How did I get to FIRE ?

[thebarns]

I couldn’t sleep last night and instead of counting sheep, I decided to analyse how I reached FIRE and see if there are any useful lessons that can be shared with any on here and indeed my own children.

My analysis is very broad brush and I also realise the route to FIRE can be achieved in different ways.

A small bit of background - I retired at 52, am married and have two kids, both still at fee paying schools with the eldest child about to go to University.

Both my wife and I work (ed) in professional services and the combined income from those jobs would have put us in the top 3-5
percent of income levels, without getting into the silly numbers associated with the top 1-3 percent.

Our combined wealth is around 50% pensions ( defined contribution with minimal employer input over the years), 30% house, 20% investments being cash Isas, share Isas and VCTs.

I wanted to know over say 30 odd years of working and 20 years of marriage, how I had reached these amounts.

I estimated that around 40% was due to excess income over expenditures, such that we saved more than we earned on a monthly basis - I estimate we saved around 50% a month over a lifetime of working -very little in first 5 years and then it gradually cranked up. All excesses were put into a mixture of mortgage repayments, pension contributions, cash and share Isas, VCTs and commercial property investments.

25% of the current wealth was achieved by tax reliefs along the way - pension, VCT, holdover, entrepreneur’s on sale of business.

15% was main residence house price growth.

10% was sale of business.

1% was an inheritance.

And around 9% was investment growth whether from cash Isas, share Isas, commercial property investment, investments in pension.

So to recap, to get where my wife and I am today, I broadly reckon

40% excess income over expenditure, 25% tax relief, 15% house growth, 10% sale of business, 9% investment growth, 1% inheritance.

Lessons learned over those 30 years plus:

Tax reliefs played a significant part - I always viewed them as the easy part of investment growth.
House price growth - not as good as it should have been - a conscious decision to have two new builds as the main family home for 20 years restricted this growth, however it did allow me to have more free cash to invest in pensions and meant we did not need to sell the family home for me to retire early.
Investments - 9% growth - hands up here to some very conservative strategies that involved large pension cash balances plus the use of an inverse FTSE tracker, plus any number of duff company investment choices all from the FTSE 100 or 250, plus a 100% loss on a geared commercial property investment.
So the investment growth played a very small part in reaching FIRE.

By far and away the way to FIRE for my own circumstances was to save around 50% of monthly income over expenditure for last 20-25 years and use the obvious tax reliefs.

My own children will face a different environment.

Tax reliefs will be more restricted, main residence investment more difficult to start and grow.

I do think they can not do any worse than I have on the actual investments over a 30 year period though and will definitely be pointing them in the direction of global trackers and global investment trusts.

However I suspect an inheritance will make up more than 1% of their end product when they reach their 50s !

[moorfield]

Awesome, thebarns. Especially with kids and school fees, although I think it's helped you enormously that your wife is/was a high earner too and you've no doubt both been able to use your tax allowances sensibly. With a low earning spouse (spending most of it on horses ) I'm struggling to use her tax allowances efficiently, probably have "enough" in the pension already to be clobbered by LTA in the future, and a little reluctant to push more into VCTs. On the plus side, the ISAs could just about pay off the offset mortgage now, but we'll be keeping those compounding away until that needs to be cleared. By happy coincidence the mortgage ends, the pension PCLS become available, and youngest Moorfield Jr should be finishing university all in the same year. I just need to keep things ticking over for another 12 (I think) ...

[JohnB]

What did it for me was not inflating my spending as my salary rose, so when I had 2 years tax-free in the US, and 4 years as a UK contractor running a salary sacrifice pension, and effectively being tax-free, the money poured in. I've no idea how I'd account for what money came from what source, or just what happened to that inheritance 40 years ago.

[EssDeeAitch]

Really interesting thebarnes - thanks for posting.

I have also been thinking of the wealth (perhaps "money" would be a better description - I am not sure) that we have accumulated. Back to the UK from South Africa in 1999 and with three houses sold (all mortgage free and one with swimming pool, tennis court (all weather hard court) and all that goes with it, one pension cashed in, we could still only put a 50% deposit down on a house in Northumberland.

I retired 18 years later and as my wife finished work in 1993 we were dependent on my income alone for the last 25 years. Prudence did it; not spending bonuses but having them dropped straight into the pension scheme, very careful spending on general living expenses (but never denied ourselves either), no child minder fees, no private schools (absolutely brilliant state school in Morpeth though) and clearing the mortgage double quick meant that we could plough a lot into savings.

Happy result is that if we just cash in our investments, leave them in the bank and suffer an inflation rate of 2.5% pa, we would still have enough to last us 25 years before having to sell the house.

Not shabby for someone who left school at 16 with 2 GCSE's (not boasting, just pleased and somewhat surprised I suppose)