How Your Mindset Changes With Wealth

Reaching Financial Independence

Note: This post was first published in August 2020 and updated in May 2022

For the vast majority of people, building wealth is an evolution, not a revolution.

Unless you come into an inheritance, win a lottery, marry rich, or knock it out of the park with a highly speculative investment, you can expect the journey to take at least 15-20 years, if not longer.

Sure, there are ways to accelerate the process.

One is to reduce your “number” to one that’s more easily achievable. Another is to combine a high income with an aggressive savings rate:

How To Lose A Job In 10 Years

But even then, you can expect the process to take at least a decade. Any way you cut it, it’s a long time.

And as it happens, both you and your attitude towards money are bound to change over that time period.

To be clear, this isn’t one of those “17 Gazillion Things Rich People Do Differently” posts. While I am sure they serve their own purpose, I never found them particularly insightful.

Instead, today’s post is about three discrete mindset changes that are likely to occur as your nest egg grows in size.

Whether you like it or not, they will have a direct impact on both the pace at which you build wealth as well as the evolution of your spending habits over time.

Mindset Change #1: Reduction In Risk Appetite

Early on, you may envisage yourself building up a one / two / three / [insert dream number] million nest egg. Just imagine having two million bucks working for you in the stock market!

Even at a highly conservative 6% nominal return, that should average out to a cool 120k of annual returns.

Awesome, right? Well, not quite.

Assume you’ve got 100k invested and are socking away another 20k per year. If the stock market corrects by 30%, you can fill the resulting 30k “hole” in just 18 months. It’s unpleasant but manageable.

Now imagine the same situation once you’ve got a two million stock market portfolio. Market tanks by 30%, you’ve “lost” 600k. All of a sudden, that’s 30 years of contributions down the proverbial drain.

Yes, it’s temporary. Yes, the very fact that you’ve even managed to amass a portfolio of that size means you’ve probably got the right attitude to ride out the storm.

And yet, this is exactly the problem many people are facing today.  Lizard brain takes over, loss aversion kicks in with a vengeance.

What makes things even worse is the fact that by this point in time you are (i) older, and (ii) closer to retirement.

By default, your risk tolerance isn’t as high as it used to be – and holding the course becomes so much harder.

Net worth update in market downturns

Market volatility sneaking up on you

By the way, this is exactly why wealthy people tend to hold more conservative portfolios.

At some point, preservation becomes MUCH more important than further accumulation.

Mindset Change #2: Conservative Asset Allocation

This is a direct result of #1 above, with clear implications on how long it will take you to reach your “number”.

The basic point is that you should expect your portfolio returns to decline along the way as you allocate a greater portion of your investments to lower risk, lower return instruments.

Depending on when you start out, you may well end up with a 100% allocation to equities. Fire up the magic money machine!

It’s all fine and dandy for years and decades until you find yourself within striking distance of financial independence. Because by that point, you should hold a much greater proportion of your portfolio in bonds or even cash.

Inevitably, this will put a drag on your portfolio returns:

Bonds vs stocks

Once again, the impact will be significant because your portfolio is pretty sizeable at this point.  You thought retirement was months away, but in reality, it’s still a few years off.

Make sure to factor this into your calculations.

Mindset Change #3: Increase In Spending

Predicting your spending needs 10 or 20+ years out is a fool’s errand.

I mean, we couldn’t even predict the price of used cars this year.  And on top of inflation, you’ve also got changes in lifestyle and individual circumstances.

But whatever the “number” you’ve got in mind, chances are the actual spending will be higher.  And no, it won’t be the luxury items that will tip you over the edge.

Most wealthy people I know are quite good at keeping their spending habits under control.  The two notable exceptions?

Education and healthcare.

Come to think about it, that’s not an unreasonable approach.

Once you’ve made the money, the logical thing to do is to try and enjoy it for as long as possible.

If you’ve got an urgent healthcare issue, are you really going to prioritize cost over quality of service?

If you are young and haven’t got that much money – probably.

But if you are older and wealthier, that actually becomes an irrational decision. And if the person in question is your child, you’ll be reaching for that credit card of yours in a millisecond.

