Ms ZiYou Bag Lady

Bag Lady fears – why $1m is not enough for me to FIRE

As I mentioned in my April monthly update, I was a dollar millionaire in net worth. A few people asked me why I was not then FIRE’ing, and what my FIRE number was. Henceforth I lay out my bag lady fears, and why I feel I personally need more than $1m to FIRE while also attempting to acknowledge my privilege in getting here.

Money as a Tool

Ms ZiYou PenniesFirst of all, I’m fully subscribed to the belief that money in itself is not everything, and wealth should not be something you strive for on its own. I feel that happiness and contentment are far superior values to wealth, and like lots of things in life, these are very subjective and personal.

As I outline in my post on 10 things I don’t spend money on, items I don’t buy can be essential for other people. And this also works the other way; I spend money on things that others may feel are frivolous and unnecessary – such as my love for travel.

I feel strongly that money is a tool, that lets us pursue our dreams and achieve our own individual versions of happiness. And simply put $1m net worth does not buy me my level of happiness securely.

Security and Bag Lady Syndrome

Bag lady syndrome can be described as the fear of running out of money and having to take to the street with all your belongings in bags. Bag lady fears affect more females than males, hence the feminine naming convention.

In my case, if I retired today, my long-term security would not be great. Although my net worth is ~$1m, a substantial proportion of that is in a house. And a pension. In non-pension accounts, I only have ~£200k. With my ~£20k annual expenses, this would not last me from 37 to 58. Hence I would have to either (a) hope the market overperformed, (b) half my expenses for 20 years or (c) become a bag lady (joking!). Although this seems melodramatic, and a quite privileged middle-class view, running out of money is a real fear. Exposing myself to unnecessary risk is not something I am prepared to do when I am very happy to work for a few more years now.

I am single and rely solely on my income. I have no other financial support, therefore bag lady fears can arise. There is no supportive spouse with a second income to contribute, or family ready to bail me out if the worst happens. Having said that, if really bad things happened, I’m pretty sure my family would at least put me up as a last resort. But in reality, it really is all on me, and hence I take a more cautious approach.

Related: Nerd Wallet’s tips to avoid Bag Lady Syndrome.

So, how much do I need to FIRE?

I use the phrase FIRE fund to describe my savings and investments for FIRE, that will be used to fund my early retirement. This includes my pension (SIPP), ISA, taxable investments and cash savings.  But excludes my home value and related mortgage. I’m working towards a FIRE fund target of £750k.

At this level, I feel that I would have enough to manage a long and comfortable retirement, without fears of running out. I’d be able to travel lots and not worry about market performance or the odds of becoming a bad lady. Using the 4% rule, this will give me a comfortable £30k a year to play with. While working full time I’ve been spending less than that, but I know my expenses may increase in the future.

Pension Bridge – UK pension rules

Ms ZiYou river running dryHere in the UK, there are strict rules detailing the age you can access any pension savings. This is currently 55 but is expected to rise to 10 years before state pension age, which will be 58 for me. Unlike in the US, there is no option to get this money out earlier.

So I will have to take a more conservative approach, and ensure I have enough money to cover me until I can access my pension, and enough in my pension for afterwards. And that in its self is a difficult balancing act. I don’t want to run out of money in my mid-fifties, as that would be the worst time to have to find a job again.

What about housing?

Ms ZiYou Shack I have a house in outer London now. Moreover, I love living in London and am happy to work extra years now to ensure I can continue to do this in the future. Truth be told, I don’t want to live in this particular house forever, but I like being close to the city.

A lot of my net worth is in my house, hence is not available to fund an early retirement. I’m comfortable with this at the moment, as I need somewhere to live when I am working, and I love the facilities my house has. They have predicted low growth in the London property market, but as with all forecasts, this may or may not come to fruition.

Realistic FIRE plans?

As I’ve mentioned a few times before, I suffer from wanderlust. I love travelling and plan to FIRE before 40 and then slow travel for a few years. Exploring lots of far-flung places on a budget is the plan, and make use of geo-arbitrage and shoestring travel to keep my expenses low.

I have a draft route planned already and I need to stop myself planning the full journey years in advance. Truth be told, once I have the freedom to no longer have to work for income, I may change my mind. I’m a big believer in re-evaluating plans and adjusting them to your current situation. As we can never accurately predict how we will feel in the future.

