When to retire?

[BlackBeard]

When is the best time to retire and become financially independent, and tax efficient?

I am 56 years young with a partner, no dependants, own home no mortgage, current investments spread across ISA, SIPP's and self managed investment account, earring a return of 5% and capital growth at 8%, BTL property no mortgage, a business worth around 200K and passive business interests worth 900K

Sipp is no where near the LTA, but total of savings and investments is at that amount.

As I have no dependants I want to make sure I take the plunge and retire at the right time so as not to end up leaving anything left to the cats home or worse the government!

[BullDog]

Nobody here can really give you the magic "number" ***, especially on such scant information. We don't even know your attitude to risk or your lifestyle. The "number" is different for everyone. Do the sums and if they add up then go for it. Good luck and ask again when you have done the sums is what I would do. Hope that helps.

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

[BlackBeard]

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

That’s really helpful indeed.

Rough figures below.

Currently making around 5% on invested money, and 8% capital growth.

So question is when do I make the jump to full retirement?

Financials are.

600k in joint pensions
660k in UK shares
1.2 business assets
1.4 property, that includes BTL

I reckon around 60k year spending

[BullDog]

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

That’s really helpful indeed.

Rough figures below.

Currently making around 5% on invested money, and 8% capital growth.

So question is when do I make the jump to full retirement?

Financials are.

600k in joint pensions
660k in UK shares
1.2 business assets
1.4 property, that includes BTL

I reckon around 60k year spending

Roughly then ~£1.5 million in income generating assets required to generate £60k per year. Obviously, there's tax to consider on that and I do think a 4% annual drawdown is perhaps a bit ambitious at your age. Good luck.

[Mark66]

There is a saying "Don't let the tax tail wag the dog".

The feeling I strongly get from this post is you are not asking the right questions. There is far more too when to retire than just the financial consideration.

Firstly what lifestyle do you want to have in retirement and have you reached the point you can afford this lifestyle. (I guess you have from what you have said).

So to me the more important question is how will retirement affect you. Are you surrounded by many retired family and friends to enjoy retirement with? What they say about us humans needing 'Structure', 'Purpose' and a 'Community' in our lives is very important. A job hands all these needs to you on plate.

It is a big step, it sounds to me as though you have reached the financially independent stage and are needing reassurance. If you have been mulling this over in your mind for the last few years that sounds familiar. Being financially independent is very empowering in its own right. I came down to a four day week for two years, I was going to come down to three days, but with changes at work it was great to just being able to say no, this is not for me. (But I did need a nudge from my daughter who said "you have been talking about retiring for ages just go for it" )

So I say consider gradually reducing hours to ease yourself towards retirement. But if you can afford the lifestyle you wish, and have a 'Structure', 'Purpose' and a 'Community' to retire into and it feels right to you just go for it.

[BlackBeard]

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

That’s really helpful indeed.

Rough figures below.

Currently making around 5% on invested money, and 8% capital growth.

So question is when do I make the jump to full retirement?

Financials are.

600k in joint pensions
660k in UK shares
1.2 business assets
1.4 property, that includes BTL

I reckon around 60k year spending

I do think a 4% annual drawdown is perhaps a bit ambitious at your age. Good luck.

can you quantify that?

[BullDog]

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

That’s really helpful indeed.

Rough figures below.

Currently making around 5% on invested money, and 8% capital growth.

So question is when do I make the jump to full retirement?

Financials are.

600k in joint pensions
660k in UK shares
1.2 business assets
1.4 property, that includes BTL

I reckon around 60k year spending

I do think a 4% annual drawdown is perhaps a bit ambitious at your age. Good luck.

can you quantify that?

Impossible question to answer with any certainty, in my opinion. You likely have another 35 to 40 years lifestyle to fund from your investments. You might get others far more knowledgeable than I answering you. Not least is your attitude to the amount of risk you are prepared to take with your drawdown portfolio. The Internet, as you'd expect, is chock full of people asking the exact same questions. Sorry I can't be more helpful, it's an opinion and everyone has one.

[Midsmartin]

I'm working half time, age 54, self employed.
You really need to think what you will do all day when retired. To what extent do you need social contact or purpose that you get from work? What will you actually do all day?

I've started volunteering a day a week with my local wildlife trust. I find this gives physical exercise, and a new group of interesting friends/acquaintances.

Also, are your business asset valuations realistic?
Another point of reference is that if you were to purchase an rpi linked annuity at age 55 you would get about 1.8%. this is of course a terrible return, but more interesting when RPI is over 5%.

