Posted by Realsociology on 22nd November 2014
Unlike many other ERE (early retirement extreme) blogs I’ve included some fairly specific details about my income below. Having read quite a few of these blogs it really isn’t helpful that most of them don’t talk about their incomes because this makes it very difficult to assess how likely it would be for someone else to pursue a similar financial plan. I’ve decided to include my own actual income in order to make it very clear that my early retirement strategy excludes at least the bottom 80% of income earners. So in short, unless you’re a high income earner in the UK already, or are on the path to becoming one, there is no point you reading this! This is what all ERE blogs should say, but don’t.
My grand plan pads out into three stages – 40-48/ 48-60/ 60+. The boundaries are flexible. NB I only stumbled upon and committed to the idea of early-retirement when I was 41 this August 2014 (so slightly oddly I’ve backdated this plan!)
Phase One – Age 40-48 years – Full time work, voluntary poverty, paying down the mortgage and saving
This phase consists of six goals…..
- Reducing my expenditure to a minimum and living a voluntary-poverty lifestyle. My current outgoings are around £930/ month, which might sound high by ERE standards, but a painful £160 of this is ‘service charge’ which I intend to ditch in the medium term, and so my actual long term outgoings are really just £770/ month.
- Paying off the damn mortgage over a 15 year term, at the rate of +£1000 a month. I intend to downsize and buy a property outright in a cheaper part of the country after 8 years.
- Saving a minimum of a further £450 a month. Combined with the £20K I already have saved this should give me around £80K at a 4% growth rate over 8 years.
- Continue paying into my current Teacher Pension Scheme (TPS). I’ve done the maths and it simply isn’t worth stopping paying into it. This should yield about £11K/ year (post-60) after another 8 years of payments.
- Generating second income streams. I’ve set myself the goal of earning about an extra £20K over the next 5 years. This would enable me to quit the rat-race even earlier and some of these streams might also give me some income from age 48 onwards.
- Developing ‘resilience skills’ – I got the phrase from Fisker, and I like it! Resilience skills to my mind include constructive skills, cheap hobbies and meditation, the kind of things that are free, and hence work with a frugal retirement plan.
Phase Two – Age 48-60 – Semi-Retirement - Hobo-capitalism and working part time.
By the time I’m 48 I should have £130K (2014 figures) equity in my current property and £80K in savings, which will give me £210K in capital. At this stage, I will either simply pay off my existing mortgage or buy a much cheaper property and invest the rest, and use these investments to bring in a base-income while I travel around the world for 12 years. I will need to do a mixture of paid and voluntary work during this phase of my life to support myself, but not very much given that a £210K pot would yield £8K/ year income at a 4% return.
Alternatively I might decide not to go travelling, in which case having the mortgage paid off would mean I could afford to work part-time or intermittently for the rest of my working life based in the UK. I might also just decide to skip to phase three below.
Phase Three – Age 60+ – Full retirement
Barring further layers of neoliberal shaft, my teacher’s pension should kick in at 60, which should be worth about £11K a year, which, with no mortgage costs, will be sufficient for me to live off comfortably. Something else I intend to do at this stage of my life (although I may do this a lot sooner) is to use a portion of my capital to buy some land and establish an edible-forest, with which I will merge to become ‘man of the forest’, or something along those lines.
A few facts about this thing I call myself
I can only start my early retirement drive from where I found myself when l became obsessed with the goal of early-retirement (I think it’s fair to call it an obsession!). TBH I find myself in a pretty favourable position, in a stable job I can probably stomach for several more years, earning more than 85% of the population.
I earn a gross salary of about £44K a year and I’m one year in to paying off a £146K mortgage at 3.1% interest. Previous to buying my current flat (mere non-inheretee high-income earners simply can’t afford houses where I live) outright in 2013 I’d already saved £40K towards it, and the flat’s actually now ‘worth’ about £200K. I work in education which means I’m likely to be able to draw on a Teacher’s Pension from the age of 60. At time of writing, after 13 years of paying into it, this is already worth about £6.5k a year (plus a lump sum of £19K) and on my frugal budget this is approximately two thirds of my desired retirement income. To put some of these figures in monthly terms, I take home £2500 after tax and pensions contributions (the later being about £400/ month).
I’m well aware that an early retirement extreme person would look at these statistics and think a five year early retirement strategy would be a doddle, but my own plan is to do it in eight, so what’s below is very much an early retirement light strategy, a luxurious early retirement vision by extreme standards, but still frugal by normal standards.
Below is more detail about how my plan pads out… I think it’s pretty bullet-proof.