Conservative or Risky?

There are many different types of early retirees on the risk spectrum. Clearly, you can have an uber-conservative approach, and save much more than needed by the 4% rule, to be extra confident you will never run out of money. Or the cowboy approach, retiring with less and hoping everything works out well.

My early retirement approach will be a more balanced watching brief. I think initially I will be monitoring my portfolio, and taking actions to reduce risk if needed. I’m planning to keep a good few years of expenses as a cash cushion for security. And as I’ve mentioned before, my biggest concern is sequence of returns risk. If I retire and then the market plummets, I may need to work again. But you know what? I’m happy to cross that bridge then, and I’m sure I’ll still be employable with a year or two gap on my CV. I’d much rather this happened in my early forties than later in life.

Are you really frugal if you can’t retire on $1m?

No, I’m not really that frugal. I may be guilty of using the word frugal as it’s the best way of describing middle-class thrift in reality. At the end of the day, I live in an expensive place and live a comfortable middle-class life which I really enjoy. I’m pursing FIRE for the freedom it gives me, as I’m lucky and privileged enough to be able to do so.

Over to you

  • Would you be able to retire on $1m?
  • What approach are you taking to work out your number?

Thanks for reading – please leave a comment below and join in the conversation. You can also connect on Twitter or Pinterest.

Looking forward to your thoughts and ideas – all are welcome. 

46 comments on “Bag Lady fears – why $1m is not enough for me to FIRE

  1. Sounds very similar to me. I’m looking at over a million in pension investments and savings excluding home . I’m at just over 250k as of today but its only been the last 5 years I’ve had above average earnings. If you include home equity I’m at450k. My non pensions savings are about 60 today which will rise to just over 100k thanks to an inheritance Like you i am paranoid about running out of money and won’t feel secure for a while yet

    1. Good to see you are on the same page, I’m trying to balance the paranoia be risks. I feel secure on a day to day basis now, but not in a for ever basis. Sorry to hear about the bereavement.

  2. If I were your age and living in London I think I would be planning along very similar lines. I am naturally risk adverse and 20+ years is a long time for things to change drastically from what you thought would happen.

    On paper, including house net worth, we probably have around $1m if you include the supposed cash value of final salary pensions but it’s not a real $1m to me for that reason. We need somewhere to live and I cannot transfer my pension (civil service).

    We are much closer to our version of FIRE because hubby can access his SIPP in 2 years and I can access a small personal pension in 5. We will have enough savings to top these up and bridge our gap until my final salary pension kicks in at 60. We are not working on the 4% rule but drawing down the capital otherwise there would be no early in our FIRE!

    1. Hi Tuppeny – indeed 20 years is a long time, who knows what will happen then. Who will be in government? Will we be out of the EU?

      Being close to pension access age gives you many more options, and much more likelihood state pensions will still be around when you are eligible.

  3. I have never heard of that phrase – Bag Lady Syndrome – but I think I have it! And while that may be extreme, I think it’s a good thing to be worried enough that we build in some extra tolerance for risk.

    I use similar measures to you except I don’t include cash in my FIRE fund calculations – partly because cash doesn’t really make any return in the current climate and partly because that gives a bit of added security on top of 4% rule.

    I’m fascinated by the slow travel idea even though I don’t think it’s for me. Are you following BucketBabe? She’s writing some inspirational stuff.

    1. Cool I could introduce you to a random bad phrase! I’ve no idea where it’s from, but I’m really used to women saying it all the time – mostly women my age and older.

      Yeah I absolutely love BucketBabe, and am stalking her religiously. I am living vicariously through her travels at the moment.

      And yes, returns on cash are absolutely pants at the moment.

  4. Hi Ms Zi You thanks for another thoughtful post. Bag lady fears are exactly the words I would use to describe my fears. May be because I’m surrounded by affluence and I don’t plan to move far, I also don’t think ~1M is enough.

    These days there seems to be a backslash against normal frugality – “just high income not frugal”, “privilege”… yeah I get that, and I would like to be exposed to different view points. But at the end of the day, I am really proud of everything I have achieved so far, down to mis-matched dishes and random 0s and 1s on my computer screen 🙂 Have a good weekend.

    1. I love mismatched dishes – isn’t that what we are all striving for nowadays?

      Yeah, in a HCOL location, $1m won’t get you far unless it’s in addition to somewhere to live.

