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Will I be able to retire in 13 years?

Including Financial Independence and Retiring Early (FIRE)
newguy
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Will I be able to retire in 13 years?

#384016

Postby newguy » February 6th, 2021, 8:22 am

Hi all

I am after some retirement advice. When I was twenty my first pension consultant asked me when I would like to retire, my response was when I'm 55. Well I'm now 42 and I'm concerned that my pension savings are nowhere near where I would need to be to retire at 55 and I may well have to wait until I'm 65 before I can finally leave work.

I am really hoping that you guys will be able to offer some advice about what actions I need to take to retire early and really whether I have any chance in actually doing so.


Background

I am a 42 year old male. I am not married and have no dependents and realistically I'm going to be single when I retire.


Financial Position

Pension Pot £246K - Invested in high growth, higher risk investments
ISA - £18K - Growth focused Investment Trusts
Premium Bonds £15K

House Price Estimate £300K
Outstanding Mortgage £119K - I will be 59 when the mortgage is paid off.

Salary £50K
Total Monthly Pension Contribution is £1400 (recently increased by another £200 per month)


I have had a look at some of the retirement planners on the web and they each seem to suggest different things.

When I retire I would like to do a lot of traveling abroad. When I go on holiday, I never stay at expensive hotels. I don't have a fancy car and I think I'm fairly frugal. I therefore thought that I would need £30K of income to live on. For those that are doing it is that going to be enough to live a good retirement with travel?

If you were in my position, what actions would you take now to be able to retire at 55? Do I stand any chance of being able to retire early>

Thank you
newguy

Dod101
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Re: Will I be able to retire in 13 years?

#384024

Postby Dod101 » February 6th, 2021, 8:50 am

Firstly, your £30,000 in today's money on retirement seems reasonable as a single guy. You are not being over generous to yourself but you could do that. Now, to achieve that you will need £750/800,000, taking the usual 4% withdrawal rate.

You are a good way short of that at the moment but you need to have a realistic target.I suspect that you need to be saving rather more to get there.

Others will be able to embellish what I have said but that it seems to me are the bones of your problem

Dod

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Re: Will I be able to retire in 13 years?

#384032

Postby swill453 » February 6th, 2021, 9:02 am

Regarding the budget, my wife and I retired when I was 53 (6 years ago) with a budget estimate of about £33K per year. We've done a fair bit of travelling (prior to last year of course), all within Europe, and our actual spend has never been more than £28K per year.

Much less last year of course.

So I think you're in the right ballpark.

Scott.

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Re: Will I be able to retire in 13 years?

#384033

Postby Itsallaguess » February 6th, 2021, 9:06 am

newguy wrote:
House Price Estimate £300K

Outstanding Mortgage £119K - I will be 59 when the mortgage is paid off.


Just a couple of points not already raised -

1. Don't ignore the state pension in your long-term calculations if you'll qualify for it. Over the long term, and from a later age, it might improve your calculations quite markedly if considering a long-term £30K income your ball-park landing zone...

2. I've found that compiling a horizontal 'year-by-year' spreadsheet, mapping all major lumpy cash-flows and 'capital events' by 'Age' (such as the state pension above..) can help a great deal with these types of 'future planning' processes. You can then include large expenses that eventually 'drop out', such as your mortgage mentioned above, and you can start to then really see the available long-term cash-flows that may be available from various sources when planned out like this...I've found that 'vertical years', and 'horizontal cashflows' works best for this type of thing, so for instance, up to perhaps 'Age 68', your 'State Pension' horizontal line would have 'N/A' in the field, and then suddenly see your expected pension appear on that line from Age 68 onwards, and so on for all other major positive and negative cashflows. Underneath that upper section, but still aligned by 'Age' years, you can have major capital movements, such as perhaps lump-sum payments when your works-pension is initially taken, etc...

3. As Dod has said, an aged-55 retirement looks adventurous, but I just wanted to ask, given that you've discussed the probability of a single-life being fairly high, what your priorities might be when specifically looking at potential 'house-vs-early-retirement' options, because there may be an opportunity later on to downsize your current house and release a potentially important amount of useful capital, if you might decide at some point that extra years of retirement might be much more important than a 3rd bedroom that never gets used...

Cheers,

Itsallaguess
Last edited by Itsallaguess on February 6th, 2021, 9:14 am, edited 1 time in total.

newguy
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Re: Will I be able to retire in 13 years?