Then there’s education. Early on, state school seems the only reasonable option. It certainly did for me.

Then, private school slowly appears on the agenda, though the actual price tag is nothing short of eye-watering.  Next thing you know, your kids are off to a private school – and you are actually happy to bear the cost.

Once again, the trade-off becomes simple.  Yes, you can send your kids to a state school – and cross the finish line in a hurry.

But you might also end up questioning whether it was worth doing a few more laps years at work and having your kids go private.

Sadly, none of the items above serve to accelerate your journey to financial independence. Then again, might as well set the right expectations up front.

You won’t necessarily buck the trend – but at least you won’t be surprised along the way.

Thank you for reading – and enjoy the journey!

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Banker On FIRE is an M&A (mergers and acquisitions) investment banker. I am passionate about capital markets, behavioural economics, financial independence, and living the best life possible.

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38 thoughts on “How Your Mindset Changes With Wealth”

  1. You’re right that portfolio size can make the experience more scary. I’ve always been grateful that I started with a little investment of only a few thousand ££. Immediately, the stock market went down by 10% (October 2018) and my investments lost some value, but it was a small amount and good to ‘practice with’. I imagine, if I had won or inherited £1 mil and immediately lost £100k in my first month in the stock market, that would have been a very different experience and might have scared me off forever. Slowly building up a portfolio has the great advantage of being able to get used to bigger and bigger numbers, both when it comes to ‘wins’ and (temporary) ‘losses’.

    1. This is why I’ve always struggled with the lump sum vs DCA investing as a concept. I’ve seen a LOT of evidence that lump sum investing beats dollar cost averaging (Nick over at Dollars and Data has done a lot of solid work on this).

      And yet, I just cannot imagine deploying a big chunk of cash into the stock market at once. Behavioral investing instincts are a powerful force to overcome…

      1. Agreed with the nod to behavioural instincts. Too often people are told to lump sum because it beats DCA more often than not. This completely ignores the fact that regret is real and can be assigned a negative value, as well as the fact that expected value can be nonsense for a one off event.

        That said, we all have some work to do to overcome our loss aversion and endowment effect, specific behavioural biases which result in skewed risk assessments. This is probably most relevant for regular lump sums such as an annual bonus.

        1. Spot on. Recommending a lump sum strategy on the basis of backtesting hundreds / thousands of lump sum investments is nonsense. It’s like saying you should bet your life savings (or a big chunk of it) on a loaded coin toss because it has a 75% chance of landing heads. Not a smart move.

          As you say, it is different when you’ve got “regular” lump sums in which case making a one-off contribution is the logical way to go, assuming the sample size is large enough.

      2. I like to frame this Issue as just a matter of deciding what you want to optimize. If you want to maximize the chances of getting the highest return, then invest the lump sum. If you want to minimize the chances of regretting the timing of the investment, then use DCA. And there’s nothing wrong with either choice. Just decide what’s important for your situation and your temperament.

        1. True. My sense is that when the upside is a few extra points of return and the downside is a significant loss of principal, most people opt for a DCA.

          Perhaps I’ll try to dig out some empirical evidence on this topic and cover off in a separate post!

  2. Loss aversion is definitely something that grows exponentially with the size of your portfolio 😛

    I’ve been brewing on a similar post, but you beat me to it! HAHA (I might angle mine a bit differently though).

    I think it’s important to realize that your strategy is likely to change over time, as your portfolio grows.

    A great example of this recently, is Mr. RIP ( He was almost manic “at the end” (right before he FIRED) and started acting against his own better judgement, to protect his wealth.
    I think that can (will) happen to all of us, given enough volatility.
    This is why I generally don’t do stocks. I simply can’t stomach the roller coaster rides 😛

    1. I hadn’t caught Mr. RIP’s story, will check it out!

      In a way, the focus should shift to protecting the principal as you near retirement. That being said, yanking your money out of risk investments will jeopardize your ability to take advantage of the 4% rule. You just can’t have it both ways where you get the peace of mind AND the rewards that come with having money invested in the stock market.

