Monday, 9 November 2015

Retirement income

I read this article on Bloomberg today. All good stuff about increasing retirement savings, but the most interesting thing for me was the subject's target of replacing 100% of earnings because of expected older age retirement care costs, rather than an expectation of spending like a demon in her golden years.

Thankfully in the UK the NHS provides an excellent safety net for health requirements, but is clearly undergoing change. Whatever your political persuasion, baby-boomers are starting to retire in big numbers and even for the so called 'gilded generation' with their massive pensions and mansions (!) they will lean on the state's infrastructure like never before. This means either higher taxes, higher borrowing, both, or a zero sum game where other departments lose out... oh and that generation are those who are most likely to vote, so they may plump for higher borrowing since, you know, in that respect, time or the lack thereof, is on their side.

But it makes you think - with the above pressures how will you pay for your old age, not just your early retirement?

Perhaps the answer lies within the FIRE community? If you are following this path you're more likely to be fitter. It's notable how many FI bloggers are active people generally, not just cycling to work to save cash. You're more likely to eat better - more home made meals, fewer pre-fab sandwiches chocked with salt and processed meat. When you've hit your escape number any work you do will be because you want to and because it makes you happy, so throw in greater levels of satisfaction and lower stress.

Finally, when you achieve FIRE you're spending will probably drop - see The Escape Artist for proof of that - so as a FIRE devotee you continue to add to your savings pile as you spend less than your passive income streams provide. Combine that with a few more decades of compounding on top of those already accrued and the ability to generate income rises in the period between early retirement and older age.

So, maybe in pursuing FIRE you are more likely to delay incurring those costs because of a longer more positive work life balance and self-sufficient attitude, and then be more likely to meet those costs when they do need to be incurred because you will have been adding to and compounding your wealth for longer.

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