Early-retirement wannabe

bownyboy

Great thread. Here's my answers:

Who is aiming for early retirement (or who has retired early already)?
Looking to retire by 55 (or at least drastically reduce hours work and remove the daily commute)

When did you begin planning and what drove the decision?
Had a stakeholder pension in 2000 but hardly contributed to it. It was October last year that I finally started to put a plan in place, realising I wasn't getting any younger and was probably at peak earning power so should start maxing out pension and investments as quickly as possible.

What is the strategy for getting there?
I'm currently 41, so I have 14 years. I've researched 'The Number' which for us will be £24k a year. Am saving £2k gross a month into personal pension with Aegon (transferred over my stakeholder to them and halved the AMC to 0.5%) Also saving £1k a month into Stocks & Shares ISA with Vanguard Lifestyle 60% acc.

Between me and my partner we already have £109k in S&S ISAs and Personal Pensions. £500k is the first target which should be reached in 8 years with 5% growth and 2.5% inflation.

After that another 6 years of contributions would give us approx £900k. However life happens and I've no idea if I can sustain this level of contributions.

I'm just throwing as much as I can as quickly as I can without impacting quality of life now too much!

How much of a relative decline in income are you prepared to take / did you take?
Quite substantial, probably 70% drop We enjoy the simple things in life and live pretty frugally.

What are your main concerns?
Government interference and changes to pension rules.

red_wellies

ermine wrote: »

49 Job done three years later. It wasn't fun at all, but it's never too late. 37 is a great time to think about retiring early - in your twenties it's all too far away and in your forties you have to sweat buckets to make it up... Go for it!

Thank you! I was worried that I had missed the boat, but after spending ages playing around with the numbers on a spreadsheet it looks more than possible. I do have some pension savings already but now is definitely the time to start taking this seriously.

I know this probably sounds a bit silly but I am wary of discussing early retirement plans (or indeed any retirement plan at all!) with other people. Everyone (in real life) seems incredibly negative about the whole thing, so it is nice to know that I am not odd / crazy to be thinking about this.

red_wellies

jamesd wrote: »

Starting at 37 mainly means you'll need to pay money in at a faster rate to get to your target than if you'd started earlier. Depending on your income, required expenditure now and in retirement you might be able to retire before you reach 50.

If you're very highly committed you might do something like me and pay in more than 60% of your (net pay plus gross pension contributions) each year. For me it ended up being an increase in savings and investments of around 2900-3000 a month over 102 months so far. At present I've accumulated more than 85% of my total (net pay plus gross pension contributions) value over the period. That sort of commitment can get you to targets remarkably quickly, though it's a lot faster and easier if your income is well above your spending need or wants.

Spending level in retirement is of huge importance. You need to have accumulated around 20-25 times that level in savings and investments to retire, less the part provided by the state pension once that starts and anything provided by defined benefit work pensions.

Thank you! Your reply was really helpful and I think I might actually be able to do something similar if I really set my mind to this.

I was thinking that I would probably need about 20 times my estimated yearly spending (about £15k) - but being a cautious type I will up that to 25 times

Even if I don't actually retire at 50 I would love to be in a position where I could make that choice - even changing to a less full-on job would be really nice. One upside of my current job is that I have a pension into which I can sacrifice salary which saves NIC and income tax - and my employers also share their employer NIC savings. This means that every £ saved into my pension costs me around 52p. For some reason it has taken a while for me to realise that this really is the best opportunity I will ever have to build up some pension savings

On the plus side it sounds as though it isn't too late to get this sorted :T

hugheskevi

As well as the financial benefits from early planning, I found that by starting planning early (I started in earnest in 2010, at age 32) you end up with a far clearer picture of what you want out of life.

A key question is "What will I do in retirement?" That is not an easy question to answer, and deserves a lot of thought. I've found it also changes a little over time as I research things more and come up with 'good ideas.'

So from an initial plan to travel the world for 2-3 years, I have now refined that plan to include spend time learning Spanish in Guatemala, volunteering with a wildlife rehabilitiation centre in Canada and volunteering in one of the more remote areas of the UK with the RSPB. That is all still about 8 years away.

Then there is the period after I return from travel, and what I want out of that - where to live, what pets to have, interests, fitness, etc, etc. Many plans there too, which also evolve over time.

Having a tangible plan helps bring focus to the longer-term, and just like everything else proper planning will ensure a good outcome. I find that working on the plan has brought a lot of focus to what I want out of life, and perhaps equally as important, what I don't want. That in turn helps to shape the present.

