Earning and working are different things in a post FI world

Before they are financially independent, most people work to earn the money to buy the stuff they need and want, it’s how 21st century capitalism is meant to work at the moment. It gives rise to the term ‘work’ – something that you have to do otherwise bad shit happens, like you end up with all your stuff thrown out on the pavement.

Because it’s something you have to do for many years, many of us get Stockholm syndrome with work. Inveterate story-tellers that humans are, we tell ourselves that work is innately a Good thing and lends meaning to our lives. Let’s take a fine example of this from someone who I’m generally in agreement with, other than in this aspect of life:

But I believe almost everyone will benefit from having an ongoing economic relationship with society while they can – even if only for a day or two a week.

Monevator

I’m the poster child for disputing this paradigm. I consider it a limiting belief, and have taken pot-shots at the Calvinist work ethic every so often on here. The beauty of financial independence, however, is that you get to have the choice of whether to work or not. Over at SHMD, Jim has decided that he missed work, so he went and got himself a job, even though he doesn’t need the money.

Now I have never missed work, ever since I handed in the tools of an office-worker’s trade way back in June 2012. There is, however, a general psychological principle

Everything that irritates us about others can lead us to an understanding of ourselves

Carl Jung, MDR

I would generalise that to everything that irritates us… I don’t think it’s particularly personal in this case. If Monevator and Jim and 99% of the rest of the FI world want to work till they drop, good luck to them. It’s just the concept that work is an inherent good that gets my goat. As a society, we are going to have very serious trouble and mental distress with this meme if the robots and globalisation really do take half our professional jobs in the coming years, unless we have a social revolution that probably involves bending some of the axioms currently underpinning society. Hopefully one of them will be work = meaning 😉

I realize today that nothing in the world is more distasteful to a man than to take the path that leads to himself.

Hermann Hesse , Demian

In order to live intentionally, therefore, I need to separate the beliefs coloured by past experience from my current experience, and my temperament had the past experiences not happened. Otherwise I will live in an imaginary prison, boundaries that once had value but have no more.

What does the word Work mean to me

It means a lack of freedom, it means grind, it means being trapped. It means earning money, it means selling my time for money, it means restrictions on my time. It means doing stupid shit like justifying my existence, it means filling in time sheets that have no bearing on reality, paperwork just because. Because humans are devils with their recency bias, this litany of woe is because the most recent experience was largely negative. But for 27 years out of my 30 it also meant the opportunity to travel, to do good interesting stuff and to build capital across my working life as I slowly exchanged human capital for financial and social capital. If I were to allocate the experience of my years evenly, then only 10% were bad, maybe 12% if I add in the six months I was unemployed between graduating into Thatcher’s first recession in the 1980s and starting work.

So it’s easy to see the limiting belief. Work = pain, and I need get as far away from that as possible. Even in 2009 I intellectually knew that was an extreme view, but one that because of where I was in my working life I could get away with. The power of the intensity of feeling galvanised me to clobber wasteful spend and save and take the necessary risks with extreme prejudice, and reach FI 8 years early.

What I did not realise was that simplification also distorts

and it is the distortion that clouds much of my thinking when it comes to the topic of making money

I think the word ‘work’ has picked up some unnecessary bad connotations […], especially as we’ve transitioned out of the years when ‘the recipe’ (grammar school -> degree -> job for 40 years -> pay your dues -> final salary pension scheme) still worked.

liberate.life in this comment on here

I was that grammar school guy, son of a maintenance fitter, who went to university, got a degree, then worked only four real jobs[ref]excluding casual crap before leaving university – kitchen portering, repairing radios and TVs and odd-jobbing[/ref], have a final salary pension scheme. It worked for me. I was able to retire early because I saved roughly half the notional capital behind my FSP, but having the FSP effectively gives me a massive bond-like holding, which means my risk tolerance with stock market investments is insane, because the FSP will keep the wolf from my door.

Liberate.life is the counterfactual to my experience – younger and more dynamic, but electronics engineering is the field the younger Ermine worked in. And yet he is yin to my yang – he can sell, and freelances, and as I read this it looks like the antithesis of everything I know about work. It’s like looking in the mirror and seeing half the image right way up and half of the reflection upside down. I’m damned if I know which half is off but I suspect it’s mine 😉

So it was time to investigate the subject of work and money deeper. For a long time the obvious issue, that I associate work with pain, simplified things too much

I associate specialisation with success with work

For 25 years I was working in a big company, and in a big company hierarchy. Big companies tend to narrow people down into specialisms in engineering, because they have enough people that they can do that. I pursued some technical interests after leaving work, and have some of this on a blog, when I read it back it is a whole load of random bits and pieces on all sorts of subjects as I flit from one are of interest to another. Mine is worse on that front than your typical engineer’s blog, they at least tend to have a reasonable common thread for a few posts. As someone who is financially independent I can afford to pursue my whims, but if I were looking for staff and I saw that sort of character, I would think Jack of all trades and master of none, and file the CV in the round filing cabinet on the floor.

I haven’t even stayed with electronics and software, a few weeks ago I offered to fix a generator on a no fix no fee basis. I was pretty sure that Google was going to be my friend, the world is full of Honda GX small single cylinder 4-stroke petrol engines and Google is full of people who are describing faults and getting hints on how to fix them. The fault was the engine would run for about 20 seconds and the die. Google told me this was likely a blocked breather vent in the fuel cap, which I confirmed by unscrewing the fuel cap as the engine was about to conk out. Whereupon it ran fine[ref]Obviously you shouldn’t run an engine with the fuel cap open because petrol vapour is inflammable and invisible so don’t try this at home.[/ref] 😉

TFS identified this sort of mentality as a ‘scanner’ but twenty-five years of working in big companies has taught me to identify it as ‘dilettante’. Apparently it is more tolerated in today’s world of work, a kinder term for that sort is multipotentialite. It is more tuned to today’s world in some ways, because better communications means provided you can search well, you can gain the benefits of other people’s experiences by covering masses of ground. You just couldn’t do that before the Web, you couldn’t find enough different people to talk to, and it would have taken ages anyway. Multiple tabs were made for that sort of approach to finding stuff out – cover masses of ground, fast.

lots of tabs is the way to search – until you run low on memory

So I have uncovered some unhelpful associations, and indeed at some level I despise that generalist tendency because for 25 years that wasn’t how to have success at work. It is possible I played against type for a quarter of a century because I prized security and stability and did not know how to manage money over more than a monthly basis. I always needed an answer to the Micawber question, and a regular income made that possible. I struggled with that while running several years from savings, in hindsight I didn’t spend enough. The generalist tendency occasionally caused me grief at work and probably slowed my rise up the greasy pole, on the other hand even in a big company you need people who can cross domains. It tended to work well in good times but be awkward in bad times.

But since I have the drains up I may as well keep on digging at these unvoiced assumptions…

 I associate a steady stream with income – I am virtually blind to feeling uneven income is income

I can’t really relate to income that comes in unevenly in dribs and drabs, because for 30 years income arrived in roughly the same amount each month, apart from overtime (in the early days) and bonuses (in the last couple of decades). It’s still a little bit of a mystery to me how a string of lousy £50 here, £100 there dividends in my ISA adds up to a good few thousands of pounds of income when rolled up over the year. I was able to jump over the uneven lumps ≠ income in the ISA because there are so many of these minor transactions I can think of this statistically. Many people work really hard to make their dividend income spread evenly across the year, this sort of happened naturally for me, although slightly peaking in Q1 and Q3. You can have 20 companies working for you in a HYP, but I would defy anybody to work 20 part-time jobs or even have 20 streams of income, that sort of diversification is hard to have with many income streams.

At a gut level I don’t really consider the sort of hit and run one-off jobs like the generator as income. For sure, Quicken adds them up for me so I can declare this, as long as I keep my pension + earnings below the personal allowance I am chilled. Last year I was able to toss a lot more than the usual £3600 in my SIPP because these things added up to a fair bit more than that. But it doesn’t feel like income, because it is unreliable and lumpy.

I associate earning money with work

and worse than that, I associate earning money with selling my time for money. So these one-off jobs don’t feel like work which is good, but they don’t feel like earning money either, which is bad. I don’t trust them, so I just bung the result into SIPP and live off the steady income from the SIPP, because I can’t budget with variable lumpy amounts. By a curious twist of fate a retiree older than 55 can put all their earnings into a SIPP in one year and get it bumped up by 20% to extract the next year, provided they don’t draw more than the personal allowance. I’ve only got another few years worth of that before my main pension shoves me well into the normal tax bracket, but I may as well enjoy the windfall while it’s there.

And yet together with the income from the ISA these odd jobs will start to add up to about the national minimum wage. It was not so long ago that I was chuffed that the dividend income from the ISA matched what I would have got from jumping through the hoops to get JSA (£71p.w so ~ 3700 p.a.) and yet the rate of increase of the ISA income per year is creeping up[ref]in fairness that was written nearly six years ago when the best you could put into an ISA was about 10k p.a. Some of the win in getting to three times that was the fact Osborne turbocharged this to time and a half, the time honoured magic of Saving Hard at work rather than any particulalry sharp investing chops[/ref]. I don’t draw an income from the ISA because I don’t need to – I want to pump that up as much as I can before I enter the regular BR tax bracket in a few years, since it is tax-free income.

I have lived in a big-company bubble for 25 years and it has limited my vision

I owe liberate.life some beers for widening my search. Because the similarities of the engineering skillset (naturally separated by 25 years or so due to the age difference) and yet pretty much everything else looking like a counterfactual, he’s shown me a set of limiting beliefs I was unaware of. More surprisingly to me, they aren’t particularly due to the trauma of the nutty performance management usage and abusage I took in 2009. That does exist, and has it’s own consequences. The idea of following Jim SHMD’s path and selling my time to an employer to draw a salary brings me out in hives. I’m not gonna go there, and I don’t need to.

But unassociated with that, my concept of making money was massively narrowed by my experience of working life, the unchallenged assumptions of that grammar school kid who followed the default track. Now that I am grizzled of fur and sufficiently past the finish line that I have options all the way up to and including doing nothing, I can zoom out and ask myself the question – is there a better way?

Perhaps I should turn the telescope round and ask myself what do I want out of earning money. I have identified a project where I could use a bit more money. It doesn’t directly change my own lifestyle, so my greatest fear of earning more through selling my skills doesn’t apply – that fear is that I would earn money, inflate my lifestyle with Consumer Crap™, get locked into it and lose the delightful freedom of FI. I am happy with what I will have, my lifestyle will inflate somewhat anyway as my income increases once my main pension starts. I don’t need to earn more money to raise my lifestyle. Although once I believed that I screwed up discharging my mortgage early which meant I took an income suckout for the last four years, now I am on the other side I’m not so sure that I regret taking the suckout over the convalescence period. but that’s easy to say from the other side of the mountain. I got a significant ‘pay rise’ this when my DC pension started in June and will get a massive ‘pay rise’ when my non-deferred pension starts in a few years. Breaking the link between making money and my own lifestyle gives me detachment which can distance me from the suffering normally associated with ‘work’.  It is one aspect of the freedom to that financial independence is about, once you have spent the time integrating the freedom from.

So what do I want from off-piste opportunities to make money?

It is a subset of asking

I think I would feel truly fulfilled if I spent most of my days…

a subset for the simple reason that I have command of my time, being FI. I will do other things that fulfil me, this does not need to replace my use of time, but it needs to add, or at the very least not take away.

1. I want to earn through doing something that is congenial
2. and interesting
3. has some originality or novelty
4. creative in some way[ref]it doesn’t have to be engineering – for the past few years I have been makingsome money from photography and from sound recording. But trends in the wider economy are running away from those sorts of things[/ref]
5. with decent people who aren’t dickheads in general[ref]Everybody s a dickhead sometimes, it’s part of the human condition, and that’s OK. Persistent dickheadery is what I want to avoid[/ref].
6. that helps people or causes that I know or care about personally
7. that is specifically something I bring to the party from skills, temperament or talent if any
8. I want to spend less than a day a week on this, but I favour that being in all-or-nothing chunks with long gaps in between. Part of this is that I am limited by the tax system, I don’t want to work for the government 20-40% of my time. I have done my share of that over the last 30 years.
9. I don’t what to sell my time for money. Obviously doing something creative takes time, but I don’t want it in the form of billable hours, more billable results
10. I don’t want to ever see performance management. An engineer’s work speaks for itself, should that be the field I use
11. I don’t want regular or ongoing time commitments. Hit and run jobs are what I  want, get in, do, then get out
12. I don’t want to carry a smartphone all the time
13. I am happy with no fix no fee and no guarantee of regular work – but if you aren’t there regularly for me there’s no guarantee I will be there for you 😉 and yes, that is sort of at odds with 9
14. I prefer to sell Mind, not Stuff. Stuff gives warehousing and cashflow problems, and regulation is a bitch. It’s not hard and fast though.
15. I do not want to be derivative or routine. I don’t want to be a replaceable work unit. No chuntering out ebooks or matched betting which seem common fave side hustles in the PF scene. I am rich enough not to have to do this, and old enough to know my time is limited.
16. no franchising, if I am not original enough to make a decent return then I will just walk away

and if I do do this, I want to earn a lot more than the minimum wage for the time I do spend on it. Unless it really is so much fun that I don’t mind, but I’m not building that assumption in from the off. I am not volunteering. I don’t do that, particularly the sort of staffing job. I have done one-off data analysis and design stuff for the RSPB, but not under the usual volunteer x hours a week, it was task-oriented.

Unfortunately the logical conclusion is freelancing or contracting. I have no experience of that at all, zero track record, no domain knowledge, I am an introvert and can’t sell. So I have never done this in a big way although I did have a multimedia/web design company on the side in the early days of the WWW mid 90s to early 2000s. But selling was my weak point and when the major customer changed technology I folded the company. I read this and think ‘bloody hell, I can’t do any of that’.

Not only that, but it appears that small companies are where the most likely chances of success are. I have worked for a small company, a 10-15 man band, but it was at the very beginning of my career 34 years ago. Small companies are like the past – they are a foreign country; they do things differently there.

The Ermine place of work at my first company. The duff sensor heads are lined up on the back wall. I don’t have a good explanation for the can of wifebeater on the bench, perhaps we were celebrating a big Egypt order that came in around this time. ‘Elf ‘n’safety would shut this joint down in a jiffy nowadays. We used to wash PCBs in an open tank of boiling Arklone, a CFC with the instruction ‘don’t fall down, else you’ll stay down’. The vapour was heavier than air.

I had some bizarre engineering experiences in small firms, two stick in my mind. In my first company, the design engineer swore blind that a virtual earth amplifier had a high input impedance. Now at 22 I didn’t know a lot, particularly when to keep schtum and STFU, and I had been testing these blasted things which used to want to take off and oscillate more often than not. That’s bad in an optical sensor. But I did know that a virtual earth was a low impedance input. So when there was much head scratching in a meeting as to why we have more duds than good ‘uns I go and pipe up “but a virtual earth is a low impedance – the clue is in the name”. I was dead right, and the clue is indeed in the name, but there was a deathly silence and the assembled multitude digested the unwelcome fact that the lead designer had goofed, as pointed out by the rawest recruit. Seemed a good idea to move on from there after a year…

The second was when I was the lead engineer on a project at The Firm, and we had contracted some clever fellows in the Cambridge Fens. These guys had minds like planets, and I had told them the average TV sound in expected typical audio levels of 0.7Vrms. For some reason they decided they only needed a peak to peak level of 1V, sadly convention has it that the peak to peak amplitude in this case is 0.7×(2×√2) or nearly 2V. The passage of time had gentled the Ermine’s needle-sharp teeth and I had learned that it pays to nudge people to coming to the conclusion that perhaps a mistake had crept in somewhere. But I confess I had to look it up in a textbook after a meeting where one of these guys a lot brighter than me was declaiming that the signal was entirely correctly 1V, he really believed that. They were awesome at digital stuff, could pull their set-top box code apart and have it have it changed in a few hours. In a bigger company somebody else would have been in charge of all that fuzzy analogue stuff and this challenge to basic engineering fundamentals wouldn’t have happened, particularly in front of the customer 😉 Small companies have much more of a heady mix of absolute brilliance and the occasional absence of fundamentals, in my limited experience of them.

For many reasons I would be a fish out of water trying to apply what’s left of my skills in this different world. I have no knowledge of the terrain, and I don’t know if my passport is good for the country. To my advantage I don’t have to succeed, though of course that may work against me too, perhaps I will not have sufficient fire. It’s not looking good, but I have one key advantage. I am not desperate – I am financially independent. Even at the moment the amount in my current account slowly creeps up month on month and I need to toss it into the Nationwide every so often to win 5%. As a result my risk profile is very different from normal, I can screw up a few times and let it go.

There are other odd wrinkles, take this perfectly reasonable recommendation

To free yourself from the grind, be defined by your strengths

I can see that might work when each piece of work is won anew, ie there is no history, it’s obvious to play to your strengths. But in my career I achieved many wins by fighting down weaknesses – it is this which turned an introverted young Ermine into someone who could speak in public and lead international teams. Even in the specific realm of personal finance I had to fight down the common get rich quick belief that trading is the way to make money with stocks, and come to understand that the noisiness of the information, the abnormally high likelihood of infrequent outliers and the high frictional costs mean that often the less you do[ref]inaction on its own is not enough although Robert Kirby’s The Coffee Can Portfolio made a good case it was, inaction is necessary but not sufficient IMO[/ref] the better your long-term performance.

So there are many hurdles and mindset-shifts before I could turn freelancing for small companies into something workable. And surprisingly, none of them are particularly associated with the issues that finished my big company career. Why consider this route? Because the one thing I know I don’t want to do again is a regular job. I don’t have the time, there are all sorts of bad associations, and it’s not what I want to do with my life. Because that was the only way I knew of making money, I accepted I was never going to make money from my human capital again.

People have occasionally challenged that assumption. But it took time for the noise and hum from the crash-landing of my career to die down, and for me to see an opportunity that wouldn’t lock me into a consumption lifestyle, so that I could see the remaining limiting beliefs. Whether it will amount to aught is unknown at the moment.

Andy’s liberate.life is a different take on financial independence, with less emphasis on the financial and more on the independence

In the personal finance sphere our weapon of choice is  of course personal finance, it is the Law of the Instrument. If all you have is a hammer, everything looks like a nail. It’s written in the term financial independence, hell, what other sort is there? Well, given the assumption we are talking about living in a First world consumer economy in the 21st century, that is.

We are aiming to save enough money to not have to work. RIT is the poster child for doing this relatively young, but his journey to FI was a pretty harsh ride. I’ve never earned anywhere near the amount of money I guess RIT earns, but I’ve never taken that sort of punishing schedule for years on end either. In my case, because I was naturally closer to the end of my working life, I could get away with focusing on the financial route to independence. You can become more independent, in terms of choice on how you spend your time, without becoming financially independent. The model I and most people follow, working for a company to get nearly all your income, is one of the least independent ways to get the financial capital you need to live life in a Western consumer economy.

Andy at liberate.life is a new kid on the PF block. Although it doesn’t apply to me, he challenges the principle that financial independence is an indivisible unit. His site is well worth a look if you are in this position

You made it! You’re financially comfortable. Your car is new enough to not break down all the time. You live in a nice house. If you have kids, they’re well dressed. People hold you in high regard and by society’s standards, you are a success.

So why the hell does your life feel like such a grind? At one point, you were young and full of optimism but now you just follow the routine, day in, day out. You don’t have any passion for what you do any more. You do it because you have to. You’ve got bills to pay.  You can’t see a way out of this before the sweet release of retirement at 60-something… and then you’ll be too old and worn out to live out the dreams you’ve always had anyway.

Now since I am not a million years off 60 I would dispute

and then you’ll be too old and worn out to live out the dreams you’ve always had anyway.

