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The pension fallacy (part 4)

Beware who you seek financial advice from. Always "trust, by verify" anything you are told, and understand how the advisor is making their money.
Recently I’ve been writing about some of the commonly held fallacies associated with pensions, retiring and generally getting old.

So far I’ve talked about how the government aged pension began as a longevity trophy received by only the most out there of statistical outliers. Over time successive generations of cowardly governments chickened out from indexing or raising the pension eligibility age, creating a demographic time bomb.

Next I discussed some of the potential traps that pension age restrictions set for the unwary, and also the not insignificant regulatory risks associated with the inevitability of those age restrictions becoming moving goal posts.

Most recently I talked about the potential funding gap many potential early retirees will experience between leaving the workforce and reaching pension eligibility age.

I had promised to talk about how I constructed my passive income generating machine. However before I do that I wanted to write a very important post about critically assessing any advice or guidance you are receiving, from any source... including this one!

Be very careful who you listen to

Ms Our Next Life recently wrote a fantastic post about the potential for hypocrisy in the Financial Independence / Early Retirement blogosphere. She very astutely observed that many of the respected elder statesmen (people?) in this community derive income, often significant income, from sources more related to their fame and audience reach than their dutiful adherence to the so called “4% safe withdrawal rate”.

I think developing a diversified set of income streams (hopefully many of them passive) is something we should all strive for. It spreads the risk associated with stock market downturns, or property cycles, or changes to tax regimes.

Rich people generate wealth from businesses, not low cost index tracker funds

The authors of the Millionaire Next Door reported that most of the millionaires they had studied had generated their wealth as business owners.

To put that another way the majority of millionaires did not generate their wealth diligently saving into pension funds invested in low cost index tracker funds!

So I am all for owning and running a business, which is hardly surprising given that is how I earn my own living. However I can’t stand hypocrisy, and as such I applaud Ms Our Next Life calling bullshit on the many Financial Independence / Early Retirement bloggers who preach the clichéd Frugality / Vanguard / 4% Rule holy trinity, yet don’t live by their own advice.

The moral of story is choose very carefully where you seek out financial advice.

Choose carefully where you seek out financial advice

Be careful where you seek advice

Always ensure that those providing it are preaching from proven experience, rather than from zealous ideology or lazy conformity.

If you invest in buy-to-let real estate then make sure you seek out an accountant who also successfully does so.

If someone is telling you where to invest, check their investment track record and ensure they are backing their advice with their own money.

If you seek out financial planning advice, check that the person advising you actually has their shit together and that the path they are steering you down has provably worked for them.

In all cases if they haven’t been there, bought the t-shirt, and returned to show others the way then why the hell would you waste your time (and potentially money) listening to them?

Always understand what is in it for the the person providing you with advice.

Where does their income come from?

Honest, independent, paid by the hour advice is almost always better than commission led advice.
Paid by results advice is even better, though unsurprisingly is much harder to come by.

Here there be dragons

I despair at some of the extremely naïve finance questions people post on forums like Reddit or Bogleheads or LemonFool or Rockstar Finance. Not so much because the questions aren’t valid, but because the questioner has absolutely no way of assessing whether the sharks, shysters or well intentioned people of the internet offering guidance and advice knows what they are talking about. And for the avoidance of any doubt the vast majority of them do not.

Sharks, shysters or well intentioned people of the internet

I equally despair at the plight of people seeking guidance and advice via the Personal Finance blogosphere.

Blog posts are unsubstantiated opinion pieces. Some of them are amazing, insightful, and offering a genuinely unique piece of knowledge. Most of them unfortunately are not.

Sometimes they are written out of good intentions, in the hope of educating the masses.

Unfortunately just as often they are designed to herd those same masses into some form of commission generating behaviour, like signing up for expensive personal finance software subscriptions or unneeded web hosting deals.

Is always blindly locking away money in an age restricted pension fund the right answer?

No, of course not.

Is buying low cost index tracker funds or buy-to-let real estate always the right answer?

No, of course not.

Everyone has differing risk tolerances, priorities, and time scales.

There are no "one size fits all" easy answers to financial planning, regardless of what the self appointed experts of the internet will tell you.

A brief history of the 4% rule...

As a case in point take the much cited, much maligned, much misunderstood “4% rule”.

The much cited, much maligned, much misunderstood “4% rule”.

In October 1993 William Bengen writes a heavily caveated academic article in the Journal of Financial Planning. It outlines a rough rule of thumb that basically based on 20th century US stock and bond market historical data starting in 1926.

That rule of thumb hypothesises that if a retiree were to withdraw 4% of their capital + reinvested dividends then all things being equal (which they seldom are!) they shouldn’t run out of money within the first 30 years of retirement.

Bengen readily acknowledged this rule ignored the impact of brokerage fees and taxes. He also readily conceded that "not running out of money" is not the same as having enough to support yourself in year 31.

In 1998 three professors named Cooley, Hubbard and Walz from Trinity University back tested Bengen’s rule of thumb using a bunch of different stock/bond weightings. They concluded that a withdrawal rate of between 3% and 4% should represent a reasonably safe withdrawal rate, again ignoring brokerage and taxes, and again assuming a very US centric investment portfolio.

In 2010 Wade Pfau applied the 4% safe withdrawal rate to international markets. The results were grim. He followed that up with some intelligent analysis around the infamous "sequence of returns" risk.

In 2014 Todd Tresidder wrote a comprehensive post highlighting the many and varied risks associated with blindly following a simple (and limited) rule of thumb. His conclusion wasn’t that the 4% rule is complete bollocks, but rather that blindly following some oversimplified generalisation is dangerous in all manner of financially painful ways.

To summarise we started with a rough yet insightful rule of thumb about which the author acknowledges significant limitations.

Various big brain academics tested, validated, and disproved various aspects of that rule of thumb.

All of them cited the source data they used to allow interested parties to critically assess and potentially disprove their findings.

All good so far? I agree.

Personally I don't believe in the 4% safe withdrawal rate. However if I met Bengen or Pfau or Tresidder in person I’d buy them a beer, they’ve all done fine work adding to the collective wisdom surrounding the existence and limitations of safe withdrawal rates. In fact it is in part because of their work that I developed my healthy scepticism.

Unfortunately things aren’t all unicorns and rainbows.

... and some woefully incorrect advice about it

Just this past week I’ve read personal finance bloggers who should know better refer to the 4% rule as a “risk free safe withdrawal rate”. That is complete and utter bollocks, there is no such thing as “risk free” when it comes to investing.

I’ve read posts where people who are struggling to make ends meet while working for mediocre wages selling the dream of early retirement via the 4% rule… when they couldn’t possibly be saving enough from their earned income to fund the retirement nest egg necessary to support a 4% rule “safe” withdrawal rate.

That too is bollocks because either the blogger is being dishonest when telling their story, or (more likely) they are ably demonstrating their ignorance of the subject they are writing about.

Anyone following the misguided advice of these unqualified and ill-informed bloggers would be putting their financial futures unnecessarily at risk.

So what?

Be mindful that most of what you read is bollocks.

Many of the authors behind sites you visit know less about their chosen content areas than you do.
Many authors of books and textbooks are self appointed experts, who don’t necessarily understand their subject matter either.

That isn’t to say there aren’t good authors worth reading out there, because there are. Unfortunately there are also many who are not. Always maintain a healthy scepticism about what you are being told... including from me... and especially when that advice earns the provider a commission.

Next time out I’ll outline how I created a passive income generating machine.

