Clearance at last to begin the Final Approach to early retirement
The birds are singing in the air, the sun is shining and the blackthorn is in bloom before the leaves come out.
Blackthorn in bloom - before the leaves appear
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Birds recorded in the cemetery on the way into town. I love the sonorous resonance of Woody Woodpecker 
About three times a year The Firm invites staff to apply for voluntary redundancy. There’s usually an incentive of up to a year’s salary redundancy money, and I’ve put my hand up enough times in the last couple of years.
This time the stars are in alignment, it seems, and I have clearance to begin the final approach for the exit. HR spent a lot of time spitting bricks about that everybody has to be out by the 31st of March. However, I have a unique skillset for the Olympics work, and local management found a way to extend my leaving date to the end of June.
Which I’m absolutely cool with, though it confused the hell out of me when I received the confirmation with a leaving date contradicting everything else HR had said. Where there’s a will there’s a way, eh, guys 
Not only do I get the opportunity to finish the job, I get the opportunity of getting the year bonus just as I leave, I will only have earned half a tax year’s money so I have less tax exposure and I get to benefit from another load of Employee share schemes and Sharesave. Thank you Mr HR and line management.
Oh and I don’t exactly have to sweat the infernal performance management system because there’s nothing to play for. It gets back to how working used to be before a bunch of American HR twunts got a hold of the system. I didn’t realise that the punk Peter Drucker who is responisble for an awful lot of things that enable Digital Taylorism was the architect of Management By Objectives. The Firm seems to have explored pretty much all the avenues listed as Limitations in the Wikipedia article on this.
It seems W Edward Deming identified the thing that The Firm did wrong – in my area, which originally had a scientific and technical skill base, management was along Deming’s lines of leadership, which worked well. Only in the last seven years did they switch to MBO, which ended up destroying the esprit de corps. Indeed, the undesired outcomes of MBO seem to be rife in capitalism at the moment, with objectives causing our CEOs and bankers to run amok chasing short-term gains and hypercomplexity at the expense of the rest of us muppets.
Oh well. This isn’t my fight any more, though it does deeply hack me off that this damned performance management system and its abuse caused me to have the longest period off sick that I ever had in my working life.
Most people who take voluntary redundancy only get a window of about two weeks between when they hear if they’ve got it and getting to clear their desk, and to be honest that’s all I expected to have. The luxury of the extra time means I have more opportunity to set my financial affairs in order and take opportunities.
Joining the rentier class is a huge change from being an employee.
Living off capital is a massive change from living off a wage. I have always got the vast majority of my income from being an employee. This will change; my work pension is deferred pay of a little bit more than the NMW because I am a very early retiree, which fits conveniently with the aims for an increase in personal allowances from the Budget yesterday. Nevertheless, it is enough that I will probably always be a basic rate taxpayer as a result, which eliminates many otherwise useful ways of avoiding tax.
As far as the capital is concerned, to my employee-income-attuned eyes the numbers are enormous – and this often leads people into temptation. The AVC lump sums and redundancy money plus the savings I already have add up to the largest sum of money I have ever seen in my whole life, I could easily buy my house again, cash, and furnish it better than it is A friend of ours asked if I am going to blow the redundancy money on something nice.
No. That sort of thinking is madness. For a while I am not going to change any spending in any significant way, with one exception, I may go on holiday, but along the lines of The Accumulator’s staycation rather than a permanent Gap Yah. Other than one special occasion, I haven’t been on holiday since 2008, and this was one of the harder things about locking down spending while working. I came to this conclusion myself, however, the rationale is delivered with more vim and vigour by this writer
The one thing everyone must do the moment they get fired or quit is…
…NOTHING.
Don’t do a damn thing. Nothing at all. Got that?
So why no change? After all, though my total income will be less than half of my gross salary, that’s actually a hell of a lot more than what I have been living on these last three years, because I have been saving most of my salary. I could increase my lifestyle and not touch the capital
No change for several reasons. I only gained control of my spending after I had accumulated a lot of data on what it was. My spending will inevitably change – I lose the modest work-related costs, I will probably pick up some other costs. I need to know what these are before making any strategic changes. I have no experience, only a theoretical and intellectual understanding of what it is like to live off capital. This is eased in my case by having deferred income which is significantly more than my outgoings, so there really is no rush, and I have much to learn.
A signal received at the eleventh hour…
Just over three years ago I took the initial hit that started me on this path. So I decided I wanted out, and started making the calculations. This was in February 2009, and after loading a Cash ISA I started to look at more sustainable returns from saving, splitting between financial and non-financial investments. I read this on Monevator. These were among the darker days of the financial crisis.
Points of crisis magnify the power of small actions. It was clear that I was a long way away from financial independence, and I have a very dark view of the future of Western economies. And yet, I saw that combined with the power of a 41% tax saving on going into pension contributions, there was an opportunity highlighted in that article. It was time to take a chance like a Stagecoach bus driver, but with far better odds. At the time it did look to me like there was a very real risk of the entire financial system going titsup. I did know the ‘be greedy when everyone around you is fearful’ theory before but it took that article and some desperation to stiffen the spine to actually execute it then. I continued to invest in AVCs ever since, and have just issued the sell stock market funds to convert to cash fund command, at a 20% uplift (less about 5% inflation).
The echo of the initial hit still stayed with me, and so I saw these last three years as trying to manage the slow decline of energy as I fail to live my values for the sake of money. It is not necessarily the most motivational image, but it allowed focus. Sometimes it isn’t necessary to win, it is enough to lose less quickly.
I was ready to quit of my own without a redundancy package after August, by which time I will have run out of space to save 40% tax in my pension contributions to be able to take out as a pension commencement lump sum without having to take out an annuity, for which I am far too young. However, it was always good to roll the dice of voluntary redundancy if there’s an opportunity of a free win, and this time my number came up at the eleventh hour.
Retirement isn’t all about money, of course. I will probably not want for things to do, and the work, community and people at the Oak Tree will mean I won’t get to see too much of the attractions of daytime TV or the Jeremy Kyle show.
Though I chose a similar aviation metaphor to Salis Grano, I reversed the direction, I see the journey to early retirement as being on the final approach, where his is one of taking off. SG probably did the planning in the way you should do it, saving over many years. I started late, already from a weakened position and anticipated the three years would be the point where I was all out of energy from the enervating performance management system.
I’ve never had any actual trouble with it after the first hit, but I associate the whole procedure with a time when I felt I was within months of being run out of The Firm, and since it happens every quarter that is a lot of stress. I did wonder if I paid for psychotherapy then it might be possible to break the power of this association. However, in my view modern performance management systems are deeply screwed up. Some things should not be equalised or accommodated, they should be destroyed or eliminated from my life.
The Tribulations of Holding Lots of Cash
While I did a pretty good job of working out how to save the most while minimising my tax exposure, what is becoming patently clear is that I didn’t really pay enough attention to working out what to do afterwards. It transpires that the total sum of my AVC savings, redundancy and existing savings is far and away my largest asset, with the possible exception of my pension itself.
And it will appear as cash, and immediately start to decay in real terms in that unappealing way that only cash does. As soon as National Savings and Investments open their doors again for index-linked savings certificates I will double up my existing 15k holding with them. That I can leave as emergency fund. Unlike that cheeky pup Monevator who would like to make a profit on his cash holdings, I don’t have any aim to make money on cash. It’s quite enough for me to find all of it still there in real terms when I come back for it, I just don’t want to have it die away quietly into the night in order to pay for some Government largesse like Tarquin and Jemima’s school fees. And I don’t want to pay tax on it, either. However, in the grand scheme of things NS&I can’t really help me very much to stave off the rust of inflation for most of the capital, because of their savings limits.
The high-level aim is to invest most of the money, somewhat along the principles described here, and carry on on the general HYP lines my existing ISA operates on. I was also planning to hold a big wodge of The Firm’s shares unwrapped. The old principles of not holding shares in my employer kind of go away when The Firm is no longer my employer. It has a decent yield, reasonable prospects and I have totally avoided the sector in my shareholdings. However, this comment implies this will cause me problems with tax again. I had hoped to avoid paying tax as a retired Ermine by using ISAs but it will take me well over a decade to finish shovelling cash into ISAs.
The general issues of how to turn savings and a pension commencement lump sum into an income don’t seem to be addressed in any UK PF blog that I’ve found so far so this is a pathless land as far as I can see. The general principles of living off investment income are dealt with well, but migrating a large lump sum into tax-sheltered funds while avoiding the cash rotting away over time is a specialised requirement. The best source of information around the topic is MSE’s forum, however it needs sifting heavily. There are some people on there who believe it is reasonable to take out a loan of £4000 to have some pictures taken of themselves…
It appears I made a mistake paying down my mortgage early rather than investing using the mortgage as a low-cost loan, which would have given me many more years of ISA allowances, discharging the mrotgage at the end with the cash lump sum. However, I didn’t really have the brass neck for that sort of thing, so I have to eat the consequences of being risk-averse. My asset allocation and global diversification is now skewed horrendously to cash and to the UK, and it will take some time to fix that.
