Bloggers on FIRE – Cracking Retirement
In our Bloggers on FIRE series, we interview European FI bloggers to find out what makes them tick. Our aim is to build up a “who’s who” directory for the European FI blogging world. We hope you enjoy the series and discover some new blogs to follow. You can find a full list of our Bloggers on FIRE interviews here.
Please briefly introduce yourself to FIREhub.eu readers
Hi, I’m Erith (not my real name, I blog anonymously, so I can be a bit more open with my opinions). I run the blog CrackingRetirement about enjoying retirement – having fun, making the most of your money, travel, hobbies, and just life in general.
What is your backstory?
At 64, I am old for a FIRE blogger. I retired at 56 in 2011. I had achieved FI about five or maybe even ten years previously, I just hadn’t recognised it. However as it turned out, it was as well I waited because the financial crash arrived in 2008/9, and wiped out a large chunk of my savings (too high a proportion of my investments in bank shares)… .
Why do you want to reach Financial Independence?
I never heard about Financial Independence until I had been FI for about 10 years. As a child, I had always been careful about money. I grew up in a family that was happy and secure. My father was self-employed, and he worked hard, but there was never a lot of money about. Around the time I was 11 and going to high school, my parents made it clear that my way ahead was to work hard at school, go to university, get a good job, and be independent. So from then on, I decided that I would never be dependent on anyone. I would always have money in the bank, and never any debt except for a mortgage on a home which is where today most people interested in FI start!
As a full-time working mother, life was always about juggling – a child’s school play versus a work-trip. Several times I was so tempted to stop, cut out costs, and just live more simply. FIRE by another name. But something kept me going. I never felt I had enough. I wanted to be able to afford a decent lifestyle outside work, not just sit at home.
As I grew older, I saw both my parents and my husband’s parents struggle financially in retirement. They had some savings, but the return on their investments dropped significantly as interest rates dropped. This confirmed my view that it was essential I prepared well for retirement. My savings had to be able to provide all the extras, not just enough to exist.
So my husband and I concentrated on maximising our options, and doing a lot of things that improved our financial health. I just didn’t know it at the time as building FI!
How much is your “enough”?
Enough for me is that looking forward as far as you can see, you have covered all eventualities, and you will not run out of money, no matter what happens.
Having lived through a time of high inflation in the 1970’s, debts almost vanished as they became insignificant. In 1975 for example, my husband bought an apartment for £3,000. He sold it 3 years later for £5,000. So in just 3 years, what was a 95% mortgage, was only 60% of the overall value. The reverse is that £3,000 savings in 1975 would buy you an apartment. Within 3 years even with 10% interest, it would not do so. So however I invest for the future, it has to hold its own in a high interest environment as well as in a low-interest environment.
So enough for me was
- Our living expenses were covered about three times over (Minimum two times).
- We had a guaranteed income, so that if everything else vanished we would have enough to live (ours comes from pensions, for others that might be rental properties).
- Our savings – if we had to use them – would easily cover the 4% rule. (i.e. technically we could live off them, even if all the pensions vanished)
- We had plenty of surplus to indulge our love of travel while we were fit and healthy enough to do so.
- We live in the UK so we don’t have to allow for health costs, although time spent in retirement homes would eat into our capital.
Where are you on the road to Financial Independence?
We FIRE’d about eight years ago. Although we had already reached FI about 10 years before that. We just didn’t recognise it.
Each year our investments increase by more than we spend. We continue to save about 50% of our income. We are worth about 25% more than when we retired. So far, so good!
My husband wants to continue to work part-time – he really does enjoy it. (Secret of a happy retirement is to find something you don’t want to retire from. He works from home in his own time, and he goes into work 4 or 5 days a year. It is a social activity for him. It doesn’t interfere in any way with our travel plans.) We invest all his salary.
What are you doing with your life now you have reached Financial Independence?
The life we have now is far better than I could possibly have dreamed of when I was 30, 40 or even 50.
- Initially, I spent the first three years looking after my Mum who was 90. I wouldn’t have missed any of that for the world. I had time to take her places and spend time with her that I wouldn’t have had if I delayed retirement.
- We spend two months each year in a different European city. (Just now, we are in Athens for September & October).
- When we started FI, our younger son had just settled in NZ. Our first trip to see him and his future wife was the week after I retired. We hadn’t planned for a return trip club class every year or two, but that is what we have been able to do. (And take them on holiday when we are there).
- I had never tried any metal work before retirement, yet I now define myself as a Metal Artist!
- After we had both retired, my husband was approached by his work to see if he would be prepared to do some part-time work for his office that was in his niche research area. He is now working in retirement, way beyond the normal retirement age (albeit on his own terms). Yet he loves it. He enjoys the ‘heavy maths’, and the lack of responsibility and admin.
- I volunteer as a non-exec director for an educational charity. I am now doing my sixth year, but I have decided I will wind down my commitment at the end of July 2020.
