Early-retirement wannabe

hugheskevi · 16 March 2014 at 1:36PM

Thank you for this, it is interesting to find out what other people consider a worthwhile trade off. I am new to this thread, but have been giving this point much thought recently.

I've given it a lot of thought too, although retirement is still quite distant for me.

One thing I've wrestled with is the return from working one year more. In my case, after working out what I think is a reasonable retirement income (ie enough to maintain my existing - fairly frugal - lifestyle) the increase in future income from working one year more beyond that point is about 10% higher income in all future years.

10% is a decent income hike, particularly when based around a modest income. Against that, why work more when you have 'enough?'

Personally I decided that it is something I will review when I get within a few years of planned retirement. At that point I'll carefully calculate (based on latest expenditure at that time) what would be the minimum income I want, a best-estimate figure and a cautious figure. That will give a retirement window, during which I can take advantage of any redundancies which may be offered or simply have an alternative option should I not be enjoying work. And if there are no redundancies, and I'm enjoying work then I'll have a backstop date to work toward.

boglehead · 18 March 2014 at 1:08AM

racing_blue wrote: »

But I like the feeling that if our patterns of consumption are lean enough, work becomes an active choice rather than an obligation

Thats my vision of retirement ! My early retirement dream is not to go fishing at 55y/o, but to work on/in things without the need to get paid and givr me flexibility. Financial freedom is what it really is about for me...

Triumph13 · 18 March 2014 at 12:01PM

I would be struggling to decide if it was time to retire about now if it hadn't been for Gordon Brown. When he took away the dividend tax credit we decided we wouldn't be able to retire at 50 after all so we might as well have kids to keep us in our old age instead!

As it turns out my career went better than expected and so we probably could have gone frugally at 50, but are now having to wait until the youngest finishes school when I'm 58. As the whole point of retirement for us is the freedom to travel there's not a lot of point going before then.

And no, we didn't name either of the boys 'Gordon'

hugheskevi · 12 April 2014 at 10:13PM

An update from me on this long-running thread...

I've now considered the implications of the Budget 2014 announcements for me personally. Initially, I thought the announcements would be of little consequence as our (myself and wife) pension income was mostly DB with some individual personal pension I intended to use some combination of capped and flexible drawdown for. The increasing of minimum pension age was unfortunate (although hopefully there will be protection for existing pensions, or at least existing deposits), and as a whole I thought the consequence of the Budget could be negative for me personally.

However...my post age 50 income will come from 4 sources:

DB pension with minimum access age of 50 and NPA of 60 (and some DB AVCs, also accessible from 50)
Separate DB income, accessible from age 55 and with a higher NPA
Personal pension
State Pension

I'm currently aged 36, and prior to Budget, my intention was to access all pensions as early as possible (as I do not intend to be working at age 50, and hence there are tax advantages to saving in a pension now and taking actuarial reductions in the future to use income tax allowances).

I was intending to use flexible draw-down, but this would not be possible for my wife until she reached State Pension age, and probably not until age 55 for me. This would have therefore meant drawing about £20,000 p/a under flexible draw-down to stay out of higher rate tiers for me. Due to taking actuarial reductions to DB pension it would have been a bit of a lottery as to exactly what my income was, as I couldn't aim for the £20,000 flexible drawdown limit (or whatever it would have increased to in the future). So in practice there would be a big risk I could only draw a lot less than £20,000 to stay below higher rate tax. That all meant it would take me a long time to drawdown my personal pension to nil.

Following the Budget, I can now take my first DB pension at 50 as before, but then rather than taking the second DB pension at 55 I will instead withdraw the personal pension, taking as much as possible each year to remain under higher rate and using it to live as well as saving some in ISAs. That means I can withdraw a lot more each year, the personal pension will be depleted far more rapidly, whilst the DB pension will remain deferred until the personal pension money is exhausted.