Retirement is about quality of life, that means hearing more of this sort of thing
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and less of the incessant babble of densely packed open plan offices and people talking loudly on their mobile phones in buzzword bingo phrases or the roar of datacentre cooling fans.
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living intentionally reflections simple living: quality of life standard of living
by ermine
11 comments
Your Standard of Living may take a hit, your Quality of Life doesn’t have to
Ben said something in a comment that made me think a bit
for the upper side of middle class these are brutal times with generation X ers significantly harder up than their baby-boomer parents. The desire they have to maintain the same lifestyle they were brought up with is almost certainly overpowering
There’s a lot in that. It’s hard to equate directly – I am probably tail end of the baby boom, DW is GenX and I had a better experience of work than she did. And work in general is getting less rewarding IMO. I’ve ascribed this to digital Taylorism before, although there is also the possibility that I am losing tolerance and adaptability to business trends through the usual process of getting more ornery and curmudgeonly as I get older.
Ben’s comment gave me a double-take. A lot of things are far better for GenX than they were for baby boomers, gone are the draughty coal-fire heated houses of the London I grew up in. TV is better, both in programming and in picture quality. Far more people have cars, though that has its downside too. Those cars are far more reliable now – I recall changing clutch cables and water pumps by the side of the road in the freezing winter a couple of decades ago. But I know what he means. Some of the important things in life, like accommodation and jobs early on, were commoner and easier to afford on typical wages than they are now. Britain paid its way in the world more, and had less global competition. More of our consumption was made locally in the mid-20th century than it is now. As a resut we had more jobs, relatively, but our stuff was of a poorer quality, hence the unreliable cars and TV sets
That decline in standard of living will progress and accelerate, as the West loses competitive edge to the East. Robert Peston had a programme ‘How The West went Bust‘ on TV last year and he pretty much laid this out with evidence. We’re overpaid compared to other people, and globalisation and improved communications will see to it that wages equalise. To see the level they will find themselves at, we are probably overpaid by five times relative to the Chinese by his reckoning. Split the difference and real wages will fall to about a third of their current real value, weight by population size and our pay will fall even further.
It’s not guaranteed, of course. There are some things that could happen that would forestall this sucker punch from globalisation. Peak Oil would put a major spanner in the works of those long supply chains and we’d have to make the stuff we use more locally again or do without. The Raspberry Pi could galvanise a generation of British kids to do something with the sticky grey stuff in their craniums rather than watching TOWIE and wanting to become a sleb.
However, the tragedy behind Ben’s comment is that each generation will have to strive harder to achieve some of the basics their parents had because of increasing global competition until that is assimilated, or the myth of continuous growth finally goes titsup, in which case it is Game Over for a lot of our standard of living.
Standard of Living ≠ Quality of Life
Just because we have an advertising industry hollering out that buying Stuff and Experiences is what makes a better quality of life doesn’t make it true, but unfortunately it makes it easy to believe that’s the case.
Obviously, at the bottom end of the standard of living scale it does directly influence quality of life. If you haven’t got enough to eat or you haven’t got a roof over your head then your quality of life isn’t great. However, one of the myths of British culture that causes a lot of misery is that you have to own that damned roof. At an early stage in your adult life you take on a huge financial risk and expose yourself to a big one-time purchase in a cyclical market. To make things worse, some of us don’t understand the repayment part of buying a house and get ourselves into a right pickle.
Other European countries manage better by having a working rental market with professional landlords rather than our motley crew of amateur buy-to-letters. It’s been a long time since I had dealings with landlords but the professionals always delivered a better experience than the amateur accidental landlords. It sounds like nothing has improved in the intervening quarter of a century.
That’s just one aspect, but there are many cases where we built non-negotiable costs into our lives. Each and every one of those binds the chains of wage and debt-slavery tighter. It doesn’t have to be this way.
You can separate Quality of Life from Standard of Living
Subject to a minimum standard, which you can achieve in Britain on benefits which is part of the financial problem we are in you can improve your quality of life separately to your standard of living. Ray has a much better quality of life than I currently have, though my standard of living is probably higher than his even after saving is taken out. Standard of living you influence by earning more, and/or eliminating debt costs. It is primarily about the amount of money you have in terms of income.
Quality of life is largely about how well your needs are met. Finance and society address the bottom two of Maslow’s hierachy of needs, after that it’s up to you and the people around you to work it out. Ray is living his values, and he’s comfortable. I am not living my values, so I have issues in the self-actualisation department. I am working towards fixing that, but I’m not there yet. Once I have sorted that, I will probably have a better standard of living and quality of life than Ray
It’s the job of the advertising industry to convince you that money will buy solutions to the top three levels. They do a very good job of it, and lead most of us into a continual epic fail. Let’s take a look at those top three levels.
You can’t buy Love
For a start most of us manage to break out of that fail in the love department, though there’s the oldest profession in the world for those that prefer to use cash rather than charm
To get anywhere with love you have to be a lovable person and to be able to give enough of yourself to love. That’s about how you are, not what you buy or what you own. However, the admen get in there too, with Valentine’s day, diamond rings, the wedding industry, almost anything to do with children, you get the picture. We are all social creatures to some extent, and again, lasting success in interacting with others is about who and how you are. You can take some shortcuts with what you have, but the sort of love and friendship money can buy tends not to stick around at times when you need it, or when the money runs out.
You can sort of buy Esteem
The Esteem level is absolutely rife with products to make you feel you are special by virtue of what you buy, and we fall for it every time.
The sort of esteem that money can buy you is shallow and impermanent – you achieve self esteem through self-knowledge, consistency, living your values and knowing what you stand for.
The sort of esteem you get from lowering your car suspension, fitting a loud sound system and detuning your engine with a bigger exhaust pipe is all about trying to dominate the ‘hood. It’s the same sort of esteem as the cock sparrow on the gutter dominating the area with his chirping. The self-esteem you get from what you own is all very well but it suffers from the ancient problem of the sound of a tree falling in the forest with nobody to hear it. If your self-esteem is dependent on other people looking at what you have and where you are then it will fail you in the dark night of your soul when you need it most. You can’t buy that, you have to grow it through hard work and self-knowledge, and even then there are no guarantees.
You can’t buy Self-Actualisation
It’s in the title. Doesn’t stop there being a huge industry being out there to separate potential self-acualisers from their money, but the Delphic Oracle had it spot-on, all those years ago.
'Know Thyself' in Greek in a stained glass window
Know Thyself. It’s something only you can do, and to achieve self-actualisation it’s something you have to do.
Quality Of life is about what you Are as well as what you Have
It took far too long for me to come to this realisation. Shona hasn’t got it yet, bless her, though she’s on a voyage of discovery. It is something that I found in a crisis point, I saw clearer, that I didn’t need another eight years of a decent middle class salary doing a middle class job.
So I started to make the biggest purchase in my life, of something no ad-man has ever offered me. In financial terms it is much more costly than my house and car. What I am buying cannot be held, or weighed, it is intangible by definition.
It is freedom and dominion over my time. No Stuff will be as good as Freedom from wage-slavery feels. It has no fixed price – Jacob in his ERE days won his freedom far earlier in his life than I and for a far lower price. There are other ways of doing it – Dolly Freed’s book Possum Living shows another way.
One of the things that saving towards buying financial independence showed me was I don’t need a lot more Stuff in my life, because my spending on Stuff dropped way down. I don’t miss it any more. Even if I had no independent savings if I drew my pension early I would have to increase my spending on Stuff to use it up. I do miss some things that I had to give up to shorten the period of saving to a minimum, and I’ll probably restart them. But more than half of my spending was a chimera from which I derived no lasting pleasure. To hell with that. I had to find that out the hard way, some times that is the only way; Nietzsche had some point with that which does not kill us makes us stronger.
Tyler Durden showed why it’s so hard to see this consumerist fallacy in Fight Club It’s only after we’ve lost everything that we’re free to do anything. Because he’s a movie the principle is overstated for dramatic effect, but far too many people cling to the inessentials of life as their standard of living falls only to lose the essentials because they are misallocating their resources.
Taking a controlled standard of living hit upfront means I haven’t had to give up anything really important to me
I was ‘lucky’ when I thought I was done for working three years ago. I first prioritised short term savings, along these lines, but what I percieved as an immediate hazard of having to leave work turned out to be less acute. At no time in the past three years have I attempted to recover my original standard of living. I simply aimed for a controlled crash-landing to a satisfactory standard of living, slowly surrendering disposable income to buy my future income, a reverse of the ‘borrowing from my future self‘ by saving to my future self.