Bollocks to that, mate, remember that statistically happiness is U-shaped across the life cycle in many Western societies, so some of this is part of the human condition. But that proviso aside, he’s offering a freebie course in how to get FI[ref]for the sake of full disclosure I have done neither[/ref], and if you want to pick his brains specifically 1:1 interactivity is there if you pay him for his time.

In many ways getting to FI is a matter of asking the right questions as much as finding the right answers. The right questions can lift limiting beliefs into the light of conciousness. You don’t have to fight limiting beliefs if you don’t want to or need to. I’m not going to bother fighting the belief that working for an employer has become a soul-destroying issue of gamesmanship and playing the game with meaningless metrics that strip out the joy of solving problems sometimes otherwise known as work, because I don’t need to. It’s probably not universally true, even for me now.

But now I have found a potential application for deploying the residual vestiges of human capital I may still have which won’t lock me into lifestyle inflation and consumer crap, it is worth challenging some of the limiting beliefs about making money other than just using my financial capital. And without a doubt, Andy helped me ask some of those questions, and I have found that the default answers were often wrong, inconsistent and incomplete.

So if you feel you have made it but want a way out go read some of his work, if only to ask yourself some awkward questions. You may not like the answers but they can serve you well.

Congratulations to Patrick Pichette of Google, 52 (ret)

The CFO of Google has achieved something that few high earners seem to do. In amongst all the Sturm und Drang of earning shitloads of money as CFO of Google, he heard the faintest sounds of the distant drum at 52, having climbed Kili. In itself that’s not particularly remarkable. What was remarkable, however, is that he took action. He switched the engine into neutral, and planned his glide path out.

say cheese, guys

Now the cynical Ermine observes a massive helping of cheese in this pic. Hopefully that photo is a mock-up – it would really, really piss me off to pay all that money and go to all that trouble to find such a ghastly contraption bringing unauthentic consumerism with a Capital C to a natural place. Las Vegas is fine where it is 😉 But if it’s really there, well, it takes all sorts, eh.

Be that as it may, and even if it’s a publicity stunt to promote the ailing Google Plus system, he’s outlined the fundamental problem. You’ve only got so much time in your life, and it’s running out 24 hours every day.

His valedictory post has all the usual things the rich retiree wants to do – travel the world, blah blah blah blah. It’s great- each to their own. It reminds me of the things I thought I would do lots of once I had control of my own money and time. And indeed I may still do. All these things are projected outwards, but retiring well is also an inner journey. I am reminded of the words of the Swiss psychologist Carl Jung

It seems to me that the basic facts of the psyche undergo a very marked alteration in the course of life, so much so that we could almost speak of a psychology of life’s morning and a psychology of its afternoon. As a rule, the life of a young person is characterized by  a general expansion and a striving towards concrete ends; and his neurosis seems mainly to rest on his hesitation or shrinking back from this necessity. But the life of an older person is characterized by a contraction of forces, by the affirmation of what has been achieved, and by the curtailment of further growth. His neurosis comes mainly from his clinging to a youthful attitude which is now out of season….

Carl Jung, 1929 CW 16, para 75

Translated into our times, in youth the ego is expands in strength and influence. Although the West has few rites of passage, the ego follows a well-signposted path, projecting and gradually gaining force and influence – job, career, relationships/marriage/kids. All this is promoted and is in the symbols all around us.

We don’t have many symbols for success after the turning point – look at the ads around you, they are to hang on to youth, to beauty, most commercial symbols of ageing are negative. The ads assume we want to look like we are between 25 and 29.

I lived some of Carl Jung’s neuroses in my 20s  – the young Ermine lived in a rented room in London, putting salt around the room to keep out the black slugs. I was in a decent job, 25, but I couldn’t buy a house and seemed stuck in all aspects of life other than work. I did finally sort my shit out and make changes. It wasn’t just me – the mid twenties seemed a really tough time for several of my peers too. Maybe it’s a London thing, or Imperial graduates. Maybe it’s birds of a feather sample bias. I have experienced worse lows in life since, but none as protracted. Bollocks to all the ads, I never, ever, want to be mentally again in the place I was in my mid to late 20s. For all the lows and the fortunately modest losses I have so far had since, the highs deepen and colour in with experience. That runs against the narrative of the Western Myth, and it is important to be prepared to surrender some of what was valuable in youth in order to deepen and grow. So far I have found Carl Jung’s map to be more true that that held up to me by the consumer society around me.

I did not dodge the midlife crisis[ref]I don’t really understand Jung’s chronology he termed the years from c. age 56 to c. 83 the “afternoon of life,” using the analogy of the passage of the sun through the sky from morning to night. This kind of sits ill with the typical allotment of three-score years and ten.[/ref] – arguably the forces that pinged me out of The Firm were stronger because my inner values began to diverge more an more from the values of my younger life. In particular I found it harder and harder to suck it up to The Man’s stupid metrics and bullshit ways – little empires of small desperate people doing what their immediate higher-ups said despite it being often wrong (in engineering terms) or simply against common-sense, nature and experience. The misery of mendacious measurement and metrics enforcing mediocrity and digital Taylorism continues unabated, but at least it isn’t my problem any more. There are some who simply carried on turning the handle, and good luck to ’em. I wanted to determine how I spend my days. And while I probably have the edge on Patrick on some of the inner changes, he has lived more intentionally, choosing to throw the switches of his life in a controlled manner, unlike my uncontrolled derailment from the Work strand of life. So hat tip to Patrick – a great exposition in how to retire well.

But a word in your shell-like Patrick, from someone else who retired at 52. Remember the question posited by Erich Fromm in To Have or To Be. What you do may matter less than what you become. Much heartache and angst waits for those who listen to the messages from their inner world with the coarse equipment that listened well to the messages from the outer world. We don’t help ourselves with that second half of life by trying to hold on to outdated forms. I liked this article on the adventure inward  – this passage speaks to me

In youth the ego is expanding in strength and influence. Typically, it follows the well-posted paths of society, perhaps gathering accolades along the way. But at midlife the ego is challenged to become a servant of the larger personality and soul. This is why men often encounter a feminine guide–and women, a masculine guide–in their dreams towards midlife. These figures are manifestations, or symbols, of the soul[ref]The translation of soul from German into English is hard. It has religious connotations in English which I don’t believe are in the German original[/ref]. They invite and would guide us to an understanding of our deeper nature and a more personal spirituality. Thus, we could say that in youth the ego is educated mostly by family and society, at midlife and beyond, by the soul.

One of the characteristics of the last two and a bit years is that I see that I made far too many simplifications in my model of the world and how it worked, they had served me okay in work and career. But they blinded me to faint signals from within, and also faint signals from the future too. I come to know much more how much I don’t know, and learning from others becomes easier to do but more daunting as I see the further mountains to climb in the search for wisdom.

To take one example – writing this blog has helped me, both in the obvious way that articulating something makes it clearer and throws light on inconsistencies, but also I have learned from many of readers in the comments – sometimes I have been plain wrong, but all too often there are nuances I may have missed, things I’ve been unaware of and it is always good to refine my mental models closer to the territory.

In this time I have perhaps focused on the inner journey. Maybe the time will come that I balance this outwards, though I’ll probably pass on Kilimanjaro, a quick google search still gives me the feeling of pumped up consumerism

If you’ve ever wanted to do something truly amazing, something that’s as far removed from a lazy beach holiday as possible, then Mount Kilimanjaro is calling you! Join the great explorers and mountaineers in scaling Africa’s highest peak, hiking through lush rainforests, alpine deserts and glaciers that have been there forever. With our Kilimanjaro treks, you can take on a challenge and do something awesome in Africa.

STA travel

It seems a fave for mid-life crises – a fifty-something I know did it to make himself feel better after a divorce. Good luck to y’all, whatever floats your boat.

For some reason I’ve focused on the inner journey in the first couple of years, but life has an ebb and flow. Maybe the time for travel and looking outwards is soon to come, to integrate some of the changed perspectives, to play across the strands of life. Patrick’s message is cheering, because it runs against the Calvinist Work is Good for you meme. Work is a means to an end, but it’s also good to know what enough looks like – when to consider a switch from having more to being more. Happy retirement!

A fun farrago of middle-class folly

The heady aspirations of the middle class wannabees over at the Torygraph often tickle my fancy. Last week with was the numpties who wanted to become BTL landlords and have some impecunious other suckers pay for their three babies, this time let’s hear it from Rik Thomas who earns £55k and wonders if he can pay for private schooling for his one year-old son and get to retire at 50?

Deconstructing this folly quite interesting. Although ambitious  it wouldn’t have been totally unreasonable for his father’s generation. Lots and lots of things are so much better now than they were a generation ago, but unfortunately for Rik it is increasing inequality that is turning this into a farrago. Some of the goods and services that people associate with the middle class are goods priced on perceived value, and while Rik’s salary is twice the average national household income and probably does put him in the middle class, he has been foolish with the purchase of one and his ambition of the another will cost him more of his lifetime salary than it did of his father.

Can Rik pay for private schooling and retire at 50? No. Maybe the Ermine is being a sourpuss here because I didn’t get to retire by 50, but really. Just. No. Not quite the wrong city but definitely the wrong ballpark in the wrong part of town. This fellow is saving £100 a month against school fees of about £8,000 p.a. He wants to pay for private primary school, indeed, so the problem is urgent, I believe children go to primary school at 5 in this country. I didn’t realise that private primary schools exist, but there we go, how the other half lives, eh. Anyway. Oxford degree or not the problem is clear and it’s in the arithmetic – his savings rate is way too low. Okay, maybe his good lady wife (warms the cockles of the cynical Ermine’s heart that there are two people involved in this grand ambition) will return to work when the sprog is parked in the primary school for most of the working day and may be able to make up the deficit, but whatever. Must. Do. Better.  – and sharpish.

By the time he is 35, he hopes to be earning £100,000. With the oil industry’s current woes, he is unsure if he will get a bonus this year.

The old triumph of hope over experience, eh, somehow the ‘unsure you’ll get a bonus this year’ doesn’t necessarily bode well for mahoosive future pay raises but I have to agree with him and that Mark Carney fellow that the current oil price doldrums will probably look different in seven years’ time, so let’s take this at face value. I do note, however, that project management is eminently offshoreable – The Firm has been outing project managers for years. He’s 27, so time is on his side, his son should be off his hands and making his own way in the world by the time dad is 50, though observation shows that this whole moving out and making your own way in the world seems to be an early 30s thing rather than the early twenties thing that it was in days of yore.

Let’s zoom out and take a look at the bigger picture.

Fee paying schools are a Veblen Good

In days of yore, bank managers and doctors , accountants and engineers sent their children to public school, because there was not such a disparity of incomes. Nowadays most of us have more Stuff, better heating and better cars than our forebears had in the 1950s and 60s, but there are some goods that are priced on perceived value rather than the marginal cost of production. I would classify public schools as Veblen goods, along with designer handbags, luxury cars, jewellery etc. You buy these for the message they give to other people. In the limiting case an oligarch doesn’t need a yacht, other than to make himself feel better than other people who don’t have one.

Only 7% of Britons go to public schools[ref]for any confused logical Americans, public schools a.k.a. independent schools in England are the sort your pay money for, as opposed to State schools that are funded from general taxation[/ref]. The promulgators of independent schools dress it all up with ethos and values and cobblers like that. However, the fact that 93% of Britons get dragged up in State schools and the country is still in the top twenty of GDP per capita  shows that this is not a need. It is in the top three of Maslow’s hierarchy

 

and you do it to be part of the group of Well Off People. There are practical advantages, of course – public schools teach their pupils how to be leaders of men much better than State schools, so as a result the well-off but dim will have a good place in society. But a large part of the spending on public schools is to show that you can. It performs the same role as the iridescent feathers of the peacock’s tail, an inefficiency you carry to show that you have the wealth to spare.

//ws-eu.amazon-adsystem.com/widgets/q?ServiceVersion=20070822&OneJS=1&Operation=GetAdHtml&MarketPlace=GB&source=ss&ref=ss_til&ad_type=product_link&tracking_id=simpliviinsuf-21&marketplace=amazon&region=GB&placement=0231053576&asins=0231053576&linkId=ZPXWA2T7BAVYBJOR&show_border=true&link_opens_in_new_window=trueI have personal experience of this. I went to a State grammar school, which chose to become independent in my last year because otherwise it would have been destroyed by the wreckers of the Labour Government in ’76. Let’s hear it from Anthony Crosland.

“If it’s the last thing I do, I’m going to destroy every fucking grammar school in England. And Wales and Northern Ireland”

I must go and piss on his grave sometime. He caused my parents a lot of stress, because they couldn’t afford to pay and hadn’t expected to. As it was the ILEA grandfathered existing pupils and paid the fees in the last year (my sixth form).

Grammar school worked for me. I was the son of a blue collar worker and a SAHM, and I benefited from upwards mobility. At a guess working in industrial research and design was a middle class career. I was eventually able to see the argument that several teachers repeatedly put to me, that by skimming the able the grammar schools impaired the ability of the secondary moderns and early comprehensives to achieve balance, because they were teaching the less able. Aspirations are lowered and people learn to labour. So the grammar schools had to go. Their existence was inequitable to some extent.

Because my parents weren’t rich enough to do independent schooling, in a comprehensive system my end of the boat would have gone down, but overall the common weal would probably have improved. It’s easier to say that now that I have benefited from this and don’t have skin in the game. It took me until my late forties to finally surrender and accept the intellectual premise because I found its logic probably passes the balance of probabilities.

My personal experience of mixed-ability schooling is limited to primary school, and I very distinctly remember being in class where those who could read had to sit beside those who couldn’t and help them read. It was tedious, excruciating and hard work, and it wasted my own time at school. I had normally finished the school books for reading in about a quarter of the time allocated, largely because I didn’t have to vocalise as I read. In that year I realised the Ermine was never going to be a teacher, because I was unable to understand or to empathise how people could not pick up the rudimentary meaning and grammar of English. And as for this reading out loud lark, WTF was up with that? Seriously, don’t ever do that to people. Speech is about five to ten times slower than visual reading, if you teach people to read out loud and then only understand by listening to themselves you condemn them to a lifetime of sub-normal reading speed, because it’s hard to unlearn.

I was taught to read by my mother before I went to primary  school – English was not her first language. So while I accept that mixed ability schooling is probably overall for the best, as somebody who would (and had) lost out in it I’m never going to be an enthusiastic fan, it definitely falls into “the needs of the many outweigh the needs of the few” territory, and that sucks if you’re one of the few. But I can understand that State schooling has to aim for the greatest good given the limited resources [ref]I would now counter that we should focus State schooling on teaching the basics of the three Rs and then target the brightest because our economy will have few jobs for those of average or even slightly above average ability. The quid pro quo for that is that taxation needs to be enough on the winners so that a universal income can be paid, and also that adult education in the Victorian sense of bettering oneself and general education should be free and promoted via MOOCs and free libraries. The whole point of State education has changed through my working life but this does not seem to be acknowledged. It taught the thee Rs so you would have life skills and subjects so you would be a cog in the industrial machine. The latter is becoming redundant for many future non-employees, and in a world with Google general learning is much easier to be had for free.[/ref].

Parents never like to think their children are stupid or even below average, though it must be happening 50% of the time. Independent schooling addresses this in two ways. One is it throws more resources at the problem. A stupid child with excellent teaching can probably be brought up to the level of a mildly above average child with average teaching. That’s the easy part. The second way is that independent schools are far, far better at teaching their pupils to be leaders of men. Presumably they don’t go round telling people everybody is of the same worth and ability, which seems to be a given in State schools despite depressing evidence to the contrary in terms of ability. The Ermine only learned to address crowds of a couple of hundred people in the second half of my  working life, and I learned elements of command presence by having to take decisions in public leading people because I had specific skills for the job. I was never taught this, and had to research  how to carry people with me by watching others do it, by reading some military descriptions and with Google.

My ability to do this is still a pale reflection of the typical public school alumnus. They were taught command presence. [ref]I have never been a paying independent school pupil. I offer this Guardian article into the stylistic differences between aims, and personal observation shows me that people who have been to public school are more at ease in leadership positions and generally giving direction[/ref]. I was taught subjects at school, but not how to lead people. I don’t find it that surprising that those who went to public school are much more likely to be in positions of leadership across the country, as evidenced in this Government report. And summarised by John Major in 2013

“In every single sphere of British influence, the upper echelons of power in 2013 are held overwhelmingly by the privately educated or the affluent middle class,”

I can see why parents like public schools. It softens that 50:50 chance of having to face up to having a stupid child, and you can still get them ahead of the 93% rabble, because leadership is a well-rewarded occupation. You don’t need to be bright to have command presence. The other area where public schools probably do well is where a child has an unusually unbalanced set of strengths and weaknesses. State schooling has to be one size fits all, once Crosland destroyed the grammar schools that specialised in academically biased pupils. We don’t want to pay the taxes that would ensure no child is left behind – it has to be good enough, not excellent, since we can’t afford excellence.

I am not saying people who went to independent schools are dimwits – probably on average the intake is a little above average, purely on the slight heritability of ability combined with cultural factors. But independent schools can probably make more of the academically challenged than State schools, which must be comforting for parents who want the very best for their child regardless of their natural ability compared with the 93% lumpenproletariat 😉

The trouble with Veblen goods is they have to be dear to be exclusive

And this is where Rik is SOL. He went to public school, so he thinks of this as the norm, but 7% isn’t a norm. The whole point of public schooling is to get ahead of the 93%. If we take a butcher’s hook at the Independent Schools Council’s report we can see that the cumulative rise in pupils in independent schools since 1996 is 8% (roughly when Rik was at his public school from 1993 to 2006). Since 7% of children now go to public school, my grammar skool edukayshun lets me estimate about 6.5% of pupils went to public school in his day, since the ISC report indicates the cumulative change in total pupil numbers is very small. However, with increasing inequality all those richer people are driving up the price of public schooling, and as a Veblen good they don’t just make more public schooling to meet demand. They’ll make a bit more to soak up the demand profitably, but the 0.1% is getting richer faster than the Riks of this world.

Britain has only so much space for dimwitted leaders  – we couldn’t have a 50% independent school population without some of the advantages going away. If we assume that half the intake of an independent school is below average, we can probably find space in the leadership structure of Britain for that 3.5%, whereas finding leadership positions for 25% of school leavers is going to be tough. And as conspicuous consumption, it has to be exclusive even if there weren’t technical reasons why it had to be. Imagine a world where all of us wore Manolo Blahniks, drove Rolls Royce SUVs and had Lear jets. The cognoscenti would have to go and find something else to make themselves feel special.

Public school is like that. It is a status symbol, it does have quality and does buy you favours and particularly for dimwitted rich kids[ref]clever rich kids would do okay in State schools as long as their parents taught them values[/ref] it keeps them in the style they were accustomed t because leadership is not widely taught.

I owe it to Prospect magazine for the official definition of these rich dimwits. They are the ‘second bananas’ identified in The Fall of the Sloane Rangers and they owe me a new keyboard. Apparently in the past according to the Torygraph

Public schoolboys married girls in pearls and settled down to an upper middle class life in the bosom of the Establishment. Diana, Princess of Wales was their poster girl.

 

Girls in pearls? WTF is this they speak of? Why was I as a student living in a Knightsbridge basement wannabe photojournalist shooting gritty Tri-X black and white pictures of the soup kitchens under Charing Cross railway arches and being accosted by jumpy coppers where I could have been using Kodachrome on girls in pearls…

Anyway, Prospect supports the thesis of Rik’s dad having it easier than Rik, although the Sloane Rangers were the London cream of the second bananas. To wit, the ineffectual toffs used to be the 5%. They are being nuked by New Money

Most of the old Sloane groups were originally somewhere in the top 5 per cent—it’s difficult to quantify a stance—and some of them at the ragged lower edge of the 1 per cent, where the household income threshold is more than £3,000 a week now.

