Early retirement @ 55 what to do with £ 380000

jamesd wrote: »

Load up cfiresim and put in these values:

Retirement year: 2016
Retirement end year: 2056 (to age 95)
Investigate (on right): Max initial spending the minimum success rate 95 default %
Portfolio value: 380000
Spending plan: Guyton-Klinger
Social Security: annual 8000 start year 2028, assumes you will arrange to get this much state pension

Click on the run simulation button at the bottom and wait a few seconds for the results.

Base answer is that the max initial spending is 27,169. In the bottom right the failure cases happen starting 26 years in but the portfolio dips aren't large so it's easy enough to adjust spending to remove them. More of a concern is that the income drops as low as 8526 and that's too low.

Close the results window and make these changes:

Initial yearly spending: 26000
Spending floor: change to defined value and put in 19500 (75%)
Other income: Label add Blanchett, Amount 3800 recurring, start year 2030, end year 2100 (age 70, spending reduced by 16% which is 1% compounded for 15 years, based on Blanchett Estimating the True Cost of Retirement and others showing that spending declines to age 75, I'm using one value for convenience. This isn't real income, it's fake income to reduce the money taken from your pot for spending that you may well not do.

Click on run simulation again.

Base answer is now max initial spending of 24,734. Failure cases happen at 27 years, still too early for my taste. Also look at the spending level chart and see that a lot of runs are hitting the minimum specified income, not a good sign. Each coloured line is one run for a different starting year.

Close the results window and make these changes:

Change Investigate from max initial spending to None.
Change initial yearly spending to 23000
Change spending floor from 19500 to 17250 (75% of the 23000)
Run simulation.

No max initial spending line because that's now turned off. Instead the statistics below the graphs show a success rate of 100%. Individual dips are using up most of the money so that's about right. Far fewer dips are hitting the spending floor, also a good sign.

So if no allowance is made for downsizing you could prudently take only around £23k pa, below your 25k target. And I'm simply assuming you're willing to take a spending cut if there is a sustained drop in markets, the worst cases that have to be planned for.

You also have £13k of income that I have assumed is on top of the 28k spending target you gave. If it isn't you can easily meet your target income without working. Just add that extra income and play around. Ditto for the downsizing, it'll mean that you can easily afford the target. Again, you can add it, as capital added to your pot whenever you want to assume you sell. That downsizing 150k is a very big addition to a pot of 380k.

I'll add the 13k and assume you downsize in 5 years:

Investigate: max initial spending
Minimum success rate: 99 instead of 95
Other income: label BTL, amount 13000 recurring start year 2016 end year 2100
Click on add savings button
Label: downsize, amount 150000 recurring: false, start year 2021
Run simulation.

Max initial spending is now 32920 and you can look over the rest.

For these simulations I'm assuming you use the Guyton-Klinger rules each year and that you include some small cap stock investing because that's known to increase success rates. Also assume that you will keep one year of investment spending in a savings account and not sell investments to top it up if it's been a bad investing year, just take the natural interest and dividends. That also increases success rates. Between the two they should more than compensate for the US data being used in the model.

You mentioned that your OH is still working and that reduces the required income. Not allowed for above but you can plug in numbers, though maybe OH will also want to stop working. I didn't allow for the OH pension, you should add that to the plan, guaranteed income helps significantly to reduce the potential dips.

Given the remaining things not allowed for something over 30k with a floor of 25k should be doable for the worst cases and in better cases you will be able to increase that substantially.

jamesd wrote: »

I do not work in the financial services industry.