I targeted half my income as a reasonable goal. I was more than halfway through the controlled crash landing when I realised that I was in danger of succeeding, despite not having the benefit of compound interest on my side. Some things make the job a lot easier for me than, say, ERE. I already own my house outright, and I have been saving in a good pension for nearly a quarter of a century. Against me, I want to retire early, which weakens the pension severely, combined with dastardly dealings from my employer which means even if I carry on working to 65 I can never realise the original target of half my salary with that pension now.
It is only now that I realise I have no need for half my current income, proven by the simple fact that I am saving well over half of it. This is largely as a result of taking the standard of living hit entirely under my control and in ways of my choosing. I will improve my quality of life once I have completed the path.
The Times They Are a Changing – Choose Quality of Life over Standard of Living
These challenges are coming to many of us in Britain, and Ben opined
The desire they have to maintain the same lifestyle they were brought up with is almost certainly overpowering
They need to kill that desire. The key to preserving your quality of life when your standard of living is going down is to get ahead of the curve and choosing where the dwindling resources will be allocated. Doing that reactively puts you in endless firefighting mode.
Choose your battles before they choose you. Live intentionally, know yourself, what your values are, what matters to you, what your resources are and what your potential is. Then deploy those resources, stay adaptable to changing circumstances, and live.
One good tip here is to engineer out as many fixed costs and long term commitments as you can from your life, things like Sky TV, long mobile phone contracts, any sort of contract like gyms. For elective spending it’s sometimes worth paying more for something to get that freedom from long-term lock-in. For things you must have, like mortgage/rent and fuel contracts are okay, but many people see the savings on elective contracts without seeing the invisible chains of spending that tie them down. And think long and hard before taking financial responsibility for anything that eats.
That’s where Shona screwed up. That family could either pay for school fees, or for their huge house. If the school fees mattered more, they would have downsized ages ago, when the first child went to public school, and not been caught on the hop. If the house were more important, then the school fees would go, and they’d still be living in their fancy house.
Prioritising worked for me, though I was already living within my means when I started, unlike Shona. I cut the holidays, the gadgets, the media buying. I’ve already bought myself a tax-free income of over a hundred pounds a month with my measly post tax savings, and a potential income of a lot more with pre-tax savings, which I will spring tax-free as a pension commencement lump sum. I also bought myself a stake in a business, three years’ index-linked living expenses with NS&I and a cash emergency fund.
It’s all about the choices you make, and I’ve chosen to surrender standard of living to buy a better quality of life. They’re not the same, whatever the admen want to have you believe. If it traps you in a job you don’t like or takes you away from seeing your children grow up, then a higher standard of living is often associated with a poorer quality of life. It’s the dirty underside of consumerism, and it needs to be called out every so often. Choose quality of life over standard of living. You’ll feel better for it
Financial freedom is having options, not just having money to spend
I remember times when I didn’t have enough money to buy the stuff I wanted. Still plugged into the world of consumerism and advertising to some extent, the stuff I couldn’t afford bugged me.
What I discovered was not that it bothered me because I really needed the stuff and it would give me lasting improvement of quality of life. What bugged me was that I didn’t have the option of having it. I couldn’t afford it, and because I wasn’t brought up to buy consumer goods on credit I couldn’t have it.
It took a bad experience at work to show me that there was something a lot worse than not being able to afford consumer tat. It was not having options to walk away from bad situations.
Our American friends, with their delicious lack of irony, can get away with saying things that would just sound hokey and ridiculous from me. In this old newspaper clipping, which is a 1963 ad for a savings and loan company.
The Pleasure of Walking Tall (cringe)
It highlights the advantages of financial freedom -
A man without savings is always running. He must.… He must take the first job offered, or nearly so. He sits nervously on chairs because any small emergency throws him into the hands of others.
Two-and-a-half years ago I sat in an annual appraisement, when The Firm had had a general annus horribilis due to incentivising the salesforce to sell products without evaluating whether they were profitable first. And I listened as a little twerp of a line manager told me he was going to slaughter my appraisement because the project I had been on had been cancelled and my skills didn’t fit in his area. He did it because he needed to score a decent number of negative hits. I was in a weak position, had had some upheaval in my personal life, and had no options. I didn’t have savings, so I had to sit nervously on the chair. Nowadays I would read him the riot act and launch a grievance (you aren’t actually meant to drop someone down three grades without giving them some warning in the preceding quarter, so I could have nailed him for not giving me a heads up first).
He can take a level stare from the eyes of any man.…..friend, stranger or enemy. It shapes his personality and his character.
The ermine is a noble and proud creature, and chose to take action so that this would never happen again. That means independence of working for a living. Getting another job is not the answer. There’ll be another jumped up twat who has just had a child, has no savings, and is desperate to achieve his objectives at my expense so he can continue to afford to pay interest on the debt buying his nice middle-class lifestyle.
Having savings, and therefore options, makes it easier to resist the blandishments of consumerism. Now, I can walk into a store and look at the stuff they have, all gaudily pushed for the weak of will. I can look at it, and think to myself “yes, that would be nice. I can easily afford it. But I’ll pass, because I don’t have a need for this stuff, and I know the want leads only to fleeting satisfaction for a few days”. After a certain point, it is the people in your life that matter, and what you do with them, not what is in your life.
Somehow, having to option of buying the stuff, without particularly breaking a sweat, makes it easier to say no. You can ignore all the 10% off, SALE, everything must GO signs. I’m old enough to have seen it all before, and rich enough and ornery enough to be perfectly happy to pass up on the offer if it means I can take the time to consider the purchase at my leisure. If the damn thing costs 50% more, so what? I don’t buy consumer goods often enough and they are such a small part of my budget that I can afford the luxury of consideration. And many of these offers are cyclical.
I don’t understand the fuss made on Martin Lewis’s moneysavingexpert site about topcashback and quidco etc. Obviously if you are going to spend a shedload of cash on some consumer goods then for sure, try and spend less using these sites. However, the truly radical money saving tip is don’t buy the stuff in the first place, guys.
Ivan Illich, seemed prophetic in the 1970s when he wrote in Tools for Conviviality
Elite professional groups . . . have come to exert a ‘radical monopoly’ on such basic human activities as health, agriculture, home-building, and learning, leading to a ‘war on subsistence’ that robs peasant societies of their vital skills and know-how. The result of much economic development is very often not human flourishing but ‘modernized poverty,’ dependency, and an out-of-control system in which the humans become worn-down mechanical parts.” Illich proposed that we should “invert the present deep structure of tools” in order to “give people tools that guarantee their right to work with independent efficiency.”
Look at so many of the products people will buy for Christmas, they are a lock-in to a complex system of more payments. For example, an Xbox, a mobile phone, Sky TV, a gym subscription, a motor car, a twin-blade razor, contact lenses. So many ways to engineer extra costs into your life, and you tend to do that once you have sunk some costs into it. It was such a relief when I sold my Sky Plus PVR to a friend at work – it had suckered me into an extra £10 a month!
There are also deliberate attempts to change time-honoured ways of doing things into things that require continuous locked-in purchases of overpriced consumables. Take a Nespresso machine, for example. What a daft way to overpay for coffee. Any product that has a club on the website should ring out ripoff alert in big letters. With a bog-standard filter coffee machine I can get my coffee from anywhere, in any quantity I want. From Tesco to some hideously overpriced London coffee emporium selling me Java Blue Mountain air-freighted fresh that morning, no doubt.
I have the choice of how strong and how much I want, by varying the grind and the ratio of water to coffee. If I am lazy, I can use a coffee machine – this is in fact how an Ermine rouses himself, by loading a coffee machine in the evening, and using a wireless remote control to start this in the kitchen from the bedroom
If I am not lazy I can use a filter cone, a French Press or a stove top espresso maker. With the exception of the filter cone, zero waste bar the bag of coffee beans, and even in the case of the cone, the waste is compostable paper.
With a Nespresso machine, my choice of coffees and choice of suppliers is narrowed massively, to the 16 of the Nespresso range and to one supplier. I’d waste an aluminium capsule each go, so wasteful that Nestle have to come up with a whole greenwash site to assuage the eco-consciences of their customers.
It’s absolutely and staggeringly bizarre. Nestle have designed a complex system to wastefully lock-in their customers by replacing a perfectly serviceable and simple range of historic methods of extracting coffee from ground coffee, purely so they could make more money. And people will willingly buy this. Illich would despair of us.
Savings. Yes, there’s a lot to be said for them. Most people save in order to buy something. That’s good, particularly is the alternative is to use credit. Though the most common reason for saving, it isn’t the only one.
I save to buy power and freedom – the freedom to walk tall in the 1963 ad. The ad looks really odd to 21st century eyes – modern ads for savings accounts emphasise saving up for something like a house, or the advantageous interest rate. I have never seen a modern ad advocating saving to buy yourself independence of thought and action. Wage slavery is too ingrained in our culture, and we have surrendered to Illich’s modernized poverty.
living intentionally simple living: early retirement frugality
by ermine
4 comments
frugality – akin to living like a celibate monk in a brothel
Todd at financialmentor.com summarised the challenge of what you have to do to become financially independent in 10 years. The thrust of his argument is you need to live on a lot less than you earn, and he described how that isn’t so easy
It takes the self-discipline of a celibate monk living in a brothel to survive on 20-30% of what most people earn in our current culture.
