How much do you REALLY need to retire?

Loughton_Monkey

I have written a couple of times on the subject of early retirement and the sort of thinking I put behind my own decision.

https://forums.moneysavingexpert.com/discussion/comment/37799026#Comment_37799026


https://forums.moneysavingexpert.com/discussion/comment/37817554#Comment_37817554

Some general observations having perused your posts:

You are retiring about 7 years before me in age. In savings terms, this is a huge gap - in other words a period of 7 years earning money (me) compared with 7 years spending it (you) is, in effect, a 14 years gap.

Everyone is different, but I am naturally cautious. Going to live abroad sounds nice, but I would have serious concerns about the cost of medical bills. It could absolutely decimate any otherwise healthy fund. Also, I tend to hear (and be interested in) lots of case studies on living abroad (because I considered it) and I get an over-riding message that it is always much more expensive than the people planned.

Financial plans for retirement generally should, I think, have good safety margins. Somehow, when earning, if you get a 'hit' then OK, it makes a dent, but most people recover and ensure any pay rises are used to bring you back on track. After retirement, though, short of going back to work there is nothing you can do to recover. Bridges have been burnt. Believe me, going back to work, while possible, is far less desirable (and practical) after you have not worked for a considerable time.

And like other posters, I believe budgetting for everything is sensible. In retirement, it is essential. Even if it's only a 'good estimation' of the cost of holidays/cars/decorating altogether, and simply dividing it down into a £500 a month 'charge' for contingency.

In short, it sounds to me that you could retire providing that "The boat does not rock" at all for the next 30 years.

Boats rock every few years!

Lower_North

if there are two of you, why have you got multi room in three rooms? why not put a freeview box in one room. That shoudl reduce the cost of Sky.

jamesd

I'm mostly surprised that your mortgage is only £84,000 instead of £184,000. Why are you wasting that extra £100,000 in equity instead of having it invested somewhere? It's not hard to beat the mortgage rate you have with income-producing investments.

I'm not greatly keen on your inflation strategy, which seems to rely on adding money rather than investing the current money so that it covers inflation itself.

I suggest that you consider some of the broad range of strategic bond funds and equity income funds as part of your mixture, to boost the income and provide some capital growth potential to cover inflation.

You're chasing rates but it seems that you're ignoring the easiest place to get higher rates: unit trusts.

You might also consider using kickout products that can pay 10% a year until the product reaches its target, with some useful capital value protection. Not for a lot of your money, just as part of a broader mixture than the one you're currently using.

On the positive side, you've realised that it's not productive to clear the mortgage, even though some would be tempted into making that mistake and losing the capital that they may need to draw on or which could be invested to pay out more than the mortgage cost.

Jonbvn

jamesd wrote: »

On the positive side, you've realised that it's not productive to clear the mortgage, even though some would be tempted into making that mistake and losing the capital that they may need to draw on or which could be invested to pay out more than the mortgage cost.

On the MFW sub-forum, the above would be classified as heresy.;)

jamesd

Jonbvn, you mean there are people who would object to me writing that paying off mortgage capital makes you less well off than you could be?

I just completed on a flat, interest only even though I could have paid cash. I don't see a lot of point in saving mortgage money at 2-4% when the UK main stock market has averaged over 10% before fees, after inflation, for five year periods from 1978 on. Just makes me poorer, probably.

The probably bit is the catch. No guarantee, while the mortgage result is guaranteed. And there certainly are a lot of people who are happy budgeting and overpaying who just don't understand or don't trust investments. Overpaying is fine in that case, beats doing nothing.

But personally, I'm more interested in getting pension tax relief, investing, then having the investments and tax free pension lump sum help me to clear my mortgage at less cost to me. When I add in the effect of tax relief and investment gains it almost lets me pay off the mortgage at no cost to me. Probably.

I'm a mortgage-free wannabe, I just plan to be mortgage free more efficiently than by overpaying.

nearlyretired2004

Found it in a word document - my replies to the points you raised yesterday.

I realise that by replying to each post I am 'bumping' my own thread so I shall probably stop now unless something important comes up,but everyone, please rest assured I'm grateful for all responses and will carry on reading any new posts!

REPLY TO LINTON:

Para 1 Think I get this – the pension I'll start to receive next year is already ‘paid for’ by my many years hard work for ex-employer, so I don’t need the circa £350000 it would cost to by it privately?

By the way, the current value of the SIPP which generating some income at the moment is circa £64,000 invested in funds (via CoFunds) which I should probably have added into my asset base somewhere …(??)

Para 2 Yes there is……

1 and 2 – If inflation goes up interest rates on savings go up. In the early years of my retirement I was paying much, much more for my mortgage but income from interest kept up with it – still meaning that the ‘net’ cost allowed me to keep the cash in liquid funds rather than paying off. I was sometimes getting between 7 and 10% on my savings but never paid more than 5.4% on my mortgage.

3. This is only to fund purchase – day to day living expenses would come from income in the same way as they do now.

Plus there is the circa £46000 PCLS which will be invested in property next year (to get son on the ‘ladder’) and hopefully some long way down the line will be able to ‘release’ that – or some of it.

4. In my original post (sorry, I know it was very VERY long!) I mention that from next year we should have a surplus of circa £1000 / month. This will be added to savings. If inflation depreciates £180000 by 5%/year that is £9000 – add back £12000 new money and that is NET plus £3000 / year…….plus any income stream generated during the year by the new money.

5. Maybe it does – but that’s what it is! See breakdown in my 11:01 post this morning.

Linton – do any of the above responses allay any of your concerns or again, am I missing something?

REALLY grateful for these responses making me think very hard…!!

Any more offers?

Rymo_2

Hi, Great Post!

I believe people greatly over estimate the money you need to survive in retirement. I realise most people want a good lifestyle in retirement and so will need more than the survival level but too many people are led to believe they need a pension of £20,000 - £30,000 per year when they probably don't.

If you have no mortgage the amount of money you need to live a simple fulfilling life is probably far less than most people think.

Pay off your debts, save, invest, keep it simple, try to be happy with your lot and enjoy your life!

pawlala

£2000 a month
£4000 a month in 10 years
£8000 a month in 20 years
etc

nearlyretired2004

Surprised to see my thread resurrected - but not sure I understand the last post ?

Brief update for anyone who read my original post:

We had our three-week Caribbean holiday in November last - cost circa £4000

Since December we have recovered that £4000 in savings AND added more than a further £3500 (in part due to company pension kicking in this year - all part of the plan ........)

So nine months on from my original post and we have close to £4000 MORE than we had then - tax free lump sum was in fact £47,500 and that is now also in the bank - earmarked as house deposit for No1 son when he buys in about a year,but until then generating a bit more cash ........

For those who doubted my original outgoings, they have in fact reduced since then as well ! (lower Sky bill, renegotiated energy suppliers etc.)

DireEmblem

Well IMO i reckon a round figure of ~365k is what you need to retire, broken down as follows:-

£80k 1 Bedroom flat
£30k to cover bills
£150k to provide you with a decent return to live on
100k to cover for inflation.

So, based on having £280k left after the purchase of a flat, you would then have an annual income of 14k less tax etc. I think thats ample is it not?

This 14k would be split as follows:-
£1500 for bills
£7500 for living
£5000 for inflation

Depending on how well you want to 'live' could vary this figure, but to me its a good ballpark.

Unfortunately, I am ~2% of my way there...