By doing this I am effectively investing in the DB pension, which is guaranteed (ie not subject to investment returns) and giving an effective return of around 5% p/a, fully inflation protected. As such, it is an excellent investment vehicle for retirement income which will be an excellent way to balance capital and income (if I want more capital, commence it earlier, and if I want more income commence it later).

It should take me about 6 years to fully deplete the personal pension, so I don't expect to commence the second DB pension until at least age 61. It will probably be later, depending on where higher rate tax threshold is sitting, as I can live off savings plus the income from the first DB pension once the personal pension is depleted. Then commence the second DB pension when required, in the long term living from the income of the DB pensions plus State Pensions.

The extra flexibility, plus a slightly better past year than forecast, has brought forward my viable retirement date from 2022 to 2021

Earliest possible date is 2018, 2020 just about doable, 2021 viable and 2022 most likely date. The earlier dates are only possible in the event of inheritance or redundancy offer as they would involve too much of an income sacrifice.

As well as risk of policy change, the main uncertainty left is how to manage the transition between work and retirement and home ownership. Ideally, I'd have a mortgage which is paid off with pension income which would really help balance liquidity efficiently between pre and post age 55 periods. However, when I retire I want to go travelling for a couple of years before returning to a completely different part of UK. Ideally I'd sell house before going travelling but that isn't conducive to keeping a mortgage...so perhaps I might reluctantly rent out house, which should enable me to keep and in due course port a mortgage to a new property when sold a couple of years later. Something I'll worry about as the time gets closer though.

mark55man · 13 April 2014 at 9:01AM

hugheskevi - you might be interested inthis thread https://forums.moneysavingexpert.com/discussion/4940143

This covers my early thinking on how to balance DB and DC pots. Main takeaway's for me were

* on death DC is more transferrable DB tends to halve and your state pension disappears completely for your OH - think about that and maybe leaving some uncrystallised in the DC arena as extra flexibility
* this whole modelling was very sensitive to CPI/RPI and investment return even for me where DB is the majority

I found the budget liberating in its potential so slightly surprised you see it as negative - interested in firther thoughts on that, in case I am missing a trick (I am early 50a not late 30s - maybe that makes a difference)

Marine_life · 13 April 2014 at 10:33AM

Well... there's a coincidence. Was sitting here thinking that I have not updated my status on here and then the thread pops up all of its own accord.

A couple of things have happened over the last fews months.

First of all on the positive side I have now passed my earliest possible 'quit-my-job' date (which was 1 April) the importance being that now with my contract on six months notice from the end of the quarter, I can't actually miss accruing my full pension entitlement. Over the next six months I need to make sure that the entitlement is what I think it is so that I don't make a huge mistake! Basically its a difference betwween a pension of EUR 25k per annum and EUR 45 k per annum (at age 62), so pretty important.

So potentially I could be on for a retirement of end of October which would give me only 192 days to go. Amazing how time flies when you're having fun! However, whilst that's a possibility i suspect that I will hang around until June 2015 or possibly a little longer - that depends on a number of work related things.

Finances seem to be coming together and our whole plan is built on having around EUR 1 million in cash and savings in order to keep us for the years between retiring and when our pensions kick in. We are on target for that figure.

However, personally things are an absolute mess!

We had planned to move back to the UK and went a long way down the road of purchasing a UK property but then got cold feet and pulled out. Why? Well....to be honest, the reason we want to come back to the uk is a. The children are there and b. If we do want to do some casual work, it will be much easier if we are in the UK. But everytime I really think about going back to the UK I get a sick feeling in my stomach. Mrs Marine_life really does not want to go back so we found ourselves in limbo again.

I feel we are still looking for an adventure and will be giving it some serious thought over the next few months. Watch this space.

Also some serious family news. My mother-in-law has been told she has lung cancer and after some soul searching she decided not to have treatment. So its now a question of time and how long she has. That means our lives will be on hold until then.

