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Considering early retirement

Including Financial Independence and Retiring Early (FIRE)
tikunetih
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Re: Considering early retirement

#243665

Postby tikunetih » August 12th, 2019, 8:58 am

monabri wrote:Oh, and be wary of "independent" financial advisors.



Tied advisors, ie. the ones who work for so-called wealth managers and who offer only restricted advice, pushing their employers' or other restricted ranges of products, are the ones to be extremely wary of...

Independent financial advisers (IFAs), offering whole of market advice, not so much, and many can be very good.

Speaking generally re IFAs:
Shop around and test the water to find one you think is suitable, but if you decide you need 3rd party professional advice then don't be afraid of turning to IFAs. NB The Independent part of the name is essential, so do not overlook that. And consider the difference between one-off transactional basis advice vs. ongoing advice. The former might be useful in order for someone to get a "plan" in place than can then be self-managed. But, you'd get far more out of any IFA, and be much better equipped to select an appropriate one if you first make a good effort to increase your own knowledge of the subject matter you're seeking advice on. And if you do that sufficiently, and you're competent and cool-headed, then there's every chance you wouldn't need to hire one...

In the OP's shoes, I'd certainly be quitting work, the numbers look pretty solid, and in Rituximan's last paragraph it looks like he's begun to outline a skeleton plan to support that. It's not obvious that Rituximan would need an IFA, as by the sound of it he's already got investment experience running significant amounts and could fill in the knowledge gaps given some effort.

My suggestion would be to take your time to do this, avoid acting in haste, and properly equip yourself with a solid plan you feel you've thoroughly kicked the tyres of first. Knowing this is being worked on by you, and knowing the end goal, should take most pressure off re stresses in work, as you'll be able to mentally re-categorise that as "stuff I don't really give a sh!t about any longer", as will certainly be the case once you've left and have begun leading a life shaped how you want it freed of employer influence.

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Re: Considering early retirement

#243671

Postby JohnB » August 12th, 2019, 9:08 am

Buy Lars Krojer's book Investing Demystified and decide where you stand in the great active/passive debate. Investment Trusts are active funds, and for all their merits they do incur higher costs because of that.

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Re: Considering early retirement

#243743

Postby Gan020 » August 12th, 2019, 12:54 pm

Congratulations. You can retire (subject to two caveat coming up)

DB pension 7k, Further government pension in 9 years of £8k gives you an income at that point of £15k before you have to dip into your pension pot. You will of course be paying tax of course at this point as you will be over the 0% band threshold.

The caveat is inflation because in say 40 years, 2.5% compound inflation is going to make your pot worth far less.

I suggest you construct a simple spreadsheet showing your income and expenditure annually. I'm aware someone on here has previously offered a template. If you increase your expenditure by 2.5% every year to allow for inflation you will see that you will see that 20 years inflation on £24k expenditure means you will be spending £39k to keep you lifestyle the same.

The other caveat is the risk of a 20% drop in the value of your pot in the first couple of years after retirement. Many on here will be able to help you manage this risk downwards which you should be able to do as you have enough assets that you don't need to push the envelope on the interest rate you require to live a comfortable retirement

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Re: Considering early retirement

#243745

Postby JohnB » August 12th, 2019, 1:15 pm

Conversely I never use inflation in my calculations, assuming that capital values and dividends will rise with it anyway. It makes the numbers seem more real

Alaric
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Re: Considering early retirement

#243747

Postby Alaric » August 12th, 2019, 1:19 pm

JohnB wrote:Conversely I never use inflation in my calculations, assuming that capital values and dividends will rise with it anyway.


Depending on how recently it accrued, defined benefit pension income will be revalued, as will State Pensions. It's cash deposits and fixed interest where the purchasing power is eroded over time.

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Re: Considering early retirement

#243847

Postby Hariseldon58 » August 12th, 2019, 6:41 pm

At 60, having retired 12 years ago on a similar sum taking into account inflation, it worked and the pot has grown substantially.