#384036

Postby newguy » February 6th, 2021, 9:13 am

Thanks for all the comments.

I can't believe I forgot to mention that I am also saving £500 per month and paying this into my ISA and using it to purchase Investments Trusts.

Newguy

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Re: Will I be able to retire in 13 years?

#384037

Postby nmdhqbc » February 6th, 2021, 9:19 am

newguy wrote:my response was when I'm 55. Well I'm now 42 and I'm concerned that my pension savings are nowhere near where I would need to be to retire at 55 and I may well have to wait until I'm 65 before I can finally leave work.

....

Pension Pot £246K - Invested in high growth, higher risk investments


FYI - from 2028 the age for accessing SIPP goes up to 57. Who knows if it will go up again before 2034. So you will need enough outside of the SIPP to bridge that gap from 55 to 57.

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Re: Will I be able to retire in 13 years?

#384038

Postby JohnB » February 6th, 2021, 9:33 am

A lot depends on your career path. If you are likely to continue to get promotions, and save the difference rather than spend it, your savings rate will rise fast. If you have the right skill-set, becoming a contractor could boost your income a lot, and give you more options for saving, for example salary sacrifice for pensions, running a company and extracting dividends rather than salary. If you do have the urge to write a spreadsheet to do the calculations, work in a zero inflation world,as it makes the numbers more real. As well as websites, others have made spreadsheets available to modify.

newguy
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Re: Will I be able to retire in 13 years?

#384039

Postby newguy » February 6th, 2021, 9:37 am

Dod101 wrote:Firstly, your £30,000 in today's money on retirement seems reasonable as a single guy. You are not being over generous to yourself but you could do that. Now, to achieve that you will need £750/800,000, taking the usual 4% withdrawal rate.

You are a good way short of that at the moment but you need to have a realistic target.I suspect that you need to be saving rather more to get there.

Others will be able to embellish what I have said but that it seems to me are the bones of your problem

Dod



Thank you for responding Dod.

I clear have my sums well and truly wrong. I was basing it on needing a pot of £500K rather than £750K to £800K.

My apologies I forgot to mention that I was saving an extra £500 per month into my ISA pot. I like the flexibility of having that in an ISA wrapper rather than a pension but I might move that so that I can take advantage of the pension relief wrapper.

newguy
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Re: Will I be able to retire in 13 years?

#384040

Postby newguy » February 6th, 2021, 9:38 am

ReallyVeryFoolish wrote:Good luck with your plans. In my opinion, you need to ensure the mortgage debt is repaid at the latest the day you retire, preferably sooner. On the basis that having no mortgage reduces your income required by precisely the mortgage repayment each month. I am sure you will get much good advice beyond that too.

RVF


Thank you. I will look at what additional payments I need to make to ensure that the pension is paid off when I am 55.

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Re: Will I be able to retire in 13 years?

#384041

Postby newguy » February 6th, 2021, 9:40 am

swill453 wrote:Regarding the budget, my wife and I retired when I was 53 (6 years ago) with a budget estimate of about £33K per year. We've done a fair bit of travelling (prior to last year of course), all within Europe, and our actual spend has never been more than £28K per year.

Much less last year of course.

So I think you're in the right ballpark.

Scott.


Thanks Scott. So maybe £30K is more than a single guy needs if a couple can make edo with £28K. I do like the reassurance of having a bit of a buffer for tough years.

Dod101
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Re: Will I be able to retire in 13 years?

#384042

Postby Dod101 » February 6th, 2021, 9:44 am

nmdhqbc wrote:
newguy wrote:my response was when I'm 55. Well I'm now 42 and I'm concerned that my pension savings are nowhere near where I would need to be to retire at 55 and I may well have to wait until I'm 65 before I can finally leave work.

....

Pension Pot £246K - Invested in high growth, higher risk investments


FYI - from 2028 the age for accessing SIPP goes up to 57. Who knows if it will go up again before 2034. So you will need enough outside of the SIPP to bridge that gap from 55 to 57.


That sort of thing, it has always seemed to me, makes the SIPP rather less than ideal as a means of funding early retirement because we must not forget that it is seen by the policymakers as security for retirement at or around the normal retirement age, unlike an ISA which is very much more flexible, and of course you get taxed on withdrawals from it. Apart from the advantage of tax relief on contributions I think in general a better savings vehicle is the ISA. The OP might like to ponder on that and consider whether in view of his early retirement ambitions, he might not be better to redirect future savings into his ISA.