The pension fallacy (Part 3)

Is spending the kid's inheritance by living off your capital cheating? Or should you build an infinitely sustainable money making machine?
This is the third of what is starting to feel like a marathon series of posts about the fallacy of pensions. Surprisingly I haven't yet run out of things to say, nor tired of writing those things up, so the series continues.

Last time I left you pondering the injustice of having saved a bunch on money in a private pension account, only to be told by the government that you were too young to access it. Doesn't seem fair really.

Where does that leave you if you want to retire early?

Let’s say you don’t fancy suiting up, commuting, and slaving away in a job until you are aged 55, or 57, or whatever the arbitrary pension access age happens to be when you reach the point that you are ready to step off the hamster wheel.

I reached that point aged 39.

That was 16 years before the government feels I should be allowed to access any private pension funds.

That was 26 years before I would be eligible for an old age government pension.

That was a long time before the government feels I should be allowed to access any private pension funds.

Had I channelled all my savings and investments into tax advantaged pension accounts, then early retirement would have been a pipe dream. My funds would have been locked away in inaccessible pension accounts.

Using the £25,000 annual cost of living estimates discussed earlier, funding that 16 year gap between early retirement and pension accessibility would require a considerable sum to tide me over until pension age.

I would need approximately £400,000 (£25,000 x 16 years) in savings held outside of tax advantaged pension accounts. That number does not include housing costs or account for inflation.

Mind the gap?

Now this throws up an interesting philosophical question, how do you fill that gap?

According to Monevator’s most excellent analysis conceptually an ISA and a pension are exactly the same when it comes to tax treatments.

With ISAs you pay in after tax income, then (at present) the tax man keeps his grubby little fingers off any income or capital gains subsequently achieved within the wrapper. Hoorah for tax free investment returns!

There are no age limitations on touching ISA funds.

On the other hand pensions are populated using before tax income. Any income or capital gains earned within the pension are tax free. However the government picks the age from which you are able to touch the pension funds and, except for a one off 25% lump sum withdrawal, the tax man mugs you each time you withdraw from your pension.

Which option is best?

Well, like most things in the personal finance world, it depends.

Assuming your marginal tax rate remains the same before and after retirement, then in theory the tax treatment is exactly the same. You either pay your taxes on the way in, or you pay your taxes on the way out. The one constant is the tax man will definitely pick your pocket at some point.

However in reality tax rates tend to rise and fall with the economic cycle.

If the tax rates were lower when you put money into that ISA than they happen to be when you were looking to withdrawn from a pension, then you would likely be doing the victory dance while proclaiming yourself a prescient investment genius.

Were the tax rates to move in the other direction then you’d be excused for having the mother of all toddler tantrums.

Piss poor planning does not an emergency make

Conventional wisdom holds that many people will earn less in their retirement than they did while they were working.

Whether this is by design, or due to piss poor retirement planning, I’ve never been able to ascertain!

Certainly if I ended up in that kind of financial hole then my financial advisor would likely be on the receiving end of a well deserved punch in the face.

Either way, if income happens to be lower in retirement than during working life, then pension income may well be taxed at a lower marginal tax rate than a person was earning while contributing to their ISAs.

This probably isn’t much of a consolation to the pensioners queueing up outside their local Wetherspoons for Thursday curry club, because they can no longer being able to afford to eat at La Porte des Indes.

No longer being able to afford to eat at La Porte des Indes?

Decisions, decisions...

If you are anything like me, then you may have decided that early retirement was preferable to decades more soul destroying status update meetings, humouring gormless lackwit project managers, and hand holding indecisive yet self-important C-level executives who possess attention spans short than your average sugared up toddler.

The problem is the “early” part, which leaves a significant gap between the finishing up of selling off your life a day at a time and the commencement of your pension.

What would Chuck Norris do?

I once had a kind of annoying guy work for me, who used to answer such questions with one of his own: “what would Chuck Norris do?”.

what would Chuck Norris do?
According to IMDB Chuck Norris is 77, which meant he was getting his ass kicked by Bruce Lee in “The Way Of The Dragon” more than 45 years ago.

He still looked menacing the last time I saw him save the world in Expendables 2, but he obviously had some mobility problems given Sly Stallone gave him over watch duties with a sniper rifle while Bruce Willis and Arnold Schwarzenegger performed a ballet in one of those roller skate Smart cars (with machine guns).

Is there anything better than a 1980s action movie sequence?
Ok, so maybe that wasn’t much help... though you must admit it was a pretty cool nostalgia piece for those of us old enough to appreciate slightly crotchety 1980s action movie stars. If you don’t know who these guys are then you are not yet old enough to be considering early retirement!

What would I do?

My perspective differs somewhat from the conventional FIRE script.

The early retirement blogosphere would have you believe that you should aim to run down your nest egg throughout your retirement years.

The goal appears to be that the retiree should aim to expire at roughly the same time that their funds run out.

While this may be a noble ideal, I’m not so sure myself.

My year 7 music teacher once observed that I lacked any semblance of rhythm or timing, a fact that my kids would readily attest to whenever they suffer the misfortune of witnessing my “Dad dancing”.

Dad dancing for fun and profit
Therefore I must I respectfully disagree.

The prospect of outliving my savings doesn’t sit well with me. I don’t fancy having to resort to the government pension should my own pension planning fall short. In fact I don’t much fancy having to resort to the government pension at all… have you seen how little they pay old folks? I for one couldn’t live on that!

Don't leave it to your kids, they'll only fuck it up!

The authors of The Millionaire Next Door observed that one of the most effective ways to turn a large fortune into a small one is to inherit it.

I’m not convinced by this, I think the failing is largely in the parent’s education of their children more so than the children’s inability to effectively manage money.

You only learn to value money when you don't have much of your own, scarcity promotes evaluation of buying choices and consideration about the expendable effort required to accrue the funds needed to make a purchase. This is a scenario that is easy to create, regardless of how well off the parents may be!

Maybe I’m wrong on this, but I’d prefer to give my kids the benefit of the doubt and aim to leave them an inheritance rather than to piss it all away in a SKI (Spend the Kid’s Inheritance) frenzy. All things considered I’ll be too dead to care whether they live up to my expectations.

There are options, but not that many

To my simple mind wannabe early retirees have two options.
  1. Accumulate a finite bucket of wealth, then gradually dip into it to fund their remaining years. If they die before the bucket empties then they win. If not, then it sucks to be them.
  2. Construct a sustainable passive income generating machine. This throws off enough income to sustain the retiree throughout the early retirement adventures, their traditional retirement age “grey nomad” caravanning trips, and their late retirement nursing home care.
I must confess I much prefer option 2, though perhaps not the caravan part.

I would hate to think that I may run out of money.

I would hate to be a burden to my kids.

With option 2 I can aspire to being a dirty old man, my success independently quantifiable by the shortness of skirt worn by my nursing home nurses. Nurse Kiwi Steve, if you're reading this please do not feel obligated to wear a short skirt when next offering to give me a sponge bath... there are some experiences in life that are best left unrepeated!

With option 2 my kids would inherit the same self-perpetuating income generation machine. Inheritance taxes aside, if they fuck that up, it is on them.

So what?

I am a big believer in creating a sustainably replenishing money generating machine.

I think those who elect to live off their capital are short sighted and potentially cheating at this Financial Independence game we choose to play.

I will talk about how I have gone about constructing such a magic money making machine soon, but my next post will discuss why you should always "trust, but verify" any advice you receive.

The pension fallacy (Part 2)

Adequately funded, tax advantaged, pension funds can be great investment vehicles. Beware the age constraints governing their access however.
This is the second in a series of posts about the fallacy of relying on pensions for early retirement.

In many countries the government is now making pension contributions mandatory.

