FIRE in the news, liar, liar, pants on FIRE

Escapism seems to be the norm, people have got back from their hols and the rude awakening of life back at the office makes for good newspaper copy. It seems the Torygraph is working on this sort of thing, and let’s hear it from the Grauniad –

…the secret to never having to work again – but does it work for everyone?

Ah bless ’em. There are people who get to live in London and retire early. They aren’t the Guardian media types, though, who asked themselves this question and failed to detect yes in the echo from the walls of the city skyscraper canyons.

The ermine already established part of the dirty little secret to retiring early. You need to earn more than average for a decent amount of time, or massively more than average for a shorter time. The Times qualifies that as having £600k in the bank and a fully owned house, H/T Monevator for breaking down the paywall.They also say that Barney from Surrey managed this as a modestly paid accountant after 20 years. WTAF, guys, compound interest is irrelevant over a period of 20 years so there’s an implication this modestly paid accountant was on a screw of ~£800k * 2 / 20, assuming he had a savings rate averaging 50% and his Surrey place cost him about £200k¹. That’s about £80k net pa, which is way over the average UK income. Now it’s possible he got lucky on the stock market, let’s face it the stock market probably worked the equivalent of three years of an ermine at the office, but there’s another little dark truth here. We are several years in to a bull run that is long in the tooth by historical standards.

Oh yes, and half our blessed fellow countrymen decided to devalue the pound in a rush of blood to the head a couple of years ago, which made the numbers bigger by roughly the same as the loss in currency value. It ain’t real guys, the tide’s gonna run out at some time, and much shorter than the 40+ years a fellow retiring in his forties and drawing down needs it to last… Let’s hope Barney has some other plans, eh?

I only earned a bit more than the British average wage compared to many others in the PF scene, but I did it for thirty years. Let’s get that into perspective, however, I earned getting on for twice the average national income for more than half my working life. Many PF writers earn a lot more than I did, but they are in industries where burnout is rife. So it’s pretty darned obvious  that it’s not going to work for everyone, d’oh. And we really shouldn’t be bullshitting people, if you are earning the average wage, and get up to the average level of spendyness and the average number of kids, there’s not a snowball’s chance in hell you are going to retire early. End of. Sorry about that. You might get it so you don’t have to wait to 67, but 40? Fuhgeddaboudit.

Let’s look at a poster child  – MMM. That was deconstructed by Flannel Guy a while back. It’s still an impressive achievement – most people who have a household income of $100,000 for ten years don’t end up retiring early, they rack their lifestyle up to spend that and then gaze longingly at the people earning $500,000 and wishing they were them. Yacht envy is a thing², y’know.

So you gotta earn more, but that’s not enough. Not only do you have to do an MMM and know when to stop, you need to have a stroke of luck, or at least avoid some types of bad luck. The prime example is for God’s sake don’t have kids and get divorced before they all come of age. So the answer to the rhetorical question

but does it work for everyone?

Is even more a great big fat no. Not a prayer, Guardianistas. If you want to live an average life, do the things everyone else does, well, you ain’t gonna retire early, because that’s not an average thing to do.

There probably aren’t that many people who live in London and get to retire early in London. For two reasons. Just about everything about London, with the exception of transport and art galleries/museums, is dearer than pretty much everywhere else. So you need more to retire there, unless you bought your house 40 years ago on a teacher’s salary. Plus you’ll have more going out the kitty day-to-day, though perhaps that is compensated by the fact you can earn more in London. The operative word there is earn, which implies w-o-r-k.

The other reason is that of sample bias – if you are the sort that flourishes in London and earns shitloads of money you are probably driven, and would find doing without the finer things in life a massive privation and you’d feel out of kilter with your peer group. You’re more Wolf of Wall Street than the Good Life. Jeroboams of champers and fine dining don’t grow on trees. If you want to stop working and enjoy that, then you either need to have earned stratospheric amounts of money, in which case hitting the off switch early may be tough though necessary, or you need inherited money. Take Petra Ecclestone, for instance. A great way to retire early is to get Daddykins to earn the money 😉

Petra Ecclestone – one way to FIRE. They still can’t mend the holes in their clothers, or in her case get shoes that fit [irony off]. It’s a tough life at the top, eh?

Wikipedia says about her “Petra Ecclestone (born 19 December 1988) is a British-born heiress, model, fashion designer and socialite.” I’m guessing here, but probably the modelling and fashion designer income wasn’t quite enough for a 29-year old to buy the $90M Chelsea place and the 57,000 sq ft LA place. Thanks, Dad, is probably the order of the day, here…

The Times did a feature on FIRE where apparently 900 good people from London piled into a pub to hear about how they could retire early. Several things vaguely disturb me about this –

1. London
2. In a pub – you’ll find it easier to be an introvert if you want to retire early, because to be different you have to do different 😉
3. but the #1 thing that worried me was if they were paying to hear how to retire early, because they’ve started off on the wrong track. Retiring early is usually about spending less, and spending to find out how to spend less has a delicious irony of its own. If it was a general shindig to chinwag and you got to cover room hire, fair enough, but if it’s like one of those make-money-fast trading seminars then it’s wrong foot forward, people.

