The inconvenience of the twilight years: Figuring later-life into your FI strategy

My posts have been more sporadic of late not because my blogging honeymoon period is over, but because I’ve been working my ass off. Whether it’s worth it considering my plans for a “career change” is a good question for another post. But in snatches of time between super long work days and parenting, something else has been very, very much looming in my consciousness. The cost of being old. Which could be for a looong time.

Yes, quite unpleasant to think about, but I’ll dive straight in nonetheless. Two things have prompted this.

Firstly, and this is most relevant in terms of inspiring a new direction for my investment strategy, I came across Vicki Wuche’s The Wealthy Retirement Plan – currently £1.99 on Kindle! What doesn’t jump out in the title is that the plan centres on the cost of our own (ideal) care when we are older and for as long as possible to avoid a care home, which incidentally costs on average around £31k a year per person. And having some savings is actually worse in some ways than having none or being super-rich, as they will surely dwindle very fast. (Paid-for places subsidise the government funded ones in the same homes.) Most people never end up in a care home, apparently. Something else happens. But the ideal is probably to have the support available to enable you stay in your own home or relatively independent living for as long as possible. But this can only happen if you got the dosh.

Well, that’s the current situation… Who knows what’ll be like in 40 years’ time. I predict that social care and the NHS will be almost unrecognisable by then (thanks to the baby boomer generation who are entering that phase now…) that it will look almost nothing like how it is now. A whole industry is springing up to meet the needs of the elderly, but one thing is for sure, good care will only get more expensive. And good health care also.

Now my life design that felt ingenious at the time I made it suddenly seems like there is a massive gaping hole. My plan for 67 years onward was to live off my work and state pensions – both of which themselves have convenient built-in assumptions that may not bear out! But I was figuring I could live on about £15-£17k (based on today’s money, and inflation linked). But yeah, if by the time I’m able to live independently but require help for an hour a day at £20 (say, to cook and bathe), that’s over £7k a year on top of my usual expenses (which may be say 15k). Clearly, I’ve not allowed enough to fund this kind of thing.

If you have kids and wonder what the implications are, yes, perhaps you should worry, because if your kids care about you, they may end up forking out the money to ensure you can continue to stay living at home as you’ll no doubt want and you will feel very bad about it (if you’re anything like me). Otherwise, it’ll be the same as for everyone else whether you’ve got kids or not: a government-funded care home as the best possible outcome, and it turns out they aren’t as nice as I hoped they may be (since your new roommates may not be very pleasant, and elderly people struggle with incontinence issues), even for a private one at 50k or whatever.

All of this may not seem very important or relevant if you are young. Indeed, i’m not sure many young people will read this post. But one day, you will value very dearly any independence and dignity you have left, and the mental and physical benefits that come with that, like almost nothing else (I imagine). Once you lose those benefits, it seems like a domino effect is in waiting… I’m already seeing the beginnings of this in my parents.

Now Vicki’s book is all about building a property portfolio around how much you think you need for an optimal retirement. Not in the FI sense of retiring in your 30’s or 50’s, but retirement in the sense of what can you do now to ensure your most vulnerable days are lived out as well as possible? Although I find some of the ideas of the book a little difficult to follow in terms of making a coherent whole (but it could be that I’m tired a lot due to work), there are some nuggets in there. While index funds may be a great FI strategy for income for a predicted 30 years or so, real life may mean that financial needs are highest when funds are running out. However, with a ‘modest’ property portfolio, for example, of 4 properties with buy-to-let mortgages paid off could continue to generate £600 of post-tax income per month, giving you a total of £28.8k a year.

Rob Dix’s Complete Guide to Property Investment (if you’re a Kindle reader, available free from the lending library) is actually excellent for illustrating the various investment strategies you can take to build income and/or capital from investing in property. I’d read it before (when I was considering whether to pay off our mortgage fast or use the income to invest in a buy-to-let, obviously the first option won out) and now I read it again with fresh eyes. I’ve got the feelers out now and am considering putting some of my hard earned money on getting a couple of properties and this could possibly be part of what I might do in my time out (Life 1.2) but I definitely intend to get a management company involved and am not looking to do anything up! The thought of lifting up 20 year old carpets to expose musty floorboards makes me feel quite queasy somehow (I know, blame my sense of smell and overactive imagination).

So the other thing that has unearthed all these thoughts is a lot more personal to me… My parents. They live in a nearby town, are nearing 80, and managing pretty well, all things considered. Yet time marches on and year on year, things are changing. My siblings and I recently met to discuss my parents and their future – the financials, the plans, their mobility going forward, suitability of their home of 30 years… You get the picture and it’s not a pretty one.