  5. I thought I was a worrier, but “bag lady sydrome” takes things to a whole new level of fear! £750k plus your house sounds sensible (ie FIREable).
    Do you think you’ll rent your house out and disappear off travelling full time for a while? or take individual trips from your home base in London?

    1. Yeah, it’s a high level of melodrama fear the bad lady syndrome. I think I use it more in mockery than true fear.

      I’m packing up and leaving for a year / two years / until I get bored – and actually tempted to sell the house rather than rent it – not quite decided either way yet. After that, I have many, many ideas, and will see how it goes. The Brexit thing is also a pain and may influence my choices.

  6. Hi Ms ZiYou,

    What a fantastic post! I really enjoyed it. I think you capture the essence of some important, but hard to express things. These two lines particular: “wealth should not be something you strive for on its own.” and “I feel strongly that money is a tool, that lets us pursue our dreams and achieve our own individual versions of happiness.”

    I think these sentences ‘hit the nail on the head’. It is easy to put a financial goal in numbers: “I need $x” or “x years of expenses saved”. But a financial goal is qualitative. It’s about working out what you want in life. What your hopes and dreams are. It’s from that, that the numbers must follow.

    But working out what you truly want is hard. I still don’t know. And the future is shrouded in uncertainty. Whilst the FIRE community is sceptical (and in many instances rightly so) of Financial Advisers, it’s these kind of things where Financial Planners can help. For a lot of people, they may not need to pay for that guidance. It can be found in the wisdom or friends, colleagues and even strangers.

    I think this post captures that spirit. As you point out, if you are looking for freedom, you might change your mind. And: “we can never accurately predict how we will feel in the future.”

    1. Hi YFG – thanks for your comments, glad it resonated – I think we are danger of seeing FI as all about the money when it’s really about the freedom in my view. And that’s a good point about what IFA’s bring to help people.

  7. I’m not sure $1M even outside of our house wouldn’t be enough for me (though there are two of us + a kiddo). But then again, I like my job, and am VERY risk adverse when it comes to long term financial stability, so I’m not concerned with pulling the trigger until we have more than enough / if I ever feel like I want to quit working altogether.

  8. Well someone needs to point out that bag ladies have freedom and a positive net worth, so they’re ahead of a sizeable swathe of the population 😉

    I mostly got over myself when it came to numbers when I realised that people with 10 x my net worth were “agonising” over the same fears as me. Can I feed my kids? Can I keep a roof over our heads ? ( It’s the parent’s equivalent of bag lady syndrome ). It is nonsense rationalisation of underlying fear, but ripping out the cultural wiring is a bit of an extreme sport.

    So could I FIRE on a net worth of 750K? Well as you say thats ~ 30K p.a. , UK household disposable income ~ mean 32K, median 27K, mode 20K . So why could I not ? What is special about me ?

    Well nothing really, family of 4, yearly spend (with imputed rent) of ~ 25K. Been at that relative level for 10 years or so, no hair shirts required.

    1. Hi Nathan, indeed bag ladies do have freedom – well as long as they can carry all their bags!

      And indeed a very good point about the average incomes and specialness. Talking of special, your expenses are awesome for all 4 of you!

  9. I would agree that £1M is probably not enough if you are not yet 40. I did the calculations when I was 49 to retire early and however I munged the figures, every year I wanted to retire early was a massvie hit not just because I needed to fund myself, but also because it was a year of not earning. The point ate which the crossover point happens is not particularly susceptible to more frugality later, it’s the years not earning that are the bigger hit.

    Travel really is much cheaper post FI. I have nowhere near as much as your wanderlust, but I have found if you can take your time and you are prepared to be flexible it is much much cheaper. If you are prepared ot travel slower and/or spend more time in one place it is cheaper per day of the experience, and if you are prepared to fit in with other people you sometimes get to go for free – I have been prepared to drive for others and take part in research and also take pictures for jobs. It’s just a whole different world from the sort of travel I did while working.

    1. Hey Ermine, I’m sure travelling full time will easily be cheaper than living in London – and I’ll not be in a rush to get anywhere or have to rush back for work. And that’s a good point that you can volunteer your way around the world, and work for board and lodgings. I’ll just get my hobo CV ready: can drive for miles, a great navigator, surprisingly strong for one so delicate, willing to muck in and do most things. I probably need to work on my mechanical skills and picture taking!

