How much do you REALLY need to retire?

nearlyretired2004

OK , this is going to be a VERY LENGTHY post and is more a story really, but I would be very interested in comments if anyone can be bothered to read it !

I am prompted to write it after reading the various posts predicting the vast sums of money people would need to be able to retire.

My story:

I more–than ‘semi’ retired in 2004 at age 49 after a payoff from my job in the pharmaceutical industry, some share sales and an inheritance – together amounting to circa £180,000 which has, ever since, mostly been in cash accounts (ISA, fixed rate and instant access).

My exposure to any real ‘investment’ (rather than just ‘savings’) has largely been in stocks and shares via my SIPP personal pension mentioned below, with some small personal shareholdings.

As far as regular monthly income is concerned, I have a VERY part time job (working from home – less than 2 hrs/day), income drawdown from a small personal pension (SIPP), interest income from the above cash, and £160 ‘rent’ from my adult son who is still at home - Totalling £1,360 per month

In addition this is topped up by the odd couple of £1,000 annually from ISA interest etc. and ad hoc £100’s from partner’s part time work.

We live a very comfortable, but not extravagant (some might say frugal!) life. We run a cheap car, hardly ever go out (from choice!) and are careful with use of utilities (gas, water….) etc…..

On the plus side, we eat and drink what we want, when we want, have no debt other than mortgage, pay for everything in cash or interest free credit and holiday at least once a year for three weeks or more in the Caribbean (Is that extravagant…?)………

Our regular monthly outgoings including mortgage and including an average monthly credit card bill, which pays all food, drink and fuel and is paid off in full each month are £1,031

Net £270 per month surplus

As far as ‘Capital Expenditure’ goes, in the last three years we have bought furniture and other household goods totalling at least £5,500

I do a monthly spreadsheet which accurately reflects our financial position and from an arbitrary point in December 2006 to now, four years on, our total capital has INCREASED by approximately £2,000 – not huge, but at least its an increase bearing in mind the holidays and the capex above ……..and the figure has never actually gone down since 2004

In addition from early next year, I will start to draw my deferred company pension (from age 55), which was always in the forward planning.

This will add approximately £700 per month (net) to the coffers giving a new total MONTHLY surplus of circa £1000.00 as well as a tax free lump sum (PCLS) of around £46,000 – taking total cash to around £225,000. The monthly amount is also index-linked.

(….and then there’s always the huge state pension to add from age 65 ….!!)

I am fully aware of inflation, but even allowing for the compounded effect of 5% year on year inflation for ten years, I calculate (V1 = V0 *((1.05)power 10) , an increase of approx 63% in year ten on my current monthly outgoings, which will be more than covered by the £1000 per month (and the £1000 per month will obviously have been added to the investment over that ten years producing more income.)………still not having touched any of the capital

I am ignoring any potential income stream generated by the tax free lump sum as this will probably be invested in property.

For completeness, I have an interest only mortgage of £84,000 on a property currently valued at circa £260,000. I prefer to keep my assets liquid as long as the net cost of the mortgage is not high - currently costing net .0178% or £12 per month
( Mortgage rate 2.49% and my lowest interest income is at 2.312% net )

I am also aware that income drawdown will (probably ….) reduce monthly income from my SIPP but this is also covered…….

The mortgage will be paid off when we eventually downsize and move abroad – hopefully with even lower living costs!!!

Obviously there’s more detail I could add, but I think this is long enough!

The more years my daily commute is from my bedroom to the laptop on my dining table, the less I feel I could ever go back to 1 ½ hrs each way per day!

QUESTION: Am I deluded and missing something major or not?

Thanks to anyone who has been bothered to read this and I would be VERY grateful for any comments!

Accountant_Kerry

i like your style and am looking to do something similar before i am 50 in 18 years.

dawyldthing

i think you'll be ok. I've been thinking of it of late. Once you have paid your morgage off (or got a low interest one like you have) then theres not much else to pay out and then you don't need to worry about it. i was working it all out earlier, but its true that once its paid off theres not really any major outgoings, so you can live off a few hours work/ savings and enjoy your free time

Gatser

Fantastic!