Age 40-48 years – Full time work, voluntary poverty, paying down the mortgage and saving
Goal One – Frugality budgeting
Frugality budgeting means committing yourself to voluntary poverty. To my mind this means not only reducing expenditure on ‘necessities’ such as housing, food, transport and utilities to a minimum, it also means a rejection of the consumerist mode of existence. If this is taken to extremes, it is possible to live without money, but my own attempts fall far short of this – I’ve so far only managed to cut down on the take-out Cappuccinos and beers rather than giving them up altogether.
Below is a summary of my own monthly expenditure, based on a take-home monthly income of around £2450. All figures are approximate. NB I’ve since had a small gross pay-cut since I worked out these figures in August 2014 and as a result I now take home £2500 (that’s not a typo, that’s the effect of the wierd and not so wonderful TPS scaled contributions).
My savings to expenditure ratio
According to the early retirement movement, you should aim to save and invest somewhere between 60-80% of your income, which I’m well short of. Taking into account my Pension contribution, I am only at a 30% savings rate. However, because I see my property as a form of future-capital I am going to claim an overall savings rate of 67%. Of course it will be slightly less than this once you factor in the average £3K/ year I pay on interest on the mortgage which cannot be regarded as savings, which would bring my investment rate down to the low 60s in terms of percentage.
Some in the ERE movement may not accept my inclusion of my mortgage repayments to boost my savings rate to 60% – Fair enough, I may in fact be in denial of the insult that is the mortgage and just be trying to warp these repayments into something they are not. In this case, call my effective savings rate 30%, it’s still a lot better than the average, and the important thing is that I am effectively living off 33% of my current income, and the figures all add up to an extremely early semi-retirement after eight years. It’s worth stating at this point that high property prices and being lumbered with a mortgage will prevent most people in the UK rom achieving full early-retirement US style. I think the best we can achieve here in the UK is early semi-retirement like I’m aiming for…. The section below will give you an idea of something of the scale of the mortgage-burden. There are plenty of people worse off than me!
Goal Two – Paying off the mortgage as quickly as possible is essential
Unlike in the US, here in the UK property is the factor that makes Extreme Early Retirement (in five years) simply impossible for all but the very highest income earners (top 5%?). Even if you’re well into the second-decile of income earners like I am, repaying a mortgage on even a small property is probably going to take you 10 years if you want to stash savings away on top of mortgage repayments. (NB I am assuming here that someone hasn’t benefitted financially from a dead-relative at some point in their 20s and is largely self-financing their property. It also goes without saying that owning is the only ERE option in the UK, renting works out at least twice as expensive over a lifetime).
When I bought my current property in January 2014 I took on a mortgage of approximately £146 000 on a 15 year term. At 3.1% interest I will pay back about £183 000, which means the total cost of financing the mortgage is £37 000, or about £3,000 a year (very roughly). If I were to pay this back over the normal 25 year term I would pay back a total of £211 000, or an additional £55 000 over the amount borrowed.
As well as illustrating the extreme cost of a mortgage, even at a relatively low interest rate, this also illustrates the extreme savings (£18K) to be made by paying off the mortgage 10 years earlier than normal.
As stated above, I do actually intend to pay off the mortgage in eight years rather than 15, but I’m investing money elsewhere to facilitate this, to be utilised when I downsize in the future.
I’ve got to be honest, as it stands, the £3000/ year in interest and £1700/ year in service charges I pay above pay HURTS. Over a ten year period, it would cost me £47 000 just for the privilege of living in and eventually owning a two bedroom flat, above the actual market value of the flat.
Unfortunately, looked at in the long term, unless you want to put up with some pretty severe privations, there is no realistic alternative option other than putting up with being shafted to the tune of £5K/ year, mainly because the only other option (if you rule of living with your parents or squatting) is renting, which just means a further layer of shaft (paying of someone else’s mortgage). NB I refer to this as shaft because the only reason I am paying this £47K is because people in a position of greater power (i.e having greater control over the money supply) relative to me have set up a system which makes it impossible for me to live to the standards reasonably required to hold down a demanding full-time job without paying them money for which they effectively do nothing.
Goal Three – Saving….
In addition to paying off the mortgage I’m putting an additional £450/ month away into investment funds and savings accounts, in the hope that these accumulate at a faster rate than the 3.1% interest I pay on the mortgage, a kind of partial endowment-gamble if you like.
