Where did it all go right?

Well, I am a few weeks now into early retirement and the truth is I have really very little to report. I seem to have been very busy with domestic, financial and family matters; so much so, that I don't really understand how I ever found time to go to work. There's been no sudden plunge into a bucket list of activities since I don't have one. Instead, I've been doing more of the houshold chores, renovating windows (rain permitting) and allocating capital. Satisfyingly, the last bit of this was maxing out my NS&I ILSC quota, just hours before the shutter came down.

I had thought I would need to get out a lot, in order to stave off a sense of boredom or futility, and indeed I have had a few walks in central London and some museum visits, all very pleasant and to be continued, but these were very much just random inclinations. Sad git that I am, it seems that sitting on the top deck of a bus, watching everyone else go to work, is a pastime I find most congenial. Most of the time, however, I seem to be pretty happy just getting on with day to day stuff. On dry days, I've even added a bit of gardening to the mix and it has been a pleasant surprise to find that half-hearted attempts a couple of months ago to prevent a neighbour's bramble from intruding too far our property have resulted in a lovely crop of conveniently sited blackberries which, with apples (our own) and pears (overhanging in vast profusion from another neighbour), have already gone into a couple of tasty crumbles. Domestically, my greatest achievement so far has been finding and implementing a cheap, pleasant, safe, effective and non-time consuming way to clean an oven (in case anyone is interested, it's the "staged" sodium bicarbonate method which is well documented on the Web).

Of course, the first few weeks have been dominated by finance; not only waiting for pension and redundancy lump sums to arrive, breaking them up and stashing them away, but creating accounts, getting my tax return completed and doing some company and financial research. I suppose this latter activity is the closest thing I have to "work" at the moment, but I try to spend no more than 2-4 hours a week on it. With the current market excitement, I can see that I may be spending more time on that in the short term, though.

So far then, I've grabbed the low hanging fruit (literally, in some cases) of personal activity, but for the longer term I shall be getting down to other projects which I won't discuss here as I want to keep this blog focussed on finance and domestic issues. I must say, in case it is not obvious, that it feels fantastic to be no longer in employment and I don't miss it at all. I think I've probably prepared for it for some time by imagining, when I've taken days off, that I was already retired. The difference is that I don't have the "stress" of having to make every leave day count. If I "lose" a day because the weather is bad or I've just got engrossed in a book, it doesn't matter. In the same vein, I don't have dozens of emails to look forward to after a day off.

I've arrived at this point in my mid-fifties by having some strokes of good fortune. However, tt wasn't always like that, and there have been times when I could not see how I would ever be able to afford to live an independent existence, but somehow or other, perhaps by nature, perhaps by nurture, I was given the good sense always to try live below my means. When I was a kid, I liked looking at my Post Office Savings Certificates, pasted into a series of little books. I didn't know much about finance, but knew enough to know that, not only had I saved that up from pocket money and occasional gifts from relatives, but that interest would be added when the certificates matured. Whereupon, I could buy more and repeat the cycle. I grasped the miracle of compound interest early on. What a nerd.

By the time I was 16, I think I had around £100 saved up. Unfortunately, that did not seem a lot of money, even then, although it was clearly better than nothing (I think that's around £1000 now). Parents, of course, simply did not understand the economic pressures that young people were under. Essential items like this:

cost around £3, for example, and yet they would not contribute so much as a penny. They had this weird idea that you should save up for things yourself. Of course, in my later teenage years, I grew so worldy wise that I could afford to forget about petty things like money. After school I worked for a year before going to university and, because my parents charged me a subcommercial rent, the money seemed to pile up. I soon had over £1200 and it was earning around 10% interest. There was a reason for that, of course, but I didn't worry to much about inflation back then.

My first stab at higher education in a far flung part of the UK did not work out for me personally and soon I found myself back in London, working, but stupidly renting a flat for £25 per week on a net income of £35. Unavoidable travel to work cost me about £5 per week. I quickly realised that, just by eating, I was eating into my capital and that scared me. Suddenly, I hated the thought of seeing my pile of money erode. I still didn't realise that it was eroding just as fast through inflation. Things had to change. I returned to the parental home to rebuild cash and then went back to college in London, claiming the unused portion of my LEA grant (indeed, those were the days!), but also using my own money for the remainder. Eventually, I ended up renting a grotty bedsit in delightful Belsize Park for £13 per week.while I completed my degree.

Since then, I've not been in a situation where expenditure has exceeded income, although it's come close on occasion. Had I pursued a rigorous 80/20 rule throughout my working life, I should no doubt be better off than I am, but that was not financially or psychologically possible for me in my twenties. However, with advancing years and greater determination, the proportion of income saved has risen to around 20% over the last few years. For me, it's been no great conversion to frugal living, just a growing realisation that you have to take on responsibility for your retirement yourself, whatever other options are open to you.

