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  • FIRST POST
    • Marine_life
    • By Marine_life 5th Nov 10, 10:46 AM
    • 823Posts
    • 1,463Thanks
    Marine_life
    Early-retirement wannabe
    • #1
    • 5th Nov 10, 10:46 AM
    Early-retirement wannabe 5th Nov 10 at 10:46 AM
    I would like to create a topic (don't see it at the moment - other than the NUMBER thread).

    Who is aiming for early retirement (or who has retired early already)?
    When did you begin planning and what drove the decision?
    What is the strategy for getting there?
    How much of a relative decline in income are you prepared to take / did you take?
    What are your main concerns?
    For those already in early retirement - how is it progressing? What have been the good and bad surprises (financial and otherwise)?

    I will post my strategy but wanted to get some thoughts
Page 188
    • MallyGirl
    • By MallyGirl 12th Jan 18, 12:41 PM
    • 2,304 Posts
    • 7,317 Thanks
    MallyGirl
    I am obviously a mere whippersnapper in present company - my first job was with Research Machines and I remember being gobsmacked by the new RM Nimbus which had 4 colours as compared to the BBC B which was just green and black. I also had no idea what to do with a mouse (Windows 1) and had to be shown
    • blisteringblue
    • By blisteringblue 12th Jan 18, 12:48 PM
    • 1,043 Posts
    • 1,899 Thanks
    blisteringblue
    Well I'm only the ZX81 generation but rest assured we are hoping to retire early too. Wow, managed to bring it back on topic nicely

    I do follow this thread, personally I had 3 Final Salary Pensions this time last year. I now only have the smallest of these and used last years crazy CETV transfers (56x and 31x) to get me a nice pot (circa 700K presently) but I still have 1783 days until I can retire (can you tell I am keen ) so am actively ramping up the contributions between now and then as well as clearing the mortgage (not huge).

    All being well I hope to be between £850 - 950K by then, I'm not an investor so I have some fairly balanced funds. Then at 65 I have about 4K pa from the remaining DB and I will get full state pension at 67.

    Obviously markets permitting, if there is a crash or post brexit headaches I am prepared to work for an extra couple of years if needs be, but hopefully not. My ambition from the time my dad had a coronary aged 56 (still with us, luckily) has always been to retire at 55 and this is my driver in all of this.

    My IFA keeps telling me not to put too much extra in because I could hit LTA but I am a realist so do keep a close eye on things.
  • jamesd
    Why not retire now? Using the Guyton-Klinger rules the UK safe withdrawal rate is 5.5% so you have enough personal pension money for £38.5k a year plus DB and state pensions. You could increase the mortgage and/or use cheap credit card deals to manage until 55.

    I agree with the IFA: you're going to find it hard to avoid the lifetime allowance charge if you continue. As it is you're also going to have to withdraw money rapidly from the pension to avoid paying higher rate tax once DB and state pensions are in payment.

    My father died of a heart attack at 45... I'm already older, though my heart and circulation are average so I should live quite a bit longer.
    Last edited by jamesd; 12-01-2018 at 1:49 PM.
    • NotSkint
    • By NotSkint 12th Jan 18, 3:33 PM
    • 66 Posts
    • 73 Thanks
    NotSkint
    Guyton Klinger
    The following article and parts following seem to imply that Guyton Klinger drawdown rules have no free lunch and that although the percentage withdrawal rates can be higher the overall pot size later will be lower and therefore your later income will be less

    https://earlyretirementnow.com/2017/02/08/the-ultimate-guide-to-safe-withdrawal-rates-part-9-guyton-klinger/

