I think i can retire early?

[ffacoffipawb64]

Age 55, home owner and mortgage free thanks to the PCLS.

Now working part time as life is short. Salary is still £35,000 which is good. I do not like my job but it has put me in a great spot financially. I am however finding it stressful and wonder if I could give the job up at 55.

Drawdown fund £550,000 post PCLS

Some PCLS remains after paying down the mortgage. Also sone share ISA, oremium bonds and index linked savings certificates, i am ignoring these assets for this calculation - I will only use them if things work out nadly.

Require pension of £35,000.

Keeping things in today's money and assuming nil investment returns.

Age 55 to 60. Use up £175,000 of drawdown fund. Leaves £375,000.

At age 60, two DB pensions totalling £15,000 kick in so only need £20,000 from drawdown fund.

To age 67, my state pension age, this uses up another £140,000 leaving £235,000 in the drawdown fund.

State pension is approx £9,000 so now only need £11,000 drawdown.

So the £235,000 will last another 21 years from 67 to 88.

After that I am down to state and DB of £24,000 which should be OK as will be spending less.

Ignoring my wife who has state pension only and who is a similar age so another £9,000 there too.

Also ignoring another pension fund of £100,000 which will stay uncrystallised until age 75 as it will all be in excess of LTA and no point paying LTA charge before I have to. Probably keep this back for any care fees before having to sell our home.

Is there an obvious flaw in this plan?

[monabri]

Have you allowed for tax and a guess at inflation/ cost of living increases?

I would create a spreadsheet...

viewtopic.php?p=21810#p21810


You need to shuffle some of your assets off to your wife to take advantage of her individual tax free allowance ( £12500) to reduce any taxation if possible.

[OLTB]

It seems that you have allowed for static fund performance - have you modelled what your position would be if the assets fell in value by a certain percentage and what affect that has on your plans? Drawing from a falling savings pot can seriously damage your wealth.

Cheers, OLTB.

[ffacoffipawb64]

Have you allowed for tax and a guess at inflation/ cost of living increases?

I would create a spreadsheet...

viewtopic.php?p=21810#p21810


You need to shuffle some of your assets off to your wife to take advantage of her individual tax free allowance ( £12500) to reduce any taxation if possible.

I was working on gross pension figures.

My wife's state pension will use up most of her personal allowance with a further 10% of it transferred to me.

She is a non earner so worth considering the £3,600 gross allowance into a pension for her.

I note the spreadsheet, will take a look.

Thanks

[ffacoffipawb64]

It seems that you have allowed for static fund performance - have you modelled what your position would be if the assets fell in value by a certain percentage and what affect that has on your plans? Drawing from a falling savings pot can seriously damage your wealth.

Cheers, OLTB.

Stochastic modelling beyond my capability. However will have a 20% cash allocation to cover immediate drawdown. Deplete cash when markets low and replenish when markets are good and also from dividends. SIPP is invested in investment trusts.q

[Dod101]

If I have understood your position correctly, I would invest the £550,000 and get something in excess of a 4% yield on it. That immediately provides you with at least £22,000 per annum on which I assume you will need to pay tax. Admittedly you would want to keep some in cash to make up the balance that you say you require, but even so that will slow down the rate at which you need to make drawdowns. Think of your requirements net of tax and try to do the sums as carefully as you can. You will also I assume need to make allowances for inflation over the years.

I would be very chary of drawing down large amounts of capital because once it is gone it is gone and in retirement you do not have any great opportunities of making it up again unless say through an inheritance.

Personally I would probably keep working for another couple of years because the longer you postpone retirement the fewer years you need to finance yourself and you could invest your lump sum now and roll up the income to hopefully increase the capital.

Dod

[JohnB]

If you are hitting the £1m LTA on pensions, and are a couple spending £35k, you have enough at 55.

What hobbies are you planning to take up?

[Walkeia]

Your plan sounds sensible and while I understand other posts rightly pointing to the financial tails risks - personally, I think the biggest danger is working for too long if you are not enjoying it. A 55 year old man has only ~26 years on average left to live (used an internet calc) and this will most likely be with deteriorating health unfortunately. The sad reality, is this is the average and while everyone assumes 's***' happens to other people' and 'we will beat the average individually' - witnessing friends of my parents (mid/late 60s) falling very ill and sadly in some cases passing away has been a major reality check to my outlook. You clearly have your head screwed on financially so I'd I think you'll be just fine. I think the bigger risk generally is individuals preparing for retirement - how exactly are you going to fill those hours when you become time rich and this in itself is something which I think people need to plan for.

All the best in whatever you decide,

[ffacoffipawb64]

If I have understood your position correctly, I would invest the £550,000 and get something in excess of a 4% yield on it. That immediately provides you with at least £22,000 per annum on which I assume you will need to pay tax. Admittedly you would want to keep some in cash to make up the balance that you say you require, but even so that will slow down the rate at which you need to make drawdowns. Think of your requirements net of tax and try to do the sums as carefully as you can. You will also I assume need to make allowances for inflation over the years.

