Early-retirement wannabe

Wilkins

hugheskevi wrote: »

Following my recent post in this thread (1208) I thought folk might be interested in a chart from my spreadsheet of my modelled pension income:

Very nice, thankyou. Mine seems quite similar, except that am now just past the first big chimney.

Triumph13

hugheskevi wrote: »

Following my recent post in this thread (1208) I thought folk might be interested in a chart from my spreadsheet of my modelled pension income:

I am rather surprised by the faith you are placing in the 'triple lock' on SP increases. You seem to be having state pension rising to about £14k pa in real terms which strikes me as unlikely in the extreme.

I'd also be interested to know when you plan to retire and why you are planning on taking DBs as soon as possible and hang the actuarial reduction.

I also think you are being optimistic about when you can draw those DC pots. 10 years before SPA is probably more likely.

Whilst this kind of graph makes a pretty shape, I think it is far more useful to model the 'income' you are planning to pay yourself than the amounts you are planning to take out of pensions. Moving assets out of the pension wrapper is purely a matter of tax-efficient timing. Releasing them for consumption is the far more important thing and hence how you use the DC pots to smooth the DB income.

gadgetmind

Triumph13 wrote: »

Moving assets out of the pension wrapper is purely a matter of tax-efficient timing. Releasing them for consumption is the far more important thing and hence how you use the DC pots to smooth the DB income.

Agreed, and that's an area where I need to fix my models. With capped drawdown, the limiting factor was the rate we could get the money out of pensions, whereas I now need to use a different "throttle".

TBH, I'll probably wait until a few months off retirement and then create a totally new "disinvestment" model as my current one was designed for the investment phase with very little "tweakability" for anything other than 1st year of retirement.

hugheskevi

I am rather surprised by the faith you are placing in the 'triple lock' on SP increases. You seem to be having state pension rising to about £14k pa in real terms which strikes me as unlikely in the extreme.

Increases are modelled as earnings, rather than Triple Lock (which would be roughly 0.2 percentage points p/a higher than earnings), assuming earnings are 1.6 percentage points above RPI in the long-run.

Based on today's figures, single-tier pension is at least £7,750 p/a currently, modelled to increase to £11,717 by 2047 and £16,000 by 2068.

It is quite hard to justify anything else as a central assumption, given State Pensions are linked to earnings currently and have risen roughly in line with earnings over the last 17 years. Variant scenarios can model policy changes.

I am also rather cautious in assuming a 1.2 percentage point difference between CPI and RPI, hence why the DB pension income declines so quickly as well as a conservative rate of investment return (4.8%) in the DC pensions.

I'd also be interested to know when you plan to retire and why you are planning on taking DBs as soon as possible and hang the actuarial reduction.

Age 44 in 2022. I have quite minimal expenditure needs, and may well work in the future but prefer to model nil salary so that it would be a choice rather than a requirement.

The first DB pensions are assumed to be commenced early (at age 50) as the period of life when I will be most in need of liquid assets will be the age 44-55 period (post work, pre DC access). I am likely to have little or nil income at that point so there is a good incentive there to commence them to bring forward the taxable income so as to use Personal Allowances. As such, I prefer to take the tax incentives available to make additional provision (via DB AVCs) in those arrangements, then commence them early.

The second DB pensions are assumed to be commenced early primarily for modelling convenience, but that only matters in scenarios of retirement earlier than planned where income in the age range 55-state pension age may be an issue. In practice, there will be a high probability these DB pensions are only commenced at Normal Pension age.

I also think you are being optimistic about when you can draw those DC pots. 10 years before SPA is probably more likely.

Depends on protections offered, about which we await information about from HMT/HMRC. Hopefully either existing arrangements (including future contributions) can retain 55 or existing savings can retain 55 (ie excluding future contributions).

Plans will be adjusted as required, either by shifting savings from pensions to non-pension saving or use of mortgages to move capital and payments around by a few years.

Whilst this kind of graph makes a pretty shape, I think it is far more useful to model the 'income' you are planning to pay yourself than the amounts you are planning to take out of pensions. Moving assets out of the pension wrapper is purely a matter of tax-efficient timing. Releasing them for consumption is the far more important thing and hence how you use the DC pots to smooth the DB income.

Agreed, that is the key purpose of my spreadsheets - these pension withdrawals are just a component of the main model.

The spreadsheets are centred around a calculation of my desired consumption (after mortgage payments and pension contributions, in years where they are relevant) which is increased in line with average earnings to State Pension age and RPI thereafter. Then it is a question of how to deliver that in the most efficient manner possible whilst also allowing sufficient flexibility to deal with shocks of various types.