Will you spend more after retirement (cruises, restaurants, posh hotels) or less (cheaper car, growing l coming at home now, smaller house, no more expensive takeaway coffee)?

The 4% guide could seem high if in fact assets are currently unusually overpriced. The future may or may not bring inflation, energy shortages, serious problems from climate change, ecological damage etc that may overflow into the economy and asset prices on some way.

Actually the 4%, rule comes from the US stock market, which has done better than the UK one. In the UK the figure had been more like 3-3.5%, all based on past performance of course.

[Urbandreamer]

I do think a 4% annual drawdown is perhaps a bit ambitious at your age. Good luck.

can you quantify that?

I'll have a go. The study that lead to the 4% rule found that historically drawing 4% of the initial value, increasing the draw down in line with inflation, never emptied the pot before 30 years had passed.

If you start at 56, then in 30 years you will be 86. The current average life expectancy of a man is slightly above that. A significant number of men live longer, it is after all an average.

Of course we have ignored things like the state pension. Were we to assume that at 67 you get a full state pension, then you would only have to draw £50kpa from 67. The pot would likely last longer than 30 years.

Personally, despite projections showing a full state pension, I'm using a 3.3% figure (x30 rather than x25). Fortunately because I/we spend less, we can still retire very soon.

[Dod101]

I would say that with his assets the OP can certainly retire from a financial perspective. I retired or rather was given early retirement at 53 with probably in the money of the day about the same assets. Today, 20 odd years later I am better off financially than I have ever been and that has included, until Covid anyway, at least two holidays per annum overseas, one to Europe and the other long haul. In the early years, I did a lot of voluntary work but family circumstances required me to cut back until now I do very little except enjoy lunches, visits and my overseas trips from time to time.

I would simply go for it subject to the usual reorganisation of assets to include a cash reserve, long term growth funds and a plan for where the income is coming from.

Dod

[JohnB]

The OP clearly has the money, but do they have the motivation? If they are the kind of person to build a business, they are much less likely to fall easily into a life of leisure. How do they feel about selling the business and passing on its employees to someone else? Would they be looking for a new project, whether that be a self-build house, charity or garden train set? Do they want to be a pillar of the community, or visit South American volcanoes. Or would a Kindle and an armchair suffice?

[hiriskpaul]

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

That’s really helpful indeed.

Rough figures below.

Currently making around 5% on invested money, and 8% capital growth.

So question is when do I make the jump to full retirement?

Financials are.

600k in joint pensions
660k in UK shares
1.2 business assets
1.4 property, that includes BTL

I reckon around 60k year spending

Due to the current high valuations of assets (property, bonds, shares) I would say that a prudent drawdown rate for someone of your age would be no more than 3% of assets (excluding your own home).

If you do retire you should think about whether you are appropriately diversified for a long retirement. 660k in UK shares for example when it is very easy to be globally diversified.

[Darka]

I retired last September at 52 years old with a retirement pot of 33x annual spending, I felt more comfortable with that than the usually suggested 25x.
This was for myself and my wife with no other dependents.

My wife retired at the same time and we do not regret a minute, it's been fantastic and the shear pleasure of not having to work again is amazing.

[BlackBeard]

Thanks everyone for your time and answers so far.

I semi retired from my one business 6 years ago, and sold my interest in it a year ago.

I have another business which I also only work part time in so have carried on with the semi retirement theme.

I am more than happy to sell that business within the next year or so providing the figures stack up!

I have an interest in another business that gives me a good return at present, but I will be selling that interest in the next 12 months.

My business assets, are half in cash, and the other is a realistic if slightly undervalue of the physical assets.

I can honestly say that I can fill all of my time with my current interests and not get too bored, if I find that happening then I am well placed to do lots of voluntary work or indeed seasonal work, so I’m not concerned with boredom/ lack of social interaction.

My concern is all about having enough money to last and not leaving too much behind. You quote draw down at 3.5 to 4% of invested assets, may I ask why when those Said investments are currently earning 6% with capital growth of 8% why only draw a smaller percentage and not the full 6%, with current capital growth at 8%? (It was much higher, but I have one share just taken a down turn because of Russia’s current activities, it will rebound) so if I was to take the income at 6% on the 1.2m that’s currently invested and in pensions that wails give me 72k PA less taxes of course, or am I missing something? By the way I’m not saying that I would take the full amount each year, but could if I wanted.

With capital growth at 8% I’m ahead of inflation, so in theory I could take the earnings for say 20 years and then Draw down on the capital? Providing nothing changes in that time!

