A few weeks ago when we were in the UK, we met up with fellow early retiree Barney. He writes a blog focused on early retirement in the UK called TheEscapeArtist. Both of us had the delightful pleasure of appearing together on TV show called “How To Retire at 40” on UK’s Channel 4. And then the subsequent equally delightful pleasure of getting attacked by the British media afterwards. Good times, good times.
Anyway, today Barney joins us here on Millennial Revolution to talk about how to retire early if you live in the UK. We’ve now covered retiring in Germany, the US, Canada, Australia, and Brazil, so if you’ve ever wanted to know whether you can still retire early if you aren’t Canadian or American, there’s you answer!
Barney, thanks for doing this. First of all, can you tell us a bit about yourself and how you were able to retire in an expensive place like the UK, at 43 with 3 kids?
I never inherited any money from my parents but I did inherit a fear of poverty. This spurred me on to get a job in finance which, back then, was the best paying work available to me. I trained as an accountant and then worked in corporate finance, specialising in valuing companies.
When I started earning good money, I always saved at least 50%. I was fortunate to get on the property ladder at a good time and I then paid off my mortgage in 3 years. Once the mortgage was gone, I put the surplus into shares and compound interest started to power my portfolio.
The hard bit was that, back then, I’d never even heard of the concept of financial independence. There were no blogs laying out the maths and the techniques like there are today. So I had to learn everything myself. If I knew then what I know now, I’d have got there quicker.
People say kids are expensive but my wife and I made our own…so that didn’t cost anything. And as long as you stay clear of private education, theme parks and air travel, kids aren’t that expensive.
Has retirement met up to your expectations? Have there be any unexpected surprises?
Yes, but I don’t think of it as retirement. I just think of it as being able to do what I want. And that is a BIG deal.
There have been many wonderful and unexpected surprises. Like getting paid to be on TV. Like teaching at The School of Life. Like my coaching. Like getting into weight training. But the blog has been the biggest surprise – I know it’s changed people’s lives because they’ve told me. I wasn’t expecting that
Our first trip around the world showed us that UK is one of the most expensive places we’ve been to. How the hell do you retire there?
The tax system is actually pretty helpful in the UK…once you’ve got past the problem of higher incomes being taxed at an effective marginal rate of 47%. So yes, taxes are high in the accumulation phase, but that also covers your medical costs via the National Health Service so private health insurance is not necessary. And, contrary to popular myth, healthy food is cheap…as long as you prepare it at home.
One of the main things that makes FI difficult in the UK now is high property prices which have been inflated by low interest rates. So flat sharing with roomies and innovative ideas like property guardianship are even more powerful over here. Check out sites like www.spareroom.co.uk.
In some ways it’s easier in the UK than the USA. The pressure of consumerism is less over here than in America. British people have traditionally been pretty low key about money…and that reduces the social pressure to spend somewhat.
What do you invest in? Tell us about your portfolio.
It’s mainly equities (stocks or shares). I own Vanguard trackers (see The Simplicity Portfolio). I also invest in individual companies but that’s not necessary nor sensible for most people.
We own our house but don’t own any other property. Owning your own home plus investing in more houses via buy to let landlording strikes me as dangerous: you have too much risk concentrated in one asset class.
Shares have traditionally achieved the highest investment returns. Even better the tenants never bother you. Shares create value even when you are sleeping. Whilst you are pushing out zzzzzz’s, your companies are working the night shift and paying you dividends. What’s not to like?
The management fees for investments funds in Canada are some of the highest in the world, how are they in the UK? Do you have access to Vanguard?
Yes! Most people have no idea how much they are paying for investments…and fees are a killer. The good news is that there are plenty of good, low cost options available over here. Vanguard have a big UK presence and an excellent and low cost range product range. And no, I am not on commission nor paid by them in any way!
What are the tax sheltering and retirement vehicles available in the UK? Does it make sense for early retirees to max out these accounts when working, or are there limits on when you can withdraw?
Each year, a couple have 2 ISA (Individual Savings Account) allowances (2 x £20,000 each = £40,000) to invest completely free of taxes. Use it or lose it!
Plus both have the ability to pay into a pension. A 40% taxpayer puts in £60 and our generous government kindly makes that up to £100. Ker-ching!!! At age 57, they can then take out 25% of the pot tax free. Ker-ching!!! Then you have your tax free personal allowance. And the rest can get taken out and taxed at your marginal tax rate (usually lower in retirement than when earning).
Everyone needs to look at their pension and understand what the deal is. Are you taking full advantage of employer matching? Never leave free money on the table. What is the fund being invested in? If the answer is not a low cost global equities tracker fund then you’re probably doing it wrong.
When we met up recently, you mentioned re-estate is even more of a British dream than an American dream, because “an Englishman’s home is his castle”. That’s deliciously melodramatic. What is your advice to those who are debating between renting and buying in the UK?
Well, The Escape Artist is not above a bit of melodrama to make his point. But I didn’t make that phrase up….it’s been around since before maple syrup! My advice to those debating between renting and buying is 1) consider your time horizon…if you don’t see yourself in the same house in at least 5 years, why buy? And 2) don’t decide on gut instinct alone…run the numbers.
With the upcoming Brexit, do see that having any impacts on your portfolio or retirement? Do you plan to make any changes?
Brexit has, thus far, been a net positive for a UK investor with a sensible globally diversified portfolio. My overseas holdings are worth more in £ and inflation has not really taken off. The world is always uncertain. Anything could happen in the future, but right now it’s all good in the ‘hood.
Do you think financial independence is a reachable goal for people who live and work in the UK?
Yes! We all reach financial independence at some stage in our life…even if it’s right at the end. But, as you guys at Millennial Revolution know so well: the sooner you can do this, the better. Over time, small lifestyle changes add up to amazing results. I call this The Aggregation of Marginal Gains.
One of the more bizarre criticisms of financial independence is that it’s only relevant for high earners. Errr…hello???…if you’re not a high earner, it’s even more important not to waste your money buying the crap knick knacks and future landfill that people spend their money on. So yes the techniques of financial independence are for everyone. Even those on low incomes. Even those who like their job. Everyone.
What advice would you give UK readers looking to become Financially Independent?
Understand The 3 numbers That Can Make You A Millionaire. Learn from someone that has done it. Read Mr Money Mustache. Ride a bike. Stop thinking about what’s normal and start thinking about what’s possible. And, in the immortal words of JL Collins: “Toughen Up, Cupcake!”
Well said, Barney! If you’re a fan of FI blogs with spunky voices that tell it like it is, check out TheEscapeArtist! Start with the following best articles:
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