Psychologically, paying off your mortgage before you retire is a good idea but logically, since the OP may well be paying only modest interest on it, he might be better off leaving it as is, if he thinks he can earn more by investing funds in the stockmarket.

Dod

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Re: Will I be able to retire in 13 years?

#384043

Postby James » February 6th, 2021, 9:44 am

Don't rely entirely on 4% calculations. They are based on maintaining your capital and living off the income. Have 750k in the bank, take 4% 'interest', get 30k p.a., still have 750k in the bank.
Which is fine if you want to leave 750k to your estate.
But you are single and I presume have no dependents. Unless you really want to leave 750k to you local cat charity, you can plan to spend down some of your capital as well.
Yes, the declining pot won't provide as much income, but done carefully/sensibly it can last a long time.
To take the 750k eg, assuming it is growing at 4% p.a, you could take out 40k a year from 55 to 87 before you ran out of money. But from 67, you'll be earning another c.10k from the state pension, so will need to take out less. And even when the money is all gone you've still got the state pension for the last few years.
My parents are in their mid-late 80s. Little income, but no mortgage and few expenses so perfectly comfortable.
But on a basic calc with conservative returns, given your numbers you will have over 900k in pension/isa at 55.
If you can manage to invest that with a return of 4%, you can run that down at 60k a year until you are 99 and still not have to touch your state pension.

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Re: Will I be able to retire in 13 years?

#384050

Postby newguy » February 6th, 2021, 9:56 am

nmdhqbc wrote:
newguy wrote:my response was when I'm 55. Well I'm now 42 and I'm concerned that my pension savings are nowhere near where I would need to be to retire at 55 and I may well have to wait until I'm 65 before I can finally leave work.

....

Pension Pot £246K - Invested in high growth, higher risk investments


FYI - from 2028 the age for accessing SIPP goes up to 57. Who knows if it will go up again before 2034. So you will need enough outside of the SIPP to bridge that gap from 55 to 57.



Thanks nmdhqbc

Oh dear I really hadn't considered this. I've currently got a private pension fund with Standard Life and I've only got £18K outside the pension in an ISA and I'm paying £500 to the ISA each month. I was thinking about moving the £500 and paying it into the pension instead to get more pension tax relief but that might not be the best of ideas.

Newguy

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Re: Will I be able to retire in 13 years?

#384052

Postby newguy » February 6th, 2021, 9:58 am

JohnB wrote:A lot depends on your career path. If you are likely to continue to get promotions, and save the difference rather than spend it, your savings rate will rise fast. If you have the right skill-set, becoming a contractor could boost your income a lot, and give you more options for saving, for example salary sacrifice for pensions, running a company and extracting dividends rather than salary. If you do have the urge to write a spreadsheet to do the calculations, work in a zero inflation world,as it makes the numbers more real. As well as websites, others have made spreadsheets available to modify.


Thank you JohnB.

If anybody has any spreadsheets that they are prepared to share I would be very grateful.

Realistically I don't envisage many promotions in the future and I don't have the correct skill set to become a contractor

Newguy

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Re: Will I be able to retire in 13 years?

#384053

Postby JohnB » February 6th, 2021, 10:00 am

There have been a million words written about Safe Withdrawal Rates, and how 4% is too high in perpetuity, and how its too low if you do want to die with nothing. A lot depends on your attitude to risk and sequences of returns. If you demand a 98% chance of not running out of money, you are likely to die with much too much.

Another million words have been written on whether your house should be included as an asset. You either exclude it, and note that your expenditure will be much reduced, or include it, and up your required expenditure to include a rental cost.

I'd say £1m of assets, including your house and 20* state pension entitlement, should allow you to live a comfortable single life. Have a look at the Retirement Investment Today blog where RIT agonises about this. Go back 3-4 years, as he betrayed his principles by getting to £1m and not retiring! And read website monevator.com

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Re: Will I be able to retire in 13 years?

#384054

Postby dgprime » February 6th, 2021, 10:03 am

I think retiring at 55 will be challenging but not impossible.

Given you are 42, I don't think you can access your SIPP until you are 58. That means you'll need three years of spending in your ISA (£90k) to bridge the gap to pension access.