“The Sloane population of the City was winnowed out—now they were competing with other types and other breeds from other places”

The combination of 80s Tory government and home-grown New Money—much of it smart, tough and well-educated—looked at first to most old Sloanes (instinctive Tories) like just what the doctor ordered. But they set about destroying the fixed points of the Sloane world—particularly the Old City at Big Bang (1986) and after. And then New Money started cherry-picking the trophies that Sloanes valued. The attractive London houses in SW3, 1, 7, 10, 6 and 5 (in that order), the prettiest rectories and miniature statelies in the best counties, the best university places. Big Bang reshaped the City and set the foundations for 21st-century financial London. There was a storm of acquisitions before and after 1986 in which a roll-call of familiar Old City names like Rowe and Pitman disappeared. Then their buyers were gulped down by still bigger fish. The familiar merchant wankers of a thousand Sloane jokes—the delicious histories, the panelled rooms and word-is-my-bondism—were replaced by global investment banks with soaring atrial offices in Broadgate and, later, Canary Wharf. The new players were American, French, German, Swiss and Japanese banks. The top bananas were toughs and technocrats from absolutely everywhere—people who didn’t know or care about subtle semantic class indicators or the significance of milk-in-first and who didn’t care if their suits looked a bit Charlie. People who didn’t know the Sloanes’ dads. The new bosses wanted “top talent,” wherever it came from.

I fear the obsidian Ermine heart fails to bleed…

But while Rik’s dad could afford to do this public school stuff, Rik can’t. He needs to choose now – public school, or early retirement. He can do one or the other, not both. And if he wants public school, he needs to suck in his gut and start saving, because he has 15 years of laying out £10k p.a. plus starting in four years time. Yes, his wife and lodgers may make up some of the shortfall, but public school gets dearer at secondary school.

The best laid plans get sucker-punched by lifestyle inflation

Now Rik will be doing better than I did, and he lives in Aberdeen rather than the Great Wen. But he’s already collected airs and graces at 27. Living three people in a five-bedroom house, FFS. At 27 I was renting a house with four other guys to save money because rent is throwing money away. I had yet to discover how much money you can throw away buying a house at the wrong time! At least Rik is figuring to rent out a room for £6k p.a. Call me an antisocial git but living in a house owned by the bank  with strangers is not my idea of living the middle class dream even if it does have five bedrooms and Italian hand-made tiles in the kitchen, but each to their own. Exactly how well it works for a lodger with a one-year-old in the household beats me. I’m assuming that Rik’s desire for early retirement will make him circumspect about adding extra mouths to his household – the late Cynthia Oti’s secret for a secure financial future was to

“never take financial responsibility for something that eats.”

which may be taking it a little bit far, though I recently heard reports of one lady friend whose children are sort of off her hands declaring

“I’m not surprised people get themselves into money trouble, they accumulate accessories like dogs, children and stuff without thinking about how much it all costs”

so maybe Cynthia was onto something 🙂 The five-bedroom house of course says Rik is Mr Big and worth something, but he only needs three bedrooms and all the rest will continually bleed him, needing heating, decorating, repairing etc. Let’s hope that North Sea Oil will confound the Hubbert peak and still be bringing in shitloads of money at least until he can downsize.

Either way, the problem with retiring early is that of course Rik can lob his salary over about 43k into his SIPP and that’s all very sensible, but that kinda clips his net income to £32k (corresponding to gross of about 43k, anything over goes to his SIPP). Of that he wants to spray £8,000 on school fees in the near future leaving him with £24k. Computing everything in today’s terms and anticipating that equity gains will at least compensate for inflation, if he wants to retire at 50 then he needs to have enough in an ISA to run him from 50 to 58, at £25,000 p.a which my trusty calculator makes £200k. He can run this capital into the ground because he will have a decent SIPP income for afterwards, and he has 23 years to do this starting tomorrow. He also owes £200 k on his house. Let’s say he saves into an ISA £10k p.a. and his mortgage costs him £4,000 pa @ 2%. Let’s ignore the tedious concept that you are supposed to pay down the capital on a mortgage, this family now needs to run two adults and a child in the style public school people like to live on  – on £10,000 a year[ref]£32k less £10k ISA less £8k public schoolery less £4000 IO mortgage[/ref]. TFS has an example of what that looks like and it probably suffices to say that this is easier in theory than in practice. Now the Ermine household could do that, but I am almost twice Rik’s age, have no mortgage or public school spending. Your mid twenties to forties are the worst time for calls on your income, and this goes in spades if you have children.

Early retirement is doing different – and to do different you have to be different and live different

One of the observations I made at The Firm was that those who cleared off in their early fifties and retired were the child-free. As long as they had managed to avoid the D word parents were on their way about five years later if they worked at it. Everybody was retired at 60, because that was the normal retirement age.

The original fellow who gave me all the sage advice to save into AVCs is still working for The Firm, despite being well over 50 and his younger self declaiming “you’re stupid if you dont’ save into AVCs and retire by 45″. Why is that then? Well, his wife and kids took issue with the grand plan – basically they wanted to have this nice middle class lifestyle and that doesn’t go along with dropping your salary even to the 40% tax threshold. Whoops. Nice plan, Stan. They preferred daddy in the office behind a screen where he belonged[ref]I don’t know enough about his domestic circumstances to know how much his wife added to the household economy though from his talk I figured he happened to be the larger part of it[/ref] so they could could have it all because they were worth it. Early retirement fail. If you want to retire early, you have to live differently to your peer group. In particular you have to spend less!

Earning more doesn’t help most people, because as a rule to earn more you have to push yourself more until you reach CEO level. At board level to earn more you simply have a word with your mates on the non-exec remuneration board to loot the real owners of the firm more and award yourself a pay rise, but for grunts you normally have to do more or eat more stress by doing unpleasant shit. So you get to earn more, but then you are in the circle of more spendy people and you may be more pissed off with work so you need to spend more to make yourself feel better. So while earning more seems the obvious way to go it only works for some people. Less than 1% I would guess 😉 If earning more were the answer, footballers would never go bankrupt.

The fellow who taught the younger Ermine all about tax-advantaged pension savings was right you’re stupid if you dont’ save into [pension savings like SIPPS] AVCs – but not right for himself. His words gave me hope that there was a way out of there and the plan was put into action with extreme prejudice. It’s not a barrel of laughs, I can tell you, driving one’s salary down to a whisker of the minimum wage threshold and saving into pension AVCs using salary sacrifice. And then trying to save into an ISA. Because if you save so hard you can’t do shit because you have no bloody money left. When that shit is fast and furious desperate holidays because you’re so worth it cube slave, two weeks of respite in return for 48 of humdrum existence then one can do without it when the win is the rest of your life on vacation. Gets more challenging as you drive out of wanton consumerism and then start moving down Maslow’s hierarchy. It’s the in-between bit that suckers First World cubicle slaves. They want the trappings of their peers that cost money, but then they are trapped by the trappings.

Rik is gonna run into the same sort of problem that my colleague at the Firm ran into. His family are going to want holidays in Tuscany and somewhere exotic. They are going to want kitchens with handmade Italian tiles, a butler sink and matching luggage. They will probably want something German on the driveway. How did the ermine get round that?

I went on fewer holidays. I have less house than my colleagues[ref]but it is mortgage-free, which is rare amongst my colleagues[/ref]. I drove my cars into the ground – two of my last four cars I took to the scrapyard personally. I spent less than I earned. But make no mistake – my colleagues had more holidays, Italian handmade tiles and all sorts of other goods and chattels to show for it. On the other hand, this week one day I got to go out and look at this in the Suffolk sunshine

bloody hell, what’s that noise – ah – incoming Brents at 2 o’clock

Yesterday I went up to a recording studio in Norfolk to be a judge in a sound competition. While my former colleagues were looking a Microsoft Excel on their screens, or filling in their objectives. You pays your money and you takes your choice. I don’t have fancy tiles in the kitchen and haven’t been on a plane since 2007, whereas some of them go on five city-breaks a year.

I don’t think Rik has jumped to this. To live different you have to do different. Not only that, there’s a second problem in town.

Increasing inequality means you must be richer than your parents were to give you children the same class experience your parents gave you

It’s those Veblen goods again. The trouble is there is one asset class that’s in the needs category that is typically the one single biggest part of most Britons’ net worth, provided that we overlook the inconvenient truth that they usually have it on borrowed money. Until 1979 Britain had a workable housing market where renting was a perfectly reasonable option, but since ownership has been promoted over renting. Even if the ownership is not for occupation. I found it brave of the Guardian to tackle this emotive issue and remind us that owning your home wasn’t widespread for an awful long time and isn’t the natural order of things. Indeed, home ownership is increasingly ill suited to modern working patterns where you may need to move to follow work. Most of the people at my grammar school were in rented accommodation, but in contrast to Generation Rent they had better security of tenure – many of these families were in council houses.

More of Rik’s lifetime earnings will be consumed by housing than his parents’ earnings were. Should he go the public school education route, more of his lifetime earnings will be consumed by that too, relative to his parents. He is very unlikely to be able to retire early if he wants to indulge in such conspicuous consumption, although to him it will look like the normal spending of his peers. That is because most people spend as much as they earn, if they are lucky. To retire earlier than the norm, Rik must spend less than the norm. With his five-bedroom house and his public school aspirations, he is not on the right path. Something has to give. Pick any two of the three, Rik. Peer-group middle class lifestyle, school fees, early retirement. You’re just not rich enough to do all of them.

Ralph Borsodi, and a codicil to Two Years on

One of the features of Mustela erminea is that they are curious. You only have to look at someone trying to walk a ferret (another mustelid M. putorius furo) in a straight line to see that. I think if you are going to retire early you really do want to be curious. I read a lot as a child, and the modern world gives a lot of opportunity to be curious about it. The tools are immeasurably better too, compared to those of 30 or 40 years ago. Starting with Google but extending to the fact that information is much easier to collect, store and marshal. People share ideas more widely, because they can, and humans are a social species.

The world is full of fascinating stuff – it is good to heave the freedom to get a hold of interesting ideas, run with them for a while, then stick them into the armoury of things that might be applied to different areas. I find it a little bit disturbing how many people imagine that people who have retired get bored, unless they can spend loads of money on entertainments. Jacob’s trifecta of shopping, restaurants and tickets springs to mind here, in supporting evidence I cite this page on MoneySavingExpert. Key headings

Clothes and Fashion, Food and Drink (generally fast) and Travel and Days Out

looks much like shopping, restaurants and tickets to me. This is on the otherwise generally awesome Money Saving Expert site where many of the users have got themselves into deep financial doo-doo by buying too much of these items on tick? WTF? The hot tip here, guys, is take the fight to the enemy: do much less of these things. Not only will you enjoy each instance more by dynamic contrast between going for a decent meal set against the norm of not doing that, but then you don’t have to prostitute your personal details to try and get a lousy 5 or 10% off. Just. Do. Less. Do half and that’s a 50% discount – even if you pay full price 😉 I don’t muck around with Quidco and the likes of that sort of thing because I don’t spend enough on the sorts of things that Quidco works with to make it worth it. I buy components and raw materials to make stuff, not finished goods, which seems the key to the boredom problem – create more,  consume less.

from DJing to personal finance…

That curiosity recently delivered me an insight, combined with some of your comments. The Oak Tree farm party is this weekend, and I largely solved the problem of how to rig a couple of hundred watts of power on an unpowered island site. That’s not rave or Glastonbury level, but enough for a party of about fifty people outdoors (and a few hundred metres away from neighbouring houses – sound fades quickly outside).

In the past I’ve stuck the tracks on a mp3 CD player and set it to shuffle, which is okay as far as it goes, but I wanted to understand how to do better. Although for some reason I actually like some of the more mainstream EDM despite being one or two generations beyond clubbing and no aptitude for dance, I don’t think our members want too much of that, but I figured a look at how DJs¹ do this sort of thing. Now I don’t want to do all this live, so I want to create the CDs with the right running order (apparently called a mixtape) and then patch in people’s iPods with a DJ mixer I bought at a radio rally for £10. I learned about BPM and mixing in key and a whole load of stuff about music theory I didn’t know, and came across this article about bringing back flow, which introduced me to the difference between insight and analysis.

Investing by insight rather than analysis

For the last five years I shifted greatly towards analysis, because insight isn’t easy to do under pressure. There are some classes of problems which are only amenable to analysis, and personal finance has a lot of these. For instance if most people use insight to qualify risk they end up doing the National Lottery and ‘investing’ their money in Cash ISAs (which is indeed what most people do) whereas analysis shows there may be better ways. And the National Lottery is always wrong – though if you want to have the it could be you buzz then do it. Once, and only once. That turns ‘it couldn’t be you’ into ‘it wasn’t you’ for a modest cost. There’s vanishingly little more to be gained by pursuing the ‘it wasn’t you’ any more – analysis is the way to know why.

However, I have got that analysis/insight balance wrong for the future, and worse still, some of my insight is distorted by outdated forms that have become linked, particularly with the term work but also some wider principles. Unfortunately only insight can connect me with my values as far as I can see; analysis addresses the how I do something but insight is a large part of knowing why. Because it can’t be decomposed into steps it’s easy for insight to be distorted – by advertising, by rotten experiences, by general state of mind.

Few things really a pair of totally isolated poles, I need to add insight to my analysis to direct things closer to my values, and analysis to my insight to clear out some of the distortions and old forms that bias the compass away from my values – try and use more insight and less instinct.

The past is a different country. I did things differently there

One of the things I learned has been that I have shadowboxed the experience of getting out of The Firm for too long. Two years is enough to integrate the experiences.

I need to shift focus from trying to outrun the past to run towards the future. The shift to a more frugal way of living does seem to have absolved me of the requirement to work, as it was designed to do. In doing so, however, I have linked unhealthy subconscious forces to the concept of work. It is very unlikely that I will apply to work for a company as an employee in future. So I am done with all the Digital Taylorism that is screwing up work at the middle level I was working at. I need to let the toxic waste go – it served me well in bringing enough focus to escape the rat race. It’s as if I had read this by ERE and followed the instructions but retained the anger 😉

curiosity is not the only way

There’s a massive variation in what people want to do with their life. For many people the value to be had from shopping, restaurants and tickets is well worth the cost of working, particularly if they can’t imagine any other way.  If it weren’t presumably they’d do something else. As long as they find working agreeable there’s no problem, in which case why not take part in the cornucopia of goods and services a modern industrial economy makes available? Indeed, I need you to consume so some of the companies I own a share of can make money, but more to the point, if you enjoy it, knock yourself out.  Obviously if you design this into your life you may want to consider how stable your work is, because it would be tough to build in so much cost into life and then feel rotten if work dried up. A portfolio career is better in that way; you can lose some strands without it becoming catastrophic.

Although there’s a hint of bread and circuses in it, there’s nothing fundamentally wrong with hedonism. As long as it isn’t done on borrowed money that is, because you borrow it from your future self and your future self might feel differently about your current self’s inability to wait. There’s an inherent asymmetry between saving and borrowing – when saving you electively choose to live below your means now so that your future self can live above their means for a while. Your future self still has choice – they don’t have to live above their means – they could give it to their(your) kids, or the cats’ home, or burn it in the backyard. Whereas if you spend your future self’s money now they get no choice in the matter though you do – they have to live below their means, or go bankrupt.

Another perfectly good reason is that you find the shopping, restaurants and tickets worth the aggravation of working. In that case, the game is worth the candle, but again, doing with borrowed money there’s still the issue of your future self not getting a say in the matter.

For those who come it find working disagreeable in a way exceeding the buzz of shopping, restaurants and tickets, one good option is then to spend less. The sheer variety and range of stuff on offer can easily bamboozle us with its richness, the essential question to ask is how much is more doing for you? You first smartphone is presumably transformational – it means you don’t have to arrange to meet up before hand but can do it on the fly, you can Google the price of alternatives when you are in a store thinking of a bit more retail therapy, and you can ignore the real world a bit more and walk into lamp-posts/other passers-by/the road while being virtually somewhere else, and play Candy Crush Saga to get rid of some of those empty hours. Each to their own. Your second smartphone, and indeed all the upgrades add much less to your life in terms of extra capability than the first one. When you get to this stage

queue of punters waiting to buy an Apple iPhone

you’ve probably lost the plot and are out of touch with some part of yourself. Or trying to make a few bucks, but getting paid to queue is telling you something about the value of your time 😉

I needed to get a mobile web browser a while back to test a piece of web work I had and what it looks like on a mobile. I got an iPod, and use WiFi, because it was the cheapest, didn”t come with a mobile contract and did the job. I’ve occasionally used it out and about with BT Wifi in towns and campsites. It works fine for what I want to do. For mobile telephony I have a bog-standard mobile phone with Giffgaff PAYG for when I want to do such things, and a really old hand-me down from Mrs Ermine with a Virgin SIM in it, because that’s free to call her.

The Ermine mobile phone estate. Skanky, n’est’ce pas? All bought and paid for, no contracts, and cheap. But not ‘with it’ at all

The most useful item is the USB dongle, of course now hacked to break the 3G lock so I can use it on Giffgaff to connect my laptop PC to the Internet if I am on the road. I can afford a smartphone and I’d buy one cash without a contract if I wanted/needed one. But I don’t need the continual contract cost, because I don’t prize the service enough. A typical mobile phone contract seems to be £30/pcm or £720 a year, so while not outrageous, it’s a fair yearly hit. Plus a £300 smartphone seems to be amortised to scrap over one or two years because of upgradeitis or the disgraceful habit of Apple IOS orphaning their older products after three years or so – deliberately.

The key to early retirement is to look at how you are living and to ask yourself how much of this spending matters. And target your spending on what matters to you, rather than what matters to people you know, or to the companies getting rich off it. Mistersquirrel has a rant on consumerism sparked off by an OU programme that sounds interesting.

Personal finance works

Get out of debt and stay out of it ² and live below your means.

That’s it. easy to say but hard to do – like living like a celibate monk in a brothel. The ERE theory of living on a lot less than half your take-home really does work, and it works in spades with the 60% boost into pension savings (why 60% and not 40% is explained in the previous post) where the saving is applied to the tax-free lump sum. The pension changes have opened this whole area up. This is also easier for me because it builds upon 30 years of conventional work – the extra push to ice 8 years of work is nothing like the push to get rid of 20. Obviously the 20 year early retiree has 12 more years of freedom and life to enjoy.

A decent amount of luck, seizing the day in Spring 2009 and maxed Sharesaves and ESIP helps. And of course there are the known and unknown unknowns. Much can happen over the next 20 or 30 years, though some of the bad stuff cannot be hedged with financial assets. Or at all… Nevertheless, it’s good to do something about the things you can control. Coffee is there to help with things I can change, red wine to help with those I can’t 😉

It is more important to me to be of independent means than to be retired

Until I integrated some of insights in some of the comments I had not realised a simple fact. It is the powerplay of not being financially independent that I came to detest. I don’t really give a hoot about being retired.  But I really do care about being of independent means – because it is the latter that fixes the powerplay, not the former. You often do retire once you are of independent means,  if you aren’t you have to keep working. To my chagrin, I failed to understand that difference. It doesn’t particularly change what I do, but it does change how I feel.

MMM cited this cheesy ‘A Man with Savings’, and he can get away with it because he’s American³. I even used it in 2011 and had got half the story right. A man with savings does not have to be always running.

I missed the other half. It is the freedom to do things independently of needing to earn money. I liked this account of James Lovelock and the need for non-institutionalised engineers and scientists – I’m not in his league but I can recognise where he’s coming from.