One thing for those starting out at a younger age to be careful to about is planning in the right financial terms. Price terms is no good over the very long-term, and it is better to plan everything relative to earnings. For example, if a person spends £15,000 now, that is around 60% of average earnings. If they target an income of £15,000 in today's prices over the rest of their life, by the time they reach age 70 their income will be a lot lower than 60% of average earnings even though it will be the same in price terms.

red_wellies

I started thinking about planning my retirement for quite negative reasons if I am honest. Feeling tired, dreading the prospect of being trapped in a well-paid but stressful job for an indefinite (but certainly long) period, and at the same time feeling very fearful about what I would do if I didn't have this job.

I agree that planning your future from a financial perspective does naturally lead you to consider what it is that you really want, both now and in the future. For example I have been struggling for a while to decide where I really want to live - in a flat in the city close to work (small, expensive but no commute) or in a town further out that I have always liked (beautiful, cheaper but involves a 50 minute commute by train). Now that I can see myself retiring (or possibly taking a lower paid part-time job) when I reach 50 the decision suddenly seems much more straightforward. If I move to the town, which is where I really feel drawn to, the commute will be hard but doable and for a defined period of time. I could easily picture myself (and my OH) being retired or semi-retired there very happily, and the lower costs (even taking into account transport) will help with saving for retirement in the meantime. The fear of doing the commute (combined with the job) for an indefinite period was holding me back. So now we need to plan when and how we will make this move It may take a couple of years but I will be so much happier having a plan to work towards.

I haven't even started thinking about the positive side of early retirement yet. But I can see that I need to shift my thinking from what I don't want (working forever, being stressed) to what I do want to do with my life.

I really need to get on top of the numbers. At the moment I have assumed that any savings/investments will keep up with inflation but will not exceed that i.e. that £1k invested now will still buy you the equivalent amount of goods and services in 10 or 20 years time. I was hoping that this was a reasonable assumption to make - I don't mind if it is on the pessimistic side -as assuming investment returns of a given % over inflation seems pretty optimistic to me. If this approach is daft please do let me know :rotfl:

Marine_life

So .....a couple of thoughts based on recent posts.

There seems to be a general concensus on internet forums that savings should be sufficient to cover 20-25 years of expenses (the 25 years is based on a 4% withdrawal rate) but I think the simple thing to think about in the short term is getting your savings rate as high as possible and cutting down on any expenditure which doesn't really add to your well-being. Given the age you are (red wellies) you might want to think about the profile of your investments relative to when you want to retire i.e. do you want to take on more risk now and aim for higher growth knowing that with the advantage of time you can stand a bit of volatility? You would then gradually transition to less risky investments as you go forward. I do believe that we are now living in a world where interest rates and inflation will remain low for a long time and hence investment returns will also be low, so I suspect using lower rate assumptions for returns is a good idea (and may give you a pleasent surpirse later!)

My second thought is ...make sure your other half is on-board with your plans. My wife took a lot of convincing especially when I told her that she might have to give up her expensive car ;-). But we have now found a reasonable compromise and she is now realising that this is going to happen.

For my own position, I have been incredibly stupid but incredibly lucky in equal measure. Incredibly stupid in that we have lost a lot of money moving around the world and getting the timing of various property markets completely wrong. Lucky in the respect that I've had enough earning power to offset those set backs. I now have quite a diverse portfolio of investments. My advice here is always try things out first - maybe rent a property first rather than jumping into buy. It may cost in the short term but long term the benefits will be much higher.

Also, I always think there is so much more potential to live your life in another way. Too many of us live our lives in a bubble constrained by what we have done so far. I have been reading a lot about digitial nomads - who are basically people who spend the majority of their time travelling and working online as they go. Hugheskevi seems to have a lot of things planned!

Finally a few words on what to do in "retirement". I am quite interested in becoming a mini entrepreneur and see whether I can make money doing 'bits and pieces'. My current job lends itelf well to consulting and remote working and we plan to do a bit of that plus the retirement home we have just bought has a self contained apartment which we plan to let out for holidays. In addition, I am interested in blogging and a few other things. As we will be living near a ski resort I can also see myself getting involved in some part time work - maybe driving or something else.

kidmugsy

Marine_life wrote: »

always try things out first - maybe rent a property first rather than jumping into buy. It may cost in the short term but long term the benefits will be much higher.

It's interesting to see how reluctant people are to take this advice on the House Buying, Renting ... forum. My own experience is (i) If you are not going to be there long, rent. (ii) If you expect to be there a long time, rent at first to learn the lie of the land. It's worked well for us, but then we've never had London house prices to cope with.