The changing of the DC rules certainly help with flexibility and liquidity - now there are no liquidity issues once I reach 55/State Pension minus 10 or whatever earliest DC access may be, so I can just focus on ensuring I have sufficient capital to use as income in the age 44-55 period.

AlwaysLearnin

Marine_life wrote: »

Well... there's a coincidence. Was sitting here thinking that I have not updated my status on here and then the thread pops up all of its own accord.

A couple of things have happened over the last fews months.
......

Hey M_L. Just found myself wondering what the latest was?

Hope things are okay, especially with your MIL, as much as it can be

Marine_life

Its (again) been a while and time for a serious update.

At the moment there are some things that a falling into place and there are others where there is uncertainty.

For me the biggest point in this retirement journey has been been "where will we live" and with that of course comes the cost of property, potentially a key part of our retirement budget. We have property valued at around €800,000 so if we're able to shift to something of a lower value then there could be (considerable) funds available to bolster our retirement pot.

Over the last couple of months and years we've really wavered. Part of us wants to return to the UK but always deep down there has been a horrible pit-of-the-stomach feeling that its the wrong thing to do. Our other option is to follow our life long dream (to continue our overseas adventure) and go and live in Austria.

Well we've finally made that decision and Austria it is. We viewed a house at the weekend, put in an offer and after the very tinniest bit of haggling it is ours! ...and the best thing is we will be releasing arounf €300,000 of equity. Hard to believe but it seems there are some areas of the world where the property market is not rising. Anyway, we are a short drive (5 minutes) from one of Austria's lagest ski resorts and frankly delighted.

So how is the rest of the plan going?

I would say we are slightly ahead of schedule (mainly due to buoyant stock markets). We've concluded that I will continue to work until next June (rather than my earliest date of this October) and that will give us sufficiently more financial buffer.

I've checked my pension entitlement and essentally we will be in a position where we need to survive 12 years on our savings. Those savings will probably be about €1,2 million. I'm reasonably comfortable that we will live comfortably on €50-60k per annum which means we should be pretty safe.

So everything is logically organised and i have two comments:

1. Deciding our retirement mix of investments is quite a headache. My wife is very conservative but even on five year deposit accounts its now difficult to get more than 2% interest. That's ok with inflation running at 0,5% but I would still rather get closer to 4%. so we may decide to take a bit more risk with some of the money.

2. As a younger person its easier to imagine oneself in retirement with all the same attributes. But people do get older and althogh I am (still only) 49 I do feel / notice a number of areas where I am no loger anywhere near as healthy as I used to be. How will I feel at 60? Not so sure. So for governments to be pushing people to retire at 67 and beyond is beyond belief - what sort of quality of retirement can people expect?

So the next steps are now becoming clearer.

We had promised ourselves a big holiday this year (to Australia and New Zealand) which will be in November / December this year. Once I get back I will either decide to either resign or renegotiate a more favourable arrangement (involvement me working from home in Austria) but lets see.

I love it when a plan comes together :-)

kidmugsy

Marine_life wrote: »

So for governments to be pushing people to retire at 67 and beyond is beyond belief - what sort of quality of retirement can people expect?

Now all you have to do is tell us where to find the magic money tree that will allow us all to retire earlier than 67.

What was it that the outgoing Labour treasury minister said in 2010? The money's all gone, or words to that effect.

Thrugelmir

"So for governments to be pushing people to retire at 67 and beyond is beyond belief - what sort of quality of retirement can people expect?"

Both my grandparents on fathers side never saw their 66th birthday. We don't know what hard work is these days.

bigadaj

Thrugelmir wrote: »

"So for governments to be pushing people to retire at 67 and beyond is beyond belief - what sort of quality of retirement can people expect?"

Both my grandparents on fathers side never saw their 66th birthday. We don't know what hard work is these days.

Also were all different and as you say very few people do heavy manual labour anymore.

My father is still working having just had his 79th birthday, he'd be bored stupid if he retired and more importantly if he was at home all day then he'd just argue more with my mother than they do already.

He has been self employed for most of his life and so has the luxury of doing what he wants, but ringing them on Sunday found him out chopping down leylandii trees as a nice weekend hobby.

gadgetmind

Ah yes, Liam Byrne's letter left on desk for incoming minister David Laws.

"there's no money left"

http://www.theguardian.com/politics/2010/may/17/liam-byrne-note-successor

Q: Tax and spend only works for so long, so we do governments keep repeating the same mistake?
A: Because idiots keep voting for idiots.