One looming issue has been whether the parents should move into a bungalow near to where they live now. My parents are not that well off and almost all their money is in their home, yet that home – if they were both to go into care tomorrow at £60k a year – their life savings in the house would last 3 years; anything else. After that, they would be state dependent. If they live at home but need an hour’s help daily for say 10 years (but don’t have a serious medical condition to warrant government assistance), then well, their savings will diminish by at least £140k over 10 years (not including inflation, and the fact care will likely need to be stepped up in the later years). That’s most of their assets gone just on that, with very little left to enjoy life with. It’s a bit like childcare costs but 100 times worse…?

Now, I have not seen any blog posts from FIers on how they deal with this situation – neither of accounting for such costs for your own care in an investment strategy nor of supporting financially their elderly parents. But if you know of any, please do let me know!

Vicky Wuche’s book addresses the situation in a mature way having had to deal with it with her own parents, and I valued learning from that experience. Rob Dix’s book (on property, not on retirement) doesn’t use the term ‘financial independence’ but he does compare his property strategy to the “4% withdrawal rate method some people go by” (I’ve paraphrased), which was a little nod and turn away from the FI crowd (of the Mr Money Moustache ilk)… In other words, to summarise bits of both books, you cannot achieve a continuing £30k per year income indefinitely from the stock market. But people will always need some place to live.

When I was about 8, I remember a friend teaching me the Beatles ditty, When I’m 64 (“When I grow older losing my hair many years from now…”). Sixty-four sounded extremely old at that time. And now being ever closer to 80 than I am to birth, of course, I see 64 as pretty young and active still. So, I know for sure that I’m mentally discounting my late late years as being much further away than they really are. The old me is not some other lesser version of me that’ll just have to make do with whatever, because Jeez by then I’ve already lived my life and I’m not really even myself anymore (inner ageist alert!). Eek, nope, it’ll still be little old me, probably mumbling about being financially independent (haha), and not wanting to burden my loved ones. That’s if I’m lucky enough to reach old age.

If I sit there in my diaper drinking watery soup and thinking every-damn-day what a burden I am for years on end (on society, on my loved ones), and pondering about possible regrets in life… Well, not trying to invest in property and take reasonable risks (when I have the info available to me) in order to avoid the situation I was now in may well be one of them. Even if property investment is not ‘as attractive’ as it once was, surely it’s a valuable asset once paid off. My gut feeling is I’ve been ignoring my twilight years at my peril.

Dipping my toes into bricks and mortar

At the moment, this is where I’m at. My plan now is to work towards a deposit and a precise strategy for gaining the knowledge to be confident enough to buy a property to let out to a family. I don’t want to sell the index trackers I’ve accumulated over the last few months and most of my savings are tied in various things. I am seeing property as diversification.

For the foreseeable future (while I’m respectably employed), the idea is to keep an eye out for a suitable house (not too cheap, not too expensive) and get a mortgage that will be paid off by the time I’m 60-65 years without being screwed over by the interest rate (which means a 25% deposit). Rental income wouldn’t be much after costs while I’m paying off once I figure in the costs of a property management company and repairs, because I’m not interested in doer-uppers, Houses of Multiple Occupants, or managing the property myself – all the things that had put me off property investment to begin with. But once paid off, property can continue to generate an income that will help me retain a sense of control of my life and not burden my family.

The main issue I can think of at the moment is the possibility of having my midlife gap year being consumed by property investment and maintenance or not being able to rent out the property when I’m not bringing in an income either. Having said that, I guess this is why THIS year is a good year to start this. The other thing is that psychologically I was just so happy to be rid of my own mortgage last year. Why would I want to take another one on? It’s the cheapest form of leverage, of course! And a third thing for me, personally, is ethics, but I think it’s viable to be an ethical landlord. And yeah, next day edit: there’s another biggie coming up in my head: Is it worth another year in my job if it means it’ll give me a property that’ll generate £600 a month when I’m post-60’s. What would future me say? Having said that, one reason for having my ‘midlife gap year’ next year is as a positive decision for my health.

Of course, there’s always: “I may get hit by a bus tomorrow”. Well, there is that. I prefer not to live by that motto. Probably very few lived very long by that motto. The life expectancy calculators had me living to 90 years though things are changing all the time. I always secretly wanted to live to 102. Only time will tell… Maybe me and my pals will live in a single communal house with a 24 hour carer? That’s not impossible, right? After all, I’m the kind of person who even now quite enjoys hostels….but I’m getting ahead of myself, since by then, I may not really be me anymore… Well, I’d still be ME, but seeing as dementia runs strongly on my mum’s side, maybe without the memories….

The more I think about it, the more important a sense of control will be so important to me when I’m older. It’s something I take for granted – yeah, I don’t need to feel in control of a situation – easy to say until you lose it. The higher social classes are living longer, but a large proportion of life that will be long and drawn out in carefully ‘managed’ health.

On that note, more thinking needed! This is all new territory for me, and I see this kind of planning to be essential and positive, despite the nature of it. I’d welcome any thoughts, links, recommended reading. How are you dealing with your twilight years? Thanks for reading.