Early-retirement wannabe

madeinireland_2

Hi,
I’ve been watching this thread with interest for some time and I think its time to share my situation to get a few opinions and perhaps suggestions.
I am in the fortunate position of being well paid (approx. £75k) and have worked for my current employer for nearly 30 years. I am 53 and plan to retire completely around 55 years of age. More recently however I find that an incredibly stressful job is getting unbearably stressful to the point that I am considering taking voluntary redundancy which is being offered. I am sure they are keen to get rid of older workers and if you don’t take the offer they could easily “manufacture” reasons to manage you out of the business on poor performance – when you might get very little – it has happened to others. At the moment I stand to pocket about £50k if I take the offer.
I am married (wife does not work – recently gave up job through choice – but she could if we were stuck) and I have two children – both at university – but I don’t need to worry about fees for this as they are on NHS courses. I do need to cover expenses etc. and probably a few other major ones to come like weddings and maybe assisting with first house etc.
My family history would suggest I’m not likely to live to a ripe old age and so that’s why I want to go as early as possible.
I have a couple years left on my mortgage – but in reality it’s quite a small mortgage (£15k) and the house is probably worth about £500k – so I could downsize if required.
Outside the house - I have assets (liquid or otherwise) of about £660K. This is made up roughly as…
Cash - £130k, Cash ISA - £120K, Shares £190k, Endowment Policy £40k (finishes in 2 years), AVC in company pension - £180k (most of which I believe I could extract tax free when I take my pension)
I also have a final salary indexed linked pension of approx. £20k which is likely to grow to about £27k if I were to leave now and defer taking it for a while by burning some of my liquid assets – The figure increases mainly as a result of inflation, less actuary reduction and conversion of my lump sum to further pension. I have assumed a period of 3 years.
Over the last few years I have been monitoring costs as much as possible and they have varied from £36k to £46k per year (I keep a 12 month moving average) – but they are currently £43k. I reckon when the mortgage is paid and endowment policy is complete my costs are likely to be about £32k – I’m sure I could go lower if required but to allow myself a good margin – I’m considering my costs as being about £35k a year – but hopefully less if the kids move out and sort themselves out.
So my overall questions that I would appreciate opinions on are…
Am I good to go? Should I go?
Should stick it out a bit longer? How safe is my financial position? Will I feel bad if I leave as I feel I am being pushed so perhaps not in the right mental state to make this decision?
What haven’t I thought about? What else could I do to improve the position (lots I guess)?
Sorry to ask so many questions but it’s a big decision and once I make it I suspect there is no going back as my skills would not now be in big demand. Any job I get (should I need to get one) may not pay anywhere near as much. I know I am very fortunate compared to most (not as much as Marine Life of course!) and I suspect I am OK to go but there is nothing like hearing the views of others to confirm your thoughts.
In simple terms I think/hope I should be able to achieve 3% growth on the £600k that should be left after my deferred period meaning adding that (£18k) to my £27k pension means I should have more than enough. Even if I blow the capital I should be OK for 60 years - £27k + £10k / year from the capital. I know I’ll have some capital spends over and above – but can’t think of anything too major compared to things I have previously mentioned (weddings, assistance with houses for kids) and some of those are discretionary.
I have read “Smarter investing” and found it really good – I wish I had read it 20 years ago if it existed then but think it may be too late for me and I’m thinking of investing some sums for the kids using the strategies he has recommended.
Anyway that’s all I have time for right now – my stressful work calls – I hope you find this interesting enough to give your opinion. Happy to answer any questions you may have.
Thanks.

peterg1965

Sounds like you are in great shape financially and it is apparent that you are in an excellent position to retire early and take that voluntary redundancy. Congrats for getting youself into such a strong financial position.

You have lots of options and no doubt the resident experts will offer you some good pointers as to the optimal course of action.

Wilkins

For God's sake, man. Go!

gallygirl

Wilkins wrote: »

For God's sake, man. Go!

Seconded :T.

mark55man

Wilkins wrote: »

For God's sake, man. Go!

I have to say I agree.

Although happy in my job as a long timer VR would be lucrative and I would find it hard to resist.

You should also try and find a decent employment lawyer my friend got a lot of value (eg old company car, waiving disputed tax payment, and he got the fees paid by the employer). I suggest you need a specialist who will put the fear of god into your employer

Then you can find some less challenging work / ad hoc consultancy to fill your time / top up your wallet

mgdavid

you are in a sound financial state; two further things stand out - a shorter than average life expectancy, and a VR offer. It is these two that are the clinchers - GO and enjoy your remaining years whether they be 15 or 30.

atush

"My family history would suggest I’m not likely to live to a ripe old age and so that’s why I want to go as early as possible."


Have you taken into acct the difference between genetic and lifestyle early death/disease? My parents both smoked heavily and I don't, so I don't expect to die as early. Some cancers are this way too.




Other things like a defective Brac gene mean much more. So look into this before making huge life decisions off the back of it.


As for your financials, I'd live off some of that poor performing cash pile and keep from drawing the FS early/reduced.