    I haven't quite got my head round it all (yet) but After reading all parts I am less clear on a strategy for drawdown than I started with.
    • Terron
    • By Terron 12th Jan 18, 3:52 PM
    • 134 Posts
    • 161 Thanks
    Terron
    I am obviously a mere whippersnapper in present company - my first job was with Research Machines and I remember being gobsmacked by the new RM Nimbus which had 4 colours as compared to the BBC B which was just green and black. I also had no idea what to do with a mouse (Windows 1) and had to be shown
    Originally posted by MallyGirl
    My second system was a BBC B and it could manage 8 colours. Maybe you were using a monochrome monitor.
    • blisteringblue
    • By blisteringblue 12th Jan 18, 5:26 PM
    • 1,043 Posts
    • 1,899 Thanks
    blisteringblue
    Why not retire now? Using the Guyton-Klinger rules the UK safe withdrawal rate is 5.5% so you have enough personal pension money for £38.5k a year plus DB and state pensions. You could increase the mortgage and/or use cheap credit card deals to manage until 55.
    Originally posted by jamesd
    Pretty much what a friend who has done similar said too. Without the mortgage I said to my IFA that my number is about 2k Net a month too so more than comfortable now.

    I'm happy to see out the last 5 years and get everything straight for now, but it does certainly give me food for thought.

    My plan has been 55 since the mid 90s so I'm bang on track.

    I agree with the IFA: you're going to find it hard to avoid the lifetime allowance charge if you continue. As it is you're also going to have to withdraw money rapidly from the pension to avoid paying higher rate tax once DB and state pensions are in payment.
    Originally posted by jamesd
    I know we discussed this last year when sorting the transfers and I'm sure it will come up in the review this year.

    It's a tough trade though, 40% tax now as salary, or continue with a little extra salary sacrifice to reduce my tax but try and hit close to LTA around my 55th birthday.
  • jamesd
    The following article and parts following seem to imply that Guyton Klinger ... although the percentage withdrawal rates can be higher the overall pot size later will be lower
    Originally posted by NotSkint
    That's because they didn't really use the Guyton-Klinger rules and one of the things they decided was useless and didn't use improves the values later in retirement. Here's more that they got wrong.

    You can't trust the analysis at that site, they make their own changes but still label them as the original version.
    Last edited by jamesd; 12-01-2018 at 11:34 PM.
    • Greta Sharbo
    • By Greta Sharbo 18th Jan 18, 5:32 PM
    • 126 Posts
    • 144 Thanks
    Greta Sharbo
    Wonderful thread. Have read it all in the past 4 weeks or so. Phew.

    Some great stories and wonderful advice so big thanks to the contributors.

    Ive saved a few dozen links as I’ve gone along so lots of reading to do!
    • tony4147
    • By tony4147 19th Jan 18, 8:24 AM
    • 276 Posts
    • 43 Thanks
    tony4147
    jamesd,
    Excuse my ignorance, am I correct in that what people normally think is a safe withdrawel rate for DD as 4% they should be thinking in terms of 5.5%?
    • madeinireland
    • By madeinireland 19th Jan 18, 2:27 PM
    • 378 Posts
    • 123 Thanks
    madeinireland
    I have read a book my Michael McClung called “living off you money” which covered the subject really well. He would argue the amount you can safely drawdown would vary depending on many factors but at a vary basic level and looking at the performance of stocks since data was recorded you would get away with 4% so that would be a fairly crude method but would pretty much work.
    • ex-pat scot
    • By ex-pat scot 19th Jan 18, 2:54 PM
    • 233 Posts
    • 266 Thanks
    ex-pat scot
    I have read a book my Michael McClung called “living off you money” which covered the subject really well. He would argue the amount you can safely drawdown would vary depending on many factors but at a vary basic level and looking at the performance of stocks since data was recorded you would get away with 4% so that would be a fairly crude method but would pretty much work.
    Originally posted by madeinireland
    That's the basic premise of "safe withdrawal rate".
    There's a comprehensive thread, and lots of online resources.


    Simply put, there is a sustainable rate of withdrawal from your assets, which will result in being able to maintain your capital.
    The actual rate varies depending on a number of factors including:
    - asset class
    - currency / territory
    - timescale


    There is plenty of asset return data stretching back over 100 years and more, and concentrating on US and UK markets (but available apparently for others).