The tax advice etc should be separated from the financial advice. (See an accountant, who specialises in taxation)

The idea of an income of about 4% of capital, give or take ,is in the right order of magnitude but if your advisor and fund manager cost you around 2+% , as they will, then that’s a huge chunk of your income.

The Lars Kroijer book suggested is a good read, cut your costs to the minimum and ensure that your investment platform is cheap as well.

You can divorce the income you take from the portfolio from the level of dividends that are paid, it makes financial sense but many feel deeply uncomfortable with this approach. If you can tolerate the thought then a Vanguard Life Strategy fund is a good choice.

The investment trust approach using a selection of trusts that pay a good level of income is sensible.

Minimise costs , be comfortable with what you do. Be aware that markets can go down suddenly , I retired in late 2007, you know what happened next...

The suggestion of having a couple of years income in cash can help you cope, I found dividends held up very well during the crisis. Good luck , do your research and it’ll be fine !

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Re: Considering early retirement

#243851

Postby Rituximan » August 12th, 2019, 7:23 pm

tikunetih wrote:
monabri wrote:Oh, and be wary of "independent" financial advisors.

Tied advisors, ie. the ones who work for so-called wealth managers and who offer only restricted advice, pushing their employers' or other restricted ranges of products, are the ones to be extremely wary of...


The IFA that I spoke to does provide wealth management services, and they may well be tied as I got the impression that they were guiding me towards a rather specific range of products; or one thing, it was based entirely on unit trusts/OEICs, and when I asked whether their advice would cover Investment Trusts I was told that they don't use these since they are higher risk.

I have been on to the defined benefit people today about what my retirement age is under the scheme and it is 65. I asked about enhanced pensions and mentioned that I have lymphoma and they said that they have a medical panel who consider to consider illnesses and if my case meets the criteria, then it might be possible to take my pension before that age without any reduction in benefits, in which case I think that it could yield just over £9k p.a. They are going to send me the forms for that.

I started having a look at SIPP providers. I have no idea what a cheap SIPP provider would charge so I started with iWeb since I have a stocks and shares ISA with them. I can see that their quarterly admin fees would be £45, but I wasn't sure what the £180 p.a. income drawdown charge covers and when I rang up, the person I spoke to had a lot of difficulty understanding that I was talking about transferring in another pension, and kept talking about regular contributions. I am presuming that a SIPP would work a bit like an ISA in that the investments produce income which accumulates and one then withdraws the income as one's pension - and I wanted to know if their income drawdown charge allows one to do this at any time, or monthly or if there are other restrictions on it. I will try again tomorrow, and I will have a look for the Lars Kroijer book.

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Re: Considering early retirement

#243866

Postby Alaric » August 12th, 2019, 9:22 pm

Rituximan wrote: - and I wanted to know if their income drawdown charge allows one to do this at any time, or monthly or if there are other restrictions on it.


Because of the complications of tax, SIPPs are generally more restrictive on taking money out at your demand. If you take it out once a year, you can vary the amount according to your tax position. Otherwise you might be expected to nominate a fixed amount at the start of each tax year and take this out every month or quarter until you countermand the instruction. If a year or two of income is held in cash, you know what can be withdrawn independently of the level of dividends.

Rituximan wrote:
I was told that they don't use these (ITs) since they are higher risk.


I would have thought it depended on the underlying investments, whether the term "risk" meant volatility or asset failure. Historically advisers didn't know much about Investment Trusts and didn't want to promote them because there wasn't any commission. Similarly they would be reluctant to propose a strategy where you invested in self selected shares.

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Re: Considering early retirement

#243870

Postby Chrysalis » August 12th, 2019, 10:24 pm

Start at Pensionwise.gov.uk to get familiar with how you can access your DC pension. IWeb is likely to be a cost effective solution, but have a look at the broker comparison table at Monevator.co.uk for other possibilities. I don’t have any experience of what different brokers are like in drawdown, but you might put a shout out on these boards as there is lots of experience here.

