Darka's FIRE Update (2022)

[Darka]

Mrs Darka and I have been retired for just over 1 year and so it's time for an update - both for anyone interested and as a reminder to myself.
2022 proved to be an interesting year with war, high inflation, market panic and government screw ups making it all very exciting.

I'm pretty stoic in my beliefs and have become much more so during the last year; feeling mostly unfazed by it all as I couldn't do anything about it anyway.

There were a few moments of course, but overall didn't pay much attention to what was going on and I intend to continue this into 2023.
I don't read or watch the news and haven't for some time; apart from reading the odd weekend edition of the Financial Times on a Sunday morning as we enjoy some filter coffee.

We love our filter coffee and have separate blends for during the week and at the weekend, for no other reason than we can!


Income (Natural Yield)
2022 was the first year we lived off our retirement funds and it worked well.
We saved the dividends we received in 2021 (as cash) and that provided us with our "monthly salary" for 2022.

We intend to continue this approach of living off the previous year's income as it ensures we always have a year's worth of "salary" available and allows us to know exactly how much we have to spend during the year without relying on any kind of forecasting.

Having now received all of last year's dividends, our "salary" for 2023 will be 9.1% higher, due to a combination of the following, all of which were added to the pot for 2023:

- Dividend increases (we also continued to invest non-dividend income during 2021 which resulted in bigger dividends during 2022)
- Selling some individual shares and buying higher yielding IT's
- Over budgeting for expected increase in gas/electricity bills during 2022 - extra went into the pot
- Bank interest (sadly not a lot), etc.


Portfolio Overview
55.1% - Investment Trusts
27.8% - Individual Shares (HYP)
5.6% - Cash Reserves (2+ years' worth of spending)
11.4% - Mrs Darka's DB Pension

We only invest in Investment Trusts these days and at some point, I will sell some lower yielding HYP shares to improve our diversification and income stability.


Safety Margin
We do have a safety margin, but not strictly in the conventional sense of having more income than we spend and investing that extra.

Instead, our discretionary spending is around 52% of our "salary", some of which we spend and some of which we save, this could be cut if necessary.
In addition to that, my SIPP becomes available in late 2024 increasing our total current income by an additional 50%, with 2 x full State Pensions to come online later.

We have enough income although I did have one moment when I wondered whether we should continue to invest; but Snakey's comment on my question helped tremendously with my thought process and I'm grateful for that.

viewtopic.php?f=30&t=35446&start=20#p519805

I'm going to leave the portfolio to do the work for me, although of course I will keep an eye on things.

Even if I reinvested my entire SIPP's dividends each year it wouldn't increase our annual income by that much and I'm sure the market will beat that by itself most years.

And to be honest, I'd rather spend my SIPP income as we can always adjust in the future if it's required.
You're a long time dead and we'd prefer to have fun and experiences now whilst we can, rather than be an even richer corpse.

And like Snakey said, "I have faith that it will all work out in the end."
Things normally do.


Simplicity
I don't unitise and am reducing the amount of tracking I do; deleting large parts of my spreadsheet which contains calculations for things I no longer care about, and as I get older will care for even less.

I'm checking our investments less and less and hope to get down to a couple of times a month this year, and then once per month going forwards.
At some point I might stop using the spreadsheet altogether, but we'll see.


Life Experiences and spending during 2022
Amongst other things:

New Bathroom
External building decorations (still ongoing...)
Joined a gym and still do lots of running to keep healthy
Lots of decluttering in preparation for some decorating next year
Exploring a new biker coffee shop which opened close to us, never really been to coffee shops prior to retiring so this is enjoyable

Two awesome mini breaks to:
- Edinburgh
- London

We chose to be careful in year 1 to see how things worked out, especially with all the excitement around the World.
In 2023, we intend to have many more adventures as we finally get used to being free.

Retirement has proven to be as good as we could have hoped.

Happy New Year everyone!

regards,
Darka

Last Year's Update: viewtopic.php?f=30&t=32670

[monabri]

I think the most important part of your review is...

"Life Experiences and spending during 2022"

&

"In 2023, we intend to have many more adventures as we finally get used to being free."




The bit in bold I find difficult...even after ~10 years.

[Darka]

I think the most important part of your review is...

"Life Experiences and spending during 2022"

&

Agreed

"In 2023, we intend to have many more adventures as we finally get used to being free."



The bit in bold I find difficult...even after ~10 years.

It's taken me longer than I expected, but I do feel free now - work takes a lot out of us, whether we realise it or not.

[swill453]

"In 2023, we intend to have many more adventures as we finally get used to being free."

The bit in bold I find difficult...even after ~10 years.

Took me about a week

Scott.

[vand]

I like the idea of only spending last year's income - a sensible firewall against unexpected shocks.

Hopefully your various portfolio strategies will continue to more than meet your income needs - I think with a very modest foward p/e on the FTSE they have every chance to do so.

[Itsallaguess]

We chose to be careful in year 1 to see how things worked out, especially with all the excitement around the World.

In 2023, we intend to have many more adventures as we finally get used to being free.

