Hello and welcome back to Mortgage Advisor on FIRE. This week I discuss what is meant by “life-changing money”. Also, a look at the concept of infinity, and some thoughts about a slight change in FIRE strategy.
Weekly Update
Things have generally been improving, I’m happy to say. I’m not great or good, but I’m better than I have been. I think a change in my medication, as well as a great therapist, and some time to decompress, has all helped.
The week started with an afternoon of chess and conversation about physics, and the nature of, well, everything. These conversations are always fascinating and always fry my brain to a degree. One part of the discussion focused on the concept of infinity. A recent book I finished, explained that when science uses the concept of infinity it is often not truly referring to something being infinite, but instead uses the term as a shorthand for a very big number. This helped reconcile something I’d wondered about for a long time; the idea of the multiverse.
Assuming that the universe has a finite amount of matter, an infinite number of parallel universes can’t be possible. After all, you can’t create infinity from a finite resource. The difference between all parallel universes may just be the position of a single atom, but it still can’t truly result in an infinite number of universes; just an incredibly large number of them.
This realisation helped me with one thought experiment I’ve considered over the years, which is based on the assumption that there are, in fact, an infinite number of universes with the idea that everything possible exists somewhere in the multiverse. Assuming this was the case, then it would mean that there would be a universe with a god, or a pantheon of gods, just like there would be universes with no gods. However, the terms universe and god are doing a lot of heavy lifting in these assumptions, as the exact definitions of them are still up for debate. With the realisation that there can’t be an infinite number of universes, the problem goes away.
In another universe I would have studied physics, or more likely astronomy or astrophysics. If only I could turn back time…
This weekend we went to the Victorian Christmas Market in Kelham Island, but it was a little underwhelming this year. Also, the crowds were a bit much to deal with. My capacity for dealing with large groups of people is much lower than it used to be. Another source of frustration was just how expensive everything seemed. I don’t know if it’s me being unrealistic in terms of what prices I would pay, or if it’s traders setting their prices too high. Either way, everything just seemed expensive.
Have you put your heating on yet? Saturday was the first time we’ve used our heating since last winter. It was getting pretty cold in our apartment though, to the extent we could see our breath. We had taken to just getting well wrapped up in the apartment, but it was getting ridiculous. We have a thermometer in our living room and decided we would not use the heating until it dropped to 14C. However, we were fairly comfortable at that temperature. It dipped to under 11C before we cracked. Poppy, our cat, has an electrically heated bed that she spends a lot of time sleeping on. We can be cold, but never our cat! The problem with being an all-electric property is that it’s expensive to heat up, and because we keep our doors open a crack so Poppy can freely wander, it makes it difficult to retain heat in each room. She’s worth it though.
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What Am I Doing?
TV: Masterchef: The Professionals.
Audiobook: The Disappearing Act by Florence de Changy.
Oana and I have been enjoying our MasterChef lately, watching both the current series as it airs, and previous seasons on iPlayer. The professional iteration of the show is our favourite, but we’ll watch any of them.
I’ve been smashing through audiobooks over the last few weeks, with a few incredible ones I want to mention. All The Lonely People by Mike Gayle was fantastic. I’ve finished a few of his books now, and they all pack an emotional punch. The Institute by Stephen King was grim but very entertaining. In terms of non-fiction, Ultra-Processed People by Chris van Tulleken was interesting and eye-opening. I want to get stuck into another sci-fi series though, so if you have any suggestions please let me know in the comments.
Financial Update
Assets
Premium Bonds: £11,625.00.
Stocks and Shares ISA: £60,013.58.
Fuck It Fund: £10,444.74.
Pensions: £65,156.89.
Residential Property Value: £227,512.00.
BTL Property Value: £146,814.00.
Total Assets: £521,566.21.
Debts
Residential Mortgage: £174,247.55.
BTL Mortgage: £104,924.60.
Total Debts: £279,172.15.
Total Wealth: £242,394.06.
Investment Income in 2023: £7,669.04 (target £8,500).