It’s why most people fail, with the exception of odd, extremely focused individual like Jacob (ERE) who finds this all a breeze.
I’m with Todd there. I achieve a greater savings rate than 70%, but then I cheat by having a paid-off house and cycling to work a lot of the time, which takes down two big fixed costs for most people.
Not paying a mortgage isn’t hard, what is hard was paying all the instalments and overpayments over the last 20 years to get to that stage. Reducing other costs was hard. It is particularly hard for the first one or two months of going cold turkey on consumerism.
It was difficult because I had to overcome the norms of a lifetime. For most of my working life I was okay with work, and indeed even now what I do is fine and has regular moments of being interesting. It is the management environment that gets me down. So I had got used to spending a little bit less than I earned, so I was both a consumer of boys toys and of fine wines and eating and drinking out.
Losing the gadget addiction was a harsh switch but easier to hold on to, compared with losing the eating and drinking out. In the end I didn’t want to be working longer to sustain that lifestyle of having the toys, once I had come to that conclusion I could execute the decision, job done. I still have the gadgets I bought up to April 2009, there’s no point in flogging stuff like that on Ebay for the time/return point of view and most of them still work, and surprisingly enough I’m happy with their slowly ageing functionality. Stuff, therefore, was not the problem, and indeed sitting on Stuff accumulated over nearly thirty years of working life means Stuff wants have mostly been addressed anyway.
Hardly watching TV and web-surfing with the power of ad-block plus on my side means I am exposed to far fewer ads than most people, and I adopt a30-day embargo to sterilise any residual power of advertising. If I had a desire for some consumer item, stick it on a list and park it. After thirty days if it still seems like a good idea, go for it. 30 days gives enough time to reflect, and eliminates 95% of my purchases – by then I’ve usually found a way round it or it simply didn’t matter that much to me anyway.
It’s where my world intersects with other people that contrasts and difficulty lie. This is where Todd’s comment rings true for me. Before April 2009 I lived in a way that wasn’t particularly different from how my colleagues and friends lived. The biggest obvious difference is probably being child-free, though even that isn’t hugely unusual in the people I know.
Now, there is a big difference. Most of the people I know from work spend a lot more than I do, and they get nice stuff for it. One guy I know has an audio system that’s worth more than my house. Many have more than one foreign holiday a year; I haven’t used my passport for the last three years.
You have to be more internally referenced than usual to live so differently from the people around you, just like the monk holding to his own values despite the whorehouse around him reflecting contrasting ways of living. ERE observed that early retirement tends to draw personality types INTJ. I would say it is the independence of thought that is the most valuable aspect of that personality type for executing the frugality needed to achieve early retirement, where all around me things urge me to spend! spend! spend!
Trying to spend less means I sometime pass on social opportunities. So there is a cost to living differently, and I choose to pay that cost in the interest of being able to stop working a lot earlier than most people I know. Compared to the quality of life I lose by not buying Stuff, the quality of life I lose by cost-cutting in experiences and socialising is more of a downside to going for early retirement.
Although I am probably personality type INTJ, I’m not as strongly that way as say Jacob, and by going for early retirement rather than extreme early retirement the frugality challenge isn’t such a big ask. Being older than the typical extreme early retirement planner helps too, as SG observed in this comment.
Half the trouble with extreme early retirement for most people is that the first two decades of your working life contain the biggest costs – getting somewhere to live and buying the stuff to set up a household, and just when you are clear of that, most people then have children. That sets you back again because they costs some extra money but more importantly restrict the household’s capacity to earn money.
If I had time and energy on my side I would go the route of the entrepreneur, I wouldn’t choose saving as a means to financial independence. Although taking a long hard look at spending and cutting waste is worthwhile, at the moment I have reduced spending on things that would enhance my life.
So unlike ERE, and Monevator, the attractions of the Spending whorehouse are real for me. It is just that the attractions of financial freedom are greater.
living intentionally reflections: early retirement meaningful work Minsmere volunteering
by ermine
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Early Retirement as opposed to Meaningful Work
I’ve rudely pinched much of the title from BripBlap’s Early Retirement or Meaningful Work? post. It makes for interesting reading, and his post contains many of the things people say about work – that good work does far more than pay the rent, it gives you a structure and meaning. Steve gives this concept its head in the last paragraph -
But I have realized that my real dream is not early retirement, as I often thought it was. I dreamed of days of leisure. I’ve had those days now, as I’ve been unemployed. I don’t want leisure. I want work with meaning. My real dream is finding meaningful work, and it should be everyone’s dream.
Hmm, well I have to take issue with the last few words. Obviously if meaningful work is Steve’s dream, who am I to gain-say that, have at it, but there’s no reason it has to be everyone’s dream. Perhaps I am unusual in this, but I hear the distant drum of the Calvinist work ethic here, and I don’t like it.
Now for sure the initial impetus for me shooting for early retirement is that I find work sucks, both in what my own job has become specifically and what work has become in the post Thatcher-Reagan era. I have no personal experience of working pre Thatcher, but I saw the background radiation of the post-war employer/employee contract that preceded it in three of the four companies I have worked for, and the quality of my job has gradually degraded as it becomes more management-by-numbers rather than leadership by common sense. Indeed what has particularly changed over the last three decades is that managerialism has taken over from leadership, grinding out innovation and inspiration across the board. However, that’s a rant for a different day.
Early retirement, for me, is all about power. It’s not about meaning. Financial independence, for me, is about being able to meet my needs and a modicum of wants from resources that are mine and under my control. I want nobody to have power over my time, and I want to be at nobody’s beck and call.
The modern world of work is about debt slavery – borrow money for college, for a house, and while you are in hock you are owned by your job. I have served nearly my entire time with that, and I am buying my freedom, to be and to live according to the light of my own lamps, to chart a course guided by my own compass. Of course I will accommodate people or goals that are special to me, but the Company isn’t special to me. I work so that I get money, and I use some of that money to buy my freedom from debt slavery.
Having now eliminated all debts, the debt slavery I am now buying myself out of is the slavery of future incurred debts. Once I have my running costs and some spare I am safe from that.
Too many people conflate early retirement with not working. For me early retirement is not having to work. It is the freedom to do something, but to be able to flip the bird if anybody requires me to do something that conflicts with my own aims and desires in life. Freedom doesn’t have to be exercised – I might choose to go along with it if there is a greater good, but there shouldn’t be a coercive hold ‘do this or else we can make you lose your home’.
People get more awkward and cantankerous as they get older, because they accumulate power, and have seen stupid things lead to crap too many times before.You lose the starry-eyed belief that it is different this time, because it very rarely is. Many things have transformed the work environment over the years, but human nature has remained the same.
I have seen enough management initiatives, and TQM, MBWA, investing in people, corporate social responsibility, employee engagement (funnily never employer engagement) and similar claptrap to last me a lifetime. It’s all rubbish. What Western corporations are in dire need of at this time is competent leadership by top brass that actually gives a damn about the company, its customers and the people that work for it, rather than simply maximizing the size of their own remuneration package. We have never discovered a way of linking pay to performance in a way that doesn’t produce pathological behaviour, particularly at the top. The recent financial crisis is merely the results of this pathology writ large, across many sectors. It is endemic in our large companies, and they can only continue to turn a profit by grinding out efficiency in the layers below senior management, increase in scale or reduce workforce costs by outsourcing etc.
And I’m tired of working in systems run by chancers, yes. But though retirement can mean not working, it doesn’t have to mean not working. I was at RSPB Minsmere recently – the welcome desk is staffed by volunteers, as is the shop and tea room. Looking at these people, I would say most were retired, and they include a fair proportion of early retirees, indeed some faces were younger than me.
I presume none of them had to be there, they chose to be there. They had early retirement and, by evidence of the fact that they were there, meaningful work. The two are not mutually exclusive. Indeed, I would say that if meaningful work is what you crave, there’s a lot to be said for early retirement – it opens up opportunities for meaningful work that you couldn’t otherwise afford to take, such as those RSPB positions.
The shortest day and the longest night, a time for reflection on the year
Most people do this on the 31 December, but I’m with the Pagan tradition here Today, on the 21st December (for most years but not all) the day is at its shortest, and the night is longest. There was also a lunar eclipse on offer today to make it even more special, but cloud cover meant I didn’t get to see it. As the wheel of the year slows to a standstill, it is a good day for reflection on what has been, and for what is to come.
Finances wise I’m doing okay – my low-cost ISA provider tells me that I’m 15.92% up on the year. I don’t know if they count the dividend income in that since that is still sculling around as cash, but I’d happy with it, indeed I am dead chuffed.