Retirement has proven to be as good as we could have hoped.

It's brilliant to hear how your first year of retirement has gone Darka, and especially to see that the finances have been robust, with what looks like plenty of margin during these turbulent times.

I'm a few years behind you yet, I think, but my approach and situation has always felt very similar to yours in terms of looking to end full-time employment before normal retirement age, and eventually utilising income from our investment-portfolios to support that, and it's great to see that you've found a landing-zone that's enabled you to enact your long-term plan, and that the first year of implementation has gone so well, both on the financial front and regarding you both getting used to enjoying your new found freedoms.

Please keep up these updates - you will probably never know how truly inspiring they are in terms of lighting up what can feel like a slightly scary path for those of us still currently dependent on a working wage, but looking to follow a similar journey at some point...

Very best wishes for 'Year 2'.

Itsallaguess

[Darka]

It's brilliant to hear how your first year of retirement has gone Darka, and especially to see that the finances have been robust, with what looks like plenty of margin during these turbulent times.

I'm a few years behind you yet, I think, but my approach and situation has always felt very similar to yours in terms of looking to end full-time employment before normal retirement age, and eventually utilising income from our investment-portfolios to support that, and it's great to see that you've found a landing-zone that's enabled you to enact your long-term plan, and that the first year of implementation has gone so well, both on the financial front and regarding you both getting used to enjoying your new found freedoms.

Please keep up these updates - you will probably never know how truly inspiring they are in terms of lighting up what can feel like a slightly scary path for those of us still currently dependent on a working wage, but looking to follow a similar journey at some point...

Very best wishes for 'Year 2'.

Itsallaguess

Thank you Itsallaguess,

I shall indeed post future updates, they give me confidence going forward knowing that it has all worked out so far.

Just don't leave that last step into freedom too long - I've seen a few people die now very soon after retiring.

regards,
Darka

[Arborbridge]

Darka

Thanks for the update, and I hope you enjoy your retirement funding as much as I have in the past 12 years since I left work.

Oddly, I had never thought of using last year's income as the following year's salary - that sounds quite a robust idea. Mostly, I have made a forecast of probable/possible income for the next year and used that to judge whether to give myself an RPI+ increase. This has been modified to a zero increase during Covid, but my expenditure has been less anyway so I haven't noticed the difference!

All the best for the coming year.


Arb.

[Dod101]

Recurrent dividend income from a reasonably diversified portfolio is a lot more robust than most people seem to accept and in time those who are nervous about that will eventually come to accept that I expect. I have lived off current investment income for most of the last 25 plus years since I retired and have never had to dip into cash reserves for living expenses, so Darka's comments are to be expected. Good for him though. People seem much better organised/prepared than I ever was. I was given early retirement at 3 month's notice, admittedly with lots of money thrown at me at the time but with lots of issues to sort out at the time.

Dod

[BullDog]

I do think that accruing dividend income and drawing it annually is a pretty sound idea. For the first time I shall be drawing down the income accrued in 2022 to spend in 2023. If nothing else, you know exactly how much you have to spend in the year. I hope to repeat the annual drawdown annually from now on. Drawing natural yield only leaving the capital to do what it will.

[Dod101]

I do think that accruing dividend income and drawing it annually is a pretty sound idea. For the first time I shall be drawing down the income accrued in 2022 to spend in 2023. If nothing else, you know exactly how much you have to spend in the year. I hope to repeat the annual drawdown annually from now on. Drawing natural yield only leaving the capital to do what it will.

There is no doubt that drawing only the natural yield is the sensible way to go. I actually just draw down money as I need it and do not pay myself a 'salary' or regular income. I gave up on that when I stopped working. I have had a surplus at year end for some years and tend to give it away to charity (which includes 5 granddaughters!) Useful that Christmas comes at the end of the year.

Dod

[MrFoolish]

Just don't leave that last step into freedom too long - I've seen a few people die now very soon after retiring.

regards,
Darka

Let's hope there's no cause and effect evident in this

[BoomBustInvest]

Recurrent dividend income from a reasonably diversified portfolio is a lot more robust than most people seem to accept and in time those who are nervous about that will eventually come to accept that I expect. I have lived off current investment income for most of the last 25 plus years since I retired and have never had to dip into cash reserves for living expenses, so Darka's comments are to be expected. Good for him though. People seem much better organised/prepared than I ever was. I was given early retirement at 3 month's notice, admittedly with lots of money thrown at me at the time but with lots of issues to sort out at the time.

Dod

Out of interest, do you hold an 'income only' portfolio? i.e. no satellites for growth/factor etc?

[BoomBustInvest]

Portfolio Overview
55.1% - Investment Trusts
27.8% - Individual Shares (HYP)
5.6% - Cash Reserves (2+ years' worth of spending)
11.4% - Mrs Darka's DB Pension

Safety Margin
our discretionary spending is around 52% of our "salary"

Very helpful post for people who are approaching the same milestone and haven't quite figured out the finer details. If I may, can I ask a few questions?..

