My wife fell pregnant while working as a maternity cover. It was a small ooops for her employer and a big one for us, because it meant she would only receive the Statutory Maternity Pay. In short, for one year we lived with a +1 in family members and a -1 in salaries. We wanted to be parents and we knew that some employers are way better than others in these circumstances but as The Outkast said: “you can plan a pretty picnic but you cant predict the weather”. At least I got 10 days of paid leave instead of the minimum 5.
After one year, my wife found a job and our daughter got sent to nursery…which in reality means my wife employer wires more than half of her salary to our daughter ‘new mum’. To soften the financial blow, initially we thought to send the baby only 4 days/week to nursery and then manage the fifth between us working from home (imagine that, it was pre-Covid and we could do it!): after the first week trial, the fifth day has always been covered by a baby-sitter at home, which was more expensive than full-time nursery. It took us almost six months to accept the reality that it would be impossible to work with her running around without help.
(At this point you are probably asking yourself what we did during lockdowns: we won the lottery. Our daughter nursery opened few months before Covid and the owner used all her and her husband life savings in the project: their only option to survive was to stay open no matter what…and it worked for everyone. We never got Covid and kept our mental sanity in the process).
My employer gives me the possibility of taking an extended non-paid leave, something similar to a shared parental leave. So I told myself, I will save and when the second baby comes I will be prepared and able to take additional time off. Then, like that cliche’ person that every month starts the diet the next month, I pushed it and pushed it (I broke the washing machine, we finally painted half of the apartment, my wife decided we needed a new designer couch while our daughter enter the phase in which every element of the house is a canvas to paint on) until it will most likely not happen. I might also change job and land with someone that will only give me the minimum legal leave…here it goes the plan I guess.
Before getting married I had zero knowledge of the real cost of having a baby. I started to do some research only after but even then…one thing is to read the thousand new expenses you will have and another is to actually live them. We buy what we consider ‘premium’ food for our child, even if sometimes that premium is only reflected in a nicer package, because for us it is mentally really hard to compromise on this. For nappies, the convenience of buying what I could find on Amazon was always predominant over whatever saving I could achieve wasting an hour to go back and forth from the closest Lidl. Again, Plan 0 – Reality 10.
Having a child is a big financial shock also because reality has this habit to mess up with your plans, when you have one, and yet we adapted to it, simply because you have to. When I read about the MonteCarlo simulation of a financial planner that says “with this portfolio and withdrawal rate you have a 7.5% chance of outliving your savings so change your plan” my inner self shouts BS! In real life if you fall in that 7.5% chance scenario, you will change your habits way before running out of money.
Caveats regarding my real life example
Ok, what me and my wife lived through recently is not 100% similar to what a retired couple would face for the reasons I will soon list. In my opinion they do not change the overall conclusion (people adapt and do not jump off a cliff like Lemmings) but better to be forthcoming before hearing you in the comments 😉
Stopping to go to the theatre/events because you have a child is different from cutting it because the market fell 30% and you cannot afford it anymore. All the weekend trips lost with your lads living in Europe are swapped with laughter at the local park: it is a different type of fulfilment but it is still positive time. I became a father later than the average. I had to compromise less on certain activities because they did not interested me much anyway; on the other side, I suffer way more to be functional the morning after a dinner out with friends because my daughter alarm is set at 6am no matter what.
My best friends live 1.000km away. Friendships get ruined when you change your lifestyle and suddenly your standard reply to their get-together requests is sorry but I cannot; in my case no one expected the Friday beer to happen anyway. My wife found the Peanut app while pregnant and its existence literarily changed our lives: not only we now had friends living very close to us (London is such a big city that saying ‘I have a friend that live there’ does not mean s**t, sometimes it takes me less to visit someone in Italy from here than someone that lives on the opposite side of the city) but they were in our same situation! We could share tips, questions, anxieties, etc. The crazy thing (and the beauty of East London) is that we had quite specific requirements, couples with at least two ethnicities and passports…and we found them. East London has more in common with Amsterdam and Singapore than Leeds and Leicester, if a part of UK should be allowed to get independence it should not be Scotland but the E postcode. The best antidote against ‘keeping up with the Joneses’ is to surround yourself with the right Joneses, and Peanut gave us that opportunity. Finding an alternative when you cannot anymore go to play golf with your lifetime friends is not as easy in retirement. At least it will not be that hard to find other people that hate golf as you do now; even better, start to build friendships with people with different interests as soon as you can, it will enrich your life no matter what.
This spending exercise has a start and a end that I know in advance. Once my kid(s) will be out of nursery some things, financially speaking, will revert back to normal. Mentally it is a completely different game than seeing the market collapse without knowing how many years it will take to go back to the top, if ever. Plus I still have a reasonable expectation of increasing my salary in the future, something that can happen even at short notice if I change job.
When shit hits the fan – Retirement edition
I always considered the State Pension as baseball: something that old people enjoyed but will disappear soon enough. I cannot hide that part of this thought is heavily influenced by my particular situation: having worked in various countries, my only hope to receive my well deserved check relies on the ability of Government workers to talk with each other and add up my contributions…funny joke innit?