In Australia for example it is compulsory to contribute 9.5% of salary into a pension, rising to 12% by 2025. The United Kingdom is starting to venture down this same path, making it mandatory to contribute 1% of salary.

In an ideal world everyone would be financially self sufficient, and no require the safety net provided by the government pension.

However anyone with a passing interesting Financial Independence, or even a basic grasp of high school math, can quickly spot that such a low savings rate just isn’t going to get the job done.

Even with the magic of compounding returns, and a stock market on a generally upward trajectory, for many people saving such a small proportion of their incomes isn’t going to amount to a large enough pile of wealth to support them in their elder years.

Ok, if mandatory pension contributions aren't enough then what is the answer?

Well to put it bluntly, people need to fend for themselves.

Financial Independence dogma will tell you that the “4% rule” will see you safely through retirement without running out of money. Except when they say “retirement” they mean 30 years, and when they say “without running out of money” they mean you will have at least £1 left at the end of the 30th year.

Given the retirement age is 65, and the average life expectancy is around 80, then it is not unreasonable to assume that a reasonable number of folks will make it to retirement age + 30 years.

To briefly recap the logic behind the 4% rule, you are supposed to multiply your current cost of living by 25. The result is (in theory) how much of a nest egg you need in order to “safely” retire without running out of money over the subsequent 30 years.

While the 4% rule sounds conveniently simple, many commentators believe (just like those clichéd financial services product health warnings) that “past performance may not be an accurate indicator of future returns”, and that your mileage may vary considerably if you're investing outside the US.

Early Retirement Now has produced an excellent series of analytical posts that tend to support this position. As a lapsed accountant, who was schooled in the Doctrine of Conservatism, I personally have doubts about whether any withdrawal rate over 2.5% to 3% could be considered “safe”.

It is no coincidence that the lower end of my range is roughly the same as the dividend yield on a low cost global tracker. Millennial Revolution would call this living within the “yield shield”, which to me is a prudent approach that should mean I haven’t an infinitely renewable stream of funds as opposed to a diminishing bucket of wealth.

I need to save how much to retire?

Let’s briefly consider what that actually means in practice.

Not too long ago I wrote a post about the average cost of living for a household in the United Kingdom being roughly £25,000 plus housing costs. If you live in an owner occupied property that you own outright then housing costs are relatively low, whereas if you live in rental accommodation or have a large mortgage then they could be vast.

The 4% rule crowd would say you need £25,000 / 4% = £625,000 + housing costs to retire.

By my measure you would actually need between £833,333 and £1,000,000 + housing costs to safely retire without running a significant risk of outlasting your money.

Safely retire without running a significant risk of outlasting your money.

Whatever your risk tolerance, that is a hell of a lot of money when you consider the average UK wage is currently only £27,000 per year before tax.

Yay for private pensions, but so what?

Private pensions are a wonderful thing, and I would definitely encourage readers to rely upon themselves rather than the government to provide for their retirement.

However private pensions come with strings attached. Not least of which is there are government imposed limitations on the age at which you can start receiving a pension from them.

As recently as 2010 this was age 50.

Currently that age is 55.

In 2028 it is looking like it will increase to 57.

It is highly likely this number will continue to rise, for many reasons not least of which is the demographic challenges the government faces in paying for all those government pension!

Moving goal posts make long term decision making tricky
If you are reading this pension fallacy post series and have made it this far then you deserve a medal. The fact that you are reading this blog at all suggests that you possess an above average interest in retiring early, and are clearly a great looking intelligent person with exceedingly good taste your reading materials.

That being the case, then none of this talk about private pensions is going to make you feel all warm and fuzzy inside. Waiting until 55, or 57, or whenever to retire “early”? Bollocks to that!

Myth busters: it is possible to withdraw money early from a UK pension

The good news is actually possible to extract money from your pension pot before the age of 55.

However for your trouble the government will tax you 55% of the amounts you withdraw, plus another 15% penalty if you don’t tell the tax man about the withdrawal.

The 55% represents the amount of PAYE and National Insurance (both employer and employee shares) taxes you avoided when you placed this money in your pension. If nothing else this number shows you just how heavily taxed earned income actually is before it lands in your bank account. Ouch!

On top of those taxes according to the regulator your pension platform is allowed to charge you up a fee of up to 30% of the amount withdrawn.

Note to self: Don’t ever withdraw money early from a pension.

So what?

Back when I was completing my Financial Planning qualification this arrangement was described as feeling like you were being screwed with your trousers on... expensive and ultimately unsatisfying.

Where does that leave you if you want to retire early?

For the answer to that question you'll need to wait for the next post in this series.

The pension fallacy (Part 1)

Think you're entitled to a government pension? Think again. If it were being established today the eligibility age would be between 100 and 112!
Did you know that living beyond your means used to be against the law?

Under the Vagabonds and Beggars Act of 1494 the penalty for being able bodied, yet unable to support yourself, was to “be set in the stocks for three days and three nights and have none other sustenance but bread and water and then shall be put out of Town”.

“be set in the stocks for three days and three nights and have none other sustenance but bread and water and then shall be put out of Town”
Upon completion of the sentence you were forced to return to the place of your birth, where the expectation was that friends and family would put you to work or otherwise support you. Now that was certainly an incentive to treat people how you would like to be treated!

be set in the stocks for three days and three nights and have none other sustenance but bread and water and then shall be put out of Town

Life was tough.

People fended for themselves.

The difference between survival and financial oblivion was just an illness or injury or poor harvest away.

For much of the world’s population that remains the case today.

Government pensions arrive

The government pension is actually a relative new idea, first introduced to the United Kingdom in 1908.

The pension kicked in when you reached age 70, which it is worth noting is 5 years later than it does today.

Like some many things in life the promise of the government pension was better than the reality. If you made it to your 70th birthday you had exceeded the average life expectancy at the time by more than 40%!

To put that in context if the same life expectancy + 20 years formula were applied today then the government pension age would be around 100. If we applied the life expectancy + 40% formula that eligibility age would instead be around 112!

Think about that for a second.

By design the vast majority of the population were never intended to receive the government pension.

In fact the economic sustainability of the arrangement depended upon it.

That didn’t happen in practice.

By the 1950s average life expectancy actually exceeded the age at which the government pension kicked in, in no small part because the qualifying age had reduced to 65 for men and 60 for women.

The argument at the time was that people weren’t expected to live much past retirement age, so this wouldn’t be a problem. This proved to be a complete load of bollocks.

Average life expectancy has continued to increase, currently exceeding retirement age by around 15 years. Don’t forget life expectancy is just an average, many people will live longer… much, much longer.

At the time of writing the oldest living person in the United Kingdom was aged 112. This remarkably resilient lady will have been eligible to receive the government pension for 52 years, approaching half her life!

eligible to receive the government pension for 52 years, approaching half her life!

Pensions went from being an appreciated reward to a taken for granted entitlement

In the time since the introduction of the government pension there have been some remarkable changes in how society views it.

In the beginning it was seen as a bonus or reward for achieving remarkable longevity, something that very few people realistically expected to ever receive themselves.

Today many people view the government pension as an entitlement, one that the average person fully expects to receive. The prevailing logic from dickheads across the nation being along the lines of “I worked hard, paid my taxes, now I’m entitled to have society provide for me”.

Unfortunately there are some technical problems with this world view.

Spend more than you earn as a recipe for sustainable financial success?

The Financial Times recently wrote that by the year 2050 approximately 24% of the population will be eligible to receive the government pension. By the same date there is estimated to be just 2.9 people of working age people for each person eligible to receive the government pension age.

The practical solution to the problem would be to significantly push out the age at which people became eligible to receive a government pension.

