Seeing my Lives before my very eyes…
This reminded me of some mini-paradigm-shifting content I’d read in ‘second career’ book* some year ago. Well, besides the fact that the latter bit sounds like the opposite of FI, essentially, both sources offer a birds-eye view to one’s work life phases. Just the kind of objectivity I need, I thought, and quickly set about designing my life in the form of a pie chart.
Okay, this was a very interesting exercise; it forced me to knuckle down with my numbers. Previously, I’d been working off FI ideas, such as the infamous money needed in retirement x 25 = what you need to FI (16k** x 25 = 400k eek!), expenses tracking, monthly saving, investing in trackers, contemplating SIPPs… It was all ‘things to work on now’, which is great, but also a bit abstract, especially with the added inconvenience of taking a year out etc.
In the last few days, I took what I view as the opposite tack – I decided not to rely on draw down (the idea of building enough assets so you can rely on drawing on capital growth from equities (tracker funds), as popularised by MMM), which is such a central FI idea.
Instead I worked backwards from death with precise numbers… and the resulting pie chart was pretty mind-blowing for me (scroll down)… the kind of info that might even alter the course of my life, like some rippling butterfly effect… but I get ahead of myself!
Calculations I made
In short, I found out exactly how much state and work pension I’d accrued (assuming the latter would be operational from 57 years), and scrutinised my existing net worth/assets to work out how many years I could afford to support myself for.
I also assumed that I’d live until 90 years old.***
It all fell into place: After 67 years, the state and work pension would probably be enough for me, even if I don’t work another day in this job (surprisingly), especially as they’re pretty much grow with inflation. Having started full-time work at 27 years old, I thought I’d be lagging behind in national insurance contributions. (Incidentally, the government HMRC system is great for seeing exactly what you’ve contributed; do check it out because they made an odd error with mine, which I’ll be following up.)
At 57-67 years, I was surprised that I could support myself fully through a mixture of my work pension and work pension lump sum (assuming early retirement of 57 years) and by ‘downsizing’ our home, releasing £45k in theory to each of us. I took into account inflation as best I could using inflation calculators, and erred on the side of caution.
Then, drawing on my savings and investments, on the assumption of zero growth, I figured I could potentially enter Life 2 at 50 years of age and still have my midlife gap year! Well, this was a revelation! Especially because (and this constantly surprises me even though I realise how ridiculous it sounds) 50 is less than a decade away for me!
In this new calculation, any capital growth will be ‘extra’ (e.g. later life costs, small inheritance to son); we won’t make assumptions about market growth, except just one ‘tiny one’ that it won’t fall when we need the money, though we know that the market is somewhat cyclical.
As you see in my pie chart, I’ve opted for 4 main life phases: growing up and education I’ve called the ‘life training’ phase, Life 1 is working life (though not necessarily full-time in 1.3; also 1.2 will not be paid), Life 2 is hitting full FIRE, and Life 3 is the conventional retirement phase, though I’ve marked it from 70 years.
What I learned from my pie chart
1. ‘Life training’ took a pretty big chunk! This was due to studying for a long time (as well as being raised/a misspent youth). This early investment in life / Life 1 training meant an intensive growth phase, that enables this kind of Very Possible Life.
2. Overall, the Life 1 slice is pretty small part of life! And not even completely Full Time***; it’s possible that during Life 1.2 (after some re-skilling, experimentation, and/or unknown epiphany!), I might find fulfilling part-time work in Life 1.3. that can maintain my lifestyle (to the tune of £16k per year). You may call 1.3. partial FIRE.
3. It may seem obvious, but thinking this way has unified my thoughts around my ‘gap year’ and full FI! Before I wasn’t seeing the link between taking time out and FI. ‘Rebranding’ into an overarching life design now gives me “permission” to a year ‘out’ as a perfectly logical progression! Yet Life 1.3. is also excitingly short, allowing fluidity with Life 2 regarding when exactly I need to bring in a modest income.
4. I’m also realising that if I don’t take a year out and change career, then I can FIRE more quickly! I nearly made a pie chart without Life 1.2 and 1.3. After all, with each year I work in my current job, I’m not only a year closer to retirement, but it also buys me at least another year. BUT I’m trying not to fall into that alluring trap. Um, ask me again next summer. 😉
5. I’ll probably now change my investment strategy… Do I really want to invest everything in passive funds if I am going to take them out within 7 years? Do I want a SIPP when I think I have my bases covered from 57 years, or am I wildly underestimating my costs? These are thoughts I’ll have to continue munching on over the coming weeks and months.
So, that’s my life in a bar chart, and my new coherent aim!
This method won’t work if you’ve not already contributed over a decade or so of pension contributions already. And of course, there are caveats (e.g. inflation), known unknowns (e.g. health, my son growing up in some of my Life 2!), and unknown unknowns (???). Still, I’ve been reading FI blogs over the last months and half wishing that kind of FIRE number was me, and now it could be!
If you had a go, I wonder how you found the pie chart exercise. Is there anything glaringly obvious that I’ve failed to take into account with mine? And if I did go down this new path, what kind of buffer would I need to be able to sleep at night, given the unknowns?
*Never Too Late to Be Great: The Power of Thinking Long by Tom Butler-Bowden.
**My expenses of £16k a year is very approximate and doesn’t include inflation. This is based on tracking my expenses for 3 months last summer, including contribution to our joint account (but excluding my share of childcare, which is currently by far my biggest cost; this will go in the future). It doesn’t take into account of large out-of-the-ordinary costs. Clearly, we wouldn’t retire without a savings pot as a buffer. The reality is that we have continuing changing circumstances due to having a young child, and further, he’ll be coming into his most expensive years (teenage) around the time we’re considering Life 2. I envisage food bulk buying. 😀
*** I came out with an average life expectancy of 89.8 years, when I plugged in my answers in 5 well-used but (too) simple longevity calculators (government website: 87 years; Aviva: 92 years (based on aged 55 retirement); Death clock: 89 years (based on drinking 2-4 times per month and optimistic outlook); The People’s Pension 86 years (includes postcode), and Confused.com: 95 years (most comprehensive of the 5, including lifestyle/history). This is merely for illustration purposes. However, there are reasons to believe that actual lifespan may be longer as stats are usually based on current not projected future longevity (I read this in a few places, but sorry, no references) and longevity is highly variable by socioeconomic status and the gap is ever widening, with around 7 years between the higher professional/managerial workers and routine manual workers. This is therefore a ‘best guess’ average based on current data though I must admit I haven’t checked out the data this is based/modelled on. Also, I secretly suspect/hope/wonder if I’ll live longer than this (in relative good health); this would lengthen my projected retirement phase, but as long as I’ve made sufficient national insurance contributions, I hopefully will be living off state and work pensions, both of which will increase with inflation.
**** Technically, Don Ezra’s acronym ‘Life Two’ stands for Life After Full-Time Working Life’. As you can see, my Life 1 is not going to be straight through full-time if I see my plan through, hence the sub-slices.