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    • fatbeetle
    • By fatbeetle 12th Sep 17, 6:24 AM
    • 343Posts
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    fatbeetle
    Living on savings
    • #1
    • 12th Sep 17, 6:24 AM
    Living on savings 12th Sep 17 at 6:24 AM
    In order to retire early, me and SWMBO will be living on a lump sum I am due.

    From Jan 2018 until sometime in 2024, we will live on a pot which currently stands at roughly £274,000

    Has anyone else lived on a savings pot for a period?

    Any tips or advice?


    This Forum tip was included in MoneySavingExpert.com's weekly email!
    Last edited by MSE Andrea; 20-09-2017 at 9:20 AM.
    “If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and who weren't so lazy.”
Page 2
    • bostonerimus
    • By bostonerimus 12th Sep 17, 12:44 PM
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    bostonerimus
    Simply putting the lump sum in the bank and spending it down to zero is a very unsophisticated approach.....it does have the advantage of being low risk as long as you have your spending well controlled and inflation doesn't take off. So a detailed budget is the starting point. Personally, I'd want to do a bit more with the lump sum.
    Misanthrope in search of similar for mutual loathing
    • coyrls
    • By coyrls 12th Sep 17, 12:57 PM
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    coyrls
    Simply putting the lump sum in the bank and spending it down to zero is a very unsophisticated approach.....it does have the advantage of being low risk as long as you have your spending well controlled and inflation doesn't take off. So a detailed budget is the starting point. Personally, I'd want to do a bit more with the lump sum.
    Originally posted by bostonerimus
    It would be very unsophisticated if the lump sum was your only asset but my understanding is that the OP has allocated this sum for that very purpose and has other assets together with guaranteed sources of income in the future.
    • NotSkint
    • By NotSkint 12th Sep 17, 1:37 PM
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    NotSkint
    My challenge to OP would be this - you have saved this money, specifically to do this task. It is now nearly time to spend this money for its intended purpose which is great. The question is, can you handle the psychological adjustment from being a saver to being a spender and to stand by and watch as you burn through all that lovely capital? I know I'm expecting to find that very hard indeed!
    Originally posted by Triumph13
    Yes it requires a major change in behaviour.
    When you've spent decades saving and investing for the present, it is all too easy to keep saving and investing for the future, even if you know you have more than enough already.
    It is quite difficult to actually spend it, if you aren't used to doing so and there are certainly mental hurdles to jump over.
    • ams25
    • By ams25 12th Sep 17, 2:38 PM
    • 94 Posts
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    ams25
    My challenge to OP would be this - you have saved this money, specifically to do this task. It is now nearly time to spend this money for its intended purpose which is great. The question is, can you handle the psychological adjustment from being a saver to being a spender and to stand by and watch as you burn through all that lovely capital? I know I'm expecting to find that very hard indeed!
    Originally posted by Triumph13
    I would. I've now started living off savings & investments (7 yrs or so from pensions) and I do struggle with the change from save up to spend down. Because of the market returns over the past year of course I am not actually spending down, but when that changes I know I will find it hard. Surprised more apparently don't. Part of my coping strategy is to have 2 to 3 years in cash and excluded from my core "portfolio" which will replenish the cash reserve annually but hopefully last 40+ years.
    • jack_pott
    • By jack_pott 12th Sep 17, 3:07 PM
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    jack_pott
    I've been going for nearly 21 years, with another 7 to go until pension time.

    can you handle the psychological adjustment from being a saver to being a spender
    Originally posted by Triumph13
    It's a good point, my savings grew by 30% in the 10 years up to the credit crunch, and another 4.5% since. My forecast says that I could significantly increase my spending, but who knows what catastrophic effect Brexit will have though.

    things like motor insurance may get slightly more expensive
    Originally posted by ukdw
    I remember having a Kafkaesque conversation with an insurance company:
    "I'm living off my savings, does that make me unemployed or retired?"
    "I don't know"
    "Well if you don't I don't"
    "So what do you want me to put down?"
    "What's cheaper?"
    "I can't tell you that"
    "They're your categories, if you don't know which I fit in, how am I supposed to know?"