    My take-away from that data is:
    1. the long run real rate of return (ie net of inflation) is 5% for an equity portfolio, after taking account of average 3% inflation.
    2. the level of withdrawal that would result in maintenance of capital after a 30 year timeframe, clearly depends on the actual returns each year (and the sequence of those returns).
    3. for the UK market, and using the last 120+ years, if you had a 60:40 equities: bonds portfolio then withdrawing 3.5% annually would result in success (ie capital maintenance) in 95% of cases
    4. for the US market, the figure is 4%
    5. these figures are before costs -both custodian/platform, fund, tax, stamp duty, investment manager.


    6. there are online modelling tools that look at the asset mix, timeframe, and give a probability of success. Clearly the lower the withdrawal rate, the greater the probability of success.


    So what does this mean in practice?
    Well - in my opinion if you have a 30+ year horizon, then the long term performance of equities portfolio makes sense, even with the greater volatility of returns.
    My portfolio is a world tracker, to get the whole-of-market diversification and hedging on currency movements.
    I figure if the long run mean of 5% equities return and 95% success of 4% return, then somewhere between 4% and 5% is a good starting point.
    A lot also depends on flexibility. If you HAVE to have 4% each year, then that gives little room for error. If you can take a flexible approach, adjusting withdrawals for low or high phases of returns, then you can generally get a much better long run income.


    There's lots of stuff on various methods: Guyton Klinger, cFireSim etc.


    Remember also income tax. If you decide on a 4% withdrawal rate with a £1m pot (for simplicity), then that gives a £40,000 gross annual income. But, as you have your 25% tax free allowance, then you would get £36,000 net. That's £3,000 per month.
    In pra
  • jamesd
    Excuse my ignorance, am I correct in that what people normally think is a safe withdrawel rate for DD as 4% they should be thinking in terms of 5.5%?
    Originally posted by tony4147
    Yes, provided:

    1. the retirement plan is for 40 years, which was used for the 5.5% calculation. It's higher for shorter plans, lower for longer
    2. UK investments only are used - don't do this
    3. you really do follow the Guyton-Klinger rules
    4. you deduct from the 5.5% 30% of charges, so if platform and fund charges total 1%, reduce by 0.3% to 5.2% for you

    You should also use Guyton's sequence of return risk reduction method.
  • jamesd
    I have read a book my Michael McClung called “living off you money” which covered the subject really well. He would argue the amount you can safely drawdown would vary depending on many factors but at a vary basic level and looking at the performance of stocks since data was recorded you would get away with 4% so that would be a fairly crude method but would pretty much work.
    Originally posted by madeinireland
    Yes but:

    1. that's before costs. Reduce it by 30% of costs
    2. that's for US investors and investments, deduct 0.3% for UK
    3. that's for the percentage of the starting pot size plus inflation increases each year
    4. that's for 30 years

    If you're willing to do only a little more work once a year you could use the Guyton-Klinger rules and start at 5.5% minus 30% of costs for 40 years for a UK investor.