At the moment the government is just tinkering at the edges, gradually raising the retirement age to 68 over the course of the next 30 years. This week the Cridland report, which had been commissioned by the government into pensions, recommended amongst other things increasing the pension age back up to the original 70 years.

The main problem with this scenario is retirees vote, and if are going to make up over a quarter of the voting population then any elected government is unlikely implement a change that would likely piss the vast majority of them off.

Government pensions should only be for those who need them

Another approach would be to introduce a means test for government pension eligibility. The logic behind this approach is that only those incapable of supporting themselves should be receiving the government pension, meaning that the pension should form part of a social safety net in much the same way unemployment benefits do.

Personally I think a safety net should only be in place as a temporary measure, supporting folks while they get back on their financial feet. It should not be a permanent thing.

My issue with a means test is it potentially rewards incompetence. Somebody who successfully manages their money over the course of their lives, accumulating sufficient net worth to sustain them would not receive anything. On the other hand somebody who lived large, frittering away every pay cheque buying crap they didn’t need, would be rewarded with a government pension. To me that doesn’t encourage the correct behaviours in people.

Another issue facing a means test is what it should be based upon.

Many older folks could be described as being asset rich but cash poor, with a large proportion of their net worth consisting of equity in their homes. For example my neighbour is a little old lady who struggles to pay her gas bill, yet lives in a house she has owned outright for 40+ years that is today worth comfortably over £1 million.

It doesn’t seem right to rewarding somebody with a government pension because they lack cash flow, when they could readily support themselves were they to adjust their asset allocation. Therefore I think any means test should include all assets, including the family home.

This would encourage retirees to swap their large family homes for smaller dwellings when they are older. While everyone hates moving, and change can be scary, it would have some additional benefits such as freeing up housing supply in catchment areas for good schools and so on.

Free up equity... or copy the French?

Another alternative would be the development of fairer equity release products, or adopt the French Viager system where a buyer acquires a property for a bargain price in return for agreeing to support the previous elderly owner for the rest of their life.

Copy the French?

This post ended up being much longer than I would be able to comfortable digest in a single commute, so stay tuned for the next thrilling instalment.

How much does it cost to work?

When you calculate what it truly costs you to attend work, does your current employment choice actually make financial sense?
Recently my ten year old son wanted to know why we didn’t go holidaying for the 6-8 weeks of the school summer holidays, the way some of his friends from his previous (private) school did.

It was a fair question, and a potentially appealing prospect. The idea of spending an extended period near a beach someplace sunny and warm sounded wonderful after yet another cold drizzly London working week.

I (overly?) fondly remember long ago those seemingly endless summers, back when kids were free range and left largely to their own (unsupervised) devices. It was not unheard of to be pushed out the door shortly after breakfast, in search of friends and mischief, reminded that “if we couldn’t be good, be careful” and that we should be home for dinner. This was strongly incentivised by the prospect of being loaded up with chores were we subsequently found to be within earshot when something needed doing.

On reflection I told my son that holidays cost a lot more money that you’d at first realise. There was the obvious costs like airfares, accommodation, eating out, and so on. Then there was the hidden costs, for example as a hands on business owner if I didn’t work I didn’t get paid (which is at least partially true).

Beach holiday, or peak hour commute. Where would you rather be?
Beach holiday, or peak hour commute. Where would you rather be?

Trust, but verify

He thought about that for a couple of minutes, then asked if he could use his iPad to look some things up on the internet. I said fine, expecting him to vanish into the mysterious world of Minecraft and YouTube videos (that at the moment seem to be of other people playing video games, is that a thing now?).

A bit later on he came back and asked what brand of suit I wore to work.

Then where we found our after school nanny.

Then how much I spent on my lunch each day when I was at client sites.

I wasn’t sure what he was up to, but there was a lot of scribbling in a notebook and an intense look of concentration.

As is his want, at precisely bed time my son suddenly decided he wanted to talk.

Normally this consists of him unloading about his day, occasionally asking questions about mine, and if he really doesn’t want to go to sleep he’ll ask some deep and meaningful question about life, the universe, money or some other topic that delays going to bed.

This time however he started by rubbishing my excuse about it costing too much to go on long holidays. Once again I wonder if it was a parenting fail to teaching my kids to call bullshit when they hear it.

He opened his note book and showed me that he had calculated it costs me around £30,000 each year just to go to work. Therefore if I didn’t go to work I could be saving £30,000 and that would be more than enough to pay for a long beach holiday each year.

Initially I disputed his number, the figure couldn’t possibly be that high! However he stuck to his guns and took me through his workings, challenging me to find where he was wrong. I’ve reproduced his workings below.

The numbers he had looked up on the internet didn’t exactly match my outgoings, but they were certainly in the ball park.

I was impressed with his analysis and research skills, and couldn’t dispute his findings.

In fact he had actually understated things, having forgotten that during his (many) school holidays his (public) school wouldn’t be looking after him for free. If I don’t do it then I have to pay someone else to.

My son’s logic was fine as far as it went. It was even valid conclusion in our house given we have reached Financial Independence, which by my definition is when sustainably recurring passive income streams cover your living costs entirely. For those folks who haven’t however, he had overlooked the minor fact that not working meant not earning any income to pay the bills.

How much does it cost you to attend work?

That got me to thinking. How much does it cost you to actually attend work in order to earn your income? Once you’ve computed that figure, does your current job in its current location actually make as much financial sense as you thought it did?

For example at my local supermarket the staff regularly complain about their ~1 hour long commute to work. The same is true of the staff at my younger son’s nursery.

They earn £7.20 an hour before tax, so much of the first hour they work each shift just covers their commuting costs. Based on my son’s estimates getting to work is costing them over £1,300 per year.

According to the Mayor of London’s rent map the average cost of a renting a room in much of London is over £130 per week. That is at least £6,700 per year.

Therefore the supermarket employee needs to work over 1,100 hours each year (that is more than 20 hours per week, every single week of the year) just to cover the cost of them living within commuting distance of their work.

It is only after they have already worked 21 hours in a week that they can start thinking about paying for groceries, let alone going on a holiday somewhere sunny and warm!

Commuting sucks.

So what?

Carefully run the numbers when considering employment options. For many people, particularly closer to the bottom of the corporate ladder, taking on an epic commute in search of a higher salary in the big city can be a false economy... even without placing a premium upon the time lost commuting.

My son’s argument was good enough to convince me it was nearly time for our next holiday, this time to Australia.

Mile markers on the road to Financial Independence

Looking for a way to evaluate your progress towards Financial Independence? Some suggestions here, though be warned if you live in a big city!
Roughly half the guests on personal finance podcasts seem to say that reading Stanley and Danko’s Millionaire Next Door set them on the path toward financial independence.

I must admit I was sceptical, anyone using words like “millionaire” tends to set off my bullshit detector.

After holding out for around 20 years I had an Amazon gift voucher that was due to expire, and was loading up my Kindle with books for my next holiday. So I figured what the hell, I would give it a read and see whether the book lived up to the hype.

I started reading (and eventually finished) it during an omni-shambles of a commute earlier this week.

My first impression I had was that it seemed to be thoroughly researched.

My second impression was that the book draws a lot of inferences from correlations, but we all know that this does not necessarily equate to causation.

Still from a purely voyeuristic perspective it made for interesting reading (to a point) to see what others do.

This seems to be a popular theme these days, with the Tim Ferris style focusing on adopting the habits of the rich/successful. The reasoning seems to be along the lines of “if Warren Buffet drinks coke and eats hamburgers, and he is the world’s richest man, then if I were to drink coke and eat hamburgers then I too could be the world’s richest man”.