In most early retirement models, getting a decent rate of return on investment is crucial, however, my savings are relatively short term, and my income in full and semi-retirement will simply come from part-time occasional work, rent, and a decent pension, so this type of thing is mostly irrelevant for me. If are interested in longer term investments then you should check out Jacob Lund Fisker’s E-R-E blog where you will find links to financial planning for early retirement. Getting this right can make a massive difference to how early you can retire and your income in retirement, so you might want to learn about this. Personally, I’m happy to leave this dark-art to others.
Goal Four - Building second income streams.
There are huge advantages to doing this – I could retire even earlier, I could supplement my income while travelling, and a second income would give me more security. The second batch of ideas below are potential career changers too, and I do quite like the idea of diversifying jobs sometime before I fully retire! NB – My thinking here is ‘realist’ and very much within the ‘salary-man’ mind set. I’ve seen a few ERE blogs which talk about more creative ideas for earning passive income on the side through such things as monestising blogs and social media channels, but I’ve seen much more ‘wishful thinking’ about such schemes than actual evidence that such passive-income earning schemes are likely to bring in that much money. TBH I think such schemes are more hassle than they’re worth, and probably only worth a few hundre quid a month unless you approach them like a full-time job for several months or so to kick-start them, thus not really for me.
Ideas which overlap with my present full-time job:
The ideas below are all linked into my present job. Together, they could return a few thousand pounds extra a year.
- Write Sociological articles – I have had a few things published already, although the only source I know is through the Sociology Review.
- Write and sell A level Sociology Resources, mainly focusing on revision material.
- Develop an online Sociology course… which could get me into offering online tuition at some point in the future, maybe through the Open University.
- Develop ‘how to teach A level Sociology Resources’ – which could lead into earning money through training Sociology teachers.
- Sell My Soul Once More – Through Examining.
Other ideas for generating income – Career changers:
At present I have no in-depth plans for generating income out of any of these ideas, these are really just my interests that could be converted into income streams. All of which are feasible to set up with relatively minimal outlay, although number two might involve illegally using the allotment to generate an income.
- Make infographics – This is my preferred, long-term career change idea – although there is a mountain to climb in terms of skills development.
- Set up a business based around Permaculture design and an ‘edible perennial plant nursery’. There seems to be a growing demand for this sort of thing.
- Do a fitness instructor course and focus on developing classes for the over 50s market. Presently I’m in no way qualified to do this, but I’ve always thought Nordic Walking is totally cool, and something I’d quite like to get into in later life. Even if there’s no money in it for me, it’d be another practically free hobby – basically walking with poles.
Obviously the list above is highly specific to my own circumstances, and strategies for generating a second income will vary widely.
Goal Five – Developing Renaissance Skills
As I see it, this consists of two things – firstly and most importantly developing meditation and mindfulness skills, and secondly developing those practical and social skills I’ll need to build my own personal ecotopia.
Developing meditation and mindfulness skills
This part of my early retirement strategy is very much inspired by Buddhism and TBH this aspect of my early retirement vision should come first. In essence what this means is putting meditation and mindfulness at the heart of daily life, which is best accomplished through very simple living. This facilitates early-retirement because, again simply, all of these activities involve minimum cost.
My own list of simple living tasks with the times I could spend on them each day if it were not for work are as follows, which is pretty much what I do most weekends and every day during holidays. This kind of lifestyle is what I intend to be doing when I retire, my early-retirement planning is really just to give me the property-security to allow the following to happen on a daily basis -
- Meditate in the morning and evening and periodically throughout the day (120 mins)
- Do ‘chores’ (mainly cleaning) mindfully and swiftly (60 mins)
- Workout every day – for me swimming/ running/ cycling, possibly just walking by the time I’m 60 (120 mins)
- Read about and offer critical commentary on a range of sociological issues (several hours)
- Maintaining an allotment/ edible-forest (also several hours)
- Soft meditation (flow type activities) – Yoga and contact juggling (90 mins)
- Read about Buddhism (30 mins)
- Repeat daily until enlightened
In my general life-philosophy, you don’t really need much to be happy – In fact I’m a big believer in the fact that meaningful happiness is something that is non contingent – you should be able to be happy just sitting there, breathing. If you can’t sit quietly alone, you clearly can’t stand yourself and that’s something that needs to be sorted out urgently. It is unfortunate that the norm in Britain seems to be one of constant distraction away from facing up to the ultimate intangibility of self through the work-hard, consume-hard cycle. Unfortunately for many who fall into this trap, retirement is likely to be experienced with an accompanying sense of dread, because deep down one knows that there is going to be a lot more ‘empty time’ in retirement. If you’ve already come to terms with this by the time of retirement, however, it will be much less of a concern, and you would have saved yourself tens of thousands of pounds too!
