I have to admit that the F.I.R.E movement had completely passed me by until recently. F.I.R.E stands for Financial Independence; Retire Early and has been around for some time, but it was only when I was motorhome-bound on a rainy day that I realised it existed. It’s a movement that embraces saving more, spending less and making sensible financial choices in order to enable people to be as financially independent as possible. This doesn’t necessarily mean retiring early, but it does mean freedom from some of the money worries that can bog us down on a day to day basis, and the freedom to make your own choices about whether and where to work.
I spent the day binge reading a couple of blogs; Mr Money Mustache is a US blogger and The Escape Artist is a UK blogger. Both are blogs that had been recommended through the Our Tour motorhome blog, but I hadn’t paid them any attention as I was too busy focussing on the motorhome related articles.
The trigger for delving deeper into the world of financial independence is the looming return to work. It was always our assumption that our motorhome travels would have to come to a halt at some time in this year and we would need to go back to work. But do we really need to earn more money?
I’ve mentioned before that back in 2009 we were inspired to save in order to pay off our mortgage. Getting into the habit of saving left us not only with a cleared mortgage, but also with a good amount of savings under our belts. My redundancy further topped up the pot although most of it cant be touched yet as it’s in my pension. Over the time we have been travelling our cash savings have eroded but our overall net worth is about the same as it was when we started due to investment growth. So do we really need to stop travelling?
Through the F.I.R.E blogs and a number of online forums I was introduced to a few new ideas (or maybe old ideas wrapped up in new terminology). I also found some pretty complex investment growth modelling that I’m yet to get my head around. Ignoring the more complex stuff, here are some of the concepts that came up:
Safe Withdrawal Rate (SWR) – the percentage that we could withdraw from our savings/investment pot without eroding the capital. Usually set at 4% this very much depends where the money is invested and on current market conditions.
Passive Income – ways of making income that don’t rely on doing any/much work. Our rental income is an example of this, also any investment dividends.
Barista FIRE – taking a more fulfilling/less demanding job in order to bridge any income gap once standard employment has ceased (or just because you want to continue working).
Lean FIRE – retiring on a low income that presupposes a very frugal retirement lifestyle (the opposite being Fat FIRE I assume). Lean FIRE doesn’t appeal very much to us, we like our creature comforts.
Side Hustles – ways of making extra income outside of standard employment.
Intrigued by the whole idea, I decided to look at what this means for us? We had always assumed that this travelling malarkey was just a career break and we would go back to work until retirement age. Hopefully at that point (somewhere above the age of 60) we would still have the energy and enthusiasm for travelling and would go on some further adventures. What if it doesn’t have to be?
I took a few simple steps to work out what our future income might look like, not rocket science but something I hadn’t done before. I had always envisaged our savings as being a comfort blanket rather than something to actually draw down on as income.
What would our annual budget be in retirement? What would we want as an income (expressed in today’s money), based on us having a living in a house/flat, keeping the motorhome and potentially having some large expenses in the future (new motorhome, car, house maintenance, once-in-a-lifetime holiday)?
Where would we live? I looked at scenarios where we bought a second home for us to live in (and continued to let our current house) and scenarios where we sold our current house and downsized. We are quite convinced that we don’t need a family sized home any more but we do want a home base rather than living permanently in a motorhome.
How much are we worth? This excludes the house we end up living in because we would be unlikely to make any income from it, but includes pensions, savings and investments plus possible equity from downsizing our property or rental income. Of course there is the state pension, but at the moment our state pension age is 67 and it’s likely to increase further before we get to that age.
How much would our investments grow? As a worst case we assumed that our investment growth only kept up with inflation, it could be better (most FIRE models assume that investment growth exceeds inflation) , but of course it could be worse.
Having looked at all of this and done some simple sums the conclusion is that we need to earn more money before we are financially free, but we definitely don’t need to continue working into our 60s and we don’t need to go back to work right now. We may go back to standard employment, but probably only for a few years depending on the earning potential of our jobs. That will be good news for Paul who is looking forward to going back for some male company and building site banter. I’m more ambivalent about going back to work, but if needs must…