    It went on like that for about 20 minutes, until I put the phone down.
    • bostonerimus
    • By bostonerimus 12th Sep 17, 3:55 PM
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    bostonerimus
    It would be very unsophisticated if the lump sum was your only asset but my understanding is that the OP has allocated this sum for that very purpose and has other assets together with guaranteed sources of income in the future.
    Originally posted by coyrls
    My understanding was that the OP has a number of defined benefit pensions and the OP says the pot can be spent down to zero. If the OP has other liquid capital that might be ok, but there's no mention of that and they would have far greater flexibility and security in retirement if they started to tap the DB pensions with some of the lump sum still available for large emergency expenses.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 12th Sep 17, 4:07 PM
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    bostonerimus
    I retired at age 52, three years before my DB pension started. I did a detailed budget and put one year's spending in the bank. In the end I didn't have to spend down the money in the bank as rental income and dividends covered my expenses. Now that the DB pension has started I reinvest dividends and still keep at least one year's worth of spending in the bank. Monthly income from DB pension and rent is $3k and average monthly expenses $2.5k.....a nicely Micawberish arrangement.

    I would encourage the OP to plan to keep a sizable amount of the lump sum to complement the DB income stream.
    Misanthrope in search of similar for mutual loathing
    • coyrls
    • By coyrls 12th Sep 17, 4:18 PM
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    coyrls
    I would encourage the OP to plan to keep a sizable amount of the lump sum to complement the DB income stream.
    Originally posted by bostonerimus
    Don't you believe the OP when they say:
    To Clarify; the pot can be spend down to zero, as at that point we will switch to living on my wife's superannuation, and my pensions. These combined will give us an embarrassingly good income, well above what we would need.
    • westv
    • By westv 12th Sep 17, 4:35 PM
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    westv
    Don't you believe the OP when they say:
    Originally posted by coyrls
    Perhaps they were thinking the DB income might need a small boost when one spouse dies?
    • bostonerimus
    • By bostonerimus 12th Sep 17, 5:23 PM
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    bostonerimus
    Don't you believe the OP when they say:
    Originally posted by coyrls
    To Clarify; the pot can be spend down to zero, as at that point we will switch to living on my wife's superannuation, and my pensions. These combined will give us an embarrassingly good income, well above what we would need.
    I believe the OP, but think they would be making an error spending the lump sum down to zero and just relying on the DB pensions. Their plan might work, but as stated it is not optimal.
    Misanthrope in search of similar for mutual loathing
    • Clifford_Pope
    • By Clifford_Pope 12th Sep 17, 5:30 PM
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    Clifford_Pope
    Certainly do an income and expenditure budget, but don't forget the citical impact of capital expenditure, in particular unexpected un-budgetted expenditure.

    What happens if you suddenly need a new car?
    Or major house repairs?
    Unexpected family misfortune?
    Is this pot clearly defined as outside your normal savings/reserves provision?
    • AnotherJoe
    • By AnotherJoe 12th Sep 17, 5:44 PM
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    AnotherJoe
    I've just started on this journey.
    I forestalled the unemployed/etc argument by telling my insurer I'd retired and IIRC I got about £7 reduction in my costs (possibly simply because my mileage would drop and i no longer needed coverage for using my car for work purposes (commute and travel to customers)

    I'm planning on leasing a car shortly, it will be interesting to see what they say when they ask my income, as its whatever i want it to be. However i have started taking a fixed sum each month from my SIPP so that will show a regular income into my current account.
    • jack_pott
    • By jack_pott 12th Sep 17, 8:36 PM
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    jack_pott
    I forestalled the unemployed/etc argument by telling my insurer I'd retired
    Originally posted by AnotherJoe
    I generally tell people I'm retired, but I'm wary what I say to insurance companies when they are the ones who get to decide whether you're making fraudulent statements. Safer to tell them exactly what's what, and let them decide which category I fit in.....or so I thought.
    • colsten
    • By colsten 12th Sep 17, 9:41 PM
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    colsten

    I'm planning on leasing a car shortly, it will be interesting to see what they say when they ask my income, as its whatever i want it to be.
    Originally posted by AnotherJoe
    It might be safer to pick a number upfront and stick to it, as what you tell insurers will be lodged in at least one industry database (National Hunter etc).
    • westv
    • By westv 12th Sep 17, 9:54 PM
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    westv
    Can you lease cars using non guaranteed income?
    • enthusiasticsaver
    • By enthusiasticsaver 12th Sep 17, 10:18 PM
    • 4,679 Posts
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    enthusiasticsaver
    Can you use a combination of bonds to pay you an annual salary each year? Invest say £35k for 1 year, keep £35k back in instant access, £35k in 2year bond and remaining £70k in 3 year bond and £99k in 5 year bond.
    4 weeks to go until early retirement in December . Debt free and mortgage free.