It’s been two years, and it’s obvious looking back, but I didn’t realise that, until seeing some of it reflected back in some of the comments. As an example I constructed a camera using a Raspberry Pi to see if our newly arrived cows are still there. It needed to happen quickly, because Mrs Ermine was worried the cows might scarper. As it is, although I am still scared of cows (particularly as these are bullocks/steers) and I really don’t like the way they follow you around, I will speak for these guys in that they are fairly placid. Look to pigs if you want to see troublemakers, and a pig is a lot sharper of mind than a cow or steer. I’d watch them rather than the cows, but what the hell do I know, this is not my area of expertise, so if Mrs Ermine thinks there’s a cunning interior to those steers then maybe they are the awkward squad in bovine form.

Camera is the bodged mess top left of the IBC. And the plastic bags for the MiFi box to keep the water out…

It’s a mess, indeed if the IEE get to see it they’d probably revoke my C Eng for unprofessional bodgery of the first order⁴. But Mrs Ermine knows that she’s got cows.

Got Cows.

I may see if there’s and wider application – I know a guy who is into wildlife and Raspberry Pi, because he is into trailcams and had ideas for a time-lapse Raspberry Pi camera. I have the edge on the engineering, but I want to retain my freedom of action and don’t really want to be into selling or dealing with people I don’t know in connection with money. I might be able to add value to his panoply of devices and services, and if not – well, that is what is precious about being of independent means. There isn’t any of the desperation that bad shit will happen if not.

now this looks like trouble…

Update – Mrs Ermine has now reallocated the camera to the pigs. You really can’t trust hogs…

…whereas though this is huge and a bit scary, it’s basically gormless, the lights really aren’t on much in that head

If I can add value, then naturally I want to make something of it – otherwise my contribution isn’t valued. It becomes the symbolic talisman of the exchange of value, because the money itself wouldn’t change my life. I’m not Russian oligarch rich – I don’t have a million pounds if I liquidated everything I own. Over at RIT and Monevator, intelligent and wise people are generally making the case that a million pounds is not quite enough to retire on; I guess their lifestyles are more expansive and therefore expensive, and they sometimes have requirements like the desire to pay for university for their children which adds up. More money wouldn’t hugely change my life, it is still Time I am short of 😉

The money is then much more along the lines of Ayn Rand’s exchange of value between free agents⁵, who choose to do it (if they do) because of mutual added value. And I know all the theory behind the Ricardian advantage and all that, but it never felt that way as a wage slave, because I felt I had no choice. I should not be bound by old thinking.

Work is a four-letter word…

http://rcm-eu.amazon-adsystem.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=simpliviinsuf-21&o=2&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=006158326X

It’s something I did, and for long enough to make my fortune, as they used to say in the fairy tales of old. The last three to five years should not so dominate the first twenty-five, during which The Firm and other companies served me well. I should appreciate that a bit more. I used to read Gretchen Rubin’s The Happiness Project in my last three years at work, and I am sure that somewhere in there I read that it is good to recall some things that one is grateful for.

In the round, The Firm served me well, particularly in the early days. And if it was going to go bad at least it stayed together until I was able to get enough together to purchase manumission.

Despite work being a four-letter word it should become a neutral one. I need to stop running from the idea, because that is stupid. The ermine does not need to run from a concept. I like Mr Money Mustache’s take on the end of J.D.Roth’s guest article

 Mr. Money Mustache’s Afterword:

Part of financial independence is that you don’t have to advertise yourself anymore. So while J.D. didn’t mention all of his other work, I don’t mind sharing it with you…[read more]

I was always a supplicant in connection with work and finding work, and the concept has been linked to the yoke of wage-slavery. Something about writing that post,  the different perspectives and indeed MMMs angle there helped me shuck the outdated form. I have the FU money, so I am not a supplicant. And for two years after retiring, while I knew this in a theoretical and intellectual way, I hadn’t let go of the old forms so I didn’t feel it.

I still have no great desire to get into the world of work however 😉 It still consumes time, indeed this is the biggest charge I hold against it…

Living intentionally

Four years ago, in the About page on here I wrote

I want to craft a richer life. and to do that I have to master the essentials of personal finance, rather than subsist in employment. My younger self chose his career well, but I now want to cut it short by about fifteen years. I have seen too many days from inside office windows, I want to hear the birds, live more simply and frugally and drink in the days, rather than sleepwalk my way through them.

I’m not quite sure why I listed that under personal finance, maybe I was confusing the means with the end.

by buying a camper van. WTF? What’s this outrageous consumerism then?

So I did something highly unfrugal, and bought a mini camper van, Well, I bought half of one, from Mrs Ermine, I already owned the other  half of it. Because I want to travel slowly, and overland, and hear those birds. Since it was our only vehicle, Mrs Ermine was using it to move all sorts of stuff for the farm, like mash for the pigs and pallets. Although I can only really make great use of it once I am drawing my pension, because I have an income suckout until then, at least that will stop the wear from that, and Mrs Ermine now has a small car which is better suited to that sort of thing. The camper van back overhangs somewhat, which is bad for shifting heavy stuff. You want the wheels pretty much at the corners of the car so that when you sling the heavy stuff in the back it lies within the wheelbase. We already managed to break one spring, though I think the rough roads of northern Scotland had something to do with that, but it’s made me windy of bad loading.

Great landscape, Scotland, but hard on the suspension

I wouldn’t have gone out on the open market and bought this – but that way the proceeds stay in the family. And I can use it in Suffolk in the interim for modest cost – the great thing is I can put a bike in the back without taking the bike to bits. But I’m not badass enough to ride tens of miles on a bike. ⁶ The combination is great – you see a lot more on a bike, particularly nature but also photographic opportunities and stopping to investigate something is so much easier on a bike. Using both gives me range and local agility. So I’ll get some use of it and hone my craft. Long distance or long time period camping is very different from day tripping – you need decent prep and checklists, because otherwise you end up without something apparently trivial that greatly improves the experience. Like the kettle, or a can opener or the spanner to change the gas cylinder – been there done that on all counts.

It’s not frugal. But I don’t have to be frugal everywhere – just in enough places. And of course I bought it cash 😉 And secondhand, I’d hate to break the habit of a lifetime and buy a vehicle new. I left that kind of thing to Mrs Ermine. Even if I were rich as Croesus the way half the value of  a new vehicle drops off it as soon as you buy it would take the edge off my day.

In the longer term I want to go on longer tours, maybe a pilgrimage to some ancient sites and places that may or do hold meaning to me, places with history, ancient stones, where people live slower but with more depth. One of the things Philip Greenspun picked out was

Travel: No to the Beach; Yes to the Organized Tour

No the the beach is easy for me. I hate heat and have never sunbathed, I have never been on a beach holiday and don’t get it, and this still holds. The second intrigues me, I have never been on an organised tour of anything – the regimented nature never appealed. There is some logic in his position. If it didn’t work out while working I’d be sore of being out half my annual holiday but this reservation doesn’t hold now. So I might try something in that line.

a codicil on the last post on two years on

The last post on Two Years on was cathartic, but not an easy one to write. Thank you for the great comments and thank you too to Monevator and mistersquirrel for featuring it   – I got an interesting angle from some of the c0mments there too.

I am not the only one to exit the workplace earlier than anticipated. Over the years I have had a few people contact me offline about keeping the flame of hope alive in a difficult workplace, I hope that showed it’s possible to get to the other side.

I don’t want to labour the point, but stress as a mental health issue is very different from what is normally called stress. Some stress is necessary to achieve anything, and if your life has dynamic balance between that and other parts of life then it is not a problem. The NHS has a good summary of what to look for and the typical triggers. It is a very different kettle of fish to having to pull a string of all-nighters and then get hammered at the topping out party when everybody high-fives the results of all that massive effort. I didn’t know that till my late 40s either.

MMM has a great post on how to avoid falling into the trap. It won’t help many people, however, because he speaks from a position of strength. The drip-drip-drip of a slowly changing situation creeps up on you, and the tipping point is sharp – a few days IMO. Once you have passed the point of no return then the original problems must be alleviated in some way for healing to begin.

Although different for everyone, recovery is protracted but usually does come – you shouldn’t  lose hope if you aren’t 100% in a few weeks. I spent three years flying into the storm, so two years isn’t unreasonable for the recovery, but in the end it takes as long as it takes. It isn’t a linear improvement day on day, sometimes its three steps forward and two back. I had to be prepared to fall back, and fall back and fall back long enough, and when I was not watching it the faint spark strikes in the darkness and one time it takes hold. Many aspects of self-development have this sort of thing in them where you have to let go to be able to go forward, and otherwise subconscious resistance is induced by the conscious effort to force things; it is in Scott Peck’s The Road Less Traveled, in some of Carl Jung’s work and the mystical concept of the dweller on the threshold.  Camus put it well in a different context in Return to Tipasa

In the middle of winter I at last discovered that there was in me an invincible summer.

I learned a lot from writing the post, because to actually write things down clarifies things because they must be lifted into the light of consciousness, and I learned more from the comments, which are a different kind of light in this case. One of the things that is clear is that I addressed the first part of the tagline of this blog, breaking free of the rat race. That is good, it was the most urgent part. But on reflection I can take the living intentionally part further.

But don’t you get bored now you have more time and less money?

No. Really. The keys to nailing that aren’t shopping, restaurants and tickets. Be curious, learn something new however trivial each day and create, don’t consume unthinkingly. There is also a subtext in that while my income was much higher when working towards the end my spending was probably lower than now because of the savings rate. I needed to get my taxable pay down to roughly the minimum wage because the taxman’s blood-funnel in my retirement strategy was beginning to really piss me off. I learned something unique and unforgettable when you do that, which is that a lot of my spending didn’t really work for me, and was simply dulling the pain of working⁷

I’d really, really, like to be able to say that this insight is mine alone. But it isn’t. As long ago as 1929 Ralph Borsodi wrote in This Ugly Civilization

They do not realize that the idea that mankind’s comfort is dependent upon an unending increase in production is a fallacy.

It is more nearly true to say that happiness is dependent not on producing as much as possible but on producing as little as possible. Comfort and understanding are dependent upon producing only so much as is compatible with the enjoyment of the superior life. Producing more than this involves a waste of mankind’s most precious possessions. It involves a waste of the only two things which man should really conserve–the two things which be should use with real intelligence and only for what really conduces to his comfort. When he destroys these two things, he has destroyed what is for all practical purposes irreplaceable. These two things are the natural resources of the earth and the time which he has to spend in the enjoyment of them.

When he produces more things than are necessary to good living, he wastes both of them; he wastes time and he wastes material, both of which should be used to make the world a more beautiful place in which to live, and life in it more beautiful than it is today.

Lest you think Borsodi was some turn-of-last-century Luddite, he opened that chapter with

ALL civilizations have been ugly. They could not well avoid it.

But this civilization is unique. Machines make it possible for this one to be beautiful, and yet it is in many respects indescribably uglier than the civilizations that have preceded it.

For this civilization, instead of using machines to free its finest spirits for the pursuit of beauty, uses machines mainly to produce factories–factories which only the more surely hinder quality-minded individuals in their warfare upon ugliness, discomfort, and misunderstanding.

Why did nobody introduce me to his work earlier 🙂  The big problem with work is that it wastes time. Britain’s productivity has apparently fallen since the financial crash. What we need is to match the rest of society (in particular house prices) to that lower productivity. Then people might have the time to raise their children by spending time with them, and pursue outside interests while working, rather than having to stagger to the finish line and then look around.

Mixer and 12V power supply, for about £20 all-in and a bit of Ermine design and build

Today I finished off mastering a compilation CD for someone’s wedding, I was investigating how to make a raspberry PI camera take pictures of our cows every 15 minutes (see above – I started writing this before I made that and got it into service). Then I am looking for a way to make an isolated power supply for the DJ mixer I bought for a tenner at a radio rally on Sunday to be able to use it for our farm party run off a leisure battery⁸

I repaired two electric fence energisers. I determined the range of WiFi on the farm (not enough) and investigated approaches to improve this at low cost, using a directional antenna.

Then I tried to work out what my policy is for the new ISA limits. They are greater than the capital gains tax limit so I need to contribute some as real cash rather than from gradual sales of my unwrapped holdings. And there’s also the new pension rules making it favourable to have a SIPP. I am getting to the point where I will be prepared to borrow money next year maybe to put into the SIPP, because all these changes mean I have to find about £20,000 extra before I draw my pension, and I don’t want to run down my NS&I cash fund or bend my cash ISA.

Trust me – there’s too much interesting stuff out there to poke a snout in to get bored. The bits from roughly a week described there has involved very little shopping, no restaurants and no tickets. Borsodi was right. It isn’t that you need nothing, you need the right amount of Stuff, and the way it’s promoted it’s easy to end up with way too much. There really is not shortage of things to think and do, indeed unfortunately the box of half-done parked projects seems to be increasing of late, although the box of stuff made, in service or fixed is increasing too!

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1. DJ seems to mean something very different from the straight scheduler of songs it meant in analogue days, it is a performance in and of itself, particularly with clubs and EDM where the aim is to achieve a seamless sequence that works together. I was warmed up to this by the stupendous amount of DJ gear available in the local Cash Converters when I was in the market for a PA amp ↩
2. mortgage in my case, I didn’t have any other debt ↩
3. I don’t mean this disrespectfully to Americans – they haven’t got to be the richest nation on earth by being cynical, not being open to new ideas and having a great awareness of irony 🙂 There is notable truth in ‘The Pleasure of Walking Tall’ despite it being gagworthy reading to British eyes ↩
4. The bodgery is acceptable because this is a proof of concept. There is a waterproof case available for the Raspberry Pi so there wasn’t much point in putting a lot of effort into making a repeatable waterproof case. Electrical tape and a minimum of holes, mainly underneath is good enough. If the project has a longer service life then a rebuild is in order ↩
5. yeah, I know, dangerous territory and who the hell is John Galt anyway ↩
6. Even if I were, I am also not leaving many hundreds of pounds worth of photo or sound recording gear on a bike and not shaking the hell out of it on the road – the conversion of a cheap Chinese bike camera to a kit of loose parts after a few hundred miles on a bike was an education in itself as to how bad the vibration is on an unsprung bike frame – I only carry camera gear in a backpack, not in the panniers now. ↩
7. It’s much easier for me as part of a child-free couple and at the end of my career to live on an income of the minimum wage because I have capital assets (paid-for house, productive farm and firewood). I am not a heartless bastard saying it’s easy to live on the minimum wage – it depends on what stage of life you are and what commitments you have, though I am of the old-fashioned view that one’s financial resources should be considered before taking on some commitments. ↩
8. the mixer takes 9V ac and uses a short Cockroft-Walton stepup in the power supply to make the ±12V split rails. So you can’t just stick 9Vdc into it. ↩

Two years in – how’s that early retirement working out

It’s soon coming up to two years since I checked out of the rat race, a good time to take stock and look at what I’ve learned. This is particularly long. I did think about breaking it over several posts, but what the hell, it is a long story. I’ve collected a few pointers to some things I’ve heard people being interested in over the years as a table of contents

1. become an opportunist
2. A lot of early retirement is about reducing living costs
3. Retirement is a different phase of life. Making it like work without the work is not the only choice you can make
4. Not having a regular income is scary
5. what it feels like to live off ‘drawdown’
6. The extra win a 40% tax payer gets from pension saving is much higher than that for a basic rate taxpayer
7. Work and all that
8. The distinction between work and not work is peculiar to the non financially independent
9. Grow within yourself – or else
10. The tl;dr summary

Overview

First off, I am not using any of my retirement savings – my pension remains deferred along with my linked AVC savings.What I am using now to live off is saved cash, though I also have income from ISA savings but these are reinvested. If I were to draw it now, my pension is notably above my annual running costs.

Three things contributed to this –

getting the mortgage monkey off my back

Paying off my mortgage eliminated much of the static drain of housing from my finances.It was a long job paying down the debt over twenty years. It’s not always a wise thing to do for an early retiree – anybody who is retiring before they can access their pension savings may want to consider keeping their mortgage and saving into pension savings with the aim of paying off their mortgage with the pension commencement lump sum. I didn’t do that because I was reactive and fearful. It’s a mistake that’s fail-safe – I live off less at the moment but will have more later on. It so happens that I was able to save the maximum worth saving into my pension savings and pay down the mortgage, after which I tossed what would have gone into the mortgage into ISA savings because I also saved money by

shooting the consumerism monkey

Breaking the cycle of mindless consumerism has helped me no end. Initially I did it because I was desperate to win freedom from The Man and needed to save every pound I could. I’m not going to bullshit, the first six months are hard. I never borrowed to buy consumer crap, but I wasn’t above buying Stuff because I thought it would make me happy. Only after about a year did I come to the awful realisation that

Stuff very rarely makes me happy

Now the validity of this varies across one’s life-cycle. When starting out, and you have very little, of course Stuff makes you happy, from you first iPad/kettle/car/bed/chair whatever. It’s later on, particularly in the upgrade cycle where the wheels come off the whole spending money on Stuff thing. People started to realise this, so there are some classes of Stuff that are deliberately engineered to become worthless or hard to use over time – the way Apple manages IOS to depreciate their historic gear is a classic example. Other examples are cloud services. I am using a 10-year old copy of Quicken because it does what I want it to – the rental versions introduced after 2004 have become worthless in the meantime.

I say very rarely because some Stuff does make me happy. The key to achieving a decent balance with consumerism is to know why you are buying something, and to evaluate its likely impact on your life without the spurious trappings of advertising. One of the simple rules to help with that is to wait 7 days before buying it – the initial sugar rush of ‘this will change my life’ decays over a couple of days, leaving me with a clearer head.

Mr Money Mustache has an entertaining read on this topic, titled recovering from the Pack Rat years. I came to a very similar conclusion to him independently – all the way down to no longer having a broadcast-TV capable viewing system. The only area I disagree is that I have no smartphone, because a smartphone is an absolutely shit digital camera and equally crap audio recorder¹, and it seems I am more demanding of these functions than usual. However, all my camera and recording gear was bought before 2007 – I am still the limitation there. In the event that my skills and creativity become honed to get better results out of better gear and I can turn that into profit I will consider it.

savouring the moment

It took a long time to realise this, and it wasn’t the result of any conscious decision. Perhaps it’s the result of having more time – when I was working I was always chasing after being somewhere else, in space or in time. I don’t know why, maybe it’s the ‘anywhere but here’ of a drone, I spent too much life energy wanting what I didn’t have rather than wanting what I did have. I need time to appreciate what I do have, and maybe it was time I didn’t have before I retired.

There’s a corollary to this, which is

become an opportunist as a retiree. It’s cheaper, and more fun

Many of the costs associated with life are to do with controlling your world. As a wage-slave you must control your world to fit in with the strictures of your job. You have to make sure you are somewhere for specific times. Even if you are a freelancer you have to work a certain amount of the time unless you are financially independent. You have to arrange a lot of things to be just so, you have to take your holidays within so many days, often people have to match their availability with the requirements of other people’s jobs and childcare etc.

All of this takes optionality out of your life so you need to control your non-work life to fit in, and control costs money. If you have to be at work you have to pay someone to look after your children in the day. You have to pay commuting costs. And so on.

It takes a long time to realise that there are other ways of living, that are far less structured if you let go of the inner control freak that had to fit in with work. Roll with opportunities.

A lot of early retirement is about reducing living costs

As we go through the many decades of a working life, we tend to see some lifestyle creep. We are social animals, we spend money on things that other people do because no man is an island, entire of itself. Others may spend money on things that really matter to them, and often we end up apeing these or hankering after stuff because, well, if it’s valued by others it must be good.

In the first couple of decades of working this social pressure is stronger – as time goes by there are more differences in the way people live their lives and this pressure is less. In my twenties most of my peers lived similar lives, often flatsharing or in digs. As time went on they paired up, then many had kids. The differences in living styles diverged more, and these divergences add up, reducing the social pressure. I should add that being childfree means I don’t know about child-related social pressure, though I suspect this is high. The way people work themselves up about schools indicates this child-related peer pressure is of a quite stupendous nature!