And no, I’m not brilliant, or a future Warren Buffett, a fair share of that has to do with a certain degree of luck in timing. Anybody starting this year and with some of my hopes and fears would do okay. It’s also got to do with determination is saving; Quicken tells me than I saved about half of my gross income this year, which isn’t bad taking into account that Her Majesty’s Government steals about 25% of it to sponsor profligate bankers – well along with running schools and all that actually useful stuff too I’ve also bought into some non-financial assets which probably count for half of the residual what I am left, indeed that part of my wealth-preservation strategy to try and hedge the forthcoming financial shitstorms is done. I’ve been able to live on about 10-15% of my gross income, but on the other hand I didn’t have a holiday this year as you probably did
I can focus on the financial from now, accepting the hazard that I could be totally wiped out in financial assets when the money dies because we are carrying on in a way that I can only see leads to what happened to the Weimar Republic. But I’m not wise enough to know for sure, so I choose to ride this dangerous horse in the awareness of its possible bad character.
I owe this man a beer or two, both for some seriously good tips, and yes, I’m happy to eat the consequences of my own bad choices but there really haven’t been any duff ‘uns to date and there are three elements that Monevator introduced me to which are responsible for about half of the current health of my ISA, the rest is my own hopes and fears.
To you, my dear readers and commenters a decent tip of the hat too, for insights, different points of view, different approaches and occasionally pointing out I am talking complete bollocks. Your help is much appreciated
Some things remain the same or continue to get worse – the slip-sliding decay of the company I work for from a once inspirational place to work into an outsourcing jobbing shop continues apace. I have at least found a niche in work culminating in 2012, which should take me to a good place to retire
The financial crisis continues to metastasize, hollowing out the shell of the Western World though leaving the apparent shell intact. It turns out the Goldilocks economy was nothing of the sort, and tragically this is being paid for by all sorts of people taken down as collateral damage. Looking at many people under 30, the big difference in their pattern of working compared to mine at 30 is less long-term or full-time employment, lots of short-term contracts for a year or two.
There is a general atmosphere of fear and loathing about employment prospects in much of the working population, as people begin to realise that the modern corporation does not really need that many people working for it to turn a profit, and it will subject those that it does employ in a roiling torrent of fads and inititatives, while busily outsourcing and subcontracting as much as it can to get away from any responsibility owed to customers, employees and shareholders alike, as short-term bonuses destroy strategic direction and company building at Board level.
Maybe there’s a good side in there. Perhaps it is Schumpeter’s creative destruction at work, though we should remember that his view of this as a positive force builds upon the priciples outlined in the negative view of Karl Marx’s schöpferische Zerstörung describing the way in which capitalist economic development arises out of the destruction of some prior economic order. That prior economic order, holding from the end of the Second World War to the implementation of the Thatcher/Reagan doctrine gave us decent pensions, banks that were stable in Europe, jobs that you could build a life upon and mortgages that were harder to get but possible to pay off, and some other good stuff.
Let’s hope the replacement can enable a lot of the population to lead stable, rewarding lives where they can bring up their families or pursue other dreams, aims and goals in some semblance of financial security. The last government hid some of the rotting core by pumping up the benefits system and employed an awful lot of people in the machinery of government, but the train wreck of the financial crisis scuppered that.
What lies ahead? Well, falling living standards for the majority of Brits, as they face:
- Skyrocketing inflation due to the Bank of England printing money and not giving a fig about the nominal inflation targets.
- Increasing energy costs, due to greater worldwide demand and/or possible peak oil
- Increased interest rates, hammering the personal finances of those who have overmortgaged, with falling house prices trapping them in negative equity
- Wages not keeping up with inflation
- Having to pay down high levels of consumer debt accumulated during the boom times
- Credit crunch mark 2, possibly precipitated by the PIIGS destroying the Euro. There is no bailer-out of last resort now – sovereign governments in the West are bankrupt, so their guns have no ammunition left.
On the upside, if you happen to be debt-free and have money, you may do well in the stock market, or perhaps somewhere else – after all those companies seem to be able to make money without employing people, or if they do employ them then they employ them in low-wage countries. I expect power in the West to shift dramatically from labour to capital, for success there you want to have capital, you want to not have debts and you want to get you income from capital rather than working for a living. I am by not means rich enough to do well at that, though I am richer than 90% of Brits. That doesn’t make me as rich as you’d think – the wealth distribution is massively skewed at the top
Hower, I will try and reduce my costs, particularly energy costs, I will not acquire debts unless I am building up savings to pay down the debt at the same time as I incur it, and I am aiming to retire and get my income from capital rather than from working. I am trying to reduce my exposure to the downside and fan the feeble flames of what exposure I have to the upside. However, I am not an island, so though I am less exposed to some of the incoming economic headwinds I still expect to take a hit in living standards. If I can make it working for another two years then though my material living standard may fall, getting my own time back will be a massive increase in living standard, for time is something that is priceless – they’re not making any more of it!
living intentionally simple living: fuel cost katy perry log burner louboutin specialisation
by ermine
7 comments
On living differently
Often it’s easier to see something reflected through other people’s eyes than it is to see it in oneself. A couple of PF posts that resonated with some of what I am doing.
Both of them were by Philip Brewer, whose review of Jacob’s book Early Retirement Extreme brought out this key nugget:
Don’t specialize.
Instead, develop the skills to do many ordinary things yourself. It doesn’t take nearly as much effort to develop and maintain a basic level of competence as it does to become good enough at something that you can do it professionally.
Now I’m a great fan of ERE, but I hadn’t spotted that in reading his blog, intellectually at least. And I’m far too tight to buy the book, since my library doesn’t carry US PF books. Practically, I was already following the lower specialisation path.
I am an serviceable carpenter, but not a cabinet-maker, and entirely self-taught to boot, apart from what I observed from my Dad many decades ago. That’s enough to save a few hundred pounds on making cold frames, though they’re hardly good enough to sell. And yes, I know every half-competent allotment holder does something similar, though I venture that even my substandard handiwork is better than about half of what’s out there However, my requirements were on a much larger scale.
That leads to one of the key things about living simpler, or differently, or extreme early retirement. It was reduce external dependencies, or put another way, increase self reliance.
The modern world is one where there is a high degree of specialisation and inter-dependency. It gains richness and variety in doing that. For instance, making Christian Louboutin high-heeled shoes is a seriously specialised job and you probably need a marketplace of hundreds of millions to be able to get enough demand, far more than the catchment area for a village cobbler.
You need market scale for niche products like Christian Louboutin shoes, worn by Katy Perry
Now it’s clear that Louboutins are in a different league from the functional products of a village cobbler, but all that specialisation does have its downside too. It sets us in a rat-race by definition, because all this dependency means that you have to persuade others to do things for you. Most of us aren’t beautiful enough or persuasive enough to do that without money, so we have to suck it up to The Man to get the money. Robert Heinlein wouldn’t have approved – specialisation is for insects.
It doesn’t have to be that way. Much of the battle here is to reduce consumption. The obvious implication is a reduced standard of living, well it stands to reason, duh. And yet funnily enough, yes, one’s standard of living does fall, but in no way does it drop in proportion to the difference in the cost of the excess consumption. The aim is to consume smarter at the same time – buy much less, but buy better. We’re talking scaling down and trimming the excesses, not living in communes or doing a 1970s Felicity Kendal. I choose my excesses rather that simply following the herd to go for excess in all things as instructed by those nice advertising people.
Buy secondhand rather than new – much of advertising is aimed at the “you need it now” brigade. There’s very little that you need now – you need the air for your next breath now, but some consumer item will probably be cheaper and better next year. If you can wait for the item to come on ebay at the right price, you’ll get far more bang for your buck. Obviously, if fashion, or things like the latest iPhone matter to you, then this won’t be a recipe for a happy life. I don’t get to see a movie until a few years after its out and it is on terrestrial (non-pay) TV. It doesn’t really matter to me – if it did, I could pay, but I choose not to. I spent some of this afternoon shifting about 20 rounds of wood from where a tree-surgeon had cut down a pine tree. Why? because I’d like to do the same for my gas bill as I did to my electricity bill.
The Rational Optimist
If I buy my cold frames from a store, I have to pay 20% VAT on the product, plus 20% tax (I have driven my income below the 40% tax rate using AVC contributions, otherwise I would be paying 70% tax on purchases) plus 11% National Insurance on PAYE on earning the money to buy this. Thus I have to earn twice as much as the product costs. So for everything you see in a store, double the price to account for the tax you pay on the money to buy it.