      If you don’t mind me asking, what is your investment strategy?

      1. I don’t mind you asking! I’ve outlined it in a (semi-long) post dubbed “My Investment Strategy”. Here’s the essentials of it though:

        My investment strategy:

        1. Accumulate a shit ton of money (“a shit ton” is relative of course – I think I’m getting there!)
        2. Allocate 10-15% of that money towards a high yield, high risk asset class (hello, crowdlending)
        3. Allocate another 10-15% towards the stock market, via a few select indexes/ETFs
        4. Use the rest to buy real estate!

        So, basically 1) is obviously still in process 😛 (still working on that one…).
        2) Crowdlending kind of let me down (big suprise), so I’ve decided (for now) to limit my exposure towards this asset, although I might still dabble a bit here and there, just for fun.
        3) I haven’t really started on this part yet – I currently only hold a single REIT (PROREIT) in this bucket.
        4) So this is the big one I guess – 80% of my investments are currently locked in a single retail property. Planning to add another (asap) and then another (I guess) 🙂

        My pension is though currently invested in stocks (via indices) so I am exposed to the stock market a lot…

        1. Nicely laid out, thanks for sharing!

          I’m more comfortable with the stock market but real estate is a big part of my strategy as well. This is partially why my cash balance is north of where i would like it to be.

          I am looking to add another multi unit commercial / residential property and one residential property to my portfolio, hopefully over the next 12 months. We should compare notes!

          1. I’m curious how you choose your mix between residential and commercial?
            What’s your “end goal” here? 50/50?

            Initially I was only interested in residential, but retail (in Denmark at least) is just a much better business case (also more risky of course), so I ended up with a single retail property with 2 tenants (both have active successful e-commerce shops and are country-wide, so good tenants).
            Right now my 2nd property also points towards a retail (dual-tenant), as the mixed-use properties are still a bit out of my league, but ultimately I hope to have 5-10 properties with a mix of retail/commercial and residential. I don’t dream of becoming a landlord, so I’m a “passive investor” in projects where we pay other people to manage them. My current property has a yield of 20% per year, but it’s based on maintaining the LTV around 70% (of the original value of the property when we bought it). Without it’s around 8-9% yield, so still decent.

          2. Wow, an unlevered yield of 8-9% is fantastic, especially in the current environment. Once you put some reasonable leverage on it, it can really juice your equity returns, as your case clearly illustrates. I quite like the tenant profile of yours, sounds high quality.

            I “started” in residential when my wife and I moved countries and rented our old flat out.

            Since then, the decision to move into mixed-use was mostly yield driven. I try to find properties with a 6-7% yield / cap rate and by virtue of the location in and around my home town, the places that fit that bill tend to have a (riskier) commercial component to them.

            Typically, the commercial unit is located on the ground floor, with residential flats above them.

            We play a more active role as a landlord but have hired a property management company for our latest place. So far so good – fingers crossed it continues.

          3. See this is the other bit that puts me off property. Yes I can see the returns will outweigh all but pensions BUT with Isas I am comfortable to hold Just a few months cash (and about 10k to 12k or less if I’m feeling particularly brave in the knowledge I can build it pretty quick)

            With another mortgage and or unexpected property repairs I’d probably want to hold more cash maybe twice that at least. I’m not geeky enough to work through a spreadsheet as to how much holding more cash that would offset the gains. Probably not that much now I think about it

          4. It’s easier than you think. You just assume a much higher vacancy rate, a chunk of one-off remodeling costs, add a contingency – and gauge the impact on your cash flow that year. That ultimately becomes the size of the cushion you have to hold.

            Forgone investment return on that cash (you can also call it working capital) is an opportunity cost of real estate investing most people don’t account for.

  3. If the asset allocation matches risk tolerance, time horizon and goals then market crashes should in theory not be the catastrophic event that ruins a planned retirement / FI or other life event.

    Seems people either take too much or too little risk for their situation and as you say it’s an evolution not revolution

    1. That’s right, it shouldn’t. I guess the point I tried to make (less eloquently that I wished, on account of consuming two glasses of champagne over dinner before writing the post!) is that it’s wrong to assume your portfolio returns will remain constant over time.