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Re: Considering early retirement

#243899

Postby BrummieDave » August 13th, 2019, 7:21 am

Alaric wrote:
Rituximan wrote:
I was told that they don't use these (ITs) since they are higher risk.


I would have thought it depended on the underlying investments, whether the term "risk" meant volatility or asset failure. Historically advisers didn't know much about Investment Trusts and didn't want to promote them because there wasn't any commission. Similarly they would be reluctant to propose a strategy where you invested in self selected shares.


I think you'll find that it's their use of gearing, which can amplify volatility, driving prices higher than the market in a bull run but that can cause their prices to fall greater than average in a bear market, that determines the higher risk rating given to ITs and thus prevents IFAs from advising their clients to use them.

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Re: Considering early retirement

#243900

Postby Urbandreamer » August 13th, 2019, 7:25 am

I would be VERY dubious about investment advice from the FA consulted.

Investment trusts CAN be high risk, or LOW risk! I confess that I prefer the higer risk ones, but that doesn't mean that there are not Investment trusts that invest in fixed interest securities (normally considered very low risk), intrastrusture or property.

Visit somewhere like WH Smiths and spend £6 on a copy of Money Observer. In the back you will find lists of most unit trusts (investment funds) and Investment Trusts. The fund list alone won't help at all. It's simply alphabetical. The IT list is however split into sectors like "Debt, loans and bonds", Royalties, Infrastructure, property, Renewable energy infrastructure in addition to more general equity investments and more racy stuff.

I would recommend visiting another FA/IFA to judge the advice being given and establishing if they are tied. I happen to use St James's Place, who are renown for their opaque charging structures and subject to suspician by everyone (myself included). I am however happy to use them for some things. Others I do myself and yet others are done by the likes of Aviva.

Personally I subscribe to Money Observer as I am interested in investment but I believe that someone less interested could study the subject for a few months and make tollerable low risk collective investments. Then review what they are invested in every year or every three years.

If you want others to do the research for you then, arguably, you could buy a model portfolio from Interactive Investor (reported in Money Observer), one of John Baron's or let A J Bell pick one for you. All would be a lot cheaper than a FA/IFA, though obviously without the advice or attempt to match your specific objectives. They provide guidence towards more general objectives.

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Re: Considering early retirement

#243909

Postby BrummieDave » August 13th, 2019, 8:01 am

Jabd2001 wrote:Start at Pensionwise.gov.uk to get familiar with how you can access your DC pension. IWeb is likely to be a cost effective solution, but have a look at the broker comparison table at Monevator.co.uk for other possibilities. I don’t have any experience of what different brokers are like in drawdown, but you might put a shout out on these boards as there is lots of experience here.


I would also recommend PensionWise for general education but also specifically for two services they offer: firstly, the live webchat is excellent and provides a one to one chat about your own situation and what you can and can't do, and the 45 minute telephone or face to face consultation to do this in more depth.

Both are free.

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Re: Considering early retirement

#243917

Postby scrumpyjack » August 13th, 2019, 8:46 am

Do bear in mind that the primary objective of 'Wealth Managers' is increasing their own wealth, generally at your expense.

You only have to look at the regular press reports about St James' Place and the eye watering fees, mostly carefully disguised, that they extract from clients.

Most of the ones I have met are extremely affable and pleasant - but that is their primary skill. They are selected based on how good they are as salesmen.

I think many many contributors to this board would feel that any reasonably sensible and intelligent person, who looks into financial planning and investment issues carefully, could do at least as well, probably better, and without the huge fees, by managing their own finances.

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Re: Considering early retirement

#243941

Postby tikunetih » August 13th, 2019, 9:55 am

Rituximan wrote:I started having a look at SIPP providers.


Nothing wrong with doing some brief research on this to get your bearings regarding costs, but hopefully you realise this is largely putting the cart before the horse if you are actually intending to self-manage your pension.

An initial task would be to formulate some sort of outline plan, along the lines of what you were discussing with the adviser, of how you might go about meeting your income objectives in a tax efficient manner.