It brings it home to me that finances are only one part of the retirement equation.

ozzage · 13 April 2014 at 12:35PM

hugheskevi wrote: »

Following the Budget, I can now take my first DB pension at 50 as before, but then rather than taking the second DB pension at 55 I will instead withdraw the personal pension,

That will almost certainly be 57, not 55, which may affect your plans somewhat.

mark55man · 13 April 2014 at 12:42PM

That means you need to include an element of ISA Building as well for which you have some, but not a lot of time if you are talking early 50s as you D-Date

hugheskevi · 13 April 2014 at 3:32PM

hugheskevi - you might be interested inthis thread http://forums.moneysavingexpert.com/....php?t=4940143

Seen the thread before, and agree that too much negativity is put on actuarial reductions when they may be optimal if you have deliberately over-provisioned for the Normal Pension age which applies.

Although I'd never trust something described as 'actuarially neutral' as being 'fair' without doing the calculations myself...:)

I found the budget liberating in its potential so slightly surprised you see it as negative

Negative for me personally overall (possibly) as the increase in minimum pension age from 50/55 to 58 or 59 (based on my expected State Pension age and a 10 year difference, which is still under consultation) would be more harmful to me than the DC flexibility will be beneficial.

But that depends on how existing pensions are treated wrt minimum pension age - if they are protected the changes are beneficial for me.

That will almost certainly be 57, not 55, which may affect your plans somewhat.

That depends on what protections, if any, are introduced. If it is like 2006, then there may well be protection for existing pension contracts, ie they retain 55 whilst new pension contracts taken out would have minimum pension age=state pension age less 10 years. That would be fine, as I've already got about enough in existing contracts to cover withdrawal s for the period 55-59.

Alternatively, all pensions could move to minimum pension age=state pension age but presumably not affecting those with protected minimum pension ages from 2006. There could also be some horrendous possibilities, whereby existing deposits are protected but new deposits have a different minimum pension age. Can't imagine that happening though.

If there isn't protection, then my minimum pension age would be 58 or 59, as my State Pension age is on the (expected) cusp of when the move from 68 to 69 is expected. This would give me a greater incentive to use mortgages to bring forward liquidity whilst retaining tax efficiency (ie borrow more to use in the the period 50-58, then repay mortgage from pension money when it is accessible). Alternatively ISAs/unwrapped investments rather than pension could be used, but not as tax efficient.

That means you need to include an element of ISA Building as well for which you have some, but not a lot of time if you are talking early 50s as you D-Date

That was another helpful Budget change for me - I can squirrel away £30K p/a into ISAs (using wife's allowance too). Taking into account the capital gains allowance on unwrapped investments for both of us too that is more than plenty.

So far, ISAs have been largely neglected in favour of pensions in my plans, so only have about £40K in ISAs now but that will start to rapidly increase from this year onwards. It will accelerate in 2015/16 as by then I will have used up all my Annual Allowance carry-forward and won't be able to pension off all my higher rate income.

andrewm1981 · 14 April 2014 at 9:53AM

Hello all, a really interesting thread :-)

My plans have changed hugely recently, due to some inheritance. About me:

Age 33, salary 45k. Job is secure but not something I enjoy.
I have £80k deposit (saved up over the years) which I'm using for a £310k house I'm buying with the girlfriend next month in London.

I have £20k in shares, and a pension that will pay £12k a year in retirement if I continue with the 3% contribution. Early retirement would reduce this.

Last month I inherited a £250k property and £40k cash / assets

New plan: sell property, invest in 3 BTL properties, at £70k deposit, £100k mortgage each. At 5%interest. Each property will bring £1000 rent, cost £600 repayment mortgage, 25yr term . Voids etc will break even short term.

Overpay mortgages, pay off earlier (7years) retire at 50 on rental income of £3000/month

With the £80k left from inheritance, put in isas or 3% accounts incase I need it soon

Overpay into AVCs as all rental would be higher rate tax to increase pension to £15k

Any obvious floors with the plan?

Early-retirement wannabe

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