The key to early retirement is to look at how you are living and to ask yourself how much of this spending matters to me or people dear to me, how much does it enhance my quality of life? Then stick with that, and start to eliminate the rest, and simplify things. Complexity begets cost and dependencies. And take a wider systems approach to your living – how far you are living from work, how big a house you have.

For instance I took the shaft from housing early on, so I am in a lower grade of housing than most of my ex-colleagues. There is an indirect upside to that – my house is smaller than theirs, easier to heat, less to decorate and furnish, and less council tax to pay. Year on year on year, and that adds up over time. Some of this shows in the result – I discharged my mortgage in 20 years despite buying at a stupid time, taking a hit on a relationship breakup and buying with an endowment. My ex-colleagues often still had big mortgages on their big houses as they entered their 50s. Obviously I don’t get to spread myself out over such a wide area. Unlike them, housing is not the largest capital ‘asset’ I have.

A lot of consumer complexity I seem to have avoided by a combination of luck and the fact there were fewer temptations in my formative years. ERE has a nice wiki article on this for people who want to design their lifestyle by intent rather than by happenstance. Like starting to save for retirement, ideally you try and design your life consciously by the end of your twenties, because a lot of big lifestyle costs start to get baked in to your life after that.

You can reduce living costs further by ignoring differences that don’t really matter to you. MMM has a great rant on Cure Yourself of Tiny details Exaggeration Syndrome which saves me the bother of explaining that. It often staggers me, when talking to people who in theory would like to retire early how much they cling to things like being able to run new cars every three years and regular high-cost things like the fast and furious skiing holidays of the cubicle slave. As for golf – it seems designed to be the nemesis of economy, with high course fees, club fees and equipment costs plus the depredations of the 19th hole.

Now if they have sat back and asked themselves does this really matter to them and the answer is yes, then of course that’s intentional living and to be saluted. But often if you scratch a little harder it is because they fear the loss of status. The obvious question is who are they living for, because the Joneses don’t really give a shit. But to ask it would be unkind – people can only shift their world-view at a certain speed, and it’s always better if that shift comes from within.

Retirement is a different phase of life. Making it like work without the work is not the only choice you can make.

Retirement is a different phase of life. The tradeoffs are dramatically different. If you want your retired life to look exactly like your working life but without the work, then fine, you gotta do what you gotta do, generally working to 65. You will be able to broadly maintain the same spending, provided you have paid down your house. But you owe it to yourself to at least challenge the assumption and examine alternatives. Many people at The Firm have this pathology – they’ve been there so long they struggle to imagine anything other than the same life they have, but without the work. Some indeed fear that subtracting work will subtract meaning from their lives. These types of people should never stop work – because Nature abhors a vacuum. It goes along with the general thread that flexibility and openness to new ways of doing things is important to retiring early successfully.

Not having a regular income is scary

Two years ago I went from being a wage-slave with a steady income to being some odd combination of drawdown retiree and investor, I’m not even an honest pensioner because I’m not drawing a pension. I am doing what any early (pre-55) retiree has to do for some of the time. It’s impossible to overstate how different that feels to having a regular income. People who have been self-employed or otherwise handle a variable income will find that transition easier, but I find it scary.

The problem is that the job of squaring the financial circle is easy to define to a wage-slave. Keep at it, don’t do anything to lose your job without lining up another, and don’t spend more than you earn, with some notable exceptions (housing and education).  Summed up pithily by the distillation of my parents’ wisdom

Don’t spend more than you earn, son

The definition is easy, though the implementation isn’t. What you earn in a year is a number, written on your P60, and what you spend is a number too, in my case available from Quicken. Take one from the other, and Wilkins Micawber is your man

checking in the tools of a typical office-based trade

So the Ermine checks in his computer, phone and staff card and all of a sudden the inflow stops. Now I got a year’s salary as redundancy, so the intuitive answer to ‘how long to go before I have to draw my pension’ is one year, but all of a sudden everything gets more complex.

For starters I had to toss a significant part of the redundancy into my pension AVCs to avoid paying tax on it. I also want to fill an ISA’s worth every year, so doing that for a couple of years means all of a sudden I am left with less than the minimum full-time wage for a couple of years. And at the moment I don’t use any of the income on my savings; the reason for that is that at the moment I cannot turn a useful return on cash savings so it makes sense to run my cash reserves down and reinvest the dividends from the ISA.

Many aspects of finances are easier for a wage slave, with their steady flow of income. For instance I have to hold much higher cash reserves against the unexpected – fortunately this is held with NS&I so at least it doesn’t particularly depreciate over time. If you have a regular income you don’t need to do that, so simply need enough slack in the system to be able to cut back if something untoward happens like the roof leaking. You simply cut down your partying until you’ve paid the unexpected bills down. I have to hold the cash to address these hits up front.

But the hardest part of having no annual income is that it’s hard to qualify what a sustainable annual spend would be. If  you ask Wilkins Micawber he’ll shoot back

expenditure > income, result misery, wrong way, do not enter, turn back now, don’t go there bud

I don’t have any of my retirement capital available to me, as I am deferring my pension to raise its annual value once paid. So my AVC savings are also quarantined by that. In one limiting case I am okay now – if I drew my pension now my spending is lower than the net amount, and that also excludes any value from my AVCs or existing share portfolio. The job of bridging this gap has also been made harder by some of the opportunities that the Chancellor has made – the greater flexibility of taking a DC pension pretty much mandates saving about a personal allowance-worth of DC pension because HMRC toss a fifth of it in the pot and the new increased ISA allowance needs filling up.

Fortunately I have a shedload of The Firm’s shares purchased under Sharesave and Share Incentive Programme, all unwrapped. These can get sold over time and the proceeds bulk up the ISA. Once I get hold of the pension the I will have the AVC funds to shove into ISA savings over a few years. In the long run my ISA savings will be about half the capital value behind my pension which is RPI linked to a point. The ISAs  job is to fight inflation in the medium to long term.

what it feels like to live off ‘drawdown’

So I’m easy with the long term strategy. But obviously, I am running down the cash at the moment. And that’s not a good feeling. I fought against the depreciation of my net worth intially after I retired, before coming to the conclusion that wasn’t possible. At the moment it turns out that it was possible – this is a zero based networth chart, excluding the value of my house and any pension associated savings.

Ermine instantaneous networth excl house and pension

It looks okay, but I’d also have to deflate this by inflation, two years of inflation roughly knocks 10% off the real value. I don’t have an excel version of this so I used the shear function in Photoshop to drop the right hand side by about 10%²

inflation-adjusted version – the original baseline is shown by the dates

What is, however, happening is that the balance is shifting from cash to equities, which looks in Quicken like a madcap 20-something’s asset allocation. Although the equity allocation is getting on for three-quarters equities, this also explains the strange image of networth increasing while drawing down some of the capital. I need to remember the good men in white coats (hat tip to Monevator) who rock up just in the nick of time with their ‘this too will pass’ ring and remind me that this is illusory.

Observe the increase, and increasing volatility with time. That, my friend, is what the stock market does to you. In exchange for a little bit of real return, it gives you a hellaciously rough ride with a massive noise signal to bamboozle any attempt at rational thought. Remember there isn’t any income in here³, there is some spending, and the equity ratio is increasing. And stock markets have been on a tear for the last few years, only last year people were asking ‘I don’t know what the ‘king hell we’re doing up here mate‘. Twice…

Three-quarters of my current asset allocation is in equities, and in a bad year, equities can fall by 50%. In a different world it could look like this

the retired in 2007-ish version. Okay, falls happen more sharply than rises so it isn’t that realistic. There’s only so much you can do with Photoshop 😉

This sort of roller-coaster ride is what awaits anyone with a DC pension who does not annuitise any part of their capital on retirement or shift to some safer asset class. In particular, the good people who the Pensions Minister exhorted to enter drawdown rather than go buy a Lamborghini are going to be facing this. Yes, they don’t end up getting a fixed crap income of 5% of their capital, non RPI linked. But they have to accept that bronco ride. And every time an IFA asks Joe Public about his risk profile the answer comes back that he hates risk. I am in the stratospheric nutcase end of the risk tolerance (because my risk tolerance is balanced by the bond-like nature of a final salary pension)

An Ermine’s risk profile

And I don’t like it. Am I drawing down at a sustainable rate? The 4% SWR is an article of faith, and that faith is easy to come by at the moment, as the good doc said. It was probably harder to find in 2009. If it mattered greatly, I’d have to ‘fess up that I have no idea to that sustainable question. However, since I have a pension that is greater than my rate of spend waiting, plus an AVC fund that is in cash and larger than my ISA I will probably get away with it.

The takeaway is that living off a large equity based capital allocation feels like a very rough ride indeed, and let’s face it, I’ve only have the upside of that ride. For someone who has drawn a steady salary for 30 years, that is not a peaceful feeling. I have other options, and perhaps I am more fearful than others, but it would totally creep me out to rely on that⁴. I don’t know what the answer to that is, but I am happy to say I don’t need to find out, because I will get some of that steady income back.

I am probably underspending

It’s not a common observation in the PF universe, but I am probably running below my financial capacity. I had expected to reach the zero cash line between a year and a year and a half out (that would have been end of 2013), and to be drawing my pension already or imminently. I am six months into extra time. The reason for the underspending is because I extrapolated from spending at work, and it was also cluttered a little bit by spending on establishing a business.

Now if you’re going to err in retirement, err on the underspending side. However, da yoof is not totally wrong with YOLO and at some stage I need to review this. Even after two years, I am still in the recovery phase from a pretty rough experience of the last couple of years of work. So this spending pattern fits my needs at the moment.

The extra win a 40% tax payer gets from pension saving is counterintuitively high, compared with the BRT win.

We all know the pack drill. When you save £100, you put it somewhere and you can’t spend that £100. Easy – that’s pretty much how your ISA works, and almost all non-pension saving. The deal with pensions and taxation is different – you save some amount x and you don’t earn £100 net. The net effect is the same – you have £100 a month less to spend on beer/chocolate/paying off your mortgage.

It’s very counterintuitive, but forego £100 of net income and you get to save £166 in a pension. That’s because the £100 has been taxed at 40%, ie your net £100 is 60% of the gross amount, so the taxman gives you back 40/60 ie 2/3 of the amount you have foregone. Everybody thinks oh it’s only 40%, but in truth of the amount you can forego it is 66% – for every £100 net you don’t earn, you save £166 in your pension, a 66% bump up compared to if you earn it and bung it in an ISA.

Compare that with the basic rate taxpayer – they forego £100 and it’s made up to £125. Okay, it’s still a 25% boost but it’s nowhere near the boost the HR taxpayer gets. It was a little bit better at The Firm because they used salary sacrifice, so the BRT payer gets 32% (20% tax and 12% NI) so for every £100 he doesn’t earn he gets £47 added, which is nearly twice as much.

I hit this hard, and I started investing in a Global:FTSE100 50:50 fund from March 2009 on, so I got a 20% uplift in my AVCs from the stock market and the depreciation of the pound. But even so, I look back at my AVC savings and wonder how the bloody hell did I manage to save a year and a half gross salary in pension AVCs in three years. And fill my ISA each year and save a third of a year’s gross from net savings into NS&I ILSCs. I still don’t really understand it, but that tax relief did a lot of the heavy lifting, and the stock market played its part too, in that lift from March 2009.

This is why old gits at the end of their working lives can karate-chop the much vaunted magic of compound interest and bust its ass. They’re more likely to be higher rate taxpayers, they have more chance of having paid down their mortgage and they are a hell of a lot closer to getting the win so they are much more motivated because of the effect of hyperbolic discounting – loads of wedge in five years is a damn sight more interesting than loads of wedge in four decades. I saved a quarter of the total value of my work pension in the last three years, which is roughly an eighth of my time there.

Work

I retired early because I was stressed and became increasingly out of sync with the way work was being run. I am still recovering from that. It is only recently that I can reliably hear what is good in music, and there’s still a while to go before I will have recovered this to what I once had. In a myriad of small ways I am still reminded that I pushed my luck flying into the storm for three years, and indeed to carry on after I had been off sick. To a large extent the emotional centre shut down, and what was left was fearful; I retained most analytical capacity. Emotion gets a lot of flack in the PF world, and people draft long lists of ways it leads us astray. And yet it relates us to others of our kind, it gives us the hope to carry on against adversity.

Emotion is the chief source of all becoming-conscious. There can be no transforming of darkness into light and of apathy into movement without emotion.

Carl Jung Psychological Aspects of the Mother Archetype (1938)

The old boy had a point, try living with that function shattered – you attempt to strike lights and they sputter and flare out, never overcoming the steely greyness of undifferentiated days. The analytical capacity did refine my investing behaviour and this was easier with a spanner jammed into the works of some of the biases. But it’s no fun, because I would see how to do things but not why. Motivating yourself when you know how but not why is sheer effort of will, not inspiration.

 

It’s also interesting that ERE observed

On an anecdotal note, I vastly prefer less stress to the low level stress that is present in most modern life. The stress I feel now is the “original” stress of a boat about to crash. Not the continuous stress of not being able to meet deadline after deadline.

Because the world of work changed slowly, I did not realise the low-level stress increasing at work with the gamification of the workplace. That sort of continuous stress is bad because the response of increased heart rate and adrenaline has nowhere to go, it doesn’t help. Whereas when some stupid twat got pissed up at lunchtime last year and came round a corner fishtailing on my side of the road then yes, that is stressful when you see a dark Jag incoming at 12 o’clock. But it did some good, because it did the time-dilation thing and I was able to see what was happening, brake and pull way into the side, turning a head-on crash into a glancing blow. That is one of the correct uses of stress, because it did some good in improving clarity of thought and reactions for a short while where it matters.

ERE is much younger and fitter than I am, so if he noticed that it took a while to adapt  then it isn’t surprising that the results of the work stress is still washing out of my system. I crossed the finish line exhausted and no reserve capacity. I didn’t expect to be still recovering two years on and to still have significantly impaired capabilities but it is better to roll with it than fight it. It’s also a warning call for all those ‘one more year to comfort‘ merchants. You will almost always be financially better off working for another year. But you may be running out of other resources that occasionally matter more. And everybody is running out of time, 24 hours in every day.

The two years since retiring has given me some space to see where the working world and I drifted apart. The obvious reason is a combination of the 2008/9 financial crisis and changes in the way The Firm was being run. The obvious reason is not always the whole reason.

I’ve avoided the vexatious issue of making money myself, largely because I don’t want to enter the world of wage-slavery and I have no desire to fill in an income tax return for lousy itty-bitty amounts. However I haven’t avoided directed action of the sort that sometimes goes under the title of work, I’ve taken these to add value to other people’s projects. And I look at them, and I realise that there was one big thing that I missed where I was diverging from the world of work at The Firm.

I am a generalist, and worse than that the sort that Firestarter identifies as both Renaissance Man and dilettante 🙂 This runs terribly against the way work is going, which is specialising, knowing more and more about less and less. This applies particularly to IT, which was the way The Firm was going.

As they drove their way down the value chain they became much more prescriptive in structures and methodology. As a research facility it was a very wide-ranging operation for much of my career but as this was moved to become an outsourcing jobbing shop it narrowed. Specialisation is an aspect of the IT contract world too, it would be unfair to blame The Firm purely for this. For illustration, as a generalist since retiring I have programmed in assembler, JAL, Python, Perl, PHP, C and VB. I code in whatever suits the application and the platform. Raspberry Pi? That’ll be Python then. Arduino – C, Pic microcontrollers? MPASM or JAL. The Firm was trying to make everybody code in Java, and only Java. I am dilettante in seven languages and not master of one 😉 In my last project for the London 2012 project I also didn’t focus in IT – CATV was from legacy electronics and system design. Indeed, at work the one thing I didn’t do much of was Java, that policy was instigated just before I got onto the 2012 Olympics project…

When I retired I had thought that if I were to sell time or skills for money it would be in the field of engineering. But it isn’t likely, because I am running against the tide with that generalisation.

After leaving work I built wooden shelters and fixed tractors, I’ve designed an irrigation system (the design part is being able to operate through winter, it’s not just going down to B&Q and buying up a load of hozelock connectors). I’ve produced and edited video. I have electronics design facilities, but this is at a fairly modest level. I have produced some IoT environmental sensors and the like. But only as part of a system design to do something else. This may point the way in future – don’t do stuff, do capabilities and services. I’m not going to be hidebound about it – a lot of the problem with Stuff is regulation; small fry can get away with a lot and if you get bigger you can afford the overhead. No small business became a big one by following all the rules…

Where I’ve actually made money, is photography and sound recording.  I’ve managed to work a little bit harder than my ISA, though these guys will pay me in dollars so I have to wait until the exchange rate is better. Unfortunately this is impaired because the stress nearly wiped out any creativity I had.

But without this playing with fantasy no creative work has ever yet come to birth (Carl Jung, the psychology of individuation)

I actually see some of the recovery in the improved popularity and profitability of the photos I take…

The fact that I can tell the agency to pay me when I’m good and ready means I am safe from the Internet Retirement Police – I haven’t done that for the money and it forms no part of my financial planning. But even as a cold-turkey retiree I haven’t totally avoided the four-letter w word. But I didn’t seek it out, indeed the problem I have with work is the whole bad power play of it. Perhaps I will have to reconsider this and view that I have achieved manumission through financial independence as opposed to retiring. It’s not really catchy though, is it?

The thing that runs through these things is that there isn’t any single thread running through them, and if there is something running through them then it was only incidentally engineering, indeed much of it wasn’t even left-brain stuff.

Google will save serious office space when they get to this stage, though they’ll need to improve connectivity

I am probably unemployable now because of this hopeless sprawling generalisation, it’s just not what the modern workplace wants. The reason for this is the concentration of power to capital and the improved communications. Companies can concentrate the work to hyper-specialists, the distribute the results to the proletariat virtually cost-free. Look at the setup at Google. These will eventually become brains in a jar with multiple redundant high capacity optical fibre data connections. You ain’t seen nothin’ yet with Google Glass. Google employees can’t cook for themselves or do their own washing, which is why Mama Google sees to it to fix their household requirements. Free food, free laundry, free haircuts. free cars. If you want to see where white collar work is going, look at the leading edge – it’ll be most places in 10-20 years. Hyper specialisation has a dark side. I am nowhere near bright enough to work for Google. Nor are many of my fellow Britons. Specialisation is where it’s at, but it will need fewer and fewer people and require more and more of those it does need.

Generalists work well in a small scale – there are often opportunities to use knowledge across unrelated fields in small-company operations. They are more flexible, there isn’t a structure of existing practice to adapt, and they can get away with short-term fixes for temporary requirements as long as they trust their generalists of they have seen enough track record. But I have no desire to work full-time as a general fixer. The 21st century technical workplace is no place for a generalist Ermine, because of this culture shift towards specialisation and narrow but deep skillsets. But then that’s the whole point of becoming financially independent. I don’t have to give a damn.

The distinction between work and not work is peculiar to the financially dependent

because you’re financially dependent (usually on a job). So you have to do what The Man tells you, and that division is clear-cut and non-negotiable. Contractors and the self-employed soften this distinction a bit. It seems to easily end up with work taking over their life, however, because work is still not elective, it is when they work that is more elective than someone working for The Man. Not that they work.

Philip Greenspun posted an interesting article on early retirement way back in 2006. I used to read his site as photo.net just before the the turn of the Millennium, the empty dreams of a cubicle slave dreaming of making shitloads of money on the stock market from the dotcom boom and then making pin money shooting picture and travelling, those heady days when Momentum was King.  And that’s when I really enjoyed work. Anyway, I came across his article, and the comments as he was seeking feedback on the article. Although I’m normally of the opinion comparisons are vexatious, part of the insight from the article does come from the differences and the similarities between two different journeys.