      1. One thing you might want to bear in mind if you’re planning on joining the ranks of the £10-£15k a year super-frugal travellers is that most of them are men. There are plenty of places in the world where as a single female you’re going to want to spend a bit more for accommodation in a safe part of town, transportation that looks like it might actually reach its destination, and so on…..

        1. Hoping to go a bit more luxurious than that, thinking around £20k / year but we’ll see how it pans out.

          To be honest, I’m not really one fearful of travelling alone – and in most of the world there are as many advantages being a single woman as there are fears. Sadly in this day and age middle-class white privilege still opens many doors.

          And I generally find the cheaper the transport the more people around and hence the safer ……. e.g. in my experience third class hard sleepers feel much safer than enclosed cabins in first or second class. Not to mention since the tea babushka sits there you get much better service.

  10. Currently I’m not even close to FIRE 🔥 which provides me the comfort of not having to think about when I have enough. I totally understand the fears of knowing when to pull the trigger. I’m sure my cautious personality will cause much mental anguish when my time comes to FIRE. Like you mentioned, the worst case scenario is you have to return to the workforce.

    1. Hi Shawn – yes, it was much easier in the early days when it was just save, save, save, and it didn’t really matter where. Now it’s all about balancing and making the most of as many allowances as possible.

  11. Have you ever thought of holding retirement funds offshore? We currently live in the UK like you, and SIPP and ISAs are a def good idea, but what happens if in your slow travels, you decide you want to move somewhere else? Then you cannot get this money out. This seems especially worrisome for me because of Brexit and not yet being permanent UK residents. What if the Home Office decides we have to leave? Thoughts on more flexible retirement savings?

    1. Hi Scanty Lifestyle, thanks for reading and commenting.

      To be honest, I’m British and hence after Brexit this is looking like the only country where I’ll officially be allowed to live, so keeping money offshore is not something I have ever truly considered. During my slow travels I forsee officially living in the UK, keeping all my money here, paying taxes here etc and just withdrawing money abroad with Revolut or whichever snazzy fintech replaces it.

      However, if I had another country to live in, that would let me open accounts etc, things may be different. And I don’t really consider offshore tax haven type places, as they have high fees and I feel are kinda morally dubious. And I don’t see any benefits from using them as opposed to mainstream UK providers – I suspect you’d just end up higher in HMRC’s to audit list!

      As for your situation, not sure where you are from, but my understanding is UK private pensions can be transferred out to other counties equivalents with a little bit of hassle. And ISAs and taxable savings can always be cashed out. But I can see that if you don’t know if you want / will be able to stay, that could make retirement planning harder.

      1. Yes, Im thinking that ISAs rather than SIPPS might be the way to go. I def think the words “offshore” make people nervous. I don’t know whether thats warranted or not to be honest. Thanks for following!

  12. I think I COULD fire with $1 million, but definitely not with our current lifestyle. We would have to live in a place where $1 million goes very far. Maybe Asia or South America. Hmm… on first thought that doesn’t sound that bad!

    Pensions in the US are rare these days. We have 401k retirement plans that can be accessed early. There’s just a 10% penalty for early access, which could be worth it if somebody really wanted to retire early and needed the funds.

    I have no plans to RE. My ultimate goal is to retire when I’m 53 (18 years from now). By that time, I would be earning a pension worth 45% of my salary (which is a lot and way more than my living expenses), I would amass a good amount of money in my tax-advantaged retirement accounts and my taxable account, and I would have free health care for life for me, my wife, and all of my children (up to 25 years old). I would definitely not be a bag gentleman (or guy, dude, male version of lady, whatever). Also, 18 years form now, my daughter will be graduated from high school. Perhaps she may want to study abroad and we can come along and slow travel with her!

    1. See Dr McFrugal, you’ve got me thinking I could sell up now and hit the road…….. but similar to you, I’m going to wait it out for some additional security.

  13. The grass is always greener on the other side.
    I read your post and I am thinking: I would sell the house, invest the money and rent as needed. Travel as often and for as long as I want , find great house sitting or pet sitting gigs all over the world! 1M would totally work out:)
    But here I am the only parent to three older kids and no backup if something goes wrong so 1M doesn’t seem like enough. But I have been thinking renting would probably be better as you get older , if it wasn’t for the emotional attachments to owning your own house.