      More likely than not, your asset allocation will become more conservative, returns will reduce accordingly, and it will take longer to achieve FI than one may think.

  4. 1 and 2 are a weird one and might be as you say because I’m still probably only a third of the way in my journey but I’ve found my risk tolerance has gone up

    When the market tanked in march I lost about 90k the equivalent of nearly a years entire gross salary between my Isas and pensions. I was obviously concerned about the economy but less so about my investments I reduced but didn’t stop investing for a month or so but quickly went back and even increased my investments

    For me the numbers didn’t really feel real any more. I’ve never ‘seen’ that money sat in my bank and although I know it’s there it doesn’t really feel part of my net worth atm.

    Yes as well having a high savings rate helps. I knew I’d be able to make up the loss even if the market did nothing I less than 3 years but it was mainly the complete unreality of the situation that spurred me on

    I think the best thing I’ve done is built some isa investments despite the tax hit. I knew even with the reduction I still had more than a years worth of money in there that I could call on. Not ideal but my pension is my safety net. My isa is the cream on top to give me the option of retiring early if I need or want to

    1. Nice one on bucking the trend. Do you think you would hold your nerve equally well if you “lost” an equivalent of 20 or 30 years of contributions?

      I held my nerve in March as well and actually made extra contributions. However, most of my stock market investments are in tax-deferred vehicles (i.e. pensions) so I don’t plan on tapping them for the next 20 years or so. Also, I drip-fed the incremental contributions instead of going all-in on March 23rd (partially because I wanted to use up this year’s ISA allowance).

      However, I can’t help but question whether I would behave the same way if I was counting on my stock market portfolio to retire in 3 years.

  5. I think there is another way for the guy in your example to keep all of his money 100% in equities. If he has £2 million invested returning £120k a year, I would build a safety margin in the spending. So, instead of spending the full £120k in year 1 after FIRE, I would learn to live on only 50% of that. In theory then you could stomach a 50% drop, rare as they are. In addition, you could choose to increase your drawdown by 6% each subsequent year using your £60k as the base figure.

    I know that this is all easier said than done but if you look at it purely from a theoretical point of view, this would allow you to remain invested 100% in the markets thereby getting the maximum growth possible.

    1. I think in reality this is what most firees do. Keep a decent but not too decent amount of cash and alot more of your money is spent on wants during retirement so you do have more flexibility to dial your spending up and down

      Doesn’t help everyone though I was saying on another post my dad’s monthly bills are probably 2000 a. Month and with 2m in the bank he’s got more than enough bandwidth. Didn’t stop him almost cashing out entirely in March

      He’s also convinced markets going to tank again in October when the furlough scheme ends. Totally ignoring that even that is the case the UK market isn’t the world

      1. @fatbritabroad: my point exactly. For some folks, having a cash cushion isn’t enough to prevent them from getting nervous when the market tanks…

    2. I think that’s right and provided you can keep your nerve, the approach should work well.

      The problem is, however, that it’s less about the spending and more about the sheer mental horror of watching decades of contributions being “wiped out” in a few days / weeks. Once you are older, your perspective changes as you know that you don’t necessarily have the time or the income to recoup the “losses” via contributions.

      1. SierraWhiskyMike

        I think you’re probably right, although I’m hoping to dodge this by *not* setting a fixed date and holding a wet finger in the air to guage when the timing is “good enough”.

        I read somewhere that a loss hurts seven times more than a gain feels good. I can’t remember the link, but the study quoted was a test of causing people to lose a dollar and then fund a whole bunch of dollars. It worked out that below $7 on average most people still regretted the loss of the dollar, even though they ended the day significantly up.

        I’m hoping to counter this by going super-risky early on and building up the mindset that every investment is gone as soon as the money is in it. We’ll see how that play out. I guess worst case scenario is that it adds another decade to FIRE.

        1. I’ve heard that “losses loom twice as large as gains”, though I’m not surpised the factor would be higher than 2x, especially for very risk-averse individuals.