In parallel or following this, you'd be considering the investment strategy, or strategies, of your various pots of money that could help deliver these income objectives. Your investment provider/platform selection can only really be performed once you have a detailed idea of what you'll be investing in, since the cost of service will be very significantly influenced by the nature of any portfolio and how you operate it.

Do not make the mistake, commonly seen, of choosing a platform and then selecting your investments. Of course, this is what the platforms who operate expensive and adept marketing operations would very much like you to do, as they seek to present a veneer of service, which to a novice may have the appearance of an IFA-like service, and with similar or even greater costs, but with none of the actual regulated advice or service of an IFA being provided. Via this route, it's becoming common for people to pay similar or greater costs for DIY investing as they would pay for regulated advice from IFAs, which is somewhat tragic (although not for the shareholders of said platforms with adept marketing operations!), and could prove to be very expensive when bear markets eventually arrive and these investors do not receive the hand-holding from an IFA through high volatility that may have allowed them to "stay the course" rather than panic and sell low.

NB as an aside, the ability of investment trusts to operate at a premium/discount involves an extra factor in price volatility vs. OEICs, and for this reason, all other things being equal, they should be considered as introducing additional risk/volatility for the investor.

I would reiterate the point made several times already about avoiding any sort of "wealth management" firm if seeking financial advice, and only use an IFA able to provide whole of market advice, ie. not restricted to selling tied, expensive investment options (funds). The financial success of the wealth management firms (paid for by customers paying well over the odds for often mediocre returns) has allowed them to spread, hoovering up IFA firms and turning them to the "darkside". Suggest using https://www.unbiased.co.uk/ as a starting point, should you be interested in finding suitable advisers. The FCA Register can be useful for researching advisers: https://register.fca.org.uk/ShPo_Homepage and if you need help in interpreting the information consider posting over on the MSE Savings & Investment forum, where knowledgeable input is often to be found.

But again, I suspect you can figure all this stuff out yourself and DIY successfully if that's your preference. Many of us do that very successfully, but there's no "shame" in turning to fairly-priced skilled professionals help out if that's your preference. All of us do that with various aspects of our lives where we think it's either necessary or convenient to do so. But as with finding a plumber etc, there can be an art to distinguishing the good/good-value guys from the bad 'uns.

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Re: Considering early retirement

#244090

Postby Rituximan » August 13th, 2019, 9:03 pm

I have to say that I am quite inspired by all these helpful comments, suggestions and feedback, and also a little excited by the prospect of researching and planning my own investment strategy and then at some point putting it into practice. To this end I have contacted the IFA who I saw recently and politely said thanks, but no thanks.
I have been reading the boards and making note of posts that seem particularly relevant. I also bought the current Money Observer, which has a quarterly guide to Investment Trusts and I have been making notes on that as well, and I even ordered the book by Lars Kroijer.
The IFA made me realise there is no point in retiring in this financial year – I would simply be taxed on any pension income. As I need to give three month’s notice at work, the earliest time that I might resign will be next January and I have between now and then to do my homework and consider my investment strategy. By January I should know if the defined benefit pension people will let me retire early without any reduction. If I do manage to end up with £9k p.a. from that, then all I would need from a SIPP would be £3k p.a. and the rest of my living expenses could come from the cash pile which I would also use to invest in my ISA every year and I can probably go on like that for 5 or 6 years. That means that if I created a SIPP with a bunch of ITs that gave an income of say 4%, then I could invest the £9k surplus income within the SIPP (I am presuming here that one can do that), the same as I do with my stocks and shares ISA. For now, this is a rough strategy that can be adapted/.
At some point later in the year I am going to have to think about the next purchase or top-up within my Stocks & Shares ISA. The dividends are accumulating and it has about 5% cash in it now, and I am inclined to let it keep on doing that for the time being. I might feel more in the mood of reinvesting after Brexit, and who knows, the next purchase that I make within the stocks & shares ISA might be an investment trust

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Re: Considering early retirement