Update 30/9/2018 – it was a Facebook meetup and the only cost was the price of your beer, see Luke’s comment below. I am getting too much of a cynical S.O.B. I’ve been punted too many payable London events but I should roll back my guns in this case. There’s everything good about the extrovert wing of the FIRE clan getting together and drinking beer. I’m all for it. Mea culpa

The Times headline is modest earners find formula to retire in their 40s, which should be banned under advertising standards regulations. If these are modest earners in London they are stuffed. Has anybody told these poor saps that we are ten years into a massive bull run fluffed up by funny money? You don’t have to be clever to have made money on the stock market in the last 10 years. Weegee’s quip on how to get a great picture applies – f/8 and be there. The f/8’s irrelevant, it’s the be there. Where you gotta be clever is holding on to that wedge over the next 10 years – and if you’re retiring at 40 then you need to accumulate and hold on to that for the next 40 years.

How do you make a small fortune on the stock market? Start with a big one, or start when it looks like it’s going to hell in a handcart. That time is not now, dear modest earning office workers, so if you want to start your FIRE journey on your modest earnings, then don’t start with the stock market, start with racking back your spendy ways. Some of your spendy life choices have probably already been made, but don’t add to ’em.

So no, the ermine is not going to add to this pipe-dream. If you’re on a modest income in London looking at a bull run that’s one of the longest in recorded history and you are looking back at what would have happened if you had invested along with Monevator in March 2009 then stop right there, breathe in deeply and remind yourself that it was all a dream.

I’m not saying you can’t retire a little bit earlier than normal, if you invest sensibly and consistently, and control your spending, and you have reasonable luck. But look at the sort of privations RIT had to put up with to retire in his 40s – and he was an above average earner, again. But if you are looking at the stock market to do the heavy lifting, then forget it. If you are beginning to aim at retire in your forties, assuming you have started work, you are between 20 and 30. You can’t retire on a modest salary from a standing start in 10 years without having given it any thought beforehand. Really you can’t.

Take it from me – at 49 I wanted to retire early, from a standing start. By then I owned my own house almost (bar £1000) mortgage free, had a decent built up pension and I was earning a decent salary. Plus I was starting in a stock market swoon otherwise known as the global financial crash. Try as I might to munge the figures to give me a shorter timescale, I had to work another three years saving as much as I possibly could, living on less than the national minimum wage after all the saving. That really wasn’t any fun at all. ³

30 year-olds on a modest salary in London probably haven’t paid off their mortgages and you’ll have 20 years less pension savings than I had. You’re unlikely to cross the finish line in 10 years, and you have to stretch it for 15 years longer. And whatever you read about the magic of compound interest, forget it. Over a 30 or 40 year working life, compound interest sort of doubles the real value of your pension savings, as long as you leave them  alone to grow. Over 10 years, not so much. If you don’t believe me, listen to RIT. There is no snowball in FIRE.

There’s a general rule about investment. By the time you read it in the papers, it’s too late. Beware Greeks bearing gifts. It’s going to be a tough ask for somebody starting now to replicate RIT’s work of retiring by 40. Oddly enough your greatest hope of doing that is for the greatest humdinger of a stock market crash to occur ASAP, provided you get to hold your job. But remember Weegee. You gotta get in there and stay there, and stay the course.

Passive investing aficionados will no doubt tell me that’s market timing, to which I would say yep. You want to retire in only 10 years, you need a bit of market timing on your side to get yourself a place most have to work for more than 30 years to get to. RIT reached the finish line using passive investing. But he sure started at a reasonably good time, too, like me. Methinks he earned more than that average British wage for much of that time, too. RIT also highlights some very serious social costs that will be more of a load on younger people – to wit:

The vast majority of my friends and certainly my indirect family are still from my pre-2007 days.  This means that over time a big shift between our once reasonably common values and beliefs has occurred.  […]

At the same time I have found it very difficult to find “new” friends with common interests to my new self (it really is amazing once you have shunned consumerism to see how much it dominates people’s lives).  They really do seem to be few and far between.[…]

my day to day contacts and colleagues have changed and because their standard of living matches the salary they receive today I am now starting (if I’m not there already) to be seen as very obviously different.

The social contact is more important when you are younger. I didn’t experience these issues because I didn’t really rise through the ranks as I was saving to escape, I did that from the high-water-mark of my career. So while I experienced a much more dramatic adverse change to my lifestyle than RIT, I didn’t have so much of a drift away of common interests.

Beware newspapers bringing you promises of freedom from The Man through the stock market. It’s doable, but as a marathon if you start now. The starting pistol for the sprint probably fired over five years ago.

The stock market gets all the attention because of the promise of free money if it goes right. The other things – getting out of debt and reducing your spendyness are the Mr Boring of the FIRE world but they are reliable. They will deliver dividends just as they always did. FIRE wannabees should start with those first – get out of debt and spend less.

Don’t believe all you read in the papers…

---

1. I know, you don’t get to buy a garage in Surrey for £200k. Let’s assume Barney got lucky at some stage in the housing market. It’s what the asset cost Barney when he bought it that matters, not what it is worth now. ↩
2. I wrote that before googling the supporting reference because a lifetime of studying the human condition taught me yacht envy would be a thing ;) ↩
3. The fellow who introduced me to using pension contributions to save the loading of 40% tax, who opined that you have to be mad to be working here after 50? He’s still working there as far as I know. Absolutely nothing wrong with his theory. It was selling the lifestyle to his wife and kids that was too hard. Let’s face it, there’s nothing in it for his kids but privation, they don’t have to earn the money for their nice middle class lifestyle. I can see their point ;) ↩