What was your strategy for reaching Financial Independence?
Strategy 1 – Maximising our pensions
- I always worked for the same employer, albeit with several breaks to have children. So I knew that I would be retiring on 2/5 salary, not 3/5 salary. To make up this deficit, I concentrated on maximising my salary (promotions, doing an MBA etc.).
- Taking advantage of tax breaks to make Additional Voluntary Contributions to my pension (UK benefit).
- My husband’s work pension scheme folded about 2000, so we had to take a long hard look about what we would do. We started a private pension scheme for him, and put about 50% of his salary into it every month from then on. There were good tax advantages in doing this, well worth the reduction in income.
Strategy 2 – Investments
- Company Shares – This was almost disastrous! I used every opportunity to invest in Bank Shares. Employee Share Schemes, Buy As You Earn Share Schemes, Pay awards, bonuses, dividend reinvestment. I had a substantial investment in one company that nearly went to the wall in the 2008 financial crisis. 95% wipe-out! Big Mistake. Not only was the vast majority of our savings in that one company, so was our current account, our savings account. Had the company gone to the wall, we would literally not have been able to eat. What a wake up call? Within the week, we had a different checking account which my husband’s salary was paid into. We had learned a hard lesson, but fortunately not experienced a disaster
- Share Dealing – Since 1997, I had been interested in share dealing, using regular investments each month. Over the years this had done surprisingly well.
- Tax-free Savings – In the UK, we used our ISA allowance in full every year (all returns are tax-free).
Strategy 3 – Housing
- Overpaying our Mortgage – In 1995 we moved to our ‘forever’ home. We took out a 25 year mortgage (low interest rate), but with the intention of paying it off early. Our mortgage was cleared by 2005.
- Endowment Policies – These were popular in the 1970’s and 80’s. We initially covered our mortgages with them. However, with our mortgages cleared off ahead of the maturity of the policies, these just boosted our savings when they matured in 2010.
- Staying put – Over the years we considered moving into a bigger and better home several times, but we always resisted it (my husband is better than me at this!). So the proportion of our income spent on housing was very small. (Two sides to this: the value of our home hasn’t gone up as much as it might, but the costs have been minimised).
What is your financial strategy having reached FI?
Living within our means and saving the rest!
When we did our sums prior to retiring, we looked at our expenses for several years. For the last two years before we retired, we put ourselves on a ‘pension diet’, i.e. we lived on our expected pension income. This confirmed that we would have enough to live on. We built in a hefty allowance for travel, which was going to be our retirement luxury.
I hope for the next 30 years we will be able to live comfortably on our pension income. I expect inflation to have an impact, but I hope to cover this initially with my UK state pension, which will become due in 2021.
Should I be wrong in this assumption, our first port of call will be our lower interest savings, followed by our ISA accounts. Only as the last resort will we touch our SIPP (pension savings). The SIPPs have very advantageous tax advantages. Should either my husband or I die before 75, these can be left with no tax impact to our sons. After 75, they still have tax advantages, particularly if they keep them as pension pots.
Looking to the future – One of us has to die first, so we have drawn up our investments and wills in such a way that the income of the survivor is protected, yet some of our savings will be passed on to our boys.
What was your biggest financial mistake?
As covered earlier: too many eggs in one basket. Investing so much in the company I worked for. Looking back on it now, I can’t believe I was so silly. I knew better, but I still continued investing years after I should have diversified. I think the returns were just so good, and I believed in the future of the company.
I also now know that it is better to have some separation between the company you work for and your financial investments. I had far too much tied up in one company. My work life, my income and my savings.
What advice would you give to your younger self?
Start saving earlier, and save more. It will be worth it. With hindsight, I would have invested in property in the 1980’s in Edinburgh. I would now be extremely wealthy!
Look after your health. There is no point in having a lot of money in the bank if you’re not able to enjoy it.
I don’t regret the money we spent on our children’s education. Looking at some of their peers, this has been returned many times over.
What’s your wildest dream?
Some years ago, my daughter-in-law asked me what I would do if I won the lottery. I replied saying that I felt I had won the lottery. I was retired, I never needed to work again, we had enough money to do whatever we wanted. She then pushed a bit, and said, what would you really like to do that was different, and hence the idea of one to two months in a different European city was born. We’re in Year 5 now, Nice, Barcelona, Madrid, Rome and now Athens…
What is your favourite just-for-fun activity that brings you joy?
Metal Work. I just love creating things. My copper tree, I made a few weeks ago. It stands about 1 metre high, and is in a stone I carved myself at a workshop in the Scottish Borders in February.
If I can offer a bit of advice with the benefit of hindsight:
Financial Independence is a great goal. But it is just that – a goal. Financial Independence means freedom & choice.
Many people achieve FI, feel secure in that knowledge, and never take their foot off the pedal. Others use it as a time to stop doing what they were doing and do something different.
FI means you are free to make the best choice for you.