I love to read FI and PF blogs and news articles extensively. Usually, I find them pretty good. Even if they’re just short snippets or trading updates, it’s still interesting to see other points of view and note which stocks are being bought by the FI community. However, one article on early retirement that I read recently really struck me… for all the wrong reasons. This piece of writing appeared in The (London) Telegraph’s Investor section online, which is usually fairly interesting and often can be very useful. However, this piece riled me something rotten. I was really looking forward to reading it, given its interesting subheading:
It may take some “extreme financial planning” but knocking off a decade early can be done. Just.
I immediately lost all that nice anticipation of looking forward to reading something good. My thoughts changed to: ‘Are you kidding me? After “extreme financial planning”, I can only retire at 57? That doesn’t even seem quite worth the hassle. This is more like how to retire early – not!’ But of course, as I read the article, it turned out that there was no “extreme financial planning” whatsoever. Sadly, this was unsurprising. You just don’t get real articles on “extreme financial planning” in the mass press (I guess that’s why we’re all on the internet, blogging about our beloved FIRE instead!).
However, what I was not prepared for when reading this article, was just how bad it really was.
Here are the figures the article quotes:
Person has: £43,000 annual salary (£30,325 after tax and assumed 6% pension contribution)
Person wants 2/3 of this in retirement = £28,000 (£22,127 after tax)
First of all, £28,000 is not 2/3 of £43,000 – £28,667 is. And the same goes for the after-tax income – £20,217 is 2/3 of £30,325. £1910 extra per year is quite a lot of money! The article does not state whether the person is married, or has kids – which obviously could affect his/her income and tax situation quite dramatically. The article also does not state what kind of mortgage the person has, nor what interest rate they’re paying. All we know is that they’re 38 years old, and they’re due to finish paying it off in 19 years i.e. by age 57.
Clearly this article is not exactly a winning piece on FIRE! We do not know anything about the person’s career path/profession, expenses, hobbies, or lifestyle, so we can’t even see what they’re trying to work with as their example of “extreme financial planning”! To top it off, the imaginary person has magically become 36 years old by the end of the article! Given our backwards-aging fictitious person and his/her post-tax income of £2,527 per month, this Benjamin Button impersonator can probably afford to save a massive proportion of his/her net salary and retire a lot earlier than 57.
Let’s just say that this person actually decides to do some more serious financial planning, and not even an “extreme” version. They cut their expenses down to a frugal(ish) lifestyle of £1200 in outgoings per month – which is not really that frugal for a single person, and is in no way “extreme”, especially when you compare to Jacob from Early Retirement Extreme, or even our more local (and not very extreme) Huw from Financially Free By 40 who has managed to get his expenses down to <£900 per month.
So this expense-cutting leaves our imaginary person with £1327 per month to invest – a pretty hefty sum. Assuming a 5.5% real rate of return, this monthly amount would turn into a whopping £609,278 (including the £30k he/she already had) after the original 19 years until age 57 (if he/she was 38, not 36!!!) He then also has a paid-off mortgage and access to his pension scheme. That £609,278 on its own would fund a £28,000 annual income (no tax assumed – he has been clever and stuck it all in a NISA) for almost 22 years… or if we assume more realistically that his investments with continue to grow at 5.5%, and inflation is 2% on average, then the £609,278 would last him 39 years and 2 months i.e. he will be 96 when it runs out. Oh but by the way – that pension scheme has not been touched! So he actually won’t have run out of money after all…
So this rotten article (Ed Monk, how could you?!) is not interesting OR useful as I have come to expect from The Telegraph Investor… but it is perhaps a pointer as to what many people out there might think is “extreme” in terms of managing your finances. Is this why there is so much of a consumer debt problem, and so much of an instant gratification problem in our society? Is this why people regularly spend money on lunch for work every day, and then complain they can’t afford to pay into their pension? Do excuse me if this seems a bit rantish, I feel sorry for these people, I’m not angry at them. And I don’t care what they spend their money on, as long as they don’t complain afterwards that they’re annoyed at having no money! Actually, if they’re wasting it on cigarettes, then yes, I do care and they only have themselves to blame…
image credit: freedigitalphotos.net/bplanet