I’m nowhere near as rich as Greenspun and I earned less. There’s at least one order of magnitude in it, probably two, possibly more. This is not something that particularly bothers me, I don’t have the desire for flying. However, I can see it gives you more options in the US, where distances are much greater and people disperse over a wider area; Greenspuns college pals are more important to him (Even for couples/people with kids they get a little more important to people after most have gone through the baby/children tunnel of 30s to early 50s)

He is/was single and is about 10 years younger than me. He had to take special measures to address the social life issues that I just don’t have – he’s clearly given it some thought and does it well. He’s more outgoing that I am. In particular his angle on that being single has a very strong effect on where you choose to retire to have a decent chance of stimulating human interaction is quite an eye-opener. I didn’t appreciate there was this difference, but what he says makes sense. A single early retiree (~40) probably does need more money than someone who has a partner. However, since the single fellow probably doesn’t have kids he probably does have more money, so there’s some auto-compensation.

Time management (pinched directly from Greenspun)

How much work does the average college student get done? Almost none. Yet the same person, injected into a corporate bureaucracy, becomes a reasonably effective worker. Why? Most people have terrible time management skills. This limitation is of no consequence in public school. The school tells you where to sit and what to do and when, at least for six hours per day. This limitation is of no consequence at most jobs. The employer tells the workers where to sit and what to do and when, at least for eight hours per day.

If you’re retired, however, nobody tells you how to organize your life. If you have goals that you’d like to accomplish and your time management skills are poor, you might end up disappointed in yourself.

Now an ermine isn’t an enormous fan of the self-help industry, though I’m happy to accept it helps a lot of people and occasionally indulge. There’s a very heavy thread of self-discipline and virtual Calvinism in the personal-finance world, but it is nothing to the apotheosis achieved by some of the American writers – Steve Pavlina is over 1000 times more effective than I could ever be, and it’s not like I disagree with the efficacy of what he says. But to me seems me as a joyless way of living – life needs dynamic contrast and empty spaces for reflection and understanding. I didn’t stop work to reproduce the problem again in a different place. Each to their own.

http://rcm-eu.amazon-adsystem.com/e/cm?lt1=_blank&bc1=000000&IS2=1&bg1=FFFFFF&fc1=000000&lc1=0000FF&t=simpliviinsuf-21&o=2&p=8&l=as4&m=amazon&f=ifr&ref=ss_til&asins=033037320X

However, Greenspun has a point. I found it helpful to take the time out in the morning to centre and actually write down what I wanted to achieve that day. The idea is roughly pinched from a book The Artist’s Way at Work, which I bought way back as a cubicle slave looking for a way out. It didn’t work for me, I produced trash because I was trying to make money which shuts down the playful creative side. Presumably people who work in the creative arts don’t have this problem, or the fact they start off with a damn sight more talent makes up for it. It was in the box of to get rid of books until I read How to get Unstuck, and figured I should reread it from a point other than desperation.

That rough orientation is generally enough for me. though I have used the basic tools of project management for longer projects, such as the open source Gantt Project, and of course Excel has its place in the finance area. It’s not mandatory to leave all the useful tools untouched when you stop work.

Work, cold turkey, rentierism, aristocracy and the Ermine

I went cold turkey, or so I thought, because the word work became associated with a traumatic experience. This made the transition easier. And unwittingly, I overlooked some of the positive aspects of making stuff happen in the world for pecuniary reward, because it was associated with having to suck up to stupid crap. The two aren’t inherently linked, provided you don’t need the money. The money has some value – it is an estimation and recognition of exchanged worth.

And I’m left with a load of inconsistencies and conflicting attitudes because I have simply buried this subject and left it, so it is still linked with outdated psychological forms. To live intentionally I need to dig this out, untangle the knots and live my values.

The trouble is I have spent 30 years being motivated to work for money because Bad Shit would happen if I didn’t. That’s a terrible way to motivate anybody – it’s the Bad Shit that puts the slave into cubicle slave⁵

for a man is rich in proportion to the number of things which he can afford to let alone

Thoreau, Walden, delivering a message for the 1% that they will not hear

And now, curiously, I have the edge on a significant part of the 1% – who all earn far more than I did. But they spend more, whereas I am within spitting distance of becoming a rentier. Much of the secret, as Thoreau observed above, is to reduce spending. If that works for you, of course!

So the whole reason I worked for money has gone. The empty space still speaks – I cannot relate to some of the ways the retired ‘work’. I don’t volunteer. I don’t understand it, and at some level I find the concept demeaning, of working for nothing . Maybe I am just a bad person, maybe I will chill on that in time, though I doubt it. There’s still the echo of work being a four-letter word, and ending up in a situation where other people tell me what to do still reminds me of that fateful February day in 2009 in a one to one where I realised that the Ermine was out of luck, out of time and out of options but needed to suck it up for long enough to buy freedom.  I have added value to other people’s projects without being paid, because of this

Still, it’s hard to suddenly turn off an educated brain.

Gail Buckner, Fox Business

What I really want to avoid is an ongoing commitment. It’s far more satisfying to start in the morning, get some tools together and wrangle something into a more useful form and then get out.

irrigation system under construction

That favours Stuff and kind of runs counter to the Don’t. Do. Stuff  argument, but most of the objections are lifted when other people have the problem of buying the Stuff and storing it, and all I have to do is show up sometime and turn it into a working system.

So there are loads of inconsistencies and conundrums in my approach to work. None of them are urgent, though resolving and drawing the sting from the psychological hangups is probably worth the investment of time. I want to live intentionally, and not shadowboxing the psychic wreckage of past injuries is part of that goal.

Grow – or begin to die within

You have more opportunity for self-development and individuation when you own your time, but you have to engage and work at it. Many people really hate that – they feel they are adults and have it all sorted, that was the whole point of the first 20 or 30 years of their life. Individuation involves being more reflective, writing about what you feel or even things like the Artist’s way journaling. There’s often not enough time to fit that sort of thing into a busy working life, so it easily gets put on hold. It takes time to unstick that.

Your vision will become clear only when you look into your heart … Who looks outside, dreams. Who looks inside, awakens.

Carl Jung

I’d really like to say I had done well there, but progress is slower than I had expected. I have started, and of course the process of individuation does not have an explicit end target. Journey, not a destination etc. There’s no point in wasting too much time trying to describe this because it’s very different for different people. Just remember that

the day you stop growing is the day you start to die.

William S Burroughs, Junky

Observation shows that one of the big ways people go wrong when they retire is they stop growing, because most of their challenge was at work. Too much TV and too little curiosity kills the cat…

Luck plays a big part in the story

More than I had realised, and while it’s easy to point at the things that went wrong far more went right. I had rotten luck in two big areas at the beginning and at the end of my career – I bought a house at a terrible time, and I lost the last eight years of earnings by retiring early. I’ve had good luck in other areas – joining a final salary pension and getting nearly 24 years out of the design 30 in it is a large stroke of luck as is never losing a job since getting my first one⁶. And if I was going to bail out 8 years early, then being a higher-rate taxpayer and recognising the open goal of the stock market next to me and taking the opportunity was another piece of luck – if I started now my ISA and my AVC savings would both be a lot lower after five years, assuming we aren’t about to enter the mother of all bull markets 😉

The tl;dr version

Looking back after two years I have spent about half of what I expected, and largely got away with retiring early. I am still not drawing on my retirement savings. I have a decent measure of what running costs are in retirement, I am probably underspending and have space to adjust upwards. Cutting costs helps greatly – it helped me save more when working and reduces the drawdown when retired.

I have learned that being a generalist is also very bad for the way work is going, particularly in big firms. And the recovery from getting knocked out of the workplace by stress has progressed but by no means finished – even after two years.

Retiring early is good  -I can allow the generalised interests that were becoming toxic in the workplace free rein, and they help me live cheaper than would otherwise be the case because of the various reasons skecthed out by ERE

Flexibility and openness to new ways of doing things seems key to retiring early successfully.

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1. a smartphone has no optical zoom, and is preset for a good first-person shot of a human-sized object about 2-5m away. Which is what most people want and makes great Facebook posts. Audio recording seems to be stuck in mono and doesn’t take external microphones. Again, great for facebook video. To make a smartphone into a good camera or audio recorder, you end up with a great big smartphone which is stupid as a smartphone ↩
2. which is obviously a linear interpolation of an exponential function, but it’s okay with such a short period and relatively modest inflation. ↩
3. ]this isn’t strictly true, as the HYP ISA pays a shade under 5% dividend and there is some unknown amount of capital appreciation too. But I don’t spend this ↩
4. This is a peculiarity of the short timescale of my DC savings of less than a business cycle. If my savings were the result of a typical DC pension this concern would be softened because I would have entered the market over many decades, the 4-5% SWR would have greater validity because I would have a better idea of what the true value of my savings really was after saving across many business cycles ↩
5. I use the Americanism cubicle slave because it is common shorthand in the personal finance world. However, the enslavement is just as much for anyone who has to sell their time or skills for money to keep Bad Shit from happening in their life – whether they’re a office worker, a CEO, a coal miner or a Big Issue seller. ↩
6. there is a year’s hole when I took time out to do an MSc but I was sharp and did that in an economic boom so it was easy to get a job afterwards ↩

calling all late 40s+ wannabe early retirees – your ship’s come in…

Martin Lewis, he of moneysavingexpert fame, considered the pension changes “both wonderful and horrid“.  Wonderful, because you now can take it all in one go subject to normal income tax rules, without all sorts of restrictions that mean you have to drip out the money over 20 years or so. And horrid – because you now can take it all in one go, so people may blow it all on this sort of thing

That’ll be a nice Lamborghini, and to hell with the money

as the pensions minister quipped.

Extreme wealth warning – everything to do with pensions is hard, counterintuitive and needs careful consideration

You’re on here because you have an interest in personal finance, right? Most people consider it dull as ditchwater – indeed I only sharpened up my act when I realised that getting my skull round this would enable me to quit an increasingly toxic workplace. Before then I was happy to rock up and work, do a reasonably interesting stuff  in return for beer and toy tokens. The Grauniad delivered this quite astonishing piece by Joanna Moorhead saying

When it comes to pensions, choice is not necessarily desirable – especially for those of us burnt by endowment mortgages

WTF? It is precisely because I was burnt by endowment mortgages (though reinstated) that I don’t trust insurance and life companies and was grateful that in pension provision I never had to think about them. If I had to manage a DC pot I would now be deeply grateful to Osborne for letting me escape the clutches of this dodgy bunch of charlatans.

Of course, there are people who enjoy the personal finance sections of newspapers, and who love nothing more than poring over the small print of different finance options on offer, but I’m not one of them. I’m the woman looking for the switch for “financial autopilot”, and right now, with the changes to annuities, that looks suspiciously as though it might have disappeared from my dashboard.

Money is crystallised power, a claim over human work. All power stores are dangerous if you don’t think about them. It’s why people don’t carry petrol around in open buckets and you learn something unique and instructive if you drop a spanner across a car battery. Endowments were the autopilot choice for a young ermine and it appears a young Joanna. The older ermine learned from that when his career flicked out of autopilot, and so should you, Ms Moorhead. ‘Cos the ground is never far away, and it has an unhealthy attraction for things above it.If you fail to plan, you plan to fail.

Thinking is about ten times as hard with pensions than ISAs because of the decades it takes to get into them, and the hopefully over decades they will serve you. The Grauniad seems to be in jealousy mode all round at the moment, as they are bitching that you need a salary of £125,000 to make any use of the the New ISAs. FFS people – I have never, ever, earned anywhere near that much and I have zero income at the moment but I am damn well planning on using my full NISA allowance over the next few years. Dear Guardian, have you ever heard of that antiquated notion, spending less than you earn and saving money? You guys should try it sometime, instead of sipping your cappucinos and griping. No, if you spend your nice Guardian salary on consumer shit then a NISA is no use to you, but you get lots of lovely toys. Each to their own.

small changes make big differences

You don’t see an awful lot about pensions on PF sites because they’re hard, they are built up over secular¹timescales in general and small changes can make mahoosive differences. Let me illustrate this with an example. In 1988 I joined The Firm’s final salary pension scheme. It had a simple proposition – every year you accumulated entitlement to 1/60th of final salary, with a normal retirement age of 60. In practice than meant if you worked for The Firm for 30 years you would get half your final salary as a pension. The Firm expected pensioners to die at 80 on average, thus paying out for 20 years. You could retire at 50, in which case they would pay out over 30 years, 10 years longer than planned so they would actuarially reduce your pension by 50% – you lose roughly 5% for every year drawn before normal retirement age (NRA) of 60.

The Firm decided it wanted to reduce costs, so it closed this scheme to new entrants in 2001. In 2009 it decided it wanted to save even more money.  It appears UK law doesn’t permit firms to claw back pension entitlements already earned because they are part of your pay so they have to contractually honour previous years agreements. But they can change things going forward. So The Firm changed three things, and very few people spotted how much damage was done to their pensions. The Firm

• changed the NRA from 60 to 65
• changed the accrual from 1/60th to 1/80th
• changed the accrual from final salary to career average (each year’s entitlement is based on the inflation adjusted salary for that year)

Three small changes – HR obviously wept the usual crocodile tears and said it won’t make much difference for people retiring soon, and allowed people leaving up to three years from 2009 (just excluding an ermine – I was six months out of the grandfathered rights date 😦 ) to leave under the original terms. Now who is most interested in pensions? Old gits, who are about to leave. So HR shut them up by grandfathering them.

Let’s take a look at what that did to me

how the the changes affected my pension (rebased to 60 and a nominal 10k final salary)

Now I obviously surrendered some pension accrual leaving 8 years early, but the changes made that easier to do – I was giving up less. It’s also relatively simple to see that the total change is about 25%, which coincidentally happens to be the amount I was able to save in AVCs and will take tax-free as a pension commencement lump sum and invest myself in my ISA, effectively creating a tax-free DC pension to compensate for the loss due to retiring early. I will still have less because I will draw the pension a little early, though part of the reason for writing this is that has changed with Osborne’s changes. I may defer it for another year or so and use a personal pension, because as a non-taxpayer I can get a free 20% bump up on £2880 or ~£5700 and getting a 10-20% ROI on cash is difficult to ignore in a ZIRP environment 🙂 It isn’t a lot of money, but it’s worth thinking about.

Now imagine a 10 year younger ermine, entering The Firm just before the portcullis closes on the final salary scheme.

The younger ermine eats a much greater hit

The poor bastard takes the same hit as the old Ermine, but he has to suck it up to 60 to get the same amount as the old Ermine who pulled the big red ejector handle it in his early fifties! Now the younger ermine probably takes an even greater hit because of the career average change, which reduces the base salary on which the pension is calculated. And The Firm was craftily shifting more and more pay from consolidated rises to bigger bonuses, and bonuses weren’t pensionable.

Now the proposition of a final salary pension scheme is simple, so if small changes can make that sort of effect, the sort of thing the Chancellor has done can make even more effect on a DC pension. Let’s take a look.

Osborne’s Budget changes

To a first approximation, he’s lifted the restrictions on what you do with the money once you reach 55. The Government’s own summary is pretty good. People younger than  42 should beware that this age will be dragged up

this consultation also includes a proposal to raise the age at which an individual can take their private pension savings under the tax rules from 55 to 57 in 2028, at the point that the State Pension age increases to 67.

so if you are younger than 42 be careful. If you are much younger then expect this to be drifted up to 60. That is the evil heart of pensions – governments can change the rules after you have locked the cash away. If I personally were younger than 42 than from a purely financial POV I wouldn’t touch pensions with a bargepole, except enough to get any employer match, and perhaps to lose any 40% tax. But that’s me – YMMV. That’s not saying I wouldn’t save for retirement, but I’d use ISAs for that. However –

There are some things only pensions can do

This judgement isn’t as simple as it seems, however, because one of the advantages of a pension is that it can’t be seized by most creditors or held against you for many benefit claims. You may be doing fine and swimmingly at the moment, but globalization and technology are shifting the balance towards capital and away from labour. Pensions help you build capital safe from the backdraft of this. If I were a younger Ermine in my 20s but with the older head of now, from what I have seen I would not expect even a good job to last for 30 never mind 40 years. The power is shifting away from workers, the pace of change is too high and increasing, and the winner-takes-all effect is too high. Tyler Cowen’s Average is Over shows the way – reveiwed in The Economist. I would place greater effort on escaping the rat-race earlier and owning capital rather than relying on my rapidly depreciating labour. The time for consumer frippery and shitloads of debt is over. I have no desire to live like a Transnational – I am not ambitious enough and probably not bright enough.

Many people my age have been caught on the hop by this – the increasing routine and rottenness of my job, and the micromanaged incentives are the first reaches of this shift of labour to capital. When I see a business card that says ‘Consultant’ and I see grey flecks in the hair of the holder I mentally translate into ‘Unemployed’ – because so often it’s true 😉 It heartens me to see that in the UK PF community there are more and more people who are looking for financial independence at much younger ages than I am. I think these are cleverer people than I was, who are picking up the straws in the wind of the incoming shitstorm for jobs. Get on the side of Capital, because Labour is losing the fight, unless you can get on the side of the 1%, and let’s face it, the odds aren’t great 😉

Society will eventually have to shift. Look at some of the changes coming – the increase in the personal allowances, meaning an increasing number of voters will not be taxpayers. They will, of course, vote for jam today and for somebody else to pay. Look at the stats on tax income – over two thirds of the income tax take comes from people earning 32,000 and above. These are people who individually earn more than the median net household income for families with dependent children²

Pensions can help you with this, basically by locking up money against the incoming shitstorm and throwing the key out to your future self many years in the future. You can hitch a ride for your future self  on the side of Capital (if you use equities rather than cash) that, in current legislation, can’t be taken away from you³ and it doesn’t impair your ability to claim benefits⁴. Whether that is attractive to you depends on your view of the world and where it’s going, and to some extent your rate of discount of jam tomorrow compared to jam today.

So what did Osborne change?

There’s a common belief that you had to purchase an annuity with a define contribution pension but that was never true until you reached 75. Those with £20,000 of guaranteed pension income could take any amount of their money subject to tax and those with less than that amount of guaranteed income could draw down their money at a rate determined by annuity rates in capped drawdown. What he’s essentially changed is that anyone over 55 can take as much of their pension capital as cash, subject to normal income tax as opposed to the punitive 55% rate it used to be. But if you are taking £150,000 from your pension for that Lamborghini then you’re paying 45% tax on all of it, bud, so you better strike a deal for no more than £82,500. Previously it would have been 55% taxed, so you’ve have got 67,500. Put that way it isn’t such a stupendous change for high-rollers, though £15k probably gets you the walnut trim or the gold-plated gearshift knob.

The rate you get for an annuity rises as you get older – annuity rates for people at 75 are much better than for those at 60 or 65 because they’ll be paid for less time. There is much to be said for starting off in drawdown and switching to an annuity later on. Most people haven’t saved enough into a DC pension, and this gives you a better chance of a decent lifestyle even now – the annuity is not dead at all. Once the annuity return beats out the return you get on equity investment it makes sense to switch⁵.