I would be very chary of drawing down large amounts of capital because once it is gone it is gone and in retirement you do not have any great opportunities of making it up again unless say through an inheritance.

Personally I would probably keep working for another couple of years because the longer you postpone retirement the fewer years you need to finance yourself and you could invest your lump sum now and roll up the income to hopefully increase the capital.

Dod

£500k is invested in 13 investment trusts yielding about £21,000. The remaining £50,000 is cash so there is enough there with future dividends to cover the first 4 years without selling anything. The drawdown requirement drops from 60. Could take rge DBs early at 59 depending on the terms offered. The dividends will then exceed the drawdown so fund mY just keep on growing ad infiniteum.

[ffacoffipawb64]

If you are hitting the £1m LTA on pensions, and are a couple spending £35k, you have enough at 55.

What hobbies are you planning to take up?

God knows. The local U3A and golf perhaps.

Maybe learn to swim which I have failed to do so far.

[ffacoffipawb64]

Your plan sounds sensible and while I understand other posts rightly pointing to the financial tails risks - personally, I think the biggest danger is working for too long if you are not enjoying it. A 55 year old man has only ~26 years on average left to live (used an internet calc) and this will most likely be with deteriorating health unfortunately. The sad reality, is this is the average and while everyone assumes 's***' happens to other people' and 'we will beat the average individually' - witnessing friends of my parents (mid/late 60s) falling very ill and sadly in some cases passing away has been a major reality check to my outlook. You clearly have your head screwed on financially so I'd I think you'll be just fine. I think the bigger risk generally is individuals preparing for retirement - how exactly are you going to fill those hours when you become time rich and this in itself is something which I think people need to plan for.

All the best in whatever you decide,

This is what I am thinking. My dad died at 74 and his dad was 72. My mother's side is a little better. My health isn't brilliant but it doesnt stop me working. Just starting to hate the corporate life and the current project we have been dumped into and which may last 3 years.

Retiring would mean i wouldnt need my blood pressure tablets!

[Dod101]

£500k is invested in 13 investment trusts yielding about £21,000. The remaining £50,000 is cash so there is enough there with future dividends to cover the first 4 years without selling anything. The drawdown requirement drops from 60. Could take rge DBs early at 59 depending on the terms offered. The dividends will then exceed the drawdown so fund mY just keep on growing ad infinitum.

You have now painted a much healthier scene I think. I would therefore probably go for it but be wary about drawing down too much capital! Things will change as you go and you will probably be much better off than you imagine, because for a start that £21,000 or so should increase quite a bit in the four years up to age 60 and the capital values will hopefully increase as well.

A recent poster tells us that a man of 55 has a life expectancy of 26 years. That may be so but 26 years is a long time and I know of a number of people who are still living a relatively independent life and driving in to their 90s so you need to plan for much longer than to age 81!

Good luck whatever you chose to do with your life and here's to a long and prosperous retirement.

Dod

[JohnB]

One point, you have segued a £35k salary into £35k income. They aren't equivalent due to NI, commuting, lunches out, paying for gardening you can now do yourself etc. You might want to work back from an expenditure model that includes golf club membership but not season tickets.

[SalvorHardin]

I took very early retirement 16 years ago and have never regretted it. Whilst I liked my work (Actuary) the problem was the weekly commute to work (and living) in Central London. Fun when it started, at the end it was making me ill.

I second OLTB’s comments about modelling a fall in assets (nothing fancy is needed, try a 25% fall in year one and see what happens). Also Dod101’s suggestion of using investment trusts (ISA wrapper where possible) rather than just drawing down on capital. When I retired one of the first things I did was to top up my investment trust holdings to ensure that their dividends were sufficient to cover my basic living costs (I can live very cheaply – my supermarkets of choice are Aldi and Lidl).

Look closely at your current spending – itemise it for a couple of months and come up with an approximate post-retirement budget. It can be surprising to find out how much it costs to be in work. Whilst commuting is one of the biggest costs for most people, especially those who work in London, quite a bit of spending is much higher than it ought to be simply because you are working.

I remember junior colleagues spending up to £10 a day on coffees, sandwiches and cakes; so allowing for days off and cheaper days that was over £2,000 a year (out of after-tax income). If they were retired and kept the same pattern of consumption they wouldn't be need to spend so much; much of what they were paying for was the convenience.

Remember that you won’t be paying National Insurance and you won’t be paying the mortgage. In my career I was occasionally involved with retirement planning and many people I saw wanted 100% replacement income in retirement. But in retirement they are unlikely to be paying pension contributions, the mortgage, National Insurance and the costs of being in work, so they could manage perfectly well with less.

What to do with yourself? A lot of people identify so closely with their occupation that they go rapidly downhill after they retire, especially if a major part of their social life revolves around work. Amongst other things I’ve kept busy by doing four degrees since I retired (mostly Open University). As a fan of televised sport quite a bit of my year revolves around major sporting events (April = Indian Premier League Cricket, July = Tour de France, etc.). You may find that there's some part-time work which you really like doing (I know several retirees who work at the local county cricket ground on matchdays and local racecourses on racedays). Otherwise there's the joy every weekday morning of not having to go to work.