So what did I find interesting?

The book observes that the tax system favours capital growth over income. This is true in many jurisdictions, and a major pet peeve of mine.

If I have an asset that generates income, then for the life of that asset I have a renewable income stream. Get enough of them to cover your living expenses and you’re Financially Independent, without needing to rely on the state pension. I'm not sure about you, but to me that sounds like a win-win situation.

On the other hand if I sell that asset, hopefully realising a capital gain, then I now have a finite bucket of funds. Dipping into that bucket to support my living expenses for a while may sustain me, but eventually the bucket will run dry. Now I have no income generating asset, no remaining funds, and am fully dependent on the state pension. That doesn't look like winning to me.

To my simple mind the behaviour the tax authorities should be encouraging is the establishment of income streams, rather than punitively taxing investment income while concessionally taxing the selling off of the underlying assets responsible for generating that income.

How are you tracking on your journey?

The authors propose a formula for assessing whether your pile of wealth is as large as it should be, given your income and age. This represents an interesting milestone along the path to financial independence.

The road to Financial Independence can be a lonely one.
The journey to Financial Independence can be a lonely one.
“Multiply your age times your realised pre-tax annual household income from all sources except inheritances. Divide by 10. This, less any inherited wealth, is what your net worth should be.”
A little bit of explanation is required to decipher this formula.

Realised pre-tax income” is your gross salary + dividends + rent + interest income + royalties + any capital gains you made on the sale of assets. Note this should not include any inheritances you received.

Net worth” is what you’ve got less what you owe.

[Age] * [Household Pre-Tax Income from all sources] / 10 = [Benchmark Net Worth] - [Inheritances]

I plugged my numbers into the formula, and saw that my number was more than 3 times what the formula suggested it should be.

Then I did the victory dance, because it is important to celebrate the small wins.

Then just after my kids begged me to stop dancing because I was embarrassing them.

Does that make me rich? No.

Does it make me feel rich? Still no.

I am comfortable, but would I still be feeling that way with 1/3 my current net worth? Hell no, I couldn't even see Financial Independence from there.

Finally I concluded the formula set the bar way too low.

High cost of housing is like driving with the hand brake on

The other interesting observation I took from the book was the point it made about many underachievers (when it comes to wealth accumulation) live at or beyond their means. This rang very true.

The book suggested that the average price of a house paid by the several thousand millionaires they surveyed was no more than 3 times the same household realised income figure you used in the formula above.

“The market value of the home you purchase should be less than three times your household’s total annual realised income.”
The sentiment stuck a chord with me, but this one is definitely more challenging if you live in a major metropolitan area.

To put that in context, if you input the average UK annual income into the formula, and then do a search on Rightmove for London properties costing up to 3 times that amount you are presented with an interesting array of:

  • car parking spaces
  • lock up garages (with very short durations remaining on the leasehold)
  • small house boats (with at most a 1 year mooring).
There is not one single habitable fixed dwelling in the results. None.
Is big city living crippling your financial independence chances?
Is big city living crippling your financial independence chances?

So what?

The moral of the story here is that living in a high cost of living locale is definitely going to slow down your journey towards Financial Independence.

This is hardly a revelation, but if you put any stock in the analysis conducted by the authors then it raises some troubling questions about whether the 8.5 million people who call London home are kicking a financial own goal by living there.

Financial Independence is only the beginning

Financial Independence is a hard won safety net. Earnings beyond it buy adventures and the luxury of choice. Maintain a buffer to find your happy.
I recently read an interesting post by Matt over at TheResumeGap where he discussed the likelihood that somebody driven enough to achieve Financial Independence at a relatively early age would be unlikely to be fulfilled by unlimited umbrella drinks on a beach someplace, or endless unemployment television.

This struck me as being an astute observation, and one that rang very true.

More to life than umbrella drinks

A quick bit of research revealed the likes of Mr 1500 and TheEscapeArtist (to name just a couple) had reached similar conclusions and discussed them in various forms.

Sustaining Financial Independence or Living Your Life

Matt was puzzling over how much (if any) of his hard won Financial Independence capital could he reasonably put at risk to pursue a new business venture.

I thought this was a great question, as it really highlights how achieving Financial Independence is really just the beginning of the journey, rather than the finishing line that so many aspiring FIRE folk mistakenly believe it to be!

Imagine you declare FI by the age of 28 like Matt did.

Or 31 like Kristy from Millennial Revolution.

Or 35 like Steve from ThinkSaveRetire.

Maybe you took things at a more leisurely pace like myself or RetirementInvestingToday’s “Robert” did.

That potentially leaves 50 to 70+ years of living in front of you.

Think about that for a second. That is a hell of a long time to spend bumming around doing nothing!

Financially Independent... now what?

Some people aspire to endlessly travel the world, in the style of Winnie from Go Curry Cracker. Others buy themselves an RV to join the migratory patterns of the grey nomads like J.D. Roth once undertook.

Others trade their previous work orientated location for somewhere more in keeping with their lifestyle preferences. Nords of the MilitaryGuide fame chose surfing in Hawaii, while Mrs Our Next Life opted for a life of skiing in the mountains.

Geographic arbitrage provides a fantastic opportunity to bring forward early retirement, shifting to a lower cost locale can stretch your money a whole lot further. Mr Money Moustache did this, as did the Frugalwoods.

No matter which approach the newly Financially Independent person adopts, one of the few constants in life is change. It is human nature to seek out the new and exciting.

Something different.

Something more.

Something better.

Constant in life is change

All change please

Regardless of how much fun backpacking or skiing or being a stay at home parent may be, eventually there will likely come a time where it is no longer enough.

Despite our best planned intentions, life has a way of just kind of happening.

It could be that you meet a special someone who you want to spend a bunch of time with, but who doesn’t share your lust for a globe trotting nomadic lifestyle.

Maybe kids arrive on the scene (expected or otherwise). Very quickly the prospect of endless travel loses some of its appeal. Lugging around nappies and pushchairs, worrying about nap times and the availability of bottle warming microwaves. Travelling with small children is hard work!

A lurking coral reef, a malicious tree, an inattentive minicab driver... chance may one day painfully leap out in front of you, ending to a life of leisure spent pursuing surfing or skiing or biking glory. Fortunately it doesn't also end you, but accidents do happen.

Perhaps a loved one, such as a parent, reaches the point in life where they need more help than can be delivered via the occasional postcard or Skype call. That can certainly put the brakes on an previously glamorous Financially Independent lifestyle.

Or quite possibly you simply grow tired of whatever it was you thought you would be doing for the rest of your days. Just like you grew tired of working, choosing instead to pursue Financial Independence!

This isn’t a necessarily a "bad thing".

So the old FI lifestyle no longer floats your boat... what next?

Perhaps you fancy starting a lifestyle business.

Mrs Money Moustache sells stuff on Etsy.

Afford Anything’s Paula Pant does life coaching.

Brandon of Mad Fientist fame writes search engines for travel hacking.

I once lived down the road from a semi-retired lady who loved cooking amazing Korean food. She ran one room restaurant, that she only opened a couple of evenings a week when she felt like cooking. There were no bookings, no menus, and only one price. You just turned up, and providing you were one of the 8 people the place could seat, she would feed you whatever she felt like cooking that day. It was great!

With mixed results some Personal Finance bloggers have attempted to turn themselves into media talking heads or money gurus. Keynote speeches, podcasts fixtures, hosting expensive seminars and residential retreats, and so on.

These endeavours all require some form of investment, that quite likely had not featured in the future plans of the individual when they set their Financial Independence magic wealth/income/whatever number.