People hate annuities because they can’t leave them to their kids among other reasons…

But you don’t get to leave it to your kids. What seems to be behind a lot of the rumbling about annuities is that they die with you (they can look after a partner at some cost but that’s it). So the children get n’owt. Now the whole issue of capital and inheritance needs sorting out by some future British government, and it won’t be pretty. I’m personally of the opinion that inheritance is an abomination in a notionally democratic and meritocratic society. It harks back to older societies where capital accumulated very slowly so it was the only way to build a business – over generations, and it all smacks of the privilege of kings and nobles. There were no startups before fossil fuels. It may be the most natural thing in the world for parents to want to favour their children, but IMO a 100% inheritance tax where the entire estate escheats would be an incentive for those parents to sort their shit out while they are alive, and it would go some way to not embedding privilege. But I can say that because I am child-free, if that weren’t the case I would probably line up right behind the old buffers of the Torygraph who think that inheritance tax is a terrible thing, because having children does that to you 😉 Somehow society needs to sort this out in a world where it is increasingly difficult to make your fortune in a working life, because increasing inequality lets the 1% bid up the price of essentials like housing. God knows what the right answer to that looks like, but it doesn’t seem to me to be the direction we are going. History shows that aristocracy does work, but needs a lot of serfs…

It’s important to note that one of the reasons annuities looked such horrible value in the last five years is that the Government’s policy of printing money and keeping low interest rates meant annuity providers couldn’t offer decent rates – the underlying gilts just didn’t give people the returns they wanted at 55 or 60. Osborne’s been a good guy in not forcing you to take an annuity, though remember you didn’t have to do that anyway. But he hasn’t improved your ability to get a low-risk income at a price you want to pay. You can stay in equities, as you always could with drawdown. But you are still SOL if you want to avoid the volatility of equities. You are going to run out of money if you didn’t like the annuity rates on offer when you retired and you can’t stomach the rollercoaster of the stock market. There ain’t anything better on offer at the moment⁶ – as a cautious saver you have to do Your Bit to pay off the National Debt.

NASA tells us we are doomed

There’s a NASA report that paints a bigger picture, basically they are of the view we are Doomed

…. appears to be on a sustainable path for quite a long time, but even using an optimal depletion rate and starting with a very small number of Elites, the Elites eventually consume too much, resulting in a famine among Commoners that eventually causes the collapse of society. It is important to note that this Type-L collapse is due to an inequality-induced famine that causes a loss of workers, rather than a collapse of Nature

The bit they seem to be missing is that the Elites are busy eliminating the need for a lot of the workers… The Ermine is not an optimist by nature, but I have learned that the bear case always sounds smarter. This is because things go titsup in a big way, and they can be imagined – at the moment it’s robots and globalisation stealing out jobs, climate change, it’s easy to picture them. What is harder to see is that people chisel away continually at improving the upside. 99% of them fail, but the incremental up-shifts add up, but they fly below the radar because they individually don’t look that much. Who would have guessed that improved computer networking would spawn whole new industries like web designers and security experts and MOOCs and improved living standards for what we used to call the third world by letting them work for us⁷, and high-frequency trading etc? After all, we had networking before – I recall Novell Netware, where the piss-taking bastards at Novell would charge you a licence per connection⁸, and added a piece of code to explicitly kick people off if more people connected to a server. Then TCP-IP came along, eliminated such monopolistic gouging and ate their lunch. Then in ’94 Berners-Lee developed the WWW and here we all are. None of those developments looked earth-shattering at the time.

At the moment the Chinese are working on thorium nuclear reactors that address many of the the hazards associated with nuclear power, though they will no doubt have problems of their own.It may or may not go somewhere, but if it does, then it will be a win for energy and for knocking back global warming, simply by taking out a lot of China’s coal-fired power generation. In general, positive change comes in small chunks that steadily mesh together and add up, whereas things that go wrong come in great big unexpected lumps that generally give us the feeling of OMG we’re all going to DIE. And the atavistic caveman in us looks at the great big shadows of our fears cast against the wall and it makes better copy. Bad news sells, and nobody’s managed to ever sell a good-newspaper yet.

Pensions get a lot more interesting when you get past 45

One of the primary risks younger people face in using pensions is that they’re saving a lot of wealth is a locked-up place that Governments can easily target, since Government sets the rules. A future Labour government could go back to annuities – I’m not saying they have thought of it, but them might. There is a general downdrift of the amount you can contribute to a pension (£40k if you earn more than that) and there is also a general downdrift of the total amount you can save in a pension and get tax relief, the Lifetime Amount which is currently £1.25 million. That sounds a lot, and I, for instance have nowhere near that much but for someone in their 30s now it’s not unreasonable to aim for, because the value of money roughly halves every 15 years. In thirty years’ time that would be worth about £312500, at a 5% withdrawal rate that would be a pension of £15625 p.a.

You can see the direction of travel of pension allowances at HMRC, and it’s not positive. A whole lot of these problems go away as you get closer to drawing the pension, because, recognising that people can’t take money out of a pension to conform to changing legislation, they often let you protect your savings against changes. The quid pro quo for that is that you stop saving into a pension. Totally and for the rest of your life. That’s not so bad if you are in your late 40s or fifties and drawing at 55, after all HMRC indicate you are limited to a pension of about 56k at 65 so you are hardly on the breadline, you just have to stop paying into your pension for a few years, pay a bit more tax and use ISAs but if you are a young buck at the top of some financial institution, Doing God’s work, say, then your dreams of retiring to round the world yachting and golfing will need you to find some other way of saving for retirement. If you are that rich you’re not reading this, and anyway, you can afford to pay for the relevant financial advice on what to do.

taxpaying wannabe early retiree old gits, your boat’s come in

If you are a taxpaying old git, however, you are all of a sudden much better off, particularly if you have savings or are prepared to borrow money. Drive your salary down to the personal allowance by putting everything above that into a personal pension. Do that for a couple of years, and then when you stop work extract this money but leave your main pension deferred (ie still in accumulate mode) – the first £13k a year is tax-free⁹. Obviously you need a big spreadsheet and do a lot of what-iffery to play off any loan/mortgage not paid off against the tax bung, and it only works if you can slow your rate of withdrawal to less than the personal allowance. There’s no point in saving 20% tax to pay it again later.

ageing 40% taxpayers and child benefistas – this one’s for you

However, if you are a 40 or 45% taxpayer than you can make out like bandits  – squeeze yourself down to the 40% tax threshold and accept you pay 20% tax on the way out. It’s free money 🙂 Well, it isn’t, it’s a way to stop the Government stealing your money, and I wish I’d had this available to me. Fill your boots, and if you are a child benefista than you can go get that too. It’s welfare for the better off…

one of the obvious things for a non-taxpaying old git to do

Is save £2880 into a personal pension, saved as cash. In a curious fit of minor generosity, HMRC then up this to £3600. In my book that’s a profit of 25%. Do a couple or three of years of that and you end up with a profit of about 10%, because inflation will knock off about 5% of the return. And my DB pension gets 5% bigger because I draw it less early. I initially started looking at this to see if I should do some of that this tax year, but there isn’t enough time to see what exit charges are like – all the pension providers’ websites seem to be based on annuities and the like. So I will forego my free bung of £720 for this year from HMRC because a few days isn’t long enough to get this right.

I researched pension costs at Cavendish Online which seemed to be an often suggested good value broker on MSE. For a simple and quick in-out you will probably favour a stakeholder rather than a personal pension, because costs appear to be lower, and non-taxpayers are going to be playing with £3600 a year at most. A personal pension gives you some more flexibility of investment choices, and a SIPP is the most flexible. You pay more charges are you go up the hierarchy. What I couldn’t determine was the exit charges.

There is still a while till I get to 55. After than an immediately vesting pension plan (IVPP) seems explicitly designed for non-taxpayers, and hopefully by then these will return 75% of the capital as cash, rather than as an annuity. To be honest I would expect some future Chancellor to block that particular loophole. Unless they take pity on all us impoverished non-earners on the assumption that we are all poor, rather than enterprising – once I discovered how much income was taxed turning it into wealth before it got stolen became a priority.

I don’t have enough expertise to know much about the issues for younger folk – the big risks of Government fiddling are high, but on the other hand the protection from creditors is a great plus point. Shit happens in a working life – the big ones of Redundancy, Divorce, Disease are always with us. Death hopefully less so – one of the reasons the retirement age is drifting up is because you young’uns will live 10 years longer than me, and probably in better health.

These pension changes are particularly transformational to wannabe early retirees – ie those who want to retire in their mid-fifties rather than at 60 or 65, and particularly those who are paying 40% tax. If this includes you, you would do well to try and look at these changes from every angle to see how they could help you reduce your tax bill or delay the point at which you take you main DC pension. I haven’t had time to give this enough thought. Unlike Joanna Moorhead, I’m prepared to put some thought into how to make this work for me.

What about those Lamborghinis and BTL sky-rocketing house prices then?

There are two dark fears raised. One is that people will blow their money on frippery, and the other is that people will charge into BTL and jack up the price of houses again.

Lamborghinis, cruises, consumerism gone wild

Guess it’ll help the economy in the short-term ;). I’ve always been puzzled by how people go mad when they retire normally (60/65) and spend on a big blowout holiday. Your capital is at its highest potential at the point of retirement, a lot is going to change and you don’t know how it will feel to live off capital. That 25% PCLS is part of your overall wealth – it isn’t ringfenced for stupid spending. It’s a very, very different feeling to living off income. Blowing a lot of it at that point always struck me as a really strange thing to do – if you wait a year then you will have chilled, plus you’ll actually know whether you really want to spend a lot of money on the extravagant dreams of a cubicle slave thinking ‘Anything but this’. Booking the cruise while you’re still working seems odd. But I am different from other people. According to the BBC it appears not to be too bad a problem in Australia where they have this sort of thing already

Hordes of greying BTL investors jacking up house prices.

The average DC pension amount at the moment is £17,700 and about 320,000 people a year currently start drawing DC pensions. It’s probably not enough to seriously shift the needle on the dial, compared to daftness like Help To Buy

Final wealth warning

I’m not a pensions expert, and indeed had to research all this about DC pensions since the Budget because there seemed to be an opportunity. I can afford to screw up there, because this is only a small piece of my retirement planning to try and bag some free money. This post is tossing out some ides. Some may turn out to be hogwash. For God’s sake take advice if changing anything about pensions, or very, very seriously DYOR. After all, I bottled on £500 of potentially free money because I came to the conclusion I don’t understand the opportunities yet. That’s okay. It’s hardly a life-changing sum and it’s better to get it right that save £500 and pay £600 in charges! Be careful out there.  I am sure that somewhere in this septic isle there is a bunch of ne’erdowells crafting a website with a dodgy proposition to separate these newly freed pension amounts from their rightful owners…

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1. in finance secular means over periods longer than the typical boom/bust business cycle of about five to ten years ↩
2. ONS Statistics on the average family income, UK [/ref] in the UK ↩
3. Divorce is one exception to this ↩
4. I believe this was not necessarily the case for Universal Credit. However, it looks like Hell will freeze over and the devil will learn to dance before Universal Credit is launched, so I’d lump that in with the general uncharacterised risk of Government Fiddling ↩
5. as is usual with pensions there is a whole shedload of issues that complicate this in favour of annuitising earlier, in particular your attitude to risk and your health. ↩
6. You need to learn or take advice about getting the mix of asset classes right because the volatility of a 100% equity allocation is probably bad for the old ticker of a retiree 🙂 Although mathematically it gives you the best chance giving some of that up with a stocks:bond mix for a smoother ride is probably called for. ↩
7. that’s hellaciously First-World centric, and it’s transiting to we will all work for our Transnational Corporate Overlords, since the erstwhile Third World is busy taking the fruits of their labour and turning into Big Capital. The First World’s first-out-the-gate advantage is being competitively thinned out. ↩
8. or you could be fleeced per server. Either way they had you by the short and curlies and needed to be destroyed by the Invisible Hand ↩
9. That’s £10,000 personal allowance plus ~£3k tax-free PCLS ↩

So how did this early retirement lark work out in the end

It’s coming up to about nine months since I retired about eight years early from work – that’s eight years than the normal retirement age for The Firm. Truth be told, I retired for negative reasons rather than positive, but I’m not going to go on about those particularly. Because people just don’t bang the drum for the positive things that happen when you are retired. Like everybody else, I assumed it was all about the money. That’s everybody’s greatest fear. What you don’t hear about is the multiplicity of little things that all add up to a far better experience of life.

I caution that to make these work for you, you must eliminate debt, and that means all debt. Yes, your mortgage too[ref]an exception can be made for this if you are saving tax-free in a pension with the aim of using the 25% pension commencement lump sum to pay off the mortgage in full on retirement. In my view this isn’t the clear-cut win for early retirees who will defer their pension for 5 years or more, but IFAs seem to recommend it for many people.[/ref], and that means doing without a lot of consumables while working, and probably having a reasonable amount of luck at times. You don’t borrow money from a bank, you borrow it from your future self, and if your future self will have less income than your current self, it makes no sense to be in debt.

So what does life retired look like? It’s all about owning your own time. It was given you as your birthright but was taken away from you early in life. Somebody said to me that time is the ultimate consumer good. He has a point, though I had to live it to know it, and also to have enough time to crawl from the wreckage of my curtailed career.

Owning your own time is delightful – you have the choice of what to do and when to do it. Before retiring it pays to prepare your human setting too, who will you know and spend time with, and that’s worth giving some thought to that before you retire. It’s particularly important for early retirees because a lot of their existing friends and acquaintances will still be working, some people I knew who retired even earlier than I did felt lonely, particularly those that retired in their mid forties, and I learned from their experiences – these were typically single guys, it took me longer than for them. Give thought to how you will maintain and develop your human connections, because as you get older it is Who is in your life that matters, not so much What is in your life.

The upside – my skin looks better and younger, the bags under the eyes fade, I slowly lose some of the weight that accumulated over my years behind a desk and in the lab. I walk more and bike more. I hear the birdsong, if there’s a good blackbird I will sit and listen to him for a while. I sit down for meals at a table rather than scoffing overpriced sarnies at my desk, I have more time to spend with the people I care about, I can read books, I can build things, learn how do use woodworking tools better, enjoy the company of people more, listen to people better, learn more, play more.

I watch less TV than I did while working. I tolerate no ads – I use ad-block plus on the Internet and less TV cans that at source, on the occasions I do watch TV I use a PVR and fast forward over the ads. If I have a requirement that may need buying something I use google – I buy things on my own terms, not because somebody is creating a desire in my head for shit I don’t need. I don’t buy anything on impulse, I wait at least a couple of days to see if the want is really a want. But if it is, and it fits my values, I buy it. If an offer has gone and I need to pay 10% more, so be it, that’s the price of living on my own terms and agenda. I don’t piss about with low-rent stuff like quidco and cashback, I have three credit cards but if I use them I pay them off in full. I’ll never get another credit card because I have no wage income, just investment income so I presumably look like a deadbeat living under railway arches on a credit check. Do I care? No – if the existing cards kick me off then I’ll pay by debit card or by cash, because I Don’t. Borrow. Money. ever since discharging my mortgage.

I can’t recommend early retirement enough. But you do need to be prepared to make the ‘sacrifice’ of living on less. I surrendered eight years of income when I retired, if you add all that up it’s a lot of money. I was happy to pay the opportunity cost, because that’s also eight years of life I’ll never live again. For me that was the right call – indeed perhaps I should have looked ahead and done it earlier.

Early retirement means I have less Stuff in my life. But I have more joy. Early retirees needs to speak up for it, because where are the ads on TV for Earn Less and Buy Less but Live More? We in Britain are so much richer now than we were thirty years ago, when I started my working life, I heard an estimation on the radio we have about twice as much disposable income as people had then. Stuff rather than Time seems to have got the thick end of our extra income. I am in my early fifties – the London I grew up in used coal fires and many houses had no central heating, some still had outside toilets. Cold and damp and the associated aches and pains were prevalent in the adults, so when I hear the Joseph Roundtree Foundation talk in terms of needing Sky TV to take an active part in society I wonder if perspective hasn’t been lost. We really have so much now. Ivan Illich called it out well in Tools for Conviviality in 1972. We are so much richer now than we were then, but are we any wealthier, I wonder? You are wealthy when more money wouldn’t massively change where you live, and how you live…

For each of us the sands are running through the hourglass, one day at a time. Making the call on as to where you place the balance between More Stuff and More Life is one of those things that is Important but not Urgent, so it always goes to the back of the to-do list. It’s worth dusting that question off and taking the time out to work through the options. You can measure more Stuff, and you can measure More Money. You can’t measure More Life. And I’ll stick my neck out and say Tom Peters was absolutely full of shit when he said you get what you measure. It works a peach in business, maybe. But in Life, it causes you to prioritise the measurable, the ‘how big is my…’ insert KPI here. And yet, when people look back on their life at the end of it, it is often the immeasurables – seeing their children grow up, and who they spent time with – or didn’t’ spend enough time with. The days are long, but the years are short. Though it’s schmaltzy in a uniquely American way, Gretchen Rubin nailed it. Don’t forget to live in the moment, because those moments are precious and they are running out.

My eventual projected annual expenditure is about a fifth of what I was being paid at The Firm, and I have a better quality of life – because I determine what a day looks like. There are other things that are odd about being retired. I have deliberately and intentionally avoided the whole work issue. I toyed with claiming JSA but figured a) I’m not looking for work and b) the stress of wanting to lamp some pipsqueak in the Jobcentre wasn’t worth the £1500 that six month’s contributions based JSA is worth, particularly as I’d have to pay tax on it.

Managing personal finances after work is enormously different to when you are working. While working, my income was single valued and knowable. Now, it comes from multiple volatile and erratic streams. I have the ISA income, which I reinvest. A similar sized lump of non-ISA shareholdings, that I have to capital gains spring and shift to the ISA over the years. And then cash holdings. These are horrendously different from what they were when I was working. What you must not do, when you retire early is to look at these accounts, and go Wow, I am rich. It is the lottery winner’s curse – most people have been used to a regular income and virtually zero savings all their working lives. So suddenly when it’s all savings and no income they see Big Numbers in their bank accounts and think they are rich, and lose their heads.

They’re not rich. Capital is worth about 5% as income, so divide all those numbers mentally by 20, high-roller. So unless you have half a million in the bank, then you aren’t even going to be living on the UK average wage. I don’t have anywhere near that much in the bank, BTW, though I don’t have the parasitic housing costs most people have because I paid down my mortgage. And if you do have half a million pounds in the bank then you need to remember what happened to the good people of Cyprus recently, and make sure you don’t have it all in one place, because you will probably be called upon to help with the national debt at some stage.

When I left work, I started to see those big numbers, and it is hard to explain just how scary and unreal they seem. I froze, and tried to keep the headline networth figure from falling. I’ve never worried about networth before, indeed there is no figure for house networth in my accounts, whereas this evanescent figure seems to be all that my fellow-Brits seem to concern themselves with. Maintaining networth was not the design aim of the plan, but there is a visceral aspect to money. All of a sudden I see strange numbers, and the power is cut, there is not steady income. The analytical solution I had designed over the preceding years was correct, but I found it hard to live it at first, to surrender a little bit of networth each month, in a long glide path for about three years. Even at the planned rate of descent, I would have half the nominal value of the capital, though more would be in ISAs by then.

I consider myself a reasonably hardened investor. I flew into the 2009 storm, in both AVCs and ISA savings. I’ve seen individual stocks plunge by over half, and recover, first on a total return basis and then on a nominal basis. But I quailed when faced with living a plan I had designed and was going slightly better than planned, because it was so alien to my experience of handling money. Don’t underestimate that effect of losing an income, even if you amass large amounts of capital compared to your mortgage-paying wage-slave life. Perhaps I was overly irrational etc, but I believe that it is not possible to be successful and totally rational about money. It is crystallised human work, a claim on other people’s effort. I must be involved to animate the plan and couple intention with action. And it still took me months to overcome the resistance to doing what I had planned myself 😉

I recently discovered I have been working without knowing about it, fortunately in time to stop getting paid before the tax year ends 😉 In times gone by I was interested in sound recording, and made a few field recordings which I added to a microstock agency. I’m not talented enough as a photographer or a recordist to make headway in that sort of this as Ermine photography. But microstock works for me – I don’t have to deal with people or rights and all that, the agency sorts that for me. The downside, of course, is you expect to make the price of a couple of pints of beer on it, or maybe a decent meal out.