Exotic holidays and travelling. Get it done earlier rather than later – lack of energy and health issues are more likely you as you get older.

To quote Rabbi Harold Kushner; “Nobody on their deathbed has ever said “I wish I had spent more time at the office"”

[JohnB]

I started doing conservation volunteering, and am now involved in 3 different groups. Smashing down a post and rail fence yesterday on a sunny day with an hour walking through "my" nature reserves to get to work. You want something to give a structure to your week, when I had a bad shoulder over-winter, every day was like the last, and time dragged.

Some retirees find that managing their portfolio becomes a hobby in itself, they can be found here in the HYP sections

[Itsallaguess]

Remember that you won’t be paying National Insurance and you won’t be paying the mortgage. In my career I was occasionally involved with retirement planning and many people I saw wanted 100% replacement income in retirement. But in retirement they are unlikely to be paying pension contributions, the mortgage, National Insurance and the costs of being in work, so they could manage perfectly well with less.

This is a key point, which JohnB has also touched on earlier in the thread.

If your 'income requirement' is £2000 per month for instance, then your 'working salary' to ensure you actually received that amount in your bank-account every month is likely to have been much, much higher than £2000, simply due to all the various work-related deductions involved. The difference is very significant over a 12 month period, and it's likely that people who don't quite realise this might be putting off retirement plans for no good reason....

Look closely at your current spending – itemise it for a couple of months and come up with an approximate post-retirement budget. It can be surprising to find out how much it costs to be in work. Whilst commuting is one of the biggest costs for most people, especially those who work in London, quite a bit of spending is much higher than it ought to be simply because you are working.

Another option that's often discussed on these boards is to perhaps have a 'dry run', and *pretend* that you're retired, whilst still actually going to work....

It's probably best if this is kept private, just in case things don't align with income-expecations during the dry-run, and hence it probably won't then affect any job-prospects if it doesn't quite work out, but I often think it might be a good idea to have a 'pretend-retirement' year, where wages are left untouched (and hence become part of my cash-reserves at the end of the period...), and income-requirements are taken from what would be your planned investment-income as though you *were* actually retired...

In my brief day-dreaming moments at work, I often think the above would tick a lot of boxes with me -

1. It would make the final 12-month 'pretend retirement' period at work much, much more enjoyable, what with me knowing that I'm in my 'final working phase', but no-one else being aware at all....

2. It would, to a large extent, 'prove-up' my investment-income and expenditure plans and expectations, and if good records are kept during this period, then a good level of confidence can be gained, or at least if it doesn't work out, then 'gap analysis' can be carried out using real-world data, which would then still be a very useful additional guide to future plans...

3. It would give the clear 'fall-back position' of simply carrying on with work if something has gone wrong with my initial calculations, with no-one any the wiser that I'd taken a 'dry-run' at all....

I'd also just like to end by saying that I do really enjoy reading these types of retirement/pre-retirement threads. As someone who has worked all their adult life, and has planned for some time to hopefully take early retirement at some stage, they really encourage me when I read of people who have either already made the transition from working to retiring, or are on the cusp of doing so.

I would add that I do enjoy my work, and have been very lucky to have done so all my life, in the various roles I've had, but I have also always planned for a point where I hopefully won't *have* to work, as I know very well that things can change quite quickly in lots of areas of working life that mean that having such options are likely to be a big benefit under some circumstances, so I think it's perfectly possible to both still enjoy working and yet also still plan aggressively for simply not wanting to continue doing so at some point in the future...

These threads continue to give me much hope, I can tell you!!

Cheers,

Itsallaguess

[Gan020]

Don't forget to add inflation into your calculation.

£35k of income in today's money at 2% inflation is equivalent of £63k in 30 years time at 2% inflation. (35*1.02^30).
If inflation runs at 3% you will need £85k (35*1.03^30). Whilst your defined benefit pension will be inflation linked and the government pension too, if you are getting a 4% return on your investment pot whilst inflation is say 3%, your pot may get eaten up faster than expected due to cost inflation.

I would recommend you make a spreadsheet and model the impact of both the investment return on your assets and cost inflation on your expenditure.

[PhaseThree]

The life expectancy figures above seem a little pessemistic. The ONS calculator shows an average life expectancy of 30 years for a 55 year old male, with a 1 in 4 chance of reaching 93 (and a 1 in 4 chance of being dead by 78)

https://www.ons.gov.uk/peoplepopulation ... 2017-12-01

[JohnB]

I always work ignoring inflation. If a share portfolio returns 3.5% in dividends, then both its capital value and its dividends are likely to rise with inflation anyway. It makes the numbers more real, as you have a feel for what £35k can buy, rather than inflate it to £65k in a world where bread is £3 a loaf.

[ffacoffipawb64]

I always work ignoring inflation. If a share portfolio returns 3.5% in dividends, then both its capital value and its dividends are likely to rise with inflation anyway. It makes the numbers more real, as you have a feel for what £35k can buy, rather than inflate it to £65k in a world where bread is £3 a loaf.

This is what I have done and also assumed nil real returns on my drawdown fund.