    I'm a Board Guide on the Debt-Free Wannabe, Mortgages, Banking and Budgeting boards. I volunteer to help get your forum questions answered and keep the forum running smoothly. Any views are mine and not the official line of moneysavingexpert.com. Pease remember, board guides don't read every post. If you spot an illegal or inappropriate post then please report it to forumteam@moneysavingexpert.com
    • Audaxer
    • By Audaxer 12th Sep 17, 11:36 PM
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    Audaxer
    As the OP says he and his wife will have more than sufficient pension income from 2024 to meet their needs, then if they want to use his full savings of £274,000 to live off until then, that is up to them. Assuming the money is in low interest accounts, that would be roughly £40k per year to spend it all. If they need to spend that much to live off for the next 7 years I would assume their pension income after tax would be over £40k, as he says it will be well above what they need.

    However if I was in that position, I would hate to have to spend all those savings over a 7 year period. I would try to maximise the interest as much as possible through various accounts, and maybe try and live off say £30k per year. If they managed that they would then still have at least £70k in savings for unexpected emergencies when the pensions start in 2024. Best way to do it would be to set up a monthly standing order (or orders if from various accounts) amounting to £2,500 as a monthly salary to themselves. Just a thought which could be a consideration.
    • fatbeetle
    • By fatbeetle 13th Sep 17, 4:06 AM
    • 343 Posts
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    fatbeetle
    So to get down to zero, say £40,000 a year over 7 years, I would put £40,000 in the highest interest instant access account or combination of accounts. I would then put £80,000 into the highest interest 1 year fixed term account and £40,000 into the highest 2,3,4 & 5 year fixed term accounts that compound interest rather than distribute it each year. At the end of year 1, I’d take half of the 1 year fixed term account and place it in the best paying compounding 5 year fixed term account and transfer the remainder into your instant access account(s). For subsequent years you take the maturing fixed term accounts.

    You may or may not keep pace with inflation with this approach and so I would look to make some savings out of your £40,000 a year to carry forward to the next year. You are unlikely to be liable for any income tax, unless you have other sources of taxable income. You will need to ensure that you do not exceed £85,000 with any one provider.
    Originally posted by coyrls
    Interest rates out here, (Australia,) where the money will be kept and drawn down from, are quite good at the moment. I'll have to look at spreading my savings appropriately.

    Thanks for this advice.
    “If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and who weren't so lazy.”
    • fatbeetle
    • By fatbeetle 13th Sep 17, 4:11 AM
    • 343 Posts
    • 545 Thanks
    fatbeetle
    My challenge to OP would be this - you have saved this money, specifically to do this task. It is now nearly time to spend this money for its intended purpose which is great. The question is, can you handle the psychological adjustment from being a saver to being a spender and to stand by and watch as you burn through all that lovely capital? I know I'm expecting to find that very hard indeed!
    Originally posted by Triumph13
    Thanks for this. The money has been amassed from wages, via a superannuation scheme, so I've not had to "save" or watch the pennies.

    However, even though I am not a spender by any stretch f the imagination, my wife makes me look like a drunk sailor on shore leave.

    We have a modest lifestyle planned, with our only extravagance being a Camper van for our holidays.
    “If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and who weren't so lazy.”
    • fatbeetle
    • By fatbeetle 13th Sep 17, 4:12 AM
    • 343 Posts
    • 545 Thanks
    fatbeetle
    Personally, I'd want to do a bit more with the lump sum.
    Originally posted by bostonerimus
    The lump will initially go into Aussie savings accounts, currently paying 3%.
    “If you trust in yourself, and believe in your dreams, and follow your star. . . you'll still get beaten by people who spent their time working hard and learning things and who weren't so lazy.”
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