          By the way, loss aversion is a trick companies often use to sell you stuff you don’t need:

          I think the long-term perspective is something you build as you go along the way. I have a mindset of not touching my stock market investments for 15+ years, so short term fluctuations don’t bother me.

          However, it was NOT always this way and I used to get much more miffed about market declines. It comes with time.

          Good luck on your journey!

  6. What you have written is somewhat apparent to me. Early 40’s with a family GW of £4.3m / NW of £4.1m circa 50% in equities / £3m total investments including some lowly levered b2l and excluding the paid off house. So what to do? Massively dial down risk to protect the nominal at which point it’s a melting block of ice? Or keep playing the machine which spat out the substantial growth over the past 10 years and accept the unpredictably volatility knowing that we avoiding the ice age in March but for how much longer? How have I done it? I work in precisely the same industry as you. Saved between 70 – 80% of net salary every month and 100% of net bonuses for the past decade and was somewhat lucky in terms of investing into the S&P500 multiple expansion and avoiding the rounds of redundancies at the office. No particular investment skill involved. Plenty of frugal mindset deployed though as it appears most of my colleagues are no where near to my position. It’s a premium first world problem but I can confirm that I don’t feel particularly wealthy albeit recognising relatively speaking I am. No intention of sitting back and relying on the 4% rule which I don’t feel is deliverable g/f but equally once you are more or less financially independent (kids school fees a drag) or at least not living month to month or even year to year you actually become better at you job as you are happier to say what you feel and I can’t really be bothered to suck up or climb the corporate ladder anymore. Fine line though not to cross.

    1. Great to meet a fellow banker! And thank you for your perspectives, refreshing and insightful.

      I would venture to say there’s probably just a handful of bankers in your position. As you well know, the vast majority lets the money go to their head and spending patterns spiral out of control, with no correlation to actual underlying wealth.

      Are you in an industry or a product group? My biggest struggle is the always-on mode, regardless of weekends / holidays / paternity leaves. Am coming to a point where I am now starting to plan for an exit (hopefully an orderly one!) over the next few years. Would love to hear how you are approaching the nature / pressures of the job.

      As far as options, there aren’t many. As you point out, this isn’t a world that encourages holding low-risk or risk-free assets, unless you are willing to watch the fruits of your hard labour melt away in front of you. The universe of investable assets is really limited to the stock market and real estate. My strategy is to have a roughly equal allocation between the two (real estate outside the UK though) and hang tight.

  7. I am a product banker in London. It is not possible, imo, for the vast majority of bankers to be excellent at your job and be excellent in other facets of your life, be it family, friends or your own health and well being…’Something’s Gotta Give’ as the film says. So I chose to work hard and save v v hard pre family getting on a bit and now I’m in a reasonably decent position I’ve consciously decided to dial back on work. It’s definitely affected my pay and careers prospects. I had a social catch up with a M&A banker who is towards the end of his career who was all in and now he’s all out with his family. Again you pay no attention to your career you are out. No attention to your family you are out. Generally…something has gotta give.

    So my basic plan is to trundle along until I find something more suited to work life balance or get let go and then find something more suited to the work life balance. By trundling along, I’m probably not working that much harder than I would do in a corporate – got a call on hols? (I’ll be choosy if I do that). Can you take on this M&A deal…I’ll be choosy if I do that if I’m already busy. I doubt I’ll be here in five years with that attitude and that’s cool. But part of my M&A work I really enjoy as you no doubt do too. It’s not all sunshine, as you know in banking unless you have the required mindset to prioritise work over everything and I mean everything then you are perceived a bit as being in the slow lane albeit I’m probably still here as I churn out the work when needed.

    Based on our investments, ex school fees, we’re at just over 60x annual spending in investments, inc school fees (50x) in investments and I’d like to leave something to the kids. But then I’m probably the only banker whose partner does the shopping at the discounters, who packs his breakfast / lunch for work and would never chuck away money on an expensive dinner or electronic gadget. The most important decision I ever made was the person I was lucky enough to partner up with and have a family with who has a similar mindset to me.