That is why doing something for yourself often pays well – your hourly rate is double what it is when you earn money to buy the same thing, for the simple reason you aren’t taxed working for yourself. That’s where the basic level of competence works – I am sure I take longer to construct something out of wood than a craftsman, but as long as I am having a good time doing it then typically it costs less than half as much to do it in raw materials than it would be to buy. Plus I know how to service it. When I installed my Freesat dish out of scrounged bits it took me longer than an aerial installer would take, because he does it every day and has the workflow perfected. But it was a lot cheaper; though it should be noted I had the specialised knowledge from work.
As a society we have learned incompetence in doing things for ourselves – this Popular Mechanics from the 1930s shows how much has changed – I wouldn’t know how to go about half of this, and I am reasonably practical.
Some of the skills have been made redundant by increasing reliability and performance. I don’t need to know how to change piston rings, for instance – my car is coming up for 110,000 miles and still gets away with the annual service and MOT, something that was unheard of 20, 30 years ago. That is good. But some of the craft projects showed just how much people did for themselves, compared to now.
Some things that are obviously going to eat up money in future are energy costs, simply because we have only so much fossil fuel energy available and the demand is going up due to the increasing number of people wanting to live a Western lifestyle. I’ve already seen that – I have forced my electricity consumption down by more than half over the last six years but the total price I pay is still the same. Anticipating the same effect with gas, I aim to use this piece of equipment
multifuel log burner
to reduce my heating costs. It is a seriously low-tech piece of gear, a cast-iron box with a pipe out the back, into which you stuff wood and set fire to it. Compared to the gas central heating it’s a right PITA to use. But you can’t argue with the price of fuel – basically the cost of petrol for the chainsaw, though eventually we will be using biomass willow growing on a local authority allotment they couldn’t rent out because it regularly gets flooded with runoff from a road. You wouldn’t want to eat veg from there, but the willow likes water. If you keep your eyes open though, there is plenty of wood to be had for the asking as long as you are prepared for the grunt on carting it off and sawing it/axeing it up.
Now it’s obvious to me that fuel is going to go up in future. And in the general theme of becoming less dependent, not wanting to be taxed at 50% on needs and preferring to spend my money on stuff I really can’t do for myself, I want to get out of the money economy as much as possible for this necessity. That means some capital expenditure (log burner, chainsaw, chainsaw PPE) in return for reducing my long-term financial risks of being fleeced for power. My gas and electricity bills are about £800 together. I had to earn £1600 to be able to pay that. Some of that should be going to my retirement savings, not equally split between EDF and George Osborne’s war chest, thanks all the same.
The second post that tickled me was Change Your Life with Storytelling. I haven’t actually got to grips with this one yet, and this post highlighted that maybe I ought to. The narrative of what I am doing in life has an awful lot of what I am trying to get rid of, and arguably it doesn’t have enough of what I am trying to get more of. If I put my mind to it, it is still hard to picture where I want to be, and that may well incapacitate my ability to make that happen, because I can’t picture it. I feel I am in a mapless territory, and perhaps that needs to be addressed before I can unleash the power of saving to create and image a different, better, life.
Of course that may all be a load of metaphysical bollocks – such is the human condition that it is hard to separate the variables at times
economy living intentionally personal finance simple living: early retirement escape plan
by ermine
6 comments
My Escape Plan
Like anyone aiming to quit paid employment, my escape plan has a large financial component to it. However, reading Dreamer’s inspiring story of how she has made her plan real, reminded me that there is also a non-financial part of it too. People do not live by bread alone, and I have consolidated a lot of the intangible parts without considering them as an escape plan.
You have to take a view on what the future holds to execute an escape plan. The reason is that leaving paid employment means an enormous loss is power and direction – relying on capital rather than income means my trajectory is largely determined by what I have when leaving. There is little chance to make mid-flight corrections.
My vision of the economic future
I have a quandary here, because my view of the future is at significant variance with a lot of people, including some people whose view I respect. I am not sure I am right. The general view, which is that the turmoil of recent years has been a temporary aberration of the sort that occasionally afflicts capitalism and normal service will be resumed shortly, is at variance with my feeling that the myth of our time, continuous growth, is about to fail us.
Worse still, I have insufficient information to get a feel of when I expect the increasing world middle class population’s demand to exceed the limiting effects of peak oil.
I may retire, grow old, see a few more economic cycles and hopefully die peacefully in my bed before world demand overwhelms peak oil. We may solve nuclear fusion before then, though energy security is not the only hazard humanity faces. Something else might turn up – one of the bewitching aspects of the continuous growth myth of our time is that just when things seemed lost, so far something has turned up, like the mid-20th century energy-fuelled Green Revolution in agriculture.
In that case, investing to set myself on as best a path to deal with peak oil is a serious opportunity cost. I need a stake in business as usual too, so I choose to play both ends – invest effort and skills in the post-peak ready scenario and at the same time I hedge this by investing assuming that Britain is booming again – or at least not taking on too much water.
If you want results fast, use great force with extreme prejudice
Yoda, he of the sticking out ears in the original geek-fest Star Wars was a plug-ugly sucker, but he had a point when he berated somebody “do or do not. Do not try” If you want to retire early, you aren’t going to be living an Ozzie and Harriet lifestyle. You’re just not going to get there clipping coupons and skipping lattes at Starbuck’s.
I realised in 2008 that working in an office is not the way I want to spend the rest of my life. Some events before then had made me re-evaluate things, but being targeted by some punk at work to make up his numbers showed me that the world of work had changed somewhat since I started. I wanted results, and I wanted them in years, not decades. Months would have been even better
Extraordinary results demand extraordinary efforts. That means cold turkey on consumerism, it means less is more all round. You need a lot of capital to retire early, in the order of about 20x your outgoings. None of the ways I can think of doing this don’t involve a serious hit on lifestyle compared with most others. The secret is to spend less than you earn, big-time. It means saving well over half my take-home pay, and a fair amount of my pre-tax pay too.
Young people may want to consider working in some unpleasant environment abroad for a year or so; these are usually financially rewarding to compensate for their unpleasantness or cultural dislocation. There are plenty of people that made their fortunes in the oil service industry, or working in the Middle East, where as long as you can avoid trouble and stay off the hooch then you can be made in a year or two. In the past, the military offered opportunities to break the mould, like this report of working 19 months on the Cold War Distant Early Warning Line.
The common thread on all of these is that if you want to build up the cash to do something different to most of your fellow men then you have to live in a different way to them.
The same applies to me. With two-thirds of a working life behind me, I have built up some capital, by living differently to many of my colleagues – my house is a semi where most of them live in detached houses, and I paid off my mortgage over the years rather than extract the equity to buy more house or go on holidays. But it’s not terribly different from the typical middle-class lifestyle. So if I want to retire early, then I have to hit the financial goal hard. Jacob from ERE tells us that it is possible to achieve early retirement in five years. With similar determination, therefore, in theory it would be possible for me to achieve it in less than two years; I already have 2/3 of the amount saved up in the conventional way plus a paid-off house.
Non-conventional investment – the tin hat portfolio
So my escape plan has two parts. The tin-hat portfolio finds a good meeting with DGF’s life-long dream of becoming a commercial grower using sustainable, low-carbon permaculture. I don’t understand it at all, I was born in a city, I am not into the digging and planting and harvesting side of things.
However, I can invest some skill and energy in the construction of things that every grower needs, like cold frames, buildings, energy control systems and temperature control. As well as the satisfaction of creating something tangible at the end, a reward absent from too many modern jobs, it improves the efficiency of the land use and effort.
As well as this some capital assets like polytunnels and the like which extend the growing season or make exotics possible give me a return on capital, which is the hardest part of turning savings into income these days. Businesses can turn capital into income. From a tin hat POV this particular enterprise hedges some kinds of hit to the food supply and rocketing food prices. I would find life as a vegetarian lacking the finer gastronomic things in life, but it would keep the wolf from the door. It also takes us out of the money economy for some our own consumption. Obviously in normal conditions it puts us more into the money economy from the produce sales, which is the right way to be in the money economy – a producer, not consumer
This unconventional part of my portfolio therefore also does something for me, even if I am wrong, Peak Oil is a chimera and things carry on as usual. It will also be interesting, practical and fun at times.
The general problem with saving money, turning it into a non-financial capital asset such as a business or property, and trying to live off the return on the capital is that many capital assets come in large illiquid lumps. These have to be sold to realise any gains. Take, for example, a house – it may have gone up to £100,000 but to realise that you have to sell it to someone; even if it’s a buy-to-let property there are serious transaction costs. If you just happen to need £20,000 then you have a problem, you now have to find a smaller property to preserve the £80,000.
This is why most people use financial assets to do this job, but under certain scenarios those financial assets get written off to virtually zero. I do not feel that the probablility of those scenarios is vanishingly small over the next 30 years.
I used to know a very old person in Germany who had lost their life savings in financial crises – twice. When you hear the tone of voice of someone who has known that, you get a different kind of knowledge from reading about it in a book. You understand that the thin line that holds the edifice we call finance has its limits, and under certain kinds of societal stress it may fail under the load.This is usually more of a problem for people who have capital in financial assets than those living on earnings.