Looked at in a simpler way – the advantage of putting meditation and mindfulness practices at the heart of things is that it costs practically nothing and the basis of your life is nearly free (as is your mind, incidentally), and consuming things is just something you do occasionally, rather than the norm of unfreedom through overconsumption.
Developing money saving skills
While my own early-retirement vision is very much focused around maximising income-generation, there is also an important role for saving money by developing new skills. To this end, I am currently learning to grow my own food, build and repair bicycles, build cheap computers, and I will at some point move on to household DIY and construction and possibly even motor-mechanics if van-dwelling ends up looking like being a major part of my future. All of these will become much more important in my later years, and will be crucial to living frugally, but I haven’t dealt with them here because I simply don’t need to think about these things just now.
The 48-60 plan!
The mortgage should be paid in full by the time I’m 48,and my basic plan at this stage is to quit full-time work, rent out my flat and use the £8K I get from this as a ‘base-income’ to allow me to travel/ work abroad for 12 years, until I’m 60 and the teacher’s pension kicks in, at which point I intend to sell my flat and build ecotopia. Yes, sad to say but the only option I’ve got of retiring early is to shaft somebody else, just like I’ve been shafted for the last couple of decades where rent is concerned.
I may as well mention here that I have explored the option of buying land and living in an eco-shack now, but the depressing truth is that this isn’t feasible in the UK if you have a full-time job – basically because doing so means you essentially have to take up all out war with the planning system, which is time-consuming.
Building Ecotopia would be much more feasible abroad, but this would mean very limited opportunities for income generation. I’m sure it would be possible to do this now, if you’re creative, and prepared to take on risk, hassle and extreme-frugality, but as I’ve said before, given the fact that I quite like my job and my life and, I’m in no rush to get to this stage, and every year I hold off makes it more likely that the eco-shack future will be a pleasure rather than a miserable disaster.
The Transition from work to Nomad
The amount of money I’ll need to transition is mainly dependent on whether I want to van or cycle/ walk around the world – The former is about twice as costly as the later. Assuming I’m prepared to go on foot I figure I’ll need something like the following -
- £2000 to sort the flat out for rental – mainly replacing carpets/ bathroom and disposal of stuff.
- £3000 in the bank as an initial fund/emergency fund/ return fund.
- £1000 on traveling stuff, including tech.
If I wanted to go via bike, I’d need to add about another £1000, and if by van another £5000. So depending on my preferred mode of transport, I’ll need from between £6 and £11k to move on! A further related advantage to my nomad Plan is that it will force me to get rid of much of the material crap I really don’t need and reduce my possessions down to the bare-minimum.
Rough plans for travelling
As I see it I’ve got another eight years to figure out what I want to do, so these are just rough ideas. If future projections work out, I’ll have about £8K/ year (or £650/month, or £20/ day) to do the following – not necessarily in the order below.
- Cycle around the world. – Do some nice wilderness- trail walks in various places.
- Live in Dharamsala for a while and just be.
- Do voluntary work to learn the skills I’ll need to build my own eco-shack.
- Find a location for ecotopia.
Needless to say spending will be a little tight, and when I’m not volunteering and exchanging my labour for room and board, most of my evenings will be spent camped at roadsides or on people’s couches. Having said this, it is possible to stay in a cheap hotel in many parts of the world for less than than the amount of money I’ll have coming in, so at times this phase of my life might mean holidaying in the classic sense of the word, and possibly for a greater period of time than most worker-consumers would typically ‘enjoy’ in their lifetimes.
It may be that I have to stop off and do paid work every now and then. I simply don’t envision this being a problem for a qualified teacher (especially as I’ve got a TEFL qualification). All of the above sounds like huge amounts of hard work, but also a lot of fun, and I really don’t understand why anyone whose already mortgage free with their kids at university (which amounts to hundreds of thousands of people in their 50s in the UK) doesn’t just quit work and do something similar, rather than continuing to work for the majority of the year and then paying through their teeth for holidays while leaving their houses empty. I guess people just lack imagination.
The 60+ Plan
TBH This post is already over-long – So I’ll just re-emphises that when I turn 60, I’ll buy some land, plant a few hundred ebible trees and shrubs and quinoa, don some lemmy style cut-offs and graze, bare chested in summer, for the next 25 years or so until this thing I call myself dies. I’ll also meditate a a lot, keep up to date with Sociology and comment via my blog, and take the odd trip into town slices of cake and a few beers. Sorted!