Investments and redundancy

You may be in a job you don’t particularly like, but you need the money anyway. I had a deep itch to work for myself, but I didn’t quite know what I wanted to do. I thought that if I gained financial freedom, I could choose what I wanted to work on, or even if I was going to work or not.

Around 2010 I started on my journey into financial independence, saving and investing in property. By 2022 I realized that I could finish work and in effect coast until I was age 55 (2025); there is even a name for this: Coasting Financial Independence. I held off though, with the thought of ‘just one more year.’ I remember reading a post by Mr Money Moustache to this effect, but I still held off.

In the summer of 2023, my mind was made up for me. The company I worked for underwent a drastic restructure and my position was redundant. I was given a generous severance package and there I was, with almost 2 years left until I could get my hands on my pension. I had effectively retired.

The experience of retiring

We went on a couple of beach holidays and I decorated the house from top to bottom. Once this was completed, I had nothing to do. I felt bereft. I just sat around the house staring at the walls. Was this it? All those years of striving for FI and I was redundant. Not required. On the scrap heap.
I had achieved my number one goal and I felt empty.

The word retire

If you look up the word retire, its derivation is from the old French military – to withdraw to a place of safety. Later in English, it meant to withdraw to somewhere else as in ‘withdraw to the library after dinner.’ Or a Gentleman might ‘retire to his country house’ once he has amassed his fortune. Alternatively and tellingly, he might no longer be required in the City and will therefore live off his pension. In other words, he has become redundant. To retire then became as it is today, to finish working and live off your pension or investments.

Here therefore are the 5 reasons I won’t retire:

1. Purpose and mortality

The life of leisure and not needing to work for money, seems very appealing, to the worker especially after a difficult day at the office. But people need a purpose. Studies have shown that mortality rates increase when there is a lack of purpose. Even the routine of getting up for work every day keeps you going. It keeps you alive. Also, the lack of personal connection and community you get in the workplace can cause an increase in mortality. Yes, being isolated is bad for your health. A combination of a lack of purpose and a lack of connection is a killer. This is one of the reasons why I won’t retire. It is not the only reason though.

2. I Won’t Retire Because what else would I do

Another reason I won’t stop working is that what else would I do? I don’t play golf, I’m not particularly into gardening. I do like travelling, but I can do this in my sales business, which has taken me the length and breadth of the UK, not to mention, Italy, & Germany. We also get a couple of holidays in a year.

So, I’ve said to myself that unless and until I have something better to do with my time, then I will continue doing what I enjoy.

3. Tax

Working generates income and profits, which are taxed. No one likes paying tax, I’ve written a post about setting up a limited company to buy property in the UK, so I could minimise my tax burden. However we should pat ourselves on the back and say we are doing a good thing, when we do pay tax. We are a net contributor to society when we work and pay tax.
There is also a moral aspect of carrying on working, if you can, and that is that whatever your work is, you are providing a service to your customers or employer. You are helping your fellow man and therefore the world is a better place.

4. Creativity

For me, my work is an expression of my creativity. Whether it is writing this blog or designing a new sales and marketing campaign, in my sales business, I am expressing an innate facet of my being. In those months where I finished working and in effect retired, something inside of me died, or at least lay dormant. It was work that brought it to life again. Now I see that work is a virtue and yes, idleness is a sin.
Working allows me to develop my gifts through my creativity, to help others in some way.

5. Life

Working is an expression of life. When I was young, I worked to earn money so that I could live. Now, I realize that this was backwards. My work is an expression of my life, money is the bi-product. That’s why I won’t retire.

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There is a rule of 300, which can help you determine how much money you will need to become financially independent. Here I explain what the rule of 300 is and how you can work it out.

Inflation at historical 3%

Firstly, we need to factor in inflation into the equation.This is because your pot of money will need to keep pace with inflation, so that it is not eroded away.

The rate of inflation, or how much the price of goods increases, varies at any given time. Currently, at the time of writing, the rate of inflation in the UK is around 10%. Historically inflation averages out at 3% per year. That is, the cost of goods, will be on average 3% higher next year. This means that the value of the money you have will be worth 3% less next year.

Stock market at historical 7%

Next, we can factor in the rate of increase in your investment portfolio. It’s not in the scope of this post to discuss what vehicles your money should be invested in, but let’s say that you have a pension invested in the stock market, across all sectors.

Historically the stock market in the UK, has risen by 7% per annum. Some years the market will decrease and some years it will increase, but averaged out there is a 7% gain per year.

Difference is 4%

So, if the stock markets rise on average 7% per year and inflation erodes your money at 3% per year, over the long term your net gain in real terms will be 4% per year. 4% is therefore what you can live on without diminishing your Net Worth in real terms.

Your net worth, therefore, divided by 25 is what you can live on a year. (100/4=25).

Divide this number by 12 to get your monthly allocation. Therefore, you can live off your net worth divided by 25 x 12 = 300. This is what you can live on per month.

If you follow this formula, you will have a 95 % probability of your net worth outliving you.

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