This collective memory underpinned the peculiar German abhorrence of inflation and the preparedness of the Deutsche Bundesbank to pay almost any price to keep inflation of the Deutsche Mark low in the 1960′s and 70s when other European countries let it rip – all the way to 26% in the case of the UK.
In the West we have been fortunate to have lived through a benign financial environment since the Second World War where this hasn’t happened recently. However, it has happened elsewhere in the world over that time – Argentina, Zimbabwe, the USSR, the Asian financial crisis in the 1990s.
The conventional portfolio
The second part of my portfolio is more conventional. It consists of a mix of ETFs, ETCs and investment trusts. I struggled with the latter, as these are actively managed and I have endless repetitions of the passive investing mantra to get over.
FWIW I’m unconvinced that continual pound-cost averaging works. Circumstances and luck have made me a pound-cost-averaging buyer when the market has been low and a forced seller when the market was higher than average. However, until I had a need for an income I found the index fund approach the easiest to have success with.
However, investment trusts have a good track record of paying dividends, and these are useful enough for a spread of ITs to give me the income I want to top up my pension, with the advantage that if I do it in an ISA it is not treated as income so I don’t get taxed on top, though dividends are taxed at source in the bizarre tax structure of the UK.
They seem to have the advantage of the income being stable over the long term. I don’t want to fret about investments and keep on churning them to release an income, so I will shift slowly from ETFs. High-yield ETFs such as IUKD that I was using are skewed in composition by the need to chase yield, which is a side effect I hadn’t thought about and didn’t want.
The largest part of my conventional portfolio is my final salary pension. It performs the position that bonds do in a self-select pension, a reasonably stable investment. However, since it is from a private employer, rather than government-backed public sector, and there is a deficit, I don’t consider it risk-free. Therefore I will draw it early – which will reduce the annual income from the pension since they will be paying it for more than the 20 years they expect me to live after 60. That means that I get some of it out before any risks/threats to its financial stability, and it is why I need to adopt ERE’s approach to saving enough capital to top it up.
Since pensions are considered income and taxed, drawing early means I get much more of it before paying income tax, which is all to the good in my view. My top-up income is derived from ISAs, which are not currently taxed, so I aim to pay minimal tax. I have paid an awful lot of income tax in my 30-year working life, and I’ve had enough for a while. I have done my part for society. If I get a State pension at 68 that will be nice, but I’m not counting on it, by then I expect the UK economy to be so hammered they’ll turn round and means test it or scrap it as unaffordable.
So I have a decent amount of diversity in my investment structure, in terms of the nature the investments and the spread. I can lose one of the three elements without going broke, though if the pension goes bust I may have to run down capital elsewhere.
The main problem with my escape plan is that the escape is two years off. I will have been at it for three and a half years by the time it comes to fruition. Saving 70% of one’s income is difficult to live with – I have the downside of a job with a toxic management structure without using the upside of the money. The halfway point is a nasty part of any difficult project – it is easy to lose hope, since the distant shoreline is not in view and yet much of the losses have been committed without return.Like Dreamer did, I continually re-evaluate if I can shorten the gap, but the maths do not change when revisited.
Finance is only part of a good escape plan. I am not a minimalist, and a big part of quality of life is who you are with and where you are as well as what you have. I have made good progress on these areas over my working life. In that I am different from many ER bloggers, who are sometimes discontented with their situation in life as well as finances. Much of that is simply being older. Getting these aspects of life right takes a lot of time; my 20s and 30s had much angst in them too I suspect some of that angst is part of the human condition.
living intentionally simple living: air rage dreams early retirement Ivan Illich retirement budget rising energy costs
by ermine
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Post Retirement Needs & Wants are Hard to Envision in Debt Slavery
Chatting to some colleagues, it seems that many have a hard time envisioning living on less that they currently earn. D’oh, what’s so surprising about that you might say? Well, some of these guys are serious savers. Some of them have kids that are soon to transit from being dependents to adults in their own right, some are already empty nesters.
The point is that many are already living on less than they earn, or their outgoings are about to fall. That’s the only way you get to save
And yet, sometimes discussing how much we’d need after leaving work, their default level is roughly 2/3 of what they currently earn, and few people seem to be able to conceive of living on less.
Now I’m no Jacob of ERE, but here are some of the reasons I will pay less when I stop work than I have done for most of my working life:
No mortgage. For twenty years housing has cost me about the equivalent of five grand in 2010 real terms. No more. Say I spend £1k a year on maintenance. That’s £6k less I need to earn a year (4k difference plus tax and NI)
No need for two cars. With more time I can be flexible, or use taxis, car-sharing systems, hire them if I really must. Saving about £1.5k in all the parasitic costs of owning a car and keeping it on the road. That’s say £2k a year less I have to earn.
No commuting costs. It is easy to end up paying thousands of pounds in commuting costs, and this is not just the cash, but the loss of time every working day. Say another £2k off. This applies less to me because I often bike to work and live closer than most colleagues.
That’s around £10k less that I’d need to earn simply by stopping working. Not having to earn the money to spend on something that’s not fun is always better than having to earn it and buy it. Having one car in the household is a big step up from no car. The second one is only a step up when it covers times where one won’t do.
The mortgage is an anomaly in that is has nothing to do with stopping work. It’s more to do with sucking up 20 years of not spending more than I earn. The house is something I now have, it saves me the need to pay rent, it isn’t inherently work-related.
These are costs saved, but there are other costs that can reduce. With more time, I can do things that previously I’d have had to pay other people to do. On my first house, I replaced the guttering myself. On this one I paid someone to do it because I didn’t have the time, but I could have done it myself and saved money.
All these are steps that move me a little bit out of the money economy. Doing something for yourself is usually cheaper than buying it, because to buy it you have to earn the money and pay tax on it. If I buy £100 worth of spuds from Tesco I have to earn £130 gross to do that. If I grow £100 worth of food from £3 of seeds, I only have to earn £4. I don’t pay tax on value I add myself where I consume it myself – or barter it with others.
There’s a balance here, we don’t have to go all American pioneer and aim for self-sufficiency. As a debt-slave you have to be largely in the money economy. You haven’t got time to to otherwise. As a financially independent individual, you can choose to be less in the money economy – reducing the amount of your effort creamed off as tax.
The money economy can do things for you that you just can’t easily do yourself – I don’t want to keep my own cows and you can’t grow coffee in the UK. You can’t make a PC at home. But let’s face it, you can grow far better tasting veg than money can buy from Tesco, and there are many other things you can do yourself. If you have the time.
Holidays, a temporary respite from wage-slavery?
Some of the other things colleagues felt were non-negotiable needs were holidays. Some had plans to see all sorts of things on Grand Tours. Obviously they need money for that. Something that has changed over the years is that people pack a lot of expectations into their two week holiday in the sun, almost as if that is a compensation for the grimness of debt slavery. This is almost an addict’s logic – work is awful so I need my break. Needing a break is a symptom, not a solution. Some nutcases even borrow money to buy their holidays, WTF? The summer holiday has almost become totemic – even though some folk even get back to work more stressed than when they were in the office.
Holidays don’t have to be expensive, particularly if you are flexible when you travel. The young usually keep the cost of their holidays down of necessity, and the old do too, both these groups can usually take more time over their travel and aren’t tied to school holidays. Flexibility, and being open to roughing it every so often are the key.
After experiencing Stansted airport in 2007 I came to the conclusion that flying is just not an enjoyable experience for me. The bit in the air is okay, it’s the rest of the package that sucks. Airports makes me want to kill my fellow humans and yell into their screaming kid’s ears to STFU when they scream into mine. That’s before I have even got off the ground. You get ripped off for the journey to the airport, ripped off to park your car, ripped off to eat or drink anything, hassled by half-wits in security. Why do people pay to do this? Just because the ad says pay £5 to get to the beach doesn’t mean this pain is worth enduring. You get nickel-and-dimed 20 times over in surcharges for the necessities to actually get to use your £5 ticket.
You can pay more to avoid the excesses of the so-called ‘low cost airlines’ but then you find yourself at the whim of striking air traffic controllers/baggage handlers/cabin crew. There are just so many single points of failure in the way of a good experience of air travel. Hopefully increasing fuel prices will drive up the cost of air travel and reduce numbers – I’d much rather fly every third year and have a good experience than twice a year with a rotten experience. About £200 return to Europe air tickets would get numbers down, and hopefully price some of the chavs out of the air too.
I don’t see what the attraction is in paying for this experience, so I haven’t set foot in an airport since then, other than for the occasional work trip. Once my time is my own, I will travel again, but slowly and overland, not in tubular cattle trucks.
So much for holidays. They’re a luxury, not a right, and you don’t get a right to them just because you have a crap job. Modern holidays seem to be almost the anathema of simple living, too. But they’re obviously really really important in some talismanic sense for an awful lot of people, so whoever’s doing the advertising spin must be doing something right.