    1. Hi Caroline – oh yes, the grass most certainly is greener on the other side. I could certainly sell up and go now, but I have an elderly cat who likes living here. I’d say it’s pets rather than emotional challenges that make buying better for me.

      And yes, as a parent that’s an additional challenge being their backup as well.

  14. I agree with you. You like your current lifestyle now and you don’t want to change much.
    I don’t see how $1M would be enough for London. It’s an expensive location. It wouldn’t work unless you find a way to make alternative income after early retirement.
    We have about $2.5M and I’m still nervous. Having a little income helps a ton.
    Can we visit whenever we make it to London? 🙂

    1. Hey Joe, glad to see you back from your travels. And you’ve got 2.5 people to support vs my 1, so makes sense you need much more.

      Of course you can come visit in London – as long as you bring the cute little guy. He looks fun to hang with, I like people that climb hills!

  15. It took me quite a while to really get my head around the number I would be comfortable to be on FIRE with. I agree with you that 1 million is certainly not enough and I do wonder if some of the others who think $1 million is enough have actually been through enough of life’s cycles.

    I take 35 to 40 times my annual expenses as my figure for FIRE as a minimum. That builds in enough contingency to help me sleep at night. I also see FIRE as covering the basics + some fun money. I would still expect to get some extra income coming in.
    So say your annual expenses were $50k, I would only be comfortable with around $2 million.

    Of course it does depend completely on your own situation but I generally like to err on the side of extra conservative. $1 million these days not not a lot of money, it used to be 10 years ago.

    1. I think it’s all to do with cost of living – if you lived where houses were cheap and you were happy living there, it’s easily done. Sadly that isn’t the case for me!

  16. I agree with you, $1 million is not enough for me either. I use 35-40 times my annual expenses as a guideline for my FIRE figure as I like to err on the side of caution. $1 million used to be a bit of money 10 years ago, not today. But like anything FIRE, it all depends on your personal situation.

  17. $1M can be enough to FIRE on, or not. The right figure is all subjective depending on your expenses, risk appetite etc…

    You bring up a good point about net worth. Having real estate can be part of your net worth plans, but unless you’re receiving money out of at the moment, it’s potential net worth until the value is actualized into a number in your bank account. Markets can go up and down etc. But also, FIRE net worth must be accessible money in an account (investment, rent payments, savings, etc) for it to be actively useful to live off of.

  18. I have Bag Lady Syndrome too! And most of our assets are also tied up in house equity and retirement accounts.

    We have a ways to go until FIRE, but if we keep making significant progress, at some point we’ll have to work on funding investment sources that are easier to draw from prior to age 59 1/2 (that’s generally the magic age for US retirement accounts).

    1. Hi fellow bag lady syndrome sufferer – the equity and retirement lock on assets seems to be quite common, and it makes the maths much more complex.

  19. Hi Ms ZiYou

    Given your extensive travel plans, I can see why $1m might not be enough for you. I think I’d like to do a bit of travelling myself, although I see myself spending most of my time at home so I won’t need such a ‘large pot’, not even half that amount. Retiring at 40 gives you a very long retirement to pay for, whereas me pulling the plug in my mid-50s means I can tap into my SIPPs and only have to fund the period before my company pension and then the state pension kick in – the two combined will provide an adequate fixed income so that I shouldn’t have any ‘bag lady’ worries. I do consider sequence of returns risk, but think I’ll worry about that as I get closer to my goal.

    1. Hi Weenie – you are in a perfect situation there with the pensions and planning to retire close to when you can access them.

      And if the state pension still exists when I retire, it will be a nice cherry on top when I finally get there – in 30 years a lot can change.

  20. First of all, congrats on millionaire status. 1 million dollars seems to be the number everyone talks about in the fire world. Sure we are frugal and could LIVE on 40k per year but we spend at least 20k a year on travel on top of that currently and plan to continue that after FIRE. So much like you, breaking 7 figure net worth will be an amazing accomplishment but not all the way to our goal. Great post!

    1. Hi LLLU, thanks for reading and commenting. And thanks for the congrats, cool to see you also plan to travel and need a bit more as well. Living in a HCOL place sure adds up, but I don’t think I’d want to commit to a LCOL place for ever.

What do you think?