    With costs likely to be 1% they mean a 0.3 deduction so it's 3.7% vs 5.2%, 40% more initial income for the same pot size by using the more modern rules and accepting some income variation.
    • gfplux
    • By gfplux 20th Jan 18, 7:48 AM
    • 3,703 Posts
    • 3,360 Thanks
    gfplux
    One “benefit” of drawdown if you have other income is taking only your needs to minimise your income tax.
    I have a number of income/pension streams that are fixed (some are inflation linked others not) These income streams come wether I need the money or not. Which I do.
    My drawdown gives me the opportunity to vary my income each year matching, if I can, my expenditure. Some years I need more than others.
    Doing this I attempt to minimise the income tax I pay and take only from my drawdown what I need.
    I hope the above makes sense!
    Britains decision to engage in the complex and difficult process of leaving the EU will make Britain poor (again).
    "Brexit Blight of Uncertainty" sums it all up. Although "Brexit Crisis", "The Curse of Brexit" or "Brexit Disaster" come close.
    • Thrugelmir
    • By Thrugelmir 20th Jan 18, 9:15 AM
    • 56,767 Posts
    • 50,147 Thanks
    Thrugelmir
    3. for the UK market, and using the last 120+ years, if you had a 60:40 equities: bonds portfolio then withdrawing 3.5% annually would result in success (ie capital maintenance) in 95% of cases
    Originally posted by ex-pat scot
    That seems more of a case of fitting the data to reinforce a view.
    “Opportunities come infrequently. When it rains gold, put out the bucket, not the thimble”
    ― Warren Buffett
    • OldMusicGuy
    • By OldMusicGuy 20th Jan 18, 9:19 AM
    • 265 Posts
    • 487 Thanks
    OldMusicGuy
    Doing this I attempt to minimise the income tax I pay and take only from my drawdown what I need.
    I hope the above makes sense!
    Originally posted by gfplux
    It does to me. I found the concept of withdrawal rates very helpful in retirement planning and deciding to retire early. Running simulations through things like cFIREsim helped get me out of the "OMY" mindset. However, with retirement 5 weeks away, I am planning how to utilize the funds I have both in my SIPP and outside it using more of a bottom up approach to minimize tax in the first 15 years of retirement rather than just work on a blunt %age withdrawal rate.

    But I am very detail oriented so maybe I am overcomplicating things (wouldn't be the first time....).
    • Liffy99
    • By Liffy99 20th Jan 18, 9:56 AM
    • 48 Posts
    • 19 Thanks
    Liffy99
    Not sure I really planned my retirement as it was largely triggered by health issues. A heart attack at 57 convinced me to pack it all in at 60 (the earliest I could access an NHS pension). Luckily my organisation restructured at this time so I hung on for a few months and managed to get a redundancy payment worth more than a year’s salary.
    So now I am no longer working and living on an NHS pension of £16k. I have a modest SIPP which I intend to call upon in 2 or 3 years time and will get my state pension in another 5 years. I also have savings for big expenses and am debt free and own my own house.
    However, I am not planning for a 30 year retirement - I don’t think I will live until 90! So see myself gradually running my SIPP and savings down over 20 years. My ‘protection’ is that I will have an index-linked income of approx. £24k (state plus NHS pension) in perpetuity.
    One thing I really regret doing is not planning what to do in retirement and feel very much at sea (I broke my femur a week into retirement and have been on crutches for a year and now waiting for a hip) as current circumstances have severely limited my activities. Summer was OK but winter is a real bind.
    Last edited by Liffy99; 20-01-2018 at 10:43 AM.
    • Triumph13
    • By Triumph13 20th Jan 18, 6:22 PM
    • 1,131 Posts
    • 1,386 Thanks
    Triumph13
    One “benefit” of drawdown if you have other income is taking only your needs to minimise your income tax.
    I have a number of income/pension streams that are fixed (some are inflation linked others not) These income streams come wether I need the money or not. Which I do.
    My drawdown gives me the opportunity to vary my income each year matching, if I can, my expenditure. Some years I need more than others.
    Doing this I attempt to minimise the income tax I pay and take only from my drawdown what I need.
    I hope the above makes sense!
    Originally posted by gfplux
    Doesn't entirely make sense to me as you seem to be conflating your strategy for funding your expenditure with your strategy for optimising your tax position and they really should be thought of separately. It may be that this does come out to the same answer for you, but many others will want to use S&S ISAs as a parking lot for money taken from pensions when most tax efficient to do so, but not yet needed for expenditure.
    • gadgetmind
    • By gadgetmind 20th Jan 18, 6:29 PM
    • 10,692 Posts
    • 8,563 Thanks
    gadgetmind
    I'm now on gardening leave while various lawyers do the "elephant seals on a beach" bashing against each other to work out how much money I'll get to go quietly.

    It still hasn't quite sunk in!
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
    • atush
    • By atush 20th Jan 18, 6:36 PM
    • 16,460 Posts
    • 10,204 Thanks
    atush
    Wow, it is really happening Gadget. Let us know as things progress.
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