#244099

Postby tikunetih » August 13th, 2019, 9:48 pm

Rituximan wrote:By January I should know if the defined benefit pension people will let me retire early without any reduction. If I do manage to end up with £9k p.a. from that, then all I would need from a SIPP would be £3k p.a. and the rest of my living expenses could come from the cash pile which I would also use to invest in my ISA every year and I can probably go on like that for 5 or 6 years. That means that if I created a SIPP with a bunch of ITs that gave an income of say 4%, then I could invest the £9k surplus income within the SIPP (I am presuming here that one can do that)


Tax relief on pension contributions is available on the higher of £3.6k or 100% of relevant annual earnings (subject to an annual allowance), but income from a pension (along with investment income and rental income), ie. your possible £9k p.a., isn't considered to be relevant earnings, so there'd be no point in you contributing more than £3.6k (gross), ie. £2880 cash contribution, once retired - you'd not get tax relief on those additional contributions so no point in trapping the money inside a pension wrapper.

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Re: Considering early retirement

#244108

Postby Alaric » August 13th, 2019, 10:25 pm

Rituximan wrote:That means that if I created a SIPP with a bunch of ITs that gave an income of say 4%, then I could invest the £9k surplus income within the SIPP (I am presuming here that one can do that), the same as I do with my stocks and shares ISA. For now, this is a rough strategy that can be adapted/.


Provided you have a personal pension plan, you can transfer that to a SIPP. Once inside the SIPP all investment returns stay inside, so if you don't draw income or draw less income than the dividends on the investments, than you can reinvest excess dividends. What you cannot do is put more than a net amount of £ 2880 from external sources into a SIPP once you have retired and no longer have any earned income.

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Re: Considering early retirement

#244157

Postby TUK020 » August 14th, 2019, 8:32 am

Rituximan wrote:The IFA made me realise there is no point in retiring in this financial year – I would simply be taxed on any pension income. As I need to give three month’s notice at work, the earliest time that I might resign will be next January and I have between now and then to do my homework and consider my investment strategy.


Don't conflate when you retire with when you start drawing a pension. You have sufficient cash pile to decouple the two.
Retire now, start taking your DB pension April, is a clear possibility

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Re: Considering early retirement

#244160

Postby tikunetih » August 14th, 2019, 8:53 am

Alaric wrote:What you cannot do is put more than a net amount of £ 2880 from external sources into a SIPP once you have retired and no longer have any earned income.


Not strictly correct; see my post above.

You can contribute more but you're only eligible for tax relief on gross contributions on the higher of £3.6k or 100% of relevant annual earnings. If you contribute more than that then you'd need to inform your pension provider to tell them not to claim tax relief on the excess contributions (or return that relief to HMRC if they've already claimed it and credited you with it) or to return your excess contributions to you.

There's little point* in contributing more than is eligible for tax relief, since you'd just be trapping money within the pension wrapper for no gain of relief.

--
*Although I wonder if anyone has ever "abused" this situation for estate planning purposes, ie. IHT sheltering if around the threshold. Hmmmm......

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Re: Considering early retirement

#244212

Postby SKYSHIP » August 14th, 2019, 12:36 pm

Rituximan

I haven’t read the whole thread, so apologies if repeating anything:
1. Firstly, with a £million in savings, personal pension and ISAs of course you have way more than enough to retire and drawdown an income well above what you have suggested
2. Retirement is great; but might you not find a part-time solution less stressful and still enjoyable
3. The £400k in ISAs perhaps suggests some competence in the investment game; so with more time to allocate might you not enjoy researching and investing. Certainly seems as though you are not an investment novice and have no need to pay fees to an IFA!
4. Switch your private pension into a SIPP, manage it and drawdown the c8%pa which most posters here would readily agree is more than achievable
5. When you do build your SIPP portfolio, remember that the best performing sub-sector of the Investment trusts is Private Equity – you can follow them all on ADVFN’s PE thread (the epic = PE). Also follow the CP+ thread for loads of information on the best propcos. Also the REITs thread here on Lemonfool, esp: viewtopic.php?f=87&t=8008


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