Power and Heating are the exception
Of course, not everything reduces when you stop working. Heating and power are two obvious areas that will increase. I have hedged some of that with a wood stove and a chain saw and some contacts. Energy costs are a big hazard – my heat and power bill is £800 a year. It is low by UK standards because I have invested in some conservation but mostly because I have aggressively attacked electricity consumption using an Efergy power monitoring system and an appliance meter. That showed me, for instance, that scrapping my fridge-freezer and buying a new one would reach payback in one year, and that where possible I should use my 60W laptop rather than my 210W desktop PC. It is pretty obvious that energy costs are going to go up. You don’t have to be a peak oiler to see that.
Britain has become a net importer of oil in recent years, and the aspiring middle classes of China and India are going to be bidding on the same world energy market as we are. Increasing demand running into a fixed supply usually means a price hike. Observe the effect on the price I have paid per kWh of electricity (the dips in Aug 06 and April 08 are artifacts due to the power company screwing up reading my meter, I have smoothed the curve with a 4-point moving average)
Test Your Retirement Budget While Still Working
It seems obvious to me - test out the retirement budget for a couple of years before you plan to retire, particularly if you aim to do it early. Obviously you still do have the inherent work-related costs like commuting, you can reduce the cost of lunch and coffee by taking a packed lunch, or simply qualify that in the budget too. A fantastic side-effect is that you will probably save more money which you might as well put towards retiring early – in my case some of my savings are going towards paying my way in the years before drawing my pension. If you hate having less money more than you hate working, well, the answer is obvious - work longer, at least you will know why!
I don’t find this, and indeed I am saddened by how little extra quality of life I bought with what was a pretty wanton spending on trinkets and gewgaws. There are some things I bought which I still enjoy and treasure – my Canon SLR lenses for both long bird shots and wide-aperture macro shots. I’ve even sold some pictures. I’ll be pushing up daisies before I get to the break-even point, but it’s fun. My Hi-Fi – one of the key components bought with six month’s salary saved from my very first job, and most of it over 15 years old.
What runs through the Stuff I treasure and use is that it usually was decent quality, it lasts years, and it has low running costs, and often has been serving me well for years. It often has multiple uses. I also bought a lot of ephemeral junk too, suckered by consumerism, though at least I didn’t get into debt to buy it.
What I found is that Ivan Illich was right when he said
I believe that a desirable future depends on our deliberately choosing a life of action over a life of consumption, on our engendering a lifestyle which will enable us to be spontaneous, independent, yet related to each other, rather than maintaining a lifestyle which only allows to make and unmake, produce and consume – a style of life which is merely a way station on the road to the depletion and pollution of the environment. The future depends more upon our choice of institutions which support a life of action than on our developing new ideologies and technologies. (1973, Tools for Conviviality)
Illich spotted that it is usually our relations with others, not what we have, that lends colour to life – conviviality, who matters more than what, once a certain level of needs is met. He was thinking of it more in the design of society rather than the individual case, indeed it is surprising how much of that early 197os thinking has some resonance to now.
Early in one’s working life the focus usually is on Stuff, because you start with nothing. RetiredSyd seems to make a similar observation that you get more bang for your buck on Stuff when you’re younger. What’s notable about some of those early purchases is that they can be in service for a lifetime – my pots and pans, my hifi, for instance. One big piece of Stuff is the house. Common wisdom has it that you should always stretch yourself when buying a house, on the principle that your leveraged asset is not marked to market and house prices always go up in the long run. I would differ – I live in a house which is cheaper than many of my colleagues on comparable earnings, but I also bought my house outright earlier in life than they will, even after some setbacks. Once you own your house, early retirement becomes much more attractive. In normal times, you could just as well get an investment portfolio that underwrites your rent, but there is an atavistic urge that makes owning the physical entity so much more reassuring than glowing figures on the screen, for me anyway.
So it is that there comes to a curious paradox – towards the end of your working life, hopefully when you are at the peak of your earning power, you can find you have less need for money, and stuff it into savings. You can get trapped on the hamster wheel like some of my colleagues, or you can rationally look at your wants and needs, qualify them, and perhaps get a better quality of life. There’s more to life than work.
Time to Ditch Bottled Water?
I was in a meeting a couple of days ago, one of the guys was drinking some sort of what the Americans call soda – miscellaneous synthetic flavoured sugared water. The other was drinking a plastic bottle of water titled “boring still water”. He was obviously living intentionally, at least as to what he was drinking – zero calories and good for him.
I linked to the Story of Stuff in yesterdays post on the budget, and on that site there’s The Story of Bottled Water (above), which really is quite remarkable.
Now I don’t really rate plain water as a beverage. I always like it to have gone through a coffee machine first, though if the sun is over the yardarm I’m also perfectly okay if it has been introduced to fermented grape juice or barley first
If I have to take plain water sans caffeine or alcohol, at the very least I prefer it sparkling, to give it some interest, and some tang, presumably from the slight acidity of the dissolved CO2. This must be some European thing, as I had the devil’s own job finding sparkling mineral water in the US, though I was tickled to find vast quantities of filtered tap water on sale there. Filtering tap water and selling it is not something we used to do in Europe – there’s always some sort of story about the source on the bottle here. This even applies to still water, and even on the cheap stuff from Aldi that I drink, which is about 25p for 2 litres.
I was first introduced to sparkling mineral water in Germany as a kid, to Hessen Quelle which came in re-usable glass bottles. I recall this from the early 1970s, so I’m not quite sure the European story stacks up with this film in that the start of demand manufacturing in the late 1970s and Orson Welles, he of the “there is a spring, and its name is Perrier” in 1977. The story of Perrier seems to indicate that mineral water was promoted in Europe before the First World War.
However, it’s difficult to get away from some of the issues in the Story of Bottled Water. Apparently you can get round the usual problems of tap water, the smell and taste of chlorine, by chilling it in the fridge. You can filter it to improve taste and remove some contaminants, however having once seen such a filter go green with algae I’m not so keen on that now. And Anglian tap water isn’t so bad taste-wise, if the chlorine goes.
The issues with mineral water are
- cost
- transporting water (though I usually drink British water at least)
- making plastic bottles or making and transporting heavy glass bottles
I prefer the taste of water from glass bottles but in an attempt to reduce costs I have sifted to 2l plastic ones. These aren’t so ideal for sparkling water as by the time you reach the end most of the fizz has gone, and sparkling mineral water that has gone flat has a curious and not particularly pleasant taint.
The trouble is my penchant for sparkling water. You can carbonate tap water with a Sodastream, but swapping one environment-hostile process (transporting water and making plastic bottles) for another, the Sodastream cylinder exchange process is a pretty outrageous scam, presumably where Sodastream make their money. I try and avoid anything with a subscription or running cost, and I can’t even make the business case for a Sodastream compared to Aldi. Heck, Aldi even throw in the water for free, while Sodastream want to charge me for a gas that’s meant to be ending the world.
Sodastream’s cylinders are £9 for 60 litres (ie 60 liters treated water). 30 2-litre Aldi bottles will run me £7.50, so Sodastream runs 20% more, plus the £60 capital cost. Not only that, but I would be supporting a company that has deliberately designed their cartridges so they are harder to refill from a large pub CO2 cylinder which would be a lot cheaper, though it can be done. I am chuffed that the Germans felt the same way, and when SodaStream tried to abuse the legal process to stop competitors refilling their cartridges the German Anti-Cartel Office stepped in and told SodaStream (known as SodaClub in Germany) to cease and desist their restrictive trade pracitices.
I’m not supporting capitalist pigs like that. I’m all for genuine business, but restrictive trade practices where companies actively stand in the way of customers looking for cheaper solutions should never be supported. And I am not sure that I can face futzing about with adapters and CO2 cylinders.
The issue here isn’t cost, I would only get through a couple of these 2l bottle as week in summer, and I’m not going to break into a sweat to save 50p a week or £26 a year. However, I don’t really want to be a gratuitous hazard to the environment without at least thinking about it if there’s an alternative that isn’t more expensive. According to the NY Times, about a quarter of all bottled water crosses national boundaries on the way from source to drinker. Living intentionally means at least considering the issue.
At work we have two types of drinking water dispensers – one sort is a filter and chiller on the tap water, the other is one with spring water in big plastic bottles fitting onto a chiller unit – these are placed where plumbing access is difficult. I find the water from both of these preferable to drinking it at tap temperature. I have a perfectly serviceable chiller at home called my fridge, so I will try the usual recommended solution of keeping tap water in a glass jug in the fridge. Hopefully the taste improvement of not coming from a plastic bottle will outweigh the absence of carbonation, otherwise I will go back to Aldi.
Oh and the guy in the meeting? He was being quite rational – after all, he was in unfamiliar surroundings. He was buying the convenience of the bottle, rather than the water as such