Hello and welcome back to Mortgage Advisor on FIRE. This week I discuss the ISA bridge and my own alternative, the ISA fort. Also, health updates and a nice boost to my investment income for the year.
Weekly Update
I had my second breath test this week and it seemed to go ok. Fortunately there was no one trying to use the waiting room as their office this time. I just have one more breath test to go this coming week.
On Saturday Oana and I ventured to Meadowhall shopping centre to look for clothes for our upcoming holiday. I don’t tend to mind shopping centres, even though I’m autistic. I know many autistic people find shopping centres too stressful. However, I generally don’t mind them, except for Meadowhall which is the absolute worst. There’s something about it which is oppressive, and it’s just not a pleasant place to spend more than a few minutes.
There’s quite a lot of stuff I need for this upcoming holiday, including some formal wear. I had a big list of things I needed, and upon exiting the centre I had ticked off “socks”. Those who know me in real life are aware that the last few years have seen my weight increase a fair bit, and I’m now wearing clothes a couple of sizes up from my “normal” size. Most of the shops I went in had nothing above large. So, not a successful outing.
On the subject of my weight, I have had it spelled out to me that I need to take drastic action. I had a diabetes check up and was basically told I need to lose quite a bit of weight, and I need to lose it quickly. I was offered the chance to take part in an NHS organised crash diet, with meal replacement shakes. I’m not keen on this idea because those shakes tend not to be kind on my gut. I was also advised to start on Metformin, but there are common side effects including diarrhoea, cramps, nausea, and vomiting. Considering that I’m under the care of a gastroenterologist for long running digestive issues the last thing I need is something else rocking that particular boat.
I think I knew that crunch time was coming for my weight and my diabetes. I made the decision a week ago to start coming off Mirtazapine, which is a drug to treat depression and anxiety. However, I’m not feeling much better on the drug and one of the most common side effects of Mirtazapine is weight gain and increased appetite. As I said to the doctor, “I can either be fat and miserable, or just miserable.”
I take a lot of pleasure in walking, biking, weight lifting, and exercise in general. However, as I’ve been steadily gaining weight, my body is aching more and more because of the strain of this extra weight. If I successfully come off Mirtazapine and start losing weight, it should do my physical and mental health a world of good.
Next week we had plans to see Coldplay in Manchester. We were already feeling a bit unsure about going but we’ve ended up selling our tickets on. Originally, we were going to spend a couple of nights in Manchester, see Coldplay, have some good food, and come home. However, hotels in Manchester decided to double their prices, and the train network decided to basically implode. Our train to Manchester was cancelled, and we were struggling to find alternative transport. So, we decided to cut our losses, which ended up not being that big. We got a full refund on our train tickets, and we sold our tickets to the concert for the price we paid. All we lost was the booking fee.
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2023 Goals
Click here to see my 2023 progress (opens a new tab).
What Am I Doing?
TV: Masterchef (BBC).
Audiobook: The Girl Upstairs by Georgina Lees.
Financial Update
Assets
Premium Bonds: £10,000.00 (+£1,925.00).
Stocks and Shares ISA: £83,115.94 (-£1,848.77).
Fuck It Fund: £400.00 (no change).
Pensions: £57,745.28 (-£727.78).
Residential Property Value: £226,085.00 (no change).
BTL Property Value: £145,893.00 (no change).
Total Assets: £523,239.22 (-£651.55).
Debts
Credit Card: £0.00 (no change).
Loans: £9,500.00 (no change).
Residential Mortgage: £177,728.81 (no change).
BTL Mortgage: £104,992.26 (no change).
Total Debts: £292,221.07 (no change).
Total Wealth: £231,018.15 (-£651.55).
Investment Income in 2023: £3,677.76 (target £8,500).
A nice boost to my investment income this week, as I received multiple payments putting me on track to (more or less) meet my annual income target. The stock market has not done me any favours since I maxed out my ISA allowance a few weeks ago. Since that investment my ISA has lost around 5% of its value. I know it’s only a “real” loss if I sell units, but it’s still a small psychological blow when I see my investments treading water or reducing in value.