How much do you need to live on? what income do you earn from your investments as they are?

mgdavid

atush wrote: »

........
How much do you need to live on?.......?

he said, about half way down. About 32k p.a. - say 35k to be safe.
Or did you mean to accentuate 'NEED' rather than 'current consumption' which would be a fair point !

jamesd

madeinireland wrote: »

Am I good to go? Should I go?

Yes, your situation looks good.

madeinireland wrote: »

well paid (approx. £75k) ... I am 53 and plan to retire completely around 55 years of age ... I have a couple years left on my mortgage – but in reality it’s quite a small mortgage (£15k) and the house is probably worth about £500k – so I could downsize if required. ... Outside the house - I have assets (liquid or otherwise) of about £660K. ... Cash - £130k, Cash ISA - £120K, Shares £190k, Endowment Policy £40k (finishes in 2 years), AVC in company pension - £180k (most of which I believe I could extract tax free when I take my pension) ... I also have a final salary indexed linked pension of approx. £20k which is likely to grow to about £27k if I were to leave now and defer taking it for a while by burning some of my liquid assets – The figure increases mainly as a result of inflation, less actuary reduction and conversion of my lump sum to further pension. I have assumed a period of 3 years.

Given your age and ability to take a tax free lump sum from a personal pension from age 55 it seems that you should pay all possible income into a personal pension now, up to the cap of your total taxed earned income of around 75k less the value of your work pension increase each year and your personal allowance. Draw on savings to fund this. You'll get tax relief at 40% and 20%, then a tax free lump sum of 25% of the pension pot plus refund from HMRC of half of the higher rate relief.

You can then take pension income via capped income drawdown and recycle it into more pension contributions, to build up another tax free lump sum. Or to get out the rest of your net cost. It's quite an efficient way to save tax, getting the tax freed money out in the form of the lump sum.

Here's how the numbers work out for various tax rates:

tax	pay in	basic rate	tax	25% lump net	balance		income	after   years to get
		relief added	refund	sum	cost	in pension	at 6%	tax	rest out
45% 	8000	10000		2500	2500	3000	7500		450	247.5	12.12
40% 	8000	10000		2000	2500	3500	7500		450	270	12.96
20% 	8000	10000		0	2500	5500	7500		450	360	15.28

The net cost column is the net cost of the £7,500 that's left in the pension pot, after deducting the tax refund and lump sum from the initial amount paid in. Years to get the rest out is how long it takes to get the rest of that out after allowing for income tax. After that many years you're in pure profit for the rest of your life, with no remaining net cost to you. This years to get the rest out calculation uses the same tax rate as when putting the money in, in practice you might well be basic rate so the net will be higher and the number of years lower.

So if you want to do some mortgage clearing, run the money through a pension first, then do the clearing with the tax free lump sum. But I'd rather see you paying the mortgage out of income once you're getting pension income, or downsizing,

In your case, say you have £60,000 that you can usefully pay in, allowing around £15,000 for personal allowance and work pension contribution value (but check that it could be a lot higher). You'd make a net payment broken down like this:

£28,000 for 35k of higher rate income. Basic rate relief added to take it to £35,000 in the pension and HMRC refund claim of another £7,000. Uses a total of £35,000 of a £60,000 target.
£20,000 for remaining 25k of basic rate income. Basic rate relief added to take it to £25,000 in the pension pot.

After that you'll have £60,000 in the pension pot and £7,000 back from HMRC. When you get to 55 you can take a tax free lump sum of £15,000.

Since you will have guaranteed income from work defined benefit pensions, the state pensions and annuities that totals £20,000 or more you can switch from the usual Capped Drawdown to Flexible Drawdown for personal pension pots when that happens. Flexible Drawdown lets you take out as much as you like from the pension pot. After the 25% tax free lump sum, the rest is taxed as normal taxable income in the years in which you take it. You can't make or have made for you any pension contributions after you start Flexible Drawdown, so don't do it until you're ready to accept that - which means not until you actually retire. Use Capped Drawdown until then.

Now is a good time to consider downsizing, since you're still earning well and able to get mortgages easily enough. A mortgage can let you boost your capital to boost your income for a while, then you can repay it out of the work pension income after deferring for as long as practical, say to normal retirement age. Freeing up £100k gives you another £5k of sustainable income, more like £8-10k as a boost until normal retirement age if that's 60 and you don't mind a bit of capital depletion to boost the work pension by waiting until it's paid at full rate. Any redundancy package might start it out at full rate, that's fairly common.

Downsizing would also reduce the running costs of your home so you'd save money that way. Doing the move while still working and working for say a year after the move gives you a nice income to fall back on if you find that the new place doesn't really suit you.

atush

mgdavid wrote: »

he said, about half way down. About 32k p.a. - say 35k to be safe.
Or did you mean to accentuate 'NEED' rather than 'current consumption' which would be a fair point !

Current consumption is usually higher, as not going to work you save on commuting, clothes, lunches etc. So the Need should be lower, how much lower is anyone's guess.