After seeing how Governments reacted to the Covid-crisis, I am a bit more positive about the future of State Pension, meaning Governments will not risk social unrest when they can simply print more money and kick the proverbial can down the road. I am a bit less positive thinking about all my friends that started doing random jobs here and there to enter the workforce and gain some money: my generation would probably need 40 years of contributions to be eligible, if you spent the first five getting an undeclared salary one day you will realise it was not a great deal (hopefully non-Italians did not leave this reality).
In UK the maximum you can get is £179.60/week or £c9k/year, which frankly looks like change compared to the usual FIRE discussions that start from seven figures or above. BUT this post illustrates well what you can achieve with it: not much but enough to cover all basic needs. Now, if you take this and combine it with NHS, free medical care, you realise that two of the biggest retirement risks are in fact…non-risk or at least smaller risk than normally advertise. You cannot outlive State Pension, in UK it is even formally index to inflation, neither basic healthcare.
And then there are your children. Do you remember those little greedy creatures that drained all your salary with their needs years ago? Would they let you stay under a bridge when the value of all fiat money will be erased by Central Bank induced hyperinflation and supermarkets accept only jpegs as a form of payment? Ok, maybe if you are English you actually risk that…
Some years ago a colleague close to be 50 told me “my next job has to be THE job because after 50 you become unhirable”. I pretty much agreed with his sentence…and I was wrong again. Our mistake was that we were making our judgement based on the assumption that the future will look like the past, which rarely does. More and more people will continue to work past their 65 for many reasons: they started to work later (more time at uni), they are doing a job that is less manual and therefore less body consuming, they missed the FIRE sticky note and do not have enough savings to retire, the workforce is shrinking. Last week an head hunter posted on LinkedIn that he placed a candidate that is 64 and another one that is 65. If the market screw up your retirement plan, working a couple of years more might be better than 20 years of retirement with way less means: it is not great but having the option to decide IS.
Cutting expenses and re-adjusting to another, more frugal type of life in retirement, sucks. Especially when you spent all those years to prepare yourself to finally retire, there is no way around it. The good new is: you will adapt and slowly fell better and better. There are multiple research pieces out there to demonstrate it, this is not my opinion. People that moved from a very cold place to a hot seaside are happier at the beginning but after some time their joy revert back to the same level before they moved. Just find your Peanut and surround yourself with new Joneses.
FIRE is for flexibility
Reading a Monevator post about enjoying a day out cycling instead of being stuck at the office, made me think about a proposition I made to my employer when I was living in Switzerland. As an avid snowboarder, I thought that would be great if in winter I could hit the mountains any day after a snowfall and then recoup the lost day in the next weekend. So if it snow on Tuesday, I’ll be snowboarding on Wednesday and then in the office either Saturday or Sunday. Unfortunately my boss did not accept the trade, in part I guess because it is difficult to do my job if markets are close, which they normally do during weekends.
I liked my job but having that type of flexibility would have made it great. And this is where I think the whole concept of savings should point to: more options, more freedom. Being over-fixated with a certain SWR or portfolio that will be 100% bullet proof will only turn you into a ‘slave’ of that financial model. Setting aside those 3 or 4 persons that knocked it out of the park, i.e. made millions, while also being totally indifferent to the allure of a certain expensive lifestyle, for the rest of us a realistic SWR will entail some heavy sacrifices either today (save a lot) or tomorrow (have a low retirement budget) or both. Would not be better to design a portfolio that makes our life bit more comfortable in 90% of cases and in 10% will force us to make some budget cuts and adjustments? There is a saying in the quant world: “the worst drawdown is the one that did not happened yet”; the fact that your model portfolio survived all the MonteCarlo simulations you threw at it does not mean it will protect you 100% from the next Black Swan. You should be prepared to adjust your lifestyle in any case.
What I mean is that you can hedge some portfolio risk with actions outside the portfolio while taking more risk into it. I am not a fan of the working at 80% concept, simply because for certain jobs it means “get 80% of the salary while doing 100% of the job in 4 days instead of 5”. I start each year with more problems to solve than time to tackle every one of them; then usually during the year new problems that require higher priority jumps ahead of the queue. This does not mean that I should consider only the binary option of either 100% work or 0%. Once my portfolio is big enough I might pivot into something more part-time friendly. A sort of Coast FIRE were instead of diverting retirement contribution to spending you simply work less, renouncing to the salary that you were allocating to your portfolio.
Like physical possessions, free time has as well diminishing returns: keeping a foot inside the ‘work circus’ in some shape or form will give you a source of income alternative to your portfolio while, for example, still contributing to an eventual State Pension down the road.
The Trainspotting 25 years anniversary
Yes, Trainspotting was released in 1996, when I was 18 (which makes it more like 16 in non-Italian years). Me and my friends did not know anything about Scotland or…heroin, and yet the movie was so powerful that it was impossible not to be impacted by it. It is also one of the few cases where I thank God it was dubbed it in Italian, still now it is impossible for me to watch it without subtitles.
There are some movies that are great at pushing you to do something after you watched them. After Karate Kid, you want to do karate. After Project X, you want to throw a party. After Scarface, you want to be a drug lord. Despite whatever people that didn’t watch the movie would tell you, after Trainspotting you would not want to do drugs. The movie (and the book) is actually good at explaining that drug is not the solution.
That said, if outside the cinema someone would have told me “Actually, if you work hard, and save even harder…” I would probably be more inclined to react like Begbie in the pub than listen to them.
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