has an outstanding overtime rate, or must never sleep!
I think one of the seldom discussed hidden costs of white collar work, or middle management positions in blue collar professions for that matter, is the absence of paid overtime.
Workers are just expected to suck it up and put in the hours for free. The last time I worked at a site that offered paid overtime to workers must be 20 years ago now. Same story for freelancers, roughly 20 years ago everything moved first to day rates (regardless of hours worked), and in the last couple of years things are increasingly shifting to fixed price deliverables (regardless of effort involved).
That isn’t necessarily a bad thing, providing the worker gets paid based on output rather than hours worked. It sucks mightily at sites that worship at the altar of presenteeism however!
Alchemist 22 May 2021
Two themes in my thoughts:
#1 is that nowadays the spread matters more than the average. One billionaire and 990 homeless bankrupts, on average they are millionaires.
#2 the average household would be 2.5 people with an average (not highest) age of 40, and the finances might not be as bad as in our example. A 50 ish couple with maybe one teenager still at home. The savings and housing averages for england are presumably still the same.
Setting #1 to one side and focusing on #2…
– outlook for their costs is favourable. Teenager will prob move on in 5-10 years. Mortgage term, and repayments (10k pa of the 30k?), should end in 10-15 years.
– inheritances may come into play , as might the need to fund care for an elderly relative… – more likely to help than hinder them
– for FI, they need to factor in the state pension for both of them. This coughs up enough to cover a large slice of their current costs, maybe half, from the age of 67.
I suspect that for FI at 60 they only need to have savings to fund money seven years at 30k or less and then 15k a year or less. 400-500k of savings and SIPPS at age 60, in todays money, should be enough.
their 133k of savings, if reinvested, might be pencilled in to deliver half of this by age 60; the other half is going to require some further earning, saving, and investment.
If the 30k of outgoings includes mortgage payments of 10k or so, and these end at 60, then the requirements are a lot less, they are in a very good place to achieve FI at 60.
{in·deed·a·bly} 22 May 2021 — Post author
Thanks for taking the time to give this some thought, Alchemist.
Where it was available, the figures used to paint the picture of “average” were the median rather than mean, to avoid exactly the skew you mention in #1. That wasn’t always possible, for example the average number of bedrooms in an owner occupied dwelling, average number of children in a family, etc.
For #2, there were a number of ways I could have come at it, and all of them would have been inaccurate in different ways. You’re correct, the average household size is 2.4 persons based on the latest ONS information.
However, just over half of the adult population was married or in a civil partnership. Within those families, the most common number of children was 2, and the average age of the mother at the time of the birth of their first child was ~30 while her partner was on average ~2 years older. Meanwhile, the average age of the population is just over 40 years old. Overlaying each of those demographic characteristics painted the picture used above.
For this exercise that was representative enough.
Your points about (hopefully) the kids leave home, (hopefully) the mortgage eventually gets paid off, and (hopefully) the “average” family will be eligible for a state pension are all well made. That said, by 30 years of marriage the cumulative divorce rate is over 40%, so that financially favourable outcome is probable but far from a given.
John Smihth 23 May 2021
I can not “advise”/calculate an “adverage” because I am “personal” in my spread-sheets tables. But, as an idea for a financial plan, I can expose how I do my estimated “decumulation” calculation.
A=B-C; B is total income AFTER tax. C is my living cost, in each month for each year, from my age until 100 years. It is so easy in M$ Excel (or Libre Office). For each month my C=X1+X2+..X7, where X1=rent(morgage), X2=power/gas, X3=food, etc. X7=fix cost for repairs/updates. For example if I buy a new 700 euros laptop every 5 years, then X6=700/5/12. You can add others like new car, new TV, whatever.
The power of these details is that for each month (or year) I can adjust (increase/decrease) each X(i) component by personal “inflation”, not the bullshit CPI, RPI officially reported. So in one year rent is up 3%+ of 900 eur/month, food 6%+ up of 600 eur/month, etc. But maybe after 4 years rent is zero (I own a house), but travel cost X6 is up (not tax rezident, travel more).
Now about B (pensions, savings, dividents etc) in NOMINAL values, as I will receive in time. Pensions (from 3+ countries) will “increase” with CPI inflation (1.5% -2.5%), the tax thresholds (12.5K) maybe will not (financial repression!), there are double tax treatments between countries (because I use geographical arbitrage, and move tax residency!). So it is VERY important how much “take home” you get, not the gross income.
Summary: With few parameters/switches for X(i) you can adjust for changed condition (rent, food, travel, medicine, upgrades) in living cost; same for income (“fix” indexed pension, good/bad estimated investment return). And A(=B-C) >0 will estimate if death come before money depletion. Even on/off cases for spouse survival (income, cost) are included.
Now this I could call a personal plan to make-it/beleve-it using my monky brain and random estimated inflation in a late starge capilalism phase.
{in·deed·a·bly} 23 May 2021 — Post author
Thanks John Smith. Sounds like a sensible approach.
John Smith 23 May 2021
PS: in Romania, Income tax is 10% (flat%, over 400 euros) and divident tax is 5% (fix%). In Spain, the PA (personal alloance) is increased at age 70, 75, 80 age; and can be per person or per houshold etc. Pension starts at different month/years for each person in the couple, etc.
All these “little” legal tax avoidance would allow for faster FI number (lower net worth) because a banch of curves can be drawn versus each localion, so geo-arbitrage is better accounting for, even for different range of time. Because you can choose perpetual travel at age X, but settle in other location Y when older (because medical care, social protection, etc).
The main point is that a financial plan must be (depending on IQ, education) flexible, have slacks in it, and to evolve in time as life throws curve balls to us.
We can not base the future (job resignation, FIRE, house location) on fix data, even data is best guested/reseached.
Please excuse me if I gave to many unsolicited (and maybe useless) information.
{in·deed·a·bly} 23 May 2021 — Post author
Thanks John Smith. You make a very valid point, that we are only as constrained as we choose to be by rules and restrictions.
A couple of different surveys report that just over half of United Kingdom citizens live within 15 miles of their birth place, while 71% end up living within 100 miles of where they started out. Of course, some folks wander far and wide before returning home, but I suspect many more choose the path of least resistance and stay put.
Fortune (and tax advantage) favours the bold!