Plan for the unexpected.

Financially Independent, but I want more out of life!

I regularly encounter people who fancy the idea of returning to school to study something they are interested in learning about, rather than the career advancing fields of study that most of us undertook at the tail end of our full time education.

While Youtube, and Udemy can give them a taste, what many actually desire is a return to full time study in a field they find interesting like Archaeology or Psychology.

In many locales University doesn’t come cheap. Even distance education courses offered by the Open University runs to £1500 a unit! How many FI plans include dropping that kind of money over and above normal living expenses?

The change attracting Matt’s attention was the prospect of opening a café. A great many people love the idea of running their own business, particularly if doing so was compatible with their chosen lifestyle.

Adequately funding a new business venture would potentially place their Financial Independence at risk. Were the business to prove less successful than expected, or perhaps fail altogether, then the owner may face the very realistic prospect of having to return to the workforce to cover their living expenses.

If things went drastically wrong, the previously Financially Independent former business owner may face the very realistic prospect of needing to start over. Rather than a return to employment representing a brief detour while coffers are replenished, it may represent the “new normal”. Believe me when I tell you, it is ridiculously hard to put the genie back in the bottle!

Budgeting for fun and profit

Anyone contemplating leaving their chosen profession in pursuit of early retirement, or even just living a more enjoyable pace of life, should have already factored the occasional large expense into their calculations alongside the regular day-to-day lifestyle costs.

Replacing a car.

Major repairs on the house.

A young child requiring speech therapy or extensive tutoring to overcome developmental problems.

A teenage child requiring expensive orthodontic treatment.

Needing to financially help out a close family member with a sizeable sum.

You get the idea, the kind of curve ball periodically thrown up by life that may exceed a typical emergency fund.

I would be surprised if many had baked returning to school or starting a business into their Financial Independence plans.

How much would you risk?

Idealists and dreamers would smile broadly and encourage the Financially Independent person contemplating a potentially expensive life change to go for it. “If it makes you happy, then it is good”.

The Bogleheads, Reddit trolls, and Lemonfools would likely experience a conniption fit at the very idea that someone who had already achieved FI would redirect funds away from the low cost index tracker idol they so fervently worship.

The extreme frugalists would shudder in horror at mere the prospect of incurring additional outgoings. FI, at a younger than normal age, had been achieved by minimising their cost of living as much as possible. Future forecasts were benchmarked on persisting with that very frugal existence. Their budgets probably wouldn’t have the breathing room required to entertain such a change of direction.

I would argue that it is a very individual decision, based largely on personal preferences.

Money on its own doesn’t make a person happy, so the question is actually more along the lines of which potential usage of that money is likely to provide the most satisfaction and happiness.

Money on its own doesn’t make a person happy

What would I do?

Ok, enough jibber jabber. Time to put my money where my mouth is.

For mine, I think Financial Independence provides an individual with the incredible luxury of being free to choose how they spend their time.

I also think wealth is measured in time rather than money. The more time free of demands, free of obligations, and free of commitments then the wealthier a person is.

wealth is measured in time rather than money

To illustrate, consider a backpacker adventuring around the world during a gap year. They have nothing but free time, and not a care in the world. They are living the dream, truly free.

On the other hand consider a full time permanent employee in an unsatisfying yet demanding job, who is slowly being crushed under the weight of a large mortgage. This all too common existence is the very opposite of being free.

A parent with nursery age children has very limited time that could be considered free of demands and obligations.

A traditional retiree potentially has all the time in the world, and is free to queue up waiting for their local Wetherspoons pub to open on pension day.

The benefits Financial Independence provides are hard won.

The benefits Financial Independence provides are hard won.

Once established it should provide us with a safety net capable of supporting our basic needs for the rest of our lives.

Personally I wouldn’t want to jeopardise that.

However I also think that pursuing challenges and chasing dreams is exactly why many of us chose to become Financially Independent.

Having sufficient funds to cover the basic needs without working is great as far as it goes, but never feeling like I had enough money to indulge or have adventures doesn’t really sound like being independent to me.

If somebody lacks a sufficient buffer to survive those occasionally large expenditures, without having the sustainability of their Financial Independence threatened, doesn’t sound much like being free of obligations to me.

So what?

That is why I chose to keep working, albeit part time, beyond the point that I considered myself Financial Independent.

From that point onwards everything I earned was gravy, funding those life enriching experiences such as frequent travel, indulging in further education, starting a business, or whatever else happens to float my boat on a given day.

My wealth is sufficient that (for the most part) I no longer think about money. Purchasing decisions are based primarily on whether they will make me happy, or eliminate those "life suck" elements of my life.

To me that is the difference between having just scraped over the Financial Independence line and being genuinely Financially Independent.

The difference between just existing and genuinely living.

Freelancing… the streets are paved with gold?

Permanent employees are like pampered children. Freelancers are like ginger headed step-children. Which is the easy path to wealth?
I’ve been working for myself, running a business, for 20 years. For the most part this has been a lucrative and rewarding pursuit.

Every client site I’ve ever visited has contained a cluster of permanent staff grumbling about how tough they have it, and how they are going to strike out on their own to go freelancing just as soon as [insert your favourite excuse here] has been overcome.

At the same time there will be a group of disgruntled contractors who complain about how much their accountants charge, how much tax they pay, and how much time complying with all the various rules and regulations applicable to business owners actually takes.

Inevitably there are also an even smaller group of (usually younger, less experienced) freelancers who are forever going on about the dubious tax avoidance schemes they have signed up to, and the outrageous “business” expenses they claim as tax deductions.

They can’t all be telling the truth. So who is right?

Being a permanent employee is a lot like being a pampered child

First off let’s consider the lot in life of a permanent employee.

In many ways I would liken this to what it was like to being a kid.

A permanent employee is a lot like a pampered child

Those of us fortunate enough to win what Warren Buffett calls the “ovarian lottery” (that is lucky enough to be born in a developed country to parents who were both interested in and capable of supporting us while we grew up) had it pretty good.

Our basic needs were all met by others. Shelter? Food? Clothing? Healthcare? Education? Entertainment? Yep.

Our parents and teachers provided them all. In fact if we were really lucky somebody cooked our meals, did the washing up and even washed our clothes for us! In some respects becoming a grown up and leaving all that behind kind of sucked.

So how is that like being a permanent employee?

Well it provided a reasonable degree of comfort and certainty. If everything operates as it should then in return for a fair day’s work you will receive a fair day’s pay. Chances are that somebody else is going to be worrying about where that work comes from, and making sure you have enough to do. Somebody else is going to worry about making sure you actually get paid, in the correct amount, with the correct taxes deducted, and so on.

If you don’t got to work, but take a holiday instead, then you will probably still get paid. The same is true if you are unwell.

Your employer will likely contribute to your personal pension. They may even provide you with other useful benefits such as health insurance, interest free loans for train tickets, gym memberships, and so on.

Need tools to get the job done? Chances are the employer will provide everything you need, plus any training required to use the tools safely and correctly.

All the permanent employee has to do in return is show up reliably, and do a reasonably competent job most of the time, and they will get paid.

Of course they can also be made redundant, passed over for promotion, and generally treated like indentured servants, so it isn’t all rainbows and unicorns.

As an employee you likely have a boss who tells you what to do.

You will probably be subjected to some variation of an annual performance review, at which time your boss will make excuses as to why you won’t get much of a pay rise next year.

If you are really lucky you may be in a job that pays an annual bonus, in some professions these are life changing.

Freelancing is like being a ginger headed step-child... fend for yourself!