Well Done! :T

The NUMBER thread, covers this topic too... just how much do we need/want to have a comfortable retirement.

https://forums.moneysavingexpert.com/discussion/2146737

At only £12k, your NUMBER appears very low... how is is broken down please? Food, Bills, Motoring/Travel, Holidays etc I would like to learn a few tricks, hints & tips from you.... thanks...

Arthurian

"the net cost of the mortgage is not high - currently costing net .0178% or £12 per month"

Gasp!

nearlyretired2004

Thanks for the positive comments!

Gatser: Outgoings using bang up-to-date numbers – they are actually slightly lower than I previously stated!

TV Licence

11.61

Council Tax

175

Sky

69

Water

16

Mortgage

175

Credit card

450

Mobile Phone

6

TalkTalk Landline /Internet

25

Gas/ Elec

75

Boiler maintenance contract

12

Total:

£1014.61

As you can see our luxury is Sky multiroom in three rooms!

Credit card covers ‘Tesco’ i.e. all food, drink and fuel.

We only run one cheap car when most couples would run two – can’t justify a second, only working part time from home …..

We have a very cheap mobile contract – 50 minutes, 50 texts probably not enough for most!

As you can see these are our REGULAR monthly outgoings.

We don’t tend to ‘budget’ for one-off costs such as holidays, but pay for them cash and recover using accumulated/forthcoming ‘surplus’. Hence the reason why with a monthly surplus of £240 (ish), over three years our cash has only gone up by £2000, not £7200.

Arthurian: Are you clear that by NET cost of mortgage I mean ACTUAL cost (i.e. £175) MINUS what we earn in interest by keeping the £84000 in the bank and not paying the mortgage off?

Would be very grateful for any further comments, particularly on projected numbers ….. we know what our outgoings are now, but the only method I know of predicting future outgoings is by compounding a (guessed…!) RPI.

Thanks again for reading ….. I don’t think you need millions to at least partly retire (I do have some small income,), but I guess a lot depends on your age now and the lifestyle you want.

nearlyretired2004

sorry for the dodgy formatting in previous post - it didn't look like that in Word before cut-and-pasting!

Will preview in future!

amcluesent

> I would be VERY grateful for any comments!<

Interesting. I'm doing the sums of packing in at 50 (or more likely being packed in!). I reckoned that a net income of £14K would be OK (I was MF by 44 following a VR). I used MS Money to track everything to determine costs of an acceptable way of life.

nearlyretired2004

Thought I knew all the acronyms ...... what is MF ?

Presumably VR = voluntary redundancy?

Any more comments anyone - particularly on my projected numbers?

ChiefGrasscutter

Some things to consider as you get older.....
You will buy more 'services' as you need others to do things for you that previously when your were younger/fitter you did for yourself. Inflation in services is generally higher than in buying "things": so you are going to be hit twice here.

If you are retired and out 'doing things' - this will all cost money. You will have more time to do things when you are no longer working so you will be spending more on these leisure activities, which you did not when you were working.

If you want an income of say £15K and you do not yet have access to your pension then the calcs are simple. Capital of £600K in the bank so so speak and a gross interest rate of say 3.00% and a net (after tax rate) of 2.4% at the basic rate gives you an annual sum of
£14500 odd.
The issues to consider include what will happen to interest rates and inflation over the future. I'm sure you can get better returns however at increased risk but when you are retired you do not want to be excessively risking capital.

Then there are the 'wildcards' such as interests rates going to zero, ISA's being abolished, gas prices tripling...

What about long term care as you get much older?

As others have said much depends on your lifestyle - if you want to spend your retirement cruising round the world and seeing lots of places then you are going to need are lot of income from somewhere.

I'm sure those who work in financial services and are advisors will be along shortly to add their own take on the OP's thoughts.

p00hsticks

nearlyretired2004 wrote: »

Thought I knew all the acronyms ...... what is MF ?

Mortgage Free, I suspect