    Around not working – I need some paid work I think as do most people. Mostly for psychological reasons, makes me feel better (that’s quite shallow I suppose) and also I just don’t think I can sit highly levered into the stock market / real estate and cross my fingers for sixty years that it will be ok – I didn’t remotely panic in 2008 or last March but that was when I was working. The best portfolio defence is to keep working in some form. The 4% rule works on the basis that the future outcome is contained within past results but there is no reason to suggest that will be the case. I like the thinking in Black Swan by Taleb. So it is work for me probably for the next ten years if possible. But just aim to do it in a way that works for me and my family. Everything in moderation as the saying goes. Anyway that’s the hazy plan, we’ll see….hopefully another 50 – 60 years to go and a lot can happen in that time that’s for sure. Good luck as well! Happy to answer q.

    1. It’s not often I come across someone in the investment banking industry who shares that perspective – it’s great to have you stop by on the blog.

      Like you, I never found the high-spending lifestyle attractive or rewarding and my wife feels the same way. Very helpful to be aligned in that regard as you say.

      Agree with you on the balance point. My ideal prioritization is family first, then health, then work.

      In reality, on the family front, I just about make do. There’s room for improvement but equally, my wife (who is on maternity leave now) is making sure the kids get the attention they need. Time will tell what happens when she goes back to her own, relatively demanding job, at the end of the year.

      On health, the same story. I was very much into healthy living and working out in my 20s (i.e. pre-banking) and so had quite a bit of “health reserve” to use up. I’ve also managed to keep up the healthy eating part and do enough to maintain my health, though I long for the days of much harder workouts and doing more sports.

      Everything else is work. I’m focused on M&A but in a sector that’s been on absolute fire over the past decade or so (am sure you can guess which one that is). That, plus working through the proverbial desert that is director years, certainly keeps me occupied. Doesn’t help that my boss, who is excellent in every single regard, happens to be very hard-charging, which sets the expectation for others.

      I do find certain aspects of work quite enjoyable but after almost a decade, the novelty is certainly gone. I agree with your sentiment on needing to work – I don’t see myself not working at all, not for another 20-30 years. I do, however, want to explore other things in my career.

      Teaching at the uni level is something that I’ve been dabbling in on a guest lecturer basis and could see myself doing in the next leg of my career, perhaps combined with some consulting on the side.

      With that in mind, I’ve set myself a goal of stepping away by 2022. Two more bonus cycles, a healthy amount of deferred comp vesting, and a solid nest egg built up so far should leave us in a decent place to take on lower-stress jobs and recalibrate the balance a bit more.

      1. All sounds potentially very sensible. My partner worked in a relatively demanding but less well paid job until the first went to school and then called it a day to be a full time parent. By that time there was no need for both to work financially and we considered it to be a luxury that we had earned to not have both parents working. The rubber band is far less stretched that way and it’s clear as crystal that everyone benefits from it albeit a full time parent can be very hard and unrewarding much of the time…and rewarding too. If that can work for your family I highly recommend it. I try and get home now for bed time stories a couple of times a week plus do drop off for school some or even most days.

        There is no obvious answer when it’s the best time to walk away, for me I’m sort of taking each month as it comes. I had a strong fear of poverty when I was younger, which has driven the mindset of security and that’s hard to get around no matter how much you stare at the numbers. The personality that drives one to be in my position is not easily overcome to flip into a much lower paid career when more money is on the table elsewhere. But I suppose if I analyse that closely I have already mentally done that by dialling back at work. Some of the junior bankers understand my position, although others can’t understand and I’ve already convinced one to put away as much they can each month. The rest seem to save close to nothing, which I find hard to understand. Some of the senior bankers seem to have £2m+ houses, large mortgages, maybe a few hundred k of savings, a few toys and not a lot else. I literally know one guy who works all day and night and spent his bonus on a brand new sports car that sits un-driven outside his house. Sigmund Freud would have had a field day with that one. That is stupidity to me but there you go.

        The other thing at work is I try actively not to work with the biggest egotistical colleagues. Which I generally just do by avoiding them. Again it means you are on less work but….life is too short.