ISA Bridge or the ISA Fort
There are so many different approaches, strategies, and philosophies when it comes to FIRE that it can seem confusing to those encountering the concept for the first time. The most common approach, at least from people I’ve met and discussed FIRE with, is to accumulate a pot of money until it reaches critical mass (25 x expected annual income needed to retire). At this point, in the majority of cases, the pot of money should be sufficient to support most people in retirement indefinitely. I have several problems with this approach.
First of all, I don’t like plans that require the underlying asset to be sold. The idea that a pot of money, in this case, units in an index fund, should support someone from the moment they FIRE until death assumes that the person in question has calculated their costs accurately. It’s easy for someone to say that £30k or £40k should be enough to support a comfortable retirement, but living in that scenario is a different matter entirely. This plan requires the person to sell the units they’ve spent years, possibly decades, accumulating. If part way through retirement, the shit hits the fan, then the person has fewer resources to cope with that unexpected crisis. In my opinion, selling assets should be an absolute last resort.
My second issue with this approach is that it seems wrong to plan one’s financial life around disposing of all the wealth built when that wealth could be used for the betterment of the community. It is my hope, that when I die, I can leave behind a financial windfall for the various charities and causes that are close to my heart. If I sell off my assets to fund my retirement, I’ll leave these organisations and individuals with nothing.
So what’s this all have to do with bridges and forts? Well, the common plan I’ve outlined here is generally a bit more complex than building up a single pot of cash and living off this for the rest of one’s life. FIRE planning can be broken down into stages, and involves a couple of different investments; ISAs and pensions. ISAs can be cashed in with almost no notice and at any point, whereas pensions can only be accessed once you reach a certain age; 57 in my case. So, the ISA bridge refers to funding the period between giving up work and being able to access your pension. The ISA bridges the gap between those two points. Again, I’m not keen on this idea because I don’t like selling assets. You could say, I’m never gonna give them up.
The ISA Fort
Imagine that each unit you own in a stock or fund is a brick. To build a fort you need a lot of bricks. You patiently build your fort one brick at a time, and over time you construct a solid foundation, with high walls. This fort represents the protection and security that financial independence grants you. Now, imagine that you have to start dismantling that fort one brick at a time. The enemy (the myriad crises that crop up from time to time) are watching and waiting for the fort to be diminished so that they can attack.
For me, when you build a defensible position and shelter (accumulating assets) to protect against enemy troops and harsh weather, you don’t start selling off the bricks (the units that make your investments) to pay for food, clothing, leisure, etc. Instead, the fort starts to produce income as traders, smiths, artists, and farmers all start buying and selling within the protection of the fort (I’m referring to the dividend income these assets produce).
In this example, the income generated from trade within the fort may be minimal at first. However, that income can be reinvested in more units (bricks) which means you can expand your fort to allow more traders to operate under your protection. The progress might be slower, but it just seems to be a more stable, secure, and sensible approach.
Proponents of the more traditional approach to FIRE, who are planning to use an ISA bridge, will argue that the investment pot will never actually reduce to zero because they’ll use a safe withdrawal rate, and gains in the market will compensate for units sold. The basic idea being that if you’re cashing in 4% of your fund each year, but the fund is growing by 8% a year, you’ll be fine. Well, it’s great in theory, but again I have reservations about this plan.
The safe withdrawal rate of 4% that is commonly thrown about is not a guaranteed way to preserve capital. It can work, and in many cases may work fine. There’s always the element of doubt though because market returns are never regular whereas most costs tend to be regular. For example; if your basic costs of living are £1,500 per month, then you can be pretty sure that it will be at least £1,500 every month. However, the market might return 9% one month, and lose 12% the following month. The market is volatile, whereas the basic costs of living are generally fairly stable in the short to medium term.
Maybe I’m too cautious but I’ll never be onboard with following the traditional approach to FIRE. I’d rather take a bit longer, and invest in assets that generate income, and use that as the foundation on which I’ll build my future.
Disclaimer
The views and opinions in this blog are my own, and do not represent the views or opinions of my employer, nor should they be considered advice.
If you want personalised financial advice, seek an appropriate professional. If you are in financial difficulty, seek advice via the resources below:
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