I haven’t bothered to track any of this for a while. It appears that these firms are making me significant money, and I also have a few website estates that bring in a fair amount of Adsense revenue (this isn’t one of them 😉 ). I have told all these guys to hold payment till mid April to forestall creeping over the personal allowance this year. It is, however, very sobering to find that this stuff, which I had forgotten about, is actually making me about the same amount of income as my ISA, which has received by far the greatest part of my attention. My field recording equipment lies on a shelf covered in dust now, because the river of creativity dried for a few years as I focused all energy on getting out of The Firm.

I had a strange experience a few  weeks ago, I travelled to London to listen to a concert by a singer whose records once kept the thin thread of the young ermine’s fire alive through a long night until the break of dawn during a difficult time at university. The past is a foreign country – thirty years ago there were no mobile phones, indeed without phones at all in the typical sort of crummy bedsits I rented them. If you passed midnight then you had to reach the break of day before assistance could be raised if you couldn’t haul your ass up the stairs and into the cold city night with no Tube service.

As I heard the song once again it resonated across the years and changed something. In reminding me of that turning point it invoked another and the dead hand that jammed the creative centre unblocked, and the spark flickered into life once again.

For several years I fell back and fell back, trying to save enough money to derisk the financial issues. I had saved enough money – I still have no pension income, and my run rate is a little bit lower than originally designed. But I also focused a lot of effort on trying to understand the financial conundrum of how to make money out of money. That was reasonable, because towards the end of working for the Firm, the flame of creativity flickered and failed. The accumulated financial capital was all the resources I could count on, because my human capital had fallen to zero – without the creative spark I could not drive things forward. I would look at code and it would all swim before my eyes and have no relation to other bits, my photographs were technically okay but pedestrian. I would hear things that once meant something to me and they did not lift my spirits. It was too easy for projects to end up as half a page of scribbled lines or half a circuit board and nothing else. I’m not going to sell my time to another employer – I am too old to be employed at a level that would meet what I would charge for my time. That means I would have to create value, and doing that without a creative spark just doesn’t happen.

However, when I discover that two lots of legacy activities are now passively earning me more return than my multi-year and reasonably well performing ISA is then it begs the question on whether I have the focus right for the me now as opposed to the me 12 months ago. Money is not the only way to buy passive income, and the tragedy is you can only buy about £500 worth p.a. of tax-free income in an ISA every year. And obviously it costs you 10 grand a go, though this is ideally not a sunk cost. I can probably beat that income without breaking a sweat with a bit of improvement ot the website and some recordings. I could blow the dust of my Sound Devices 702 field recorder and Sennheiser microphones and get out in the field are record interesting sounds. I think people use the sounds in video games, I haven’t played video games since the 1980s but I got a book out of the library to see how people master audio for games when I discovered this.

I don’t miss work. One little bit. I don’t miss the Calvinist sense of purpose or all that sort of garbage. I have no time for the ‘find the work you love’ brigade. I’m with the Mexican fisherman. That isn’t to say that I spend my days lying in bed – the world has plenty of wrinkles enough to keep an inquisitive Ermine’s mind entertained.

There is the lovely story of the flight of the sparrow through the mead hall by the Venerable Bede’s Ecclesiastical History of the English People

the present life of man upon earth, O King, seems to me in comparison with that time which is unknown to us like the swift flight of a sparrow through mead-hall where you sit at supper in winter, with your Ealdormen and thanes, while the fire blazes in the midst and the hall is warmed, but the wintry storms of rain or snow are raging abroad.

The sparrow, flying in at one door and immediately out at another, whilst he is within, is safe from the wintry tempest, but after a short space of fair weather, he immediately vanishes out of your sight, passing from winter to winter again. So this life of man appears for a little while, but of what is to follow or what went before we know nothing at all. If, therefore, this new doctrine tells us something more certain, it seems justly to be followed in our kingdom.

Work is somehow like an inverse of that – the young sparrow starts in childhood from the warmth of the mead hall, then enters the life of work, where he battles the wintry storms of other people having control of his time and purpose, until perhaps later on he re-enters the warmth of the mead hall, in control of his own resources and destiny, perhaps for the first time.

I didn’t particularly dislike work for the vast majority of my working life. But work isn’t what life is about. It’s a means to an end. It’s far too easy to lose sight of that, on the long journey through the wintry tunnel of work, and it’s too easy to build must-haves into life to compensate for the long winter. But the tragedy is that these must-haves – the extra house square-footage, the chichi holidays and city breaks, they all add up. And so you can find that your winter holds no spring, and the sparrow must fly onwards till he falls out of the sky.

Work. It’s overrated compared to Life IMO… Each to their own, but I hear a lot of grumbling about work. And for sure, I’ve done my fair share of grumbling too, but at least in the end I took the fight to the enemy. It’s not all all about the money. It’s also about the time. You can save money, sort of. You can spend less of it. But you can’t save time – try spending less than seven days over the next week. That’s why you need to think about living in the moment. The Moving Finger writes; and, having writ, moves on…

 

The Ermine is Retired

There’s only so long I can talk about early retirement before the time has to come to actually do it. That time was yesterday, to collect together the paraphernalia of an office worker’s trade ready to check them in for the last time.

Tools of a typical office-based worker’s trade, with unsightly electrical test labels

Moving on from something I’ve done for over two decades is always going to be strange, and my colleagues, many of whom I’ve known for most of those 20 years, gave me a great send-off at a local pub. The Firm bought us all a couple of  rounds of drinks, and I was armed with a pitchfork from the guys to hassle the uninvited to ‘gerroff my land’ and the wherewithal for a dinner with DW and a good skinful later on 😉 They did a fantastic job and if anyone is reading this then thanks guys – it was really appreciated!

It was an interesting day, the first half tipping my hat to the old world, and in the second half of the day drinking beer and having a barbecue on the farm tipping my hat to the new world.

Moonlight barbecue. None of these good-looking young folk are me 😉

I’ve been on leave for the last couple of weeks, and making the most of the time to set the transition right. It is in times of change that there is the opportunity to change old ways, but at the same time I shouldn’t change too much, for I have time enough in future to assimilate them.

The Island Dream opens this collection

Life without the daily grind is good. In some ways it feels like I have passed through a long, thirty-year tunnel of working, and come out blinking in the evening sunlight on the other side. Some things feel like the care-free days of childhood, but of course with far more power to affect things around me. And, of course, some of the marks of the long passage across sometimes stormy seas. There were hints of what I felt when I first read the early short story The Island Dream by Hermann Hesse. I read this as a young adult, the young Ermine was far more idealistic and mystical than I am now, and the somewhat purple prose resonated with me then. Hesse was 22 when he wrote that, ad it has a narcissistic introspection that one can only really get away with at certain stages of life. And yes, I do get the irony of writing that on a blog 😉

Curiously enough I’ve spent less than when I was working, my car has hardly moved so I guess I ought to sell the damn thing before I start having grief with the battery. I’ve used my bike more – the journey to work and back at 6.5 miles each way was a little bit beyond my natural range but most things are now in a three mile radius which is easy by bike, even for someone who has spent 20 years in a sedentary occupation. However, cycling gets a little easier with time, and indeed I may switch back to the drop handlebars from the more sit-up-and-beg setting I used of late.

Getting my time back is one of the great revelations – so many things are easier, and indeed cheaper, if you don’t have to pack them into weekends and evenings. When you can work your day round the opportunities and the weather, a bike is far more useful than it is if you’re trying to make things happen in a short space of time. Fixing things is so much eaiser as well when I can take the time to change something, and then mull over what the symptoms are telling me. I was able to get the starter motor of the tractor serviced by having the extra time to work out how to remove it and taking it to Eastern Auto Spares who tested and cleaned out the works. Previously this job was looking like getting a mechanic out to service it, which would have cost a lot more than the £30.

Spring and Summer is a good time to stop working – the world looks like a friendlier place than it did in February when I first applied for voluntary retirement.

So what does retiring early feel like?

Exhilarating, a relief, and scary as hell. I can do all the calculations I like, and many things are more securely fixed for me than for other retirees. I am still changing one of the deep assumptions that I’ve grown up and lived with, and that is that you need to work to have enough money. I’ve aimed at that as a child and student, and lived it for the last 30 years. I am half way through my adult life. Imagine being on an airliner travelling from New York to London. You would wonder if the captain reaches the halfway point, and then announces that he is going to cut the engines. It’s a bit like that – the good thing is that the noise and hum of work has ceased, but it still feels really strange. I am not a particularly early retiree – I am nearly 52 and the normal retirement age for The Firm was 60 until three years ago, so I only had another eight years to go. Nevertheless, some of the decisions made with early retirement are all-or-nothing. If I found myself short of money then the option of just going to work is not that open to me, I’ve got no desire to stack shelves on minimum wage and The Firm has been busy trying to pay off its old gits for the last decade or so, so it isn’t hiring 😉

Scary is irrational – after all if I simply divide my redundancy money by eight, add it to the proceeds of some share options and the existing revenue from my ISA I can sit tight and enjoy the Jeremy Kyle show fo eight years and then draw my pension at a shade under half salary. I haven’t lived off that much for several years now. Okay, so I won’t be parking a Lamborghini in the drive or going to New Zealand on holiday, but so what. Even if I make a pig’s ear of investing the tax-free part of the redundancy money and write it all off to zero, I still have a couple of years’ salary saved in AVCs. So there really not too much that is scary and it’s easy enough to get an intellectual handle on that.

After all it’s been common enough in the past for there to be gentlemen of leisure in the sense of this definition

A man who derives a living from their own financial assets or has other sources of irregular income leaving them financially secure without any typical employment, duties, or financial responsibilities. Such a man may be self-made, or they may be the result of inheritance, a trust fund baby, or an “idiot son”.

as opposed to the second definition in the Urban Dictionary 😉 And self-made, I’m happy to say my parents are both still with us.

However, people of independent means do normally stick out as being hellaciously wealthier than their fellow-men. I don’t – I live in a semi, drive a 13-year old car. What I spend money on is very different to a lot of my peers, however. The proportion of my net worth held in property is a lot lower than the >40% typical of most people according to HMRC, and that’s even allowing for a slightly unusual property portfolio of not just my house. Clearly I should have been aspiring to a much more fancy house!

Scary is inherent in charting a course according to different lights to most people, but it’s not necessarily wrong. I’ve done the best I could and have tried not to lie to myself about the reality of what I’ve tried to do. If I could have shortened the three year period between starting to save to leave early and actually doing it I would have done, but I couldn’t see my way to achieving the goal in a compressed timescale. The corollary to that is once I’ve achieved the goal, then it was time to take the logical course of action. Each and every day I lose one day of remaining lifetime, just like you do too, dear reader. Therefore, if I wish to live life intentionally, I need to do aim a little higher that working for The Man in order to win beer tokens each day. And that’s what I have done. Who knows what the future will bring, after all the current long-running financial crisis could be the harbinger of Peak Oil overwhelming the assumptions underpinning industrial civilisation. Working for The Firm another eight years wasn’t going to protect me against that. Hopefully the future will look more like this.

 

Retiring Early – a high-level view. It’s not all about the money

Most people think of the main issue in retirement as having enough money. By observation, there are two other main issues for people. One of them is retaining a social connection, and the other is health being a worry, though less so for early retirees 🙂 You can do something to improve both, but they take time, measured in years, to get right. Many people, particularly guys, get a lot of their social connections through work. Talking to people who have retired from The Firm, this changes, absolutely and almost overnight.

Maintaining a connection with other people

Humans are social creatures, and isolation isn’t good for us. I’m less gregarious than many. Early Retirement Extreme had a view that early retirees tended in this direction being drawn from people on INTJ and ISTJ axes of the Myers-Briggs spectrum. I don’t have much idea of if he’s right. Perhaps early retirees who choose it as a life path are, but I’m met enough people who just get pig-sick of the rat-race and bail early who I wouldn’t describe as introverted. Anyway, even those INxJs need some connection with other people, and it’s something that many retirees get wrong, even if they retire at a typical retirement age. Early retirees will take a greater hit from this, because their friends and peers of a similar age are often still at work because they haven’t retired early!

I would have been more exposed to this a few years ago, but DW setting up a community supported agriculture scheme means I’ve met a number of people from various walks of life over this last couple of years. Some of these even work(ed) for The Firm, though most haven’t. I can’t claim any strategic direction here, growing thing has been one of DW’s passions for decades, and I’m simply taking advantage of the free ride here. But hey, why not 😉 It also comes with some activities that are working with others, after all it’s not really possible to raise a polytunnel on your own and it’s far more fun with a bunch of other people anyway.

raising a polytunnel - much more fun with other people

Building the frame is something you only need one or two people, DW and I constructed that beforehand rather than waste other people’s time. But skinning it needs more boots on the ground, and there is a feeling of satisfaction when it’s done!

I’ve also tried to maintain a toehold in interests, though this narrowed down greatly over the last three years, slightly from the reduced outgoings but mostly from the stress. But I kept a strategic view and low-level activity with interests and membership of societies. One of the keys to lowering costs is to be creative, originate, don’t consume. Things to do with the natural world in particular are often a modest cost, and living in an attractive part of the country is good. I’m not yet realising the upside of this investment, but I hope it will pay dividends, in quality of life, not in money. I’ll find out after I do finish work, and a period of convalescence perhaps.

Health

Yeah, it’s the big one, and I’ve been lucky so far in terms of physical health. Retiring early is a very good thing to do for ones health all round, provided you don’t fail on the human connection part, and don’t have the stress of being poor. I hope to avoid both of those. Eliminating the stress of working will be good for my long term health, as will drinking less.

No longer working in an office and spending some time in the open air will probably be good for my physical health. There’s a theory that willpower is something one only has limited resources of, and using it in one area depletes reserves to apply to another. Ending the working in a environment that isn’t suited to my values and saving heavily should give me some of these reserves back, and I will apply them to doing something about losing weight and getting more exercise, some of which will happen as a result of the change in lifestyle anyway. Cycling is a great way to reduce running costs for the small but frequent journeys. I’m not quite sure I will ever achieve MMM’s levels of badassity, but I can shift myself  some distance along that axis. It’s made a lot more attractive by having more time.

What I eat is probably fine – we eat hardly any processed food and our veg is about as fresh as it’s going to be, within a couple of hours from field to kitchen. DW is a great fan of starting from the basics. In comparison with the typical modern Western diet we do fine.

There’s a lot to play for

If I die ten years earlier than my grandparents or indeed get as far as my parents are now then I have more of my adult life ahead of me than I have behind me. So staying interested in the world, connected to other people and in decent and hopefully better health is something worth playing for. And health of course gets a little bit harder as you get older, so while the best time to start sorting some of the strategy out with health was a decade or so ago, now is a good second-best.

Things I can learn from younger people

Quite a few people in the community supported agriculture scheme are in their twenties, and something that strikes me is how incredibly generous they are with their time, volunteering with things like the CAB and other interfaces wit hthe wider community. Particularly over the last three years, time has been exceptionally precious to me. I don’t understand the concept, I can’t ever imagine volunteering for anything that isn’t a specialised use of my skills.

However, I am struck by the blaze of energy and the remarkable generosity of spirit. Perhaps I never had this by nature. I used to think it was being a young adult in Thatcher’s Britain and joining the workforce in Thatcher’s first recession, but the situation with youth unemployment is probably worse now than it was then so this is no explanation of why I lacked that sort of generosity as a young person, and have become a miser with time now.

This isn’t the only thing I could learn from younger people, but it’s the one that is most obvious to me at the moment.

A finance detour

Though the most common concern is having enough money, reducing outgoings is a very good alternative. In the end it is the difference between spending and income that matters. DW and I have focused on reducing costs and winning self-sufficiency in some areas. Early retirement in particular is about spending less.

Looking ahead, there will be two obvious battlefields for everybody in trying to maintain living standards over the next four or five decades. These are the cost of fuel, a fight people are already losing, and the cost of food. Both are non-negotiable, and both of these DW has in particular applied herself to reducing. I have also tackled energy, reducing electrical power usage drastically, while we have used the wood resources of the hedgerows and our wood heater to eliminate using the gas central heating totally this winter. We do use the central heating boiler it to heat water, if we can achieve success with the heating then there are other approaches to water heating. We have a biomass willow plantation elsewhere in town that is four years into its rotation and we plant into the hedgerow more than we take out, as well as using Italian Alder for windbreaks and potential firewood in future.

Unfortunately since I switched to a fixed tariff EDF have been really slack on reading the meter. They already owe me several hundred pounds for electricity and I hope they will owe me a fair amount on gas, since they haven’t jumped to the change is usage.

Fuel is serious work. Mr Money Mustache probably wouldn’t approve but we use a chainsaw for harvesting wood. There’s enough grunt involved in moving it and splitting it with an axe. Which may help with the exercise and health stuff, but hand sawing wood is no fun at all. There’s a balance to be had here, and it’s not always in favour of muscle over motor!

The long view

I will have worked for a shade over thirty years, and just might see more ahead. The world will be very different. That much is clear looking back to what it was like when I started work. ET and Star Trek 2: wrath of Khan were in the cinema, and over the next few years Greed was Good for Michael Douglas a Gordon Gekko summed up the rising Yuppies. People feared being wiped out in total nuclear war rather than the environment and global warming. There were only three channels on TV, and people listened to portable music on Walkman tape players, and vinyl records at home.

The years to come will hold their own challenges for people and the economy. I don’t share this chipper view of the world in 2020, never mind the world in 2040. I think in particular the experience is going to be pretty rough for people in the West looking to retain never mind advancing their living standards. If we can get our heads round it all and stop living the consumerist lie then we may be able to salvage an improved quality of life; earning a living shouldn’t grind us out of the workforce in our fifties and sixties, particularly if people are going to start routinely living to 100.

Retiring from the workforce

I will retire from the workforce as far as earning an income from work – at least this is my current plan. I have paid far too much income tax. I’m not going to go all Ayn Rand – some contribution to society is fair enough, and I really do appreciate not having the stress of US-style healthcare insurance costs. But I’ve done my share. Last year, while saving furiously for retirement, I paid twice as much tax and NI as I was living on and a shade more than my pension will be. I’m pig-sick of paying for other people’s lifestyle, or indeed hard-done-by Guardianistas and high-rate taxpayers’ children.

I am not going to retire from adding value to projects, I am merely going to retire from working for other people and working for an income; the value-add will show in either increasing the capital value of an asset, its ability to do work or it will increase other people’s income which may reduce my costs. I still won’t be able to escape the demon of income tax on my pension, even after Nick Clegg and his merry men achieve their goals with the tax threshold. At least you don’t pay NI on a pension, and I’ve got more than my thirty years’ NI stamps paid now.

In my attempts to reduce taxation over the last three years I took my eye off the ball as to the damage NI does – for all the trumpeting of the aim to take low earners out of income tax I note wryly that the 12% NI tax still starts at £6000. Barstewards…

So I’m retiring from income, not from adding value to stuff. I’m not yet ready to hang up my soldering iron, keyboard and spanners for good 😉

And on that note I am going to start with that health kick, get up off my ass and bike to work, so the fuel tanker drivers and the Government can stick it, too 😉 Tossers, the lot of them.

A very British fuel panic

On the way to work I spotted this very British fuel mini-panic (it was taken after the rush hour). Exactly what the Minister Francis Maude ordered. Panic, but only a little bit. Oh and on the topic of increasing fuel costs, that’s the last time you get to see a price of under £1.40 a litre. That’s up 40% from this time two and a half years ago.

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

[audio:http://simple-living-in-suffolk.co.uk/wp-content/uploads/2012/03/LS100566_trm.mp3|titles=Birds singing including Woody Woodpecker]

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

[audio:http://simple-living-in-suffolk.co.uk/wp-content/uploads/2012/03/120323-1455_oak-tree-skylark_LS100571_trm.mp3|titles=Skylark at the Oak Tree LC Farm]

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.

[audio:http://simple-living-in-suffolk.co.uk/wp-content/uploads/2012/03/120326_fans_LS100575.mp3|titles=data rack fans]