[Midsmartin]

why only draw a smaller percentage and not the full 6%, with current capital growth at 8%?.

Simply because nobody knows what future returns might be. Forecasting the future is a tricky business. All manner of catastrophes, economic or natural could result in dividends and asset values crashing.

Clearly if all your assets halved in value for a few years, even with a rebound after, your might have to draw a much higher than expected percentage of your assets to live off.

The 4% comes from taking all historical stock market data, in the US, and seeing what percentages drawdown is sustainable given every possible starting year. If you retire just before a monumental crash, then all your estimates may be in trouble.

[JohnB]

You need a clear idea what you mean by a return from each sort of asset. For shares, they might pay 3% dividends with capital growth of 5%, but if inflation is 4% your real return is 4%. And then you have different tax regimes for dividends and capital growth, different wrappers etc.

For your own house its only capital gains, with no tax. For BtL its complicated of course, with income offset against expenses like mortgages, upkeep and admin, and the capital gain aggressively taxed.

But the bottom line is to take the change in your wealth over a year after tax, and then remove the amount needed to compensate for inflation. If that exceeds expenditure, fine. If not, you will be burning capital. You'd expect this in your 80 and 90s, to be neutral in your 60s and 70s, but still be on an upward trajectory in your 50s, to give yourself a buffer. Try https://www.johnbray.org.uk/retire/retire.html, but it has no BtL concept. Selling businesses could be considered as inheritances.

[scotview]

I retired at 52 but clearly knew that I wanted to retire.

I have had many activities: salmon and trout fishing, have walked most of Scotland's long distance walks, walked alpine routes around Jungfrau & Matterhorn, run a watercolour class (not all oldies), dabbled in silversmithing, watched my handicap go up in the seniors golf, have logged quite a few rare bird species sightings, learned photography and video techniques.

Other than financial security, your health is important, maybe even more important. I have recently developed a coronary issue and this has reduced some of my more outward bound activities, not only due to physical and travel insurance restrictions but to a degree by loss of confidence to do some stuff.

Your post was financially orientated but I hope you don't mind my above comments.

[88V8]

When is the best time to retire and become financially independent, and tax efficient?

I am 56 years young with a partner, no dependants, own home no mortgage, current investments spread across ISA, SIPP's and self managed investment account, earring a return of 5% and capital growth at 8%, BTL property no mortgage, a business worth around 200K and passive business interests worth 900K

I retired at 56.
We both had hobbies we could expand, and fifteen years on we never had any trouble filling our time.

We had - and have - less capital than you, but both I and the wife had final salary pensions to look forward to and those plus our State pensions at a pinch we could live on.
Our spending is probably nearer £35-40k but I don't really keep track

I think you have ample capital, and I expect that if needs be you could spend less.
However, I also think you should reckon on a less benign future tax environment for investments. At the very least alignment with earned income, and worse if Labour get in. Most of our investments are unsheltered, hopefully yours are mostly wrapped.

The other However is that capital growth is nice to have but not something to be relied on. If you reckon a taxable 5% from ITs, for me that's a realistic benchmark and if it's untaxed so much the better.

As to spending your capital before you pop off, I think you need Mystic Meg to help with that.

V8

[ursaminortaur]

As to spending your capital before you pop off, I think you need Mystic Meg to help with that.

V8

As in a lot of things moderation is the key. You don't want to be the "richest person in the graveyard" ,ie have missed out on doing things by not spending enough, however being "the richest person in the graveyard" is far better than spending your final years in destitution.

[BlackBeard]

You need a clear idea what you mean by a return from each sort of asset. For shares, they might pay 3% dividends with capital growth of 5%, but if inflation is 4% your real return is 4%. And then you have different tax regimes for dividends and capital growth, different wrappers etc.

For your own house its only capital gains, with no tax. For BtL its complicated of course, with income offset against expenses like mortgages, upkeep and admin, and the capital gain aggressively taxed.

But the bottom line is to take the change in your wealth over a year after tax, and then remove the amount needed to compensate for inflation. If that exceeds expenditure, fine. If not, you will be burning capital. You'd expect this in your 80 and 90s, to be neutral in your 60s and 70s, but still be on an upward trajectory in your 50s, to give yourself a buffer. Try https://www.johnbray.org.uk/retire/retire.html, but it has no BtL concept. Selling businesses could be considered as inheritances.

I know about the different taxes re different earnings/assets, I try not to attract CGT by leaving my investments alone unless in SIPP or ISA, houses are fine, only have two, our home and One BTL. Businesses I claim ETR when sold as haven’t reached lifetime limit yet. Thanks for the link.