I like the idea of using the previous years dividends to pay the next year's salary. Do you start from dividends paid during the financial year or calendar year? (Also, you 2+ years of spending as 'Cash Reserves' in your portfolio. Is that separate to the dividends that you used in your first year of retirement? i.e. Is that Cash Reserves portfolio part, purely to mitigate 'sequence of returns' risk in the early part of your retirement?)

When you say "our discretionary spending is around 52% of our 'salary'" does that mean that 48% of your 'salary' is taken up by non discretionary/fundamental expenses? What ever is leftover after your main expenses is then your discretionary spending budget?

[Darka]

Very helpful post for people who are approaching the same milestone and haven't quite figured out the finer details. If I may, can I ask a few questions?..

I like the idea of using the previous years dividends to pay the next year's salary. Do you start from dividends paid during the financial year or calendar year? (Also, you 2+ years of spending as 'Cash Reserves' in your portfolio. Is that separate to the dividends that you used in your first year of retirement? i.e. Is that Cash Reserves portfolio part, purely to mitigate 'sequence of returns' risk in the early part of your retirement?)

When you say "our discretionary spending is around 52% of our 'salary'" does that mean that 48% of your 'salary' is taken up by non discretionary/fundamental expenses? What ever is leftover after your main expenses is then your discretionary spending budget?

Thanks BoomBustInvest,

Using the previous year's dividends felt safer to me rather than relying on a forecast; but that wasn't the most crucial factor which was the simplicity of the process.

My wife is a little older than me and not as interested in finance, so I wanted a mechanism that would be easy to understand.
I use a calendar year, only because I've always tracked that way and I prefer it as we can sit down just before xmas with a glass of something and work out our "salary" for the next year, just felt better to me to do that at year end.

I built up the cash for "year 1" from the dividends I received in my final year of employment, we didn't start living of our retirement money until January 2022 as the salary from my job covered the final months of the year once I'd stopped working.

As for the 2+ years of cash reserves, it's closer to 2.7 years and yes it does include the 1 year of dividends, this prevents me holding too much cash and I feel like it's enough. It also includes 1 year of cash reserves which we hope we never use and some cash savings for other purposes, e.g. some upcoming holidays.

The cash will of course fluctuate but it will always be above 2 years' worth as that helps me sleep better.
I'm not too concerned with sequence of returns risk as I primarily invest for income (with some growth) and all spending is done from the natural yield of the portfolio.

With regards to the discretionary spending, your analysis is correct - 48% of our monthly income is spent on all bills and groceries, the remaining 52% is for individual fun money, entertainment, holidays and saving up for anything we need.

regards,
Darka

[Dod101]

Recurrent dividend income from a reasonably diversified portfolio is a lot more robust than most people seem to accept and in time those who are nervous about that will eventually come to accept that I expect. I have lived off current investment income for most of the last 25 plus years since I retired and have never had to dip into cash reserves for living expenses, so Darka's comments are to be expected. Good for him though. People seem much better organised/prepared than I ever was. I was given early retirement at 3 month's notice, admittedly with lots of money thrown at me at the time but with lots of issues to sort out at the time.

Dod

Out of interest, do you hold an 'income only' portfolio? i.e. no satellites for growth/factor etc?

I have a growth portfolio which is about 25% of the total. This last year it has been a resounding negative growth portfolio although last year it did well.
Dod

[DrFfybes]

I do think that accruing dividend income and drawing it annually is a pretty sound idea.

This is an interesting idea, but nobody has mentioned where the income is from.

We still have investments unsheltered. In that situation taking income from ISAs is counterproductive as it is effectively a lost contribution, so ISA income is reinvested and we can sell down unsheltered investments to that level instead if required. On (say) £500k of combined ISAs at 4% yield we'd be taking £20k out in divis, which is as much as you're allowed to put in.

Paul

[Dod101]

Recurrent dividend income from a reasonably diversified portfolio is a lot more robust than most people seem to accept and in time those who are nervous about that will eventually come to accept that I expect. I have lived off current investment income for most of the last 25 plus years since I retired and have never had to dip into cash reserves for living expenses, so Darka's comments are to be expected. Good for him though. People seem much better organised/prepared than I ever was. I was given early retirement at 3 month's notice, admittedly with lots of money thrown at me at the time but with lots of issues to sort out at the time.

Dod

Out of interest, do you hold an 'income only' portfolio? i.e. no satellites for growth/factor etc?

I have a growth portfolio which is about 25% of the total. This last year it has been a resounding negative growth portfolio although last year it did well.
Dod

What I mean of course is that in 2022 it was a resounding negative return, whereas in 2021 it did well for me. It is intended to protect against inflation eating the capital but it is not that very well!

Dod

[DelianLeague]

Thank you for this interesting update.


I am into the third day of my retirement and I also have Twelve months of savings for 2023.

I had planned to travel for three months and enjoy myself, so if I do this then I might have to nibble into my ISA/SIPP for a little more income. We will see,

Thanks again, D.L.

[moorfield]

In 2023, we intend to have many more adventures as we finally get used to being free.

Enjoy!