Now let’s compare that somewhat idyllic sounding employment situation, where you are spoon fed and the majority of your needs are taken care of, to self employment.

Self-employment comes in many guises. It may involve working as a freelancer, or contractor, or through an agency, or via some form of limited liability company. There are lots of pros and cons associated with each, all of which vary based on jurisdiction and personal circumstance. However there are a few characteristics they all share.

You are on your own. There is no safety net.

Freelancing. There is no safety net.

You have to find your own work. This means you are always at least partially in sales mode. Most people I know hate trying to sell things.

You might land a 12 month contract, but any contract is really only as long as the notice period it contains.

If you work then you might get paid, providing your clients pay you. Hopefully on time, and preferably in full... without too much chasing, and without you having to take them to court.

However if you do not work, then you most certainly do not get paid. Holidays? No pay. Illness? No pay. You get the idea.

If you want a pension then you have to pay for it yourself.

If you want health insurance then you have to pay for it yourself.

Same with all other forms of benefits that employees enjoy and largely take for granted.

Working out your taxes is another challenge. You will probably need to call in reinforcements, hiring a (hopefully) competent accountant to help you traverse the murky world of vague principle based legislation and centuries of case law, where the courts have determined what those badly written laws actually mean in practice. You’ll likely end up paying some combination of Corporations Tax, Value Added Tax, Pay As You Earn Tax, National Insurance (both the Employers and Employees share).

No matter how friendly and knowledgeable your Accountant appears, you are personally still on the hook for any legal punishments, fines, penalties and the like if your books are properly kept.

You’d better hope your work on a client site will expose you to the latest and greatest industry trends, providing you with an opportunity to keep your skills up to date and knowledge current. If not then you will need to pay for your own training and professional development... which if it falls on a work day means you won’t be getting paid while you attend to your education. If you don't you run the risk of becoming a dinosaur, unemployable once your current gig finishes up.

Mortgages can be much harder to arrange.

Freelancing can also be liberating

It isn’t all bad however. Working for yourself provides a lot of freedoms that permanent employees do not enjoy.
You can choose which clients and projects you take on.

You can set your own hours.

You determine how much your time is worth. If the market agrees with you then you will find work, if not then you will have some free time to catch up your unemployment television.

You determine when you are ready for a promotion, or a change in direction, not some pointy headed boss.

Every day is a performance appraisal. If you do a good job you will probably be invited to return tomorrow. If you don’t then you will mostly likely be shown the door.

You don’t need to participate in office politics or any of the silly games that go on at any organisation, because you don’t have any skin in the game. Although you can play if you choose to, and some contractors do so just for sport.

Enough fluff already, tell me about the money!

One thing is for certain, the streets are not paved with gold if you are a freelancer. While your take home pay may appear higher at face value, the numbers actually need a little bit of manipulation to be comparable.

Your remuneration as a permanent employee is not limited to your take home salary. Rather it is the total of your:

gross salary + employer pension contributions + paid holidays + sick leave + training + any other benefits you would choose to provide yourself if your employer did not.

That number is likely to be much higher than what you see in your next payslip.

It is only once you have this adjusted figure calculated that you are in a position to compare it to the hourly or daily contractor rates you may see advertised.

The difference in remuneration between permanent employees and freelancers is shrinking.

Over the last few years the gap between what a permanent employee and a contractor earn for a similar role has been steadily shrinking, to the extent that if a freelancer is doing their taxes properly and not taking the piss with their deductions, then in practice there isn’t a huge difference between the two forms of employment when it comes to remuneration.

Of course your mileage may vary, so do your own homework to verify this.

So what?

Personally I enjoy the freedom and control working for myself provides. However there can be a lot of uncertainty, which may not be for everyone.

You are almost certainly a Prostitute, don’t also be a Slave

Anyone working for a living is prostituting themselves by selling their life off a day at a time. Don't also be a slave by doing something you hate.
One of the dictionary definitions of Prostitution is:
"the unworthy or corrupt use of one's talents for personal or financial gain"

You are already a prostitute

The unworthy or corrupt part is somewhat subjective, but anybody who turns up for work each day is undoubtedly trading their talents for personal or financial gain. Whether they realise it or not, they are selling off their lives one day at a time in return for the promise of a pay cheque.

You shameless hussy!

You harlot!

You slut!

Labels hurt, no? Who am I to judge? If it makes you happy, and isn’t hurting anybody, then it is all good.

Selling your life off a day at a time? Prostitute!

Freelancers, contractors, and artists probably recognise this line of reasoning better than most.

They negotiate the best possible rate to charge clients for the pleasure of their time and expertise. Many of the “benefits” enjoyed by permanent employees (such as on the job training, paid holiday, health insurance, pension contributions) have been stripped away from the equation. This keeps the transaction honest, much like removing the “dinner and a movie” portion of a date.

Freelancers recognise that there is no such thing as a secure job, any contract is only ever dependably as long as the notice period. There is no pretence of employer loyalty, which is probably a much more honest accounting of the realities of today’s workplace… just ask all those folks who have been made redundant for the second or third time in their careers how far a permanent employee can bank on their employer’s loyalty!

In fact many contractors even have pimps, agents who help find them roles in return for a slice of the earnings should the contractor successfully land the gig.

Let’s be honest, almost all of us are prostitutes... we keep turning up for work seeking our pay cheques, not because we love our employers.

Are you also a slave?

One of the dictionary definitions of Slavery is:
“a condition of having to work very hard without proper remuneration or appreciation”
While I dispute that the majority of workers would regard themselves as slaves, I suspect that deep down many employees genuinely feel that the remuneration and appreciation demonstrated by their employees does not properly reflect their efforts and contributions to the success of the firm.
Many employees feel under appreciated and poorly remunerated.

One of the big differences between being a slave and being a victim is the luxury of choice.

Hardly anybody would choose to become a slave. I would wager very few people who are slaves would actively seek to remain as one.

I once spent a year working at a large American investment bank on a sponsored work visa. It was a dire job market, and the chances of finding another employer willing to take over the visa sponsorship were vanishingly small.
It was a miserable existence.

At my desk by 8am each morning.

Still there at 9pm each night.

Often still there much, much later.

I worked for a boss who knew the score, and subjected me to the sort of treatment that would give an even semi-competent HR person lifelong nightmares. However I sucked it up because, for a variety of misguided reasons, at the time it seemed more important to remain in the country than retain my self respect.

It turns out that when they are sufficiently motivated people are remarkably resilient.
The day I no longer needed the visa I quit the job. I did the victory dance the whole way home. Six weeks later that same manager was fired for gross incompetence. Karma? I’ll leave that for the reader to decide.

If you are feeling trapped, exploited, or are otherwise being made to feel miserable in your current job then what the hell are you doing?

Make the most of your opportunities

Many people less fortunate than you would likely kill for the opportunity you possess to seek out something better, something different, something that may help you find the happy.

If you're not an indentured servant. If you're not locked into a job because of a visa, or some other circumstance for which being miserable in the short term is possibly justified by the a big win over the longer term. If you have viable alternative options, then do something about it!
Find the happy!

Need a new job?

Here are some signs that you need to have a long hard think about your current employment situation:
  • You wake up in the morning feeling tired, and dreading going back to work.
  • The very thought of work causes a stomach churning, acidy, physiological reaction in your body.
  • You reach the end of the working week, and rather than feeling happy that it is the weekend, you instead look past that to worry about returning to work on Monday.
  • You dream (have nightmares?) about your work. Or your drink yourself into a stupor so that you don’t have the dreams. Which means not sleeping well, and/or waking up with a hangover. Either way drinking to get drunk is expensive, and makes you fat!
  • You start inventing illnesses and actively looking for other plausible excuses to get out of going to work.
  • Your kids start dreading Sundays, because their parent is always grumpy/stressed/short tempered about returning to work on Monday.
  • When you go on holiday you have trouble switching off the work stress. Before your holiday is even half way over you start dreading the inevitable return to work.
  • The high point of your working day, the thing you secretly look forward to the most, is finishing work… or that first beer/wine after work.