It feels as though I’m just waiting for the start of the new financial year so that I can start paying into my ISA again. I’m also finding myself reevaluating my investing direction, or philosophy, moving forward. Property just hasn’t worked out as I’d hoped. In the new year, we will be looking at selling our BTL. The plan had been to acquire properties to pay sufficient income to meet most day-to-day expenses, with dividends supplementing that income.
What I’m starting to realise is that my best chance of achieving FIRE is to continue building my pension pot, whilst also growing my ISA to act as a bridging fund to take me from the date I “retire” to the date I can draw upon my pension. To be eligible for the full UK state pension, I need to make NI contributions for a further thirteen years. That seems a long way off, but even if I don’t get the full state pension I will still be eligible for something.
I don’t count the last few years as a failure though, because I’m still much further along than I would have been had I not started my FIRE project.
So what do the numbers look like? Assuming that I want £24,000 annual income, and using the 4% safe withdrawal rate (SWR), I’ll need a pension pot of £600,000. It sounds like a lot, but it’s not totally unrealistic. To grow my pension pot from its current value to £600,000, with an assumed growth rate of 8%, I’ll need to pay £900 per month into my pension; a figure that is almost in line with my current rate of investment. It should be noted that this schedule assumes I’ll pay into my pension month in, and month out, for the next 17 years. This is the bit where the calculations get a bit messy.
The longer I work and contribute to a pension, the more money I’ll have in that pot and the less I’ll need as a bridging fund. However, I want to achieve FIRE as soon as possible. If I FIRE earlier, I’ll need a bigger bridging fund, which will make my pension pot smaller as I’ll no longer be paying into it.
To break this down, there are several stages I need to work through;
Stage 1: Accumulation
I need to continue accumulating investments and growing my retirement pots.
Stage 2: Bridging
Once I have enough money saved within my ISA and other non-pension investments, potentially supplemented by dividend income, to maintain my desired standard of living from that point until I can draw my private pension I will have entered the bridging stage. The idea is that the ISA bridges the gap until retirement. At this point working would, according to the plan, be optional. The reality is I’d probably still want to engage in some form of paid employment on a part-time basis. It would help keep me active and drastically reduce how much I’d need as a bridging fund.
Stage 3: Private Pension
I should, as things stand, be able to draw on my private pension in around 17 years. Things can change quickly though, and just because I can access it, it doesn’t mean I have to start drawing it down immediately. I could choose to let the pot (hopefully) grow for longer.
Stage 4: State Pension
The final stage is when I can draw my state pension. It’s still a long way off, but it will be something to supplement all the other income streams mentioned.
Life-Changing Money
I was talking about money and retirement with my Dad earlier this week, and a question came up; “what amount of money would you need to receive, as a minimum, for it to be life-changing?” I then asked several people the same question, and the results were interesting as they highlighted the differences we all have in what we term “life-changing”.
For me, the minimum amount that would be life-changing would be £50,000. This would allow me to max out my ISA for a year, pop a further £20,000 into my SIPP, and then have £10,000 to spend on studying something I love, like astronomy or astrophysics. The impact of adding £40,000 to my retirement pots (£20k into my ISA and SIPP) would also allow me to relax a little with my spending limits on a day-to-day basis as that lump sum injection of cash would then compound moving forward.
The range of answers I had from other people started at £10,000 and increased up to £5,000,000. As someone else asked, “Would they turn down £4,999,999 as it’s not life-changing?”
The thing about this question is that it can provoke lines of thought that you’d not have considered. It helps put a value on certain things, like studying in my case. I’d be happy to spend £10k of “winnings” on studying, but I wouldn’t want to spend £10k of my earned money on it. Other people, like a friend of mine who answered £250,000, don’t differentiate based on the source of the money.
Another angle to this question relates to something I read ages ago, in which someone in their 30s didn’t want to go to uni because they’d be 35 when they graduate (can’t remember the exact ages involved) but someone pointed out that whether they go to uni or not, they’ll still be the same age at that point in the future. So if you’re a person who thinks that £20,000 would be life-changing, and you have £500 per month spare that you normally spend on random stuff, then you could potentially redirect that money and change your life in 3-4 years. To put it simply, you don’t save huge amounts of cash in one go, you do it £1 at a time.
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.
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