Finding that balance

Many people clearly plan to retire early, spend as much as possible, and then sponge off the taxpayer. Strangely, they rarely phrase their plans quite so bluntly.

What intrigues me is that as most of us that are getting older we have friends and family around us that are poorly or died early. So that means that not knowing when we are going to step off this mortal coil, or even worse (for me at least) need full time care means it's a gamble when we retire and with what.

I prefer to think in terms of uncertainty rather than gamble.

Early death is of relatively little interest to me as there isn't much I can do to prevent it and I won't care about it if it happens - it is a low probability event that is easy and inexpensive to insure against to ensure impact on others is mitigated. Living longer than expected is a more challenging uncertainty (but a welcome one). That is where Defined Benefit pensions and State Pensions are great and to a much lesser extent, annuities.

Care needs can be addressed in a variety of ways, but housing liquidation is a very good response, although less helpful if the first person in a couple needs care. However, that is lower probability (males tending to marry younger females and live shorter lives) and often couples look after each other and need to move into a care home only occurs when single. Also, stays in care homes are usually relatively short. So...with decent guaranteed income and a decent capital reserve, it is likely that care costs can be covered without undue difficulty in most scenarios. Personally, I plan to own my house until death, as it will provide convenience as well as protection via things such as equity-release against the worst scenarios, such as the first-to-die partner needing an extended stay in a care-home. That means I don't need to separately provide for some of the more extreme tail-risks.

It seems for some there is a lot of temptation to stay past 55 even if they probably could afford to go - balancing the desire for moRe money with there being one less year to enjoy retirement.

Agreed, and it is an odd sort of risk aversion. In almost all cases, a year at age 55 is going to be a healthier, more active year than any year in the future. Trading that year away to have more in the future is locking in the loss of your remaining best year(s). Caution in planning is fine, but a lot of people seem to be recklessly cautious.

Personally, I think there are a few parallels between retirement planning and investment decisions. When I consider changing my portfolio I generally spend about a month thinking through why my existing assets no longer meet my investment goals, what investment categories would meet my goals and then re-searching the exact investments I want to switch to. It is hard to say exactly when I make final decisions, but the final decision is straightforward when I am completely happy. That is not too dissimilar to the process Linton outlines above about retirement. However, I think a lot of people haven't spent time fully considering the questions Linton poses. If you have been thinking about those questions in detail, modelling, etc, then the final decision should not be difficult to take, but I think it is something that needs thinking and refining for several years to be certain.

One thing I anticipate is ensuring I am ready to take advantage of windfalls as I get close to being financially independent to retire. There will be a window of a few years where either myself or my partner would accept voluntary redundancy if available, and I hope that will end up determining the exit date, which will take the decision away from me (other than deciding to accept redundancy). That is my main concern at the moment - understanding when that window opens, and when it closes (which will be the point of financial independence).

If I get to the end of the window, then it is just a matter of working out the best time to leave in the short-term (optimising tax year position, etc, things which may influence the decision by weeks rather than months) and then making it happen. By the time I get there, I will understand everything I might need to know, and the decision to walk away will be routine and will not take much thought.

Turns out I've been following Linton's blue print in a somewhat vague way.

I've been putting money away since I was 25, though not much in the early years. Work for myself, so it's been a case of forgoing salary to be able to make payments into a pension. Planning to retire a few years from now when I'm a little over 55. Should have a pot of over 300k by then, plus enough in reserves to last for around 10 years without touching the pension.

A close , in fact my closest friend, died at 56 a few years ago, and when you have no family, it does make you step back and think. I even pondered wrapping the business up and enjoying life without work, but realistically I will be around for a bit over 56!

As for carrying on and on at work, well I mostly enjoy what I do, but that does have to be balanced on what I may be missing out on and the level of stress I want to continue with. I like to have structure in my life and can see me working in some capacity, I have started to take garden design courses and am part thinking that will form part of what I do.

I would like to add that I mull things over in a very vague way and then just wake up and do something because it 'feels' right.

Not sure if any of that helps!

chiefie wrote: »

...Some have a fabulous pot most can only dream of ...there is a lot of temptation to stay past 55 even if they probably could afford to go - balancing the desire for moRe money with there being one less year to enjoy retirement.

I'm just coming up to 53, and facing exactly this dilemma.

I'm one of the very fortunate people with some decent final salary pensions. Until my early-30s, I didn't pay that much attention to pensions, but from then on, every bonus would go straight into my pension. I overpaid my mortgage, and cleared it early. I then put the mortgage payment into my pension. At the peak I was putting 68% of my gross salary into my pension.

I'm now able to have that most wonderful thing - choices. I could stop work tomorrow if I really wanted to. But the financial picture looks better if I work another year or two. Will I be one of those people who always say 'just another year'? Maybe - but at least its through choice.

Did I get the right balance? I have friends who chose to spend more of their salary on expensive cars, holidays, etc. That's fine - that was their choice. I lived a fairly modest life most of my life [I still take a packed lunch to work], and can choose to enjoy my retirement. I'm the one who will look foolish if I die early!

I'm no - where near retirement yet so my views are different and less formed. At the moment what is early retirement is probably different for my generation but many may not realise that yet. With SP age being 67/68 with a good chance of being pushed back further, many my age not putting much into a pension or the work schemes (including good public sector DB ones) becoming payable at SP age then I doubt retiring in our 50s is even an option.

The other issue is having children later. Those of us having children in our late 30s or early 40s will have children still finishing university and not yet on the property ladder as we enter our 60s. If you plan to assist with fees, deposits, weddings, etc then retiring before paying for any of it seems unlikely.

Despite this we still have the same concerns about life expectancy and seeing family/friends who didn't make it to 60/65. However if retirement before this isn't an option then enjoying life while still working seems to be the solution. So while I'm saving for my retirement and trying to make good financial choices, locking too much money away until I'm 68 doesn't seem the best idea. So some in my work pension, some locked away and growing until 55 (or ten years before SP age if that changes) for things needed then, some in savings accounts and in property equity that will improve quality of life and give options in 5-10 years (better home, holidays and family time), as well as enjoying life now seems like the plan. This way I'm not putting too much emphasis on retirement being the life goal in case it doesn't happen, while putting enough away to have a comfortable retirement if it does happen. As well as having enough money earlier to still have options to work less and enjoy life as I get older will be what I consider success.