I've also been lucky with property, but not because I've exploited the housing market in any clever way. Firstly, we bought our first home at a market low and sold at a market high, entirely by accident. This gave us confidence to trade up. The fact that we sold our second home at a 15% loss was greatly ameliorated by the second stroke of financial fortune: I inherited a house. It was tiny, not in a desirable location, nor anywhere that we could actually live for work (too far from London), but selling it, even into the falling market of the early '90s, enabled us to purchase our current home with  60% equity. This has now risen to 90% through 16 years of payments and overpayments. I suppose I am a sort of Ricardian profiteer, having made money out of property through no display of skill or risk-taking (and, of course, I am a tail-end baby boomer). But I have to live somewhere and I don't fear a market fall.

My current mortgage is a repayment type with nine years to run, but I'm also lumbered with a redundant endowment mortgage from our previous house until 2013. Now, although it will fall disappointingly short of the promised total when it matures (by around 40%), it still seems to have been a reasonable savings vehicle over the years, giving life assurance cover and a return roughly equivalent to good rates from building societies over the period. When it falls due, I'll collect some cash and reduce my outgoings by £100 per month.

There have been times during my working life when the prognostications seemed gloomy and this has helped to reinforce the savings ethic. When you are employed you should give thought from time to time as to what would happen, and what you could do, if you were to lose your job. A post on this topic by Simple Living in Suffolk covers the ground well. Whether you are in the public sector or the private, there are always going to be economic/political forces at work to upset things. You may have a great CV to fall back on, but it's never going to be as soft as a pile of cash. A recent example of this can be found here. If the worst happens, you are going to need to practical help. Where can you turn? There is only one reliable source, your former self. You need someone to give you money, not to take it from you, as Monevator pointed out. Give to your future self so that, later, you can receive.

A few years ago I wobbled a bit, I began to have doubts about saving money, investing, and foregoing the consumption binge that so many others seemed to enjoy. Colleagues I knew had frequent foreign holidays, at least one car and dined out regularly. What was our thrift doing for us? We were missing out. Well, in the event we didn't change our lifestyle, but decided to spend a bit of money on the house and generally sold shares to fund it rather than use cash deposits, since I had really lost interest in the markets after the dotcom bubble and wasn't following the financial news at all. A stroke of genius, no less. That period ended in 2007 and, although I missed out on some gains, I found myself pretty light in equities at the start of the Credit Crunch. Since then, I've felt like someone who has walked across Piccadilly Circus in his sleep and then returned home unscathed.

A growing unease about my job security, a bad JE experience and the market opportunities in 2008/2009 galvanised me into taking investment more seriously than I had done in years, with a view to leaving in 2013. However, on the back of investment gains in 2010 and public sector cuts, a reorganisation at work gave me the opportunity to get out two years earlier on more comfortable terms. I had ducked an opportunity ten years before, but that would have been too early. In a technical sense, I am a victim of the inevitable and necessary public sector cuts. My employer compelled me to consult a solicitor over the redundancy agreement (standard legal procedure) whose first reaction was to fight it on my behalf. Sorry chum, just a minimum fee for you on that one, I just wanted the money. The essential backstop to this was the conservatively run pension scheme (once decried by actuaries as being poor value for money) which, although market funded, has allowed me to draw about 40% (net) of my salary.

There will, of course, be lots of public sector workers made redundant over the next couple of years. Some will do well, owing to their contracts (or contacts) and some because they have planned ahead and developed other potential sources of income. But many will find it tough because they have insufficient savings and too little to offer in the private sector. In a sense, a good and efficient public sector ought to be staffed by people somewhat unsuited to the private sector. These people should be doing jobs that the private sector doesn't do well and should have, therefore, different skillsets. However, as many suspect, there are perhaps too many employees who don't really function well in the public sector either, but they are in it all the same.

In my view, the overall scale of the cuts is about right at about 4.5% in real terms over 5 years (in nominal terms there are no financial cuts at all, of course), but the front loading this year is a political ploy aimed firmly at the 2015 election when there will undoubtedly be some attempt at a giveaway. In addition, the cuts won't be fair, because mostly they will be delegated through the management chain which will ensure that the upper reaches of the chain itself will stay largely in place. Too many generals and not enough soldiers will probably be the order of the day.

So much for the waffle. I now have financial freedom of sorts, but that doesn't mean no money concerns, and I am rather glad it doesn't because I like to remain engaged with finance. Of course, in the short term, I am well placed compared with much of the UK population. As a household, the IFS tells me that, based on salary and pension, we lie almost exactly on the median income. However, we have atypical amounts of capital and thus some investment income on top of that. Long term, I do have concerns over inflation, since this seems to me this seems the only likely remedy for the UK's debt overhang. Sadly, Mrs. G must remain a wage slave for a good while yet, but obtaining her financial manumission will be my next project, along with lots more DIY.