You say you earn £50k, which is an interesting figure because if you earn £50,001 or higher, you are a higher rate taxpayer, which means you receive 40% tax relief on SIPP contributions. Because of this, I would make higher SIPP contributions to get this tax relief. Over 13 years (42-55), the tax relief alone on the £500 you're putting in your ISA currently is worth approx. £52k with zero capital growth.

So, that would give you £1,400 + £833 pm going into your sipp per month. That's approx. £350k over 13 years. Add that to what you've already got, and you're at £600k with zero growth. That should give you a great chance of having a £750k pot by 58 to have a £30k pa income.

So now you've got a great plan for retiring at 58 the next step is to figure out where to get the £90k to bridge the gap from. You've already got £18k, so we only need £72k. I would do this by saving pay rises as they happen over the coming years. Also, if your pension is looking fabulous at 53 you could start to reduce contributions then.

For me, the most important thing is to have a rock-solid plan to ensure you can retire at 58 and only then worry about how to bridge the gap. Again, this is just what I would do. I don't know you're exact mortgage situation so I'm not going to comment on that.

Hang in there!
D

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Re: Will I be able to retire in 13 years?

#384057

Postby AsleepInYorkshire » February 6th, 2021, 10:06 am

newguy wrote:Hi all

I am after some retirement advice. When I was twenty my first pension consultant asked me when I would like to retire, my response was when I'm 55. Well I'm now 42 and I'm concerned that my pension savings are nowhere near where I would need to be to retire at 55 and I may well have to wait until I'm 65 before I can finally leave work.

I am really hoping that you guys will be able to offer some advice about what actions I need to take to retire early and really whether I have any chance in actually doing so.


Background

I am a 42 year old male. I am not married and have no dependents and realistically I'm going to be single when I retire.


Financial Position

Pension Pot £246K - Invested in high growth, higher risk investments
ISA - £18K - Growth focused Investment Trusts
Premium Bonds £15K

House Price Estimate £300K
Outstanding Mortgage £119K - I will be 59 when the mortgage is paid off.

Salary £50K
Total Monthly Pension Contribution is £1400 (recently increased by another £200 per month)


I have had a look at some of the retirement planners on the web and they each seem to suggest different things.

When I retire I would like to do a lot of traveling abroad. When I go on holiday, I never stay at expensive hotels. I don't have a fancy car and I think I'm fairly frugal. I therefore thought that I would need £30K of income to live on. For those that are doing it is that going to be enough to live a good retirement with travel?

If you were in my position, what actions would you take now to be able to retire at 55? Do I stand any chance of being able to retire early>

Thank you
newguy

I'm assuming your pension commitment is through salary sacrifice?

Looking at some really rough and ready figures

Pension 279 (includes savings transferred to pension)
Debt 119
Assets 300

Projection 13 years

Existing Pension 552
Debt 000 (assumes £500 per month ISA allocated to residual mortgage debt)
Assets 395
Pension Contributions 328

Total pension pot projected £880K.

At 4% draw down that's £35k per annum.

It's achievable in my opinion.

AiY

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Re: Will I be able to retire in 13 years?

#384062

Postby AsleepInYorkshire » February 6th, 2021, 10:12 am

Whoops-a-daisy

I forgot to say I have a spreadsheet that I can pump numbers into which can cope with all your variables quite well.

At some point this weekend I'll set it up for your numbers and project 7.5% net growth pa on pensions and additions of £1,400 per month.

I do the same for 5% net growth too

AiY

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Re: Will I be able to retire in 13 years?

#384070

Postby dgprime » February 6th, 2021, 10:23 am

D[/quote]
Perhaps I misunderstand, but if you earn £50,001 then you will get 40% tax relief on precisely £1 of pension contributions. Because you get 20% at source and the other 20% by submitting a tax return. Correct?

RVF[/quote]

RVF - apologies, you are quite right. 25% rebate would be received on the £500 currently going into the ISA and not the 40% I've quoted. Nevertheless, I would still focus more on getting a solid pension together first.

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Re: Will I be able to retire in 13 years?

#384081

Postby swill453 » February 6th, 2021, 10:42 am

dgprime wrote:RVF - apologies, you are quite right. 25% rebate would be received on the £500 currently going into the ISA and not the 40% I've quoted. Nevertheless, I would still focus more on getting a solid pension together first.

But bear in mind that the (basic rate) tax is only deferred, not cancelled. On the way out the contribution, and all the growth it's generated, will be taxed so it's not much of a benefit.

(Save for the 25% Pension Commencement Lump Sum, that is a real benefit.)

Scott.


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