        The biggest expense by far is private school fees and it’s a concern because the expense is ever upward and inflation +. I am fairly comfortable it is worth it at secondary level and think an unnecessary expense at primary level. However we’re paying fees all the way through. Why? To feed my inner self doubt. Your child comes home and does x, y, z negatively or can’t do this or that…you say well if only we sent him to private school at primary it would be fine….Which is clearly rubbish I know but we all have our faults. I actually am not convinced at all if you have good states school it’s worth it at primary level but quoting Taleb again don’t ask me what I think ask what’s in my portfolio. And this is going to sound terrible but primary is around £200k in total for the kids, which is no big deal tbh – at least that’s how I’ve justified it.

        The alternative career sounds interesting As you know once you pull away from M&A and change industry its very rare to come back so you need to be as certain as you can give the drop in compensation. The allure of one more year is strong of course. I suspect I’ll stay in the corporate or financial world but not sure.

        1. Very interesting perspectives, thank you. That’s where our heads are as well.

          Wife heads back to work but not for long. I notch up a few more bonuses at work and look for an exit path that retains as much social and financial capital as possible, with hopefully a significantly improved work-life balance.

          That being said, there’s nothing like the promise of that one extra, final bonus, is there? It pains me to see how the junior bankers spend their money, though I have come across quite a few sensible ones who save up / buy starter houses / avoid the lifestyle creep.

  8. Re your point 3) Your Spending Goes Up:

    Several studies have shown that, on average, real expenditure follows a more parabolic path versus age. The age that you “retire” will therefore determine your spending trajectory wrt spending before you retired.

    Chapter 2 of provides a good UK-based explanation.

    My own experience echoes such a parabolic path.
    However, I should point out that our year-to-year expenditure has varied significantly.

    1. Very interesting graphs, thanks a lot for sharing. Looks like spending peaks between 40 and 50 and slowly declines thereafter.

      I suppose one big dependency is the age of your children (mine won’t be out of the house until I’m in my mid to late 50s) and whether they are in private school. That’s a big expense I anticipate, and one that will drop off once they head off to uni, though could well be replaced by other things!

      The other one is health. We are lucky to have the NHS here, but if you live in a country where the private option is significantly better than the state one, and have the money to spend, it could well be your healthcare spending will go up materially once you cross into your late 60s and beyond.

      Lots of other very interesting things in the doc you shared as well. Will be sure to have a read once I’m back from holiday, in my home office and have a spare moment away from the kids!

      1. I agree that the document I shared is full of interesting stuff. I found it very informative.
        I originally located it a few years ago when I was looking for a UK equivalent to the well known US studies. The US studies include, for example: Expenditure Patterns of Older Americans, 2001-2009, Sudipto Banerjee and The True Cost of Retirement, David Blanchett.
        Interestingly, the US studies show pretty much the same average real spending trajectory even with their private health care and/or education costs.
        As I am sure you realise the graphs use averages and all household are, of course, a little bit unique so will follow there own specific trajectory.

        1. Indeed. The patterns can be even more informative than the absolute spending levels.

          For me, retirement (as defined by the mainstream) is so far away that I don’t go beyond a high-level estimate of my absolute spending patterns. It’s more about planning for the next stage of life on a lower salary, offset by income from some of our investments.

  9. Great post!

    I am kind of in the same boat where I was comfortable with 100% stocks before but as I get older and closer to my “number” the stock market drops are a bit tougher to tolerate mentally.

    Still hanging at 90%+ stocks for now but at some point I will make a shift to more bonds. For sure before retirement.

    I admire the fortitude people have to invest in private school. With property taxes sky high in my town I told the kids they need to make it through public high school. But now I have college to pay for 2 kids (1 year down/paid for and probably 7 to go).

    That’s another challenge to fit in with the retirement investments.

    1. Banker On FIRE

      I think we will hear much more about bonds going forward, especially now that they are actually yielding a semi-decent return.

      Agree with you on college. A chunky outlay, less so if you are in the UK (usually around £9k a year here) or go in-state in the US I suppose. But v. tough to finance at the top private colleges in the US

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