So what?

If you're not enjoying what you do, or the people you do it with, then do something else. Very few people genuinely lack the option to change, and even some of them have needlessly closed off possibilities due to fear or a lack of imagination.

Stop feeling miserable or put upon, and take action to help yourself. Find your happy!

Re-entry Problems

Financial Independence is awesome, but be careful what you wish for. The early retirement genie is certainly hard to put back in the bottle.
Recently I’ve been experiencing some re-entry problems.

By that I don’t mean leaving my house without my front door keys.

What I’m talking about is more akin to what astronauts experience when they return to Earth, or convicts enduring once they are released from prison back into the big bad world.

Financial Independence, Yay for me!

Last year I hit my Financial Independence number.

Unlike many personal finance bloggers I didn’t determine this as a net worth figure.

My thinking is net worth is a moving target, particularly if you have any sort of significant proportion of your wealth invested in the stock market.

To illustrate consider some factoids posted on than arbiter of all pub bets, Wikipedia:
  • On 19-Oct-1987 the S&P500 fell 20.47%
  • On 15-Oct-2008 the S&P500 fell 9.03%
I’m sure I’m not alone in thinking that such material swings in my net worth would induce major pucker factor!

More to the point, if your net worth is now 20% under the Financial Independence threshold you’d set, does that mean you have to go back to work full time in your original profession?

Of course the market could just as easily move upwards in the same kind of proportions. In that regard the stock market gods are more like toddlers with short attention spans loaded up on sugar… as opposed to ex-mothers-in-law, possessing longer memories and stronger penchant for revenge than the average mafia don.

No thank you! I’ll happily ride a rollercoaster in Hyde Park’s Winter Wonderland, but only if I love being able to leave the wild ride behind when I exit the amusement park.

A endlessly replenishing stream is much better than a finite bucket

Instead my Financial Independence number was based on achieving a (hopefully) infinitely sustainable passive income figure that was high enough to cover my cost of living with enough padding left over to cover occasional “want” purchases like gifts, overseas travel, and service my wife’s slightly secret expensive shoe/handbag habit.

2016 was a bumpy ride

2016 proved to be a bumpy yet defining year for me.

It was the last year of my 30s, so I knew I was entitled to a midlife crisis. Traditionally that would involve driving around town looking like a dickhead in a flat cap and a shiny red sports car, or buying a Harley-Davidson, or getting a trophy girlfriend.

Decisions, decisions... A Harley or a trophy girlfriend for my midlife crisis?

A health scare, and ensuing period of hospitalisation, provided both the time and opportunity for a evaluation of my satisfaction levels with how I’d spent my life thus far. This proved to be somewhat confronting, given I was told by the leading lights of the medical fraternity that my time was up should their drugs of last resort not work amazingly well. Luckily for me third time around, they worked.

(Note to self: two valuable life lessons learnt: (1) next time you have a near death experience, don’t go to hospital without an iPhone charger, and (2) never accept the offer of a sponge bath from Nurse Kiwi Steve).

It was the year I hit my Financial Independence passive income number.

I’m told some people retire once they reach Financial Independence. They buy a Winnebago with air conditioning and autopilot, or they take up furniture making, or go back to university to study Archaeology (because it is super interesting, and who doesn’t want to be the next Indiana Jones?).

Who wouldn't want to be the next Indiana Jones? Image credit: Lucasfilm.

My problem with that is I have a low tolerance for boredom, along with two school age children which somewhat constrains my ability to travel affordably… school holidays = peak season.

However I also realised that I was wasting my life surfing an endless cycle of hand holding indecisive executives (who possess attention spans that would be shown up by your average toddler on birthday cake), hosing down the endless flapping of panic stricken project managers, and working towards unrealistic arbitrary deadlines on meaningless projects.

The great escape... Steve McQueen style

Initially I looked around for a part time role, aiming to apply the same skills and experience I’d successfully deployed over the course of my career for one or more clients, for the same sort of hourly rate… but for no more than 10-15 hours a week.

That proved to be a hopeless pipe dream, those kind of jobs just don’t exist.

Next I sought the same kind of role, irrespective of the hourly rate. Those kind of jobs don’t exist either.

Not easily deterred I decided instead to adopt a seasonal working pattern.

Take a bunch of time off, then go do a project, then take a bunch more time off.

I congratulated myself for being a genius, counted down the sleeps until the project I was working on at the time was successfully completed, let the majority of my staff go … and retired!

Retirement is awesome... but decompressing takes time

It took an alarmingly long time to decompress. I’m talking months rather than weeks.

Gradually however I started to unwind.

Being more active during the day was liberating. I also lost 10kg, returning to a weight I hadn’t been since I was at university.

I stopped drinking entirely for a couple of months, then relaxed that prohibition to just not drinking on school nights (turns out my friends are challenging company when they are drinking and I’m not!).

I started dreaming. Not the dozing, interspersed with thinking about work, that we normally experience. This was the fun/strange/imaginative stream of consciousness dreams like we used to have as children.

I also commenced writing on this blog.

Time passed.

Eventually it became time to return to the fray, take on a client with an interesting problem to solve, and go back to work.

All good things come to an end

I was surprisingly reluctant. After six months I can honestly state that retirement was awesome!

Roughly a month ago I attended my first day on site with my new client. After a month back in the saddle here is a summary of what I’ve (re)discovered.
  1. Sitting down for ~8 hours a day sucks.
  2. Enlightenment and inner peace does not lie at the end of a lengthy commute on public transport.
  3. It is incomprehensible how people with full time jobs (that don’t support flexible working hours or remote working) manage to get anything done at home.
  4. Hustle” is code for exploitation… many folks work way too hard, but not nearly smart enough.
  5. If you couldn’t explain what you do for a living to a 7 year old, then you add no value whatsoever.
  6. The majority of workers are salary collectors, adhering to the consultancy philosophy that there is no money to be made in solving problems, only prolonging them.
  7. Acceptable incompetence is absurd.
  8. Most meetings are complete wastes of time. There is an inverse correlation between the number of attendees and the likelihood of a decision being made. People's continual propensity for demonstrating their incompetence and stupidity in front of an audience is dishearteningly boundless.
  9. If you live in an expensive locale, work in IT, and are not involved in one of enterprise architecture, procurement, SLA enforcement, or integration then you are a heading the way of the dinosaurs.
  10. When the AI robots come almost everyone is doomed.

What do I miss about retirement?

I am missing the almost complete absence of stress, of feeling rested, and feeling healthy.

I am missing not being chained to a clock, retirement runs at "island time".

I am missing the activity levels of retirement. Going for a 20km walk along the river or through some amazing parks is a worlds apart from dashing across the street from the office to grab a sandwich.

I am missing dreaming.

I am missing how little day to day fun money I consumed while retired. Working is really expensive: commuting, buying lunches and drinks, the increase in frequency of takeaway/convenience dinners due to time pressure (and laziness).

So what?

I’m very much looking forward to my next stint of retirement, though I think I will need to re-evaluate whether I line up again for the next seasonal work stint.

It appears putting the retirement genie back in the bottle is more challenging than I’d anticipated.

I guess the moral of the story is be careful what you wish for. That said it is certainly a luxurious problem to have, and for that I am very grateful.
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