Of course, retired codgers might not even need to rent for (ii): try house-sitting, for instance, or even a cheap hotel off-season.

ermine

Marine_life wrote: »

Finally a few words on what to do in "retirement". I am quite interested in becoming a mini entrepreneur and see whether I can make money doing 'bits and pieces'. My current job lends itelf well to consulting and remote working and we plan to do a bit of that plus the retirement home we have just bought has a self contained apartment which we plan to let out for holidays. In addition, I am interested in blogging and a few other things.

Even as an avowed cold-turkey-ista on the whole work/selling time for money front I haven't managed to avoid it totally, and TBH it's getting increasingly hard to avoid, despite the fact that I'm sure I'm totally unemployable if I applied to a company. Too old, too cantankerous, and I haven't worked for over two years, I don't have any of the IT accreditations though I've kept on my Chartered Engineer status purely from vanity and the fact it's easier to retain than go through the faff of dropping and rejoining. Nevertheless I didn't actually hand in my entire skillbase when I checked in my test gear, computer and phone for the last time.

If you are in any way active as a retiree you run into people, and since you have the time to reflect, and to some extent have the risk capital (in terms of particularly time) to develop on a no fix no fee solving things gets a lot easier and dare I say it more fun. There's an awful lot deeply wrong in the way the world of work runs, which needs standing outside it to see.

In particular, all the pressures of needing to do stuff because otherwise bad things happen to your life like not being able to pay the mortgage lead to a really bad powerplay of nutcase management controlling desperate people. When that sword is gone from over your head you do stuff you like for people you like, and everyone else can sling their hook, or be politely informed that either the price is really high or you're busy.

Opportunities tend to be more for the generalist in me combining things and knowing how to use disparate pieces of experience or simply general knowledge. I've DJ'd, fixed starter motors, designed sensor networks, written code, done a couple of crowdfunding projects, pulled cable, been system designer and site foreman on installing irrigation.

Some of it I got paid for, some of it I didn't, some of it will make connections later. I don't sweat any of this stuff because I don't need the money, but I hate to see people wallow in a bad place or spending too much money if joining up a few dots can help.

I'd imagine if you do that sort of thing in a directed manner you can do quite well. The key is not being desperate for the money. Although it sounds revoltingly Deepak Chopra cosmic ordering tripe and I hate the whole Steve Jobs "do what you love love what you do" mantra there does seem to be a tendency for opportunity to present itself when you aren't laser-focused on needing the cash. Strange old world...

Marine_life

ermine wrote: »

In particular, all the pressures of needing to do stuff because otherwise bad things happen to your life like not being able to pay the mortgage lead to a really bad powerplay of nutcase management controlling desperate people. When that sword is gone from over your head you do stuff you like for people you like, and everyone else can sling their hook, or be politely informed that either the price is really high or you're busy.

Precisely.

Over the last four years since this thread started I've been doing a lot of reading around early retirement especially online forums and blogs (including yours) and taken some inspiration from them.

What I really don't like is the cult like approach that seems to envelop around some early retirement proponents including the people over at mrmoneymustache.com/. I actually like the man himself but his followers are like zealots who seek to analyse each blog post as if it were something moses had brought down from the mount.

My own philosophy on ER is to have enough money that we will be very comfortable but also have a big buffer in case anything unexpected happens and we are on track for that. That is also based on the assumption that we will have zero revenues and our investment returns equal inflation i.e. incredibly conservative.

Having said that I am not averse to a bit of vacuos comsumerism (in various forms be that cars or holidays) which would see me ostracised on the MMM forums. So I expect that the spoils of any work I choose to undertake will be be used for that - importantly so that I can directly correlate the spoils of what I do into some immediate gratification :-)

red_wellies

kidmugsy wrote: »

It's interesting to see how reluctant people are to take this advice on the House Buying, Renting ... forum. My own experience is (i) If you are not going to be there long, rent. (ii) If you expect to be there a long time, rent at first to learn the lie of the land. It's worked well for us, but then we've never had London house prices to cope with.

Of course, retired codgers might not even need to rent for (ii): try house-sitting, for instance, or even a cheap hotel off-season.

We rent at the moment. Our annual rent is about 2% of the current property value (our landlord bought it a v long time ago and appears to have no intention of selling - I expect he more than covers his costs) so it really makes little financial sense to buy where I live now. I do want to buy at some point though, partly so that I don't have to cover rent out of my retirement income.

I also have to admit that I like the idea of being settled somewhere long-term. I like going on holidays and have had some pretty amazing trips but after about 3 weeks I start to feel really homesick. I would quite like a smallish house in a nice town, where I can potter and maybe do a bit of volunteering / have time for a social life etc. I know that might sound pretty unambitious, and I am sure that I will want to do some travelling, but to me (and my OH) it sounds great.

I do like your idea of renting for a bit in a new area to see if we like it - not sure why that hasn't occurred to me already.