Early-retirement wannabe

Marine_life

ermine wrote: »

You've loaded the gun. You know what to do, at a time and place of your choosing

I've been listening to the http://dailytravelpodcast.com/blog/ a lot over the last couple of weeks which feels more me than being a pure early retiree. Some of the stories are a bit weird but some of them really resonate. I think I am essentially a goatee bearded hippy at heart

But you are right...the gun is loaded...I spend far too much time thinking more about how I am going to do it rather than whether.

However, there will be a bit of a pause in the action - we now have five weeks until we leave for our two month vacation :T and all the action will happen after that. So close now, so close.....

ermine

BeatTheSystem wrote: »

You mention being stiffed but what was so badly done to you which precipitated the action you took to escape servitude?

The Firm was a big FTSE100 company, and in the runup to the global financial crisis they'd incentivised the salesforce to git out there and sell. Never mind what it costs to provide- go an sell, expand, sell across the globe. Come the end of 2008, what's that great big clucking noise - it's the chickens looking to roost, They crapped all over the shareprice, let's just say the Tesco had nothin' on them. Massive dive in SP jitters at head office, they hire in some evil US HR scum, hello successfactors, I'm lookin' at you. Maybe they were just an accessory to the crime, I am sure a management consultancy was involved. Beats the hell out of me why we pay CEOs if it's the management consultancies doing the heavy lifting, hell, I could ring up PwC and go "derr, any ideas guys" but there we go.

So now the serf level guys get told the bell curve is going to become a Poisson distribution all heavy at the low end. Basically the problem was the bullying and intimidation of being put on a performance improvement plan, cos the distribution and levelling is king.

Higher above serf level guy tells serf to tell me he has a proposition to offer me. Being a Big Cheese he's only available after 6pm, it's some sort of pi55ing match showing his time is worth more than my private time and he is a Big Cheese so he has all the Power and when He says jump I get to Jump. So on the conference call with serf and me he conspiratorially goes, look, I know the performance management isn't going well for you, howsabout three month's gardening leave and you're off? The Ermine was at a low then, but is still a noble beast, and so I stood up, because it makes you sound bigger even on the phone, and calmly asked Mr Big Cheese, are you threatening me? as I scrabbled for the telephone recording device. Cue much bluster and denial, and <click> Mr Big Cheese was gone.

I was put on a performance improvement plan. a whole month of Half an hour daily interrogation before lunch with low level serf "what have you done to get work" with the implicit threat if you don't get off it in two months you're out on your ear. At least that's what they said - in practice people could string it out for a year or two. But what a way to live, eh? Begging for your existence every working day, yack. I'd actually fired off a couple of CVs one that got me the Olympics work and one that got some itty bitty pieces, so I got my utilisation up out of the PIP range with the help of a couple of colleagues.

But the damage had been done. It was the end of February 2009 and I realised I was out of options and couldn't take another round of that. I maxed a cash ISA from savings, the next month I opens a cash and a S&S isa and opened AVCs investing is a Global:FTSE100 50:50 index and scaled spending waaaay down. And started spreadsheeting madly, but every which way I sliced that three years was the minimum to manumission.

Next month I read this on Monevator, and thought by golly this fellow has a point. I was flying a craft with three out of four engines down and one left running ratty. I figured I wasn't going to make it across the three years, and if I am going to go down then buying into an all-time low has something to be said for it. It did - I liquidated those AVCs in March 2012 (I thought I was going to leave then with a bung, but they offered the bung and another few months to take the project to the start of L2012, heck I could do that if I knew I was outta there.

After the month of daily interrogation I was damaged goods, and a few moths later was in Tesco when the room span and I could identify the letters but not assemble them into words. Went outside, took a deep breath, and drove home. Reeeealllly slowly with the road strobing all over the place. At home that night I was washing up, and then everything dropped into a jumble of lines, and Mrs Ermine said that needs a doctor. So I went, apparently stress induced migraine, as soon as I told him I was working for The Firm he rolled his eyes and side there's a lot of that there.

In the meantime I got the Olympics work, but halfway through there was a reorg, I was reallocated to the original lowlife, which basically triggered a relapse, though I can't charge him with doing anything explicitly wrong - as soon as it came to the second round of performance management crap the symptoms recurred, though the PM was fine, grades were fine no third degree etc. Sometimes you just can't drink a second time from a poisoned well.

The project manager went bananas and escalated all the way up to HR to get me shifted from this lowlife because they weren't going to delay L2012 to say 2013. Now that was the halfway point of the three year stretch - the halfway point of any goal is always a low, you've committed resource but are still too far from the destination, so I can't blame it all on the lowlife. Too much red wine to make the pain go away around the quarterly performance management crap didn't help in the day

But once I was shifted things looked up, I was able to catch up and deliver the project.

So there, people, is the reason why you need to have savings. You get less resilient, more cantankerous and intolerant of BS in your late 40s/50s. That performance management BS is designed to make you feel crap about yourself so you are a more pliant serf.

The point of no return with stress come quickly - you have a few days of warning and of course as a bloke you're all hard and it won't happen to you and then it all goes belly-up, and the recovery period is very very long - about two years IMO.

I hear on here people trying to convince themselves they can take it for just another year, I was that guy too. Do yourselves a favour, start saving early. If you can start in your mid 40s that's great, because take it from me, trying to save as much in three years as half one's total pension savings is no fun at all. I drove my salary down to nearly minimum wage* and was trying to fill an ISA, that doesn't leave much room for all the crap we buy to make work seem better. Don't do it to yourself, don't do it under fire. I was a higher rate taxpayer and it's stupendous how much the HRT boosts you with pension savings, but it's still hard. And remember they still aren't making any more time. BTS - golden handcuffs or no, basically you are not a free man

means I am contemplating walking away from a sum that would allow me to retire - dare I give the man b0ll0cks or will I be a wimp and take it up the ar5s until I am freed from modern day slavery.

All I can say is if you ever find yourself with any sort of physical or mental symptoms because of the

cruelty inflicted on me

then you, sir, have just passed a signal at red and the first wrong way, do not enter, turn back now sign. You don't get many more of them. The Firm had terrible mental health problems - I always looked up at the window when I passed a cracked paving slab after a member of the fire/first aid team told me how it got cracked. I actually had known the fella too - I always assumed he'd left the company... I've stood by the little mound of earth when a former colleague lay down for the last time - clockwork stopped due to ta heart attack, and I noted one's 50s seems to be a bad time for that sort of thing to happen.

So if you pick up the distant early warning signals - let the gold go. You're a long time dead, and life's too short to waste more of it on consumerism than necessary. I learned from Mr X in this story.

* using salary sacrifice for the AVCs - even in the BRT mode you get a 32% win due to canning NI. This was possible for me because I only owed £20k on the mortgage and discharged it part-way through with savings, which was stupid but what the hell, and lived an easy 6.5 mi commute from work. It's possible to live off minimum wage if you can ice these big costs, though it's not huge amounts of fun

ermine

jamesd wrote: »

It appears that you can retire now, depending on mortgage value.[...]
Like ermine I don't think that you should pay off the mortgage. There are two main reasons, low interest rates and inflation. Interest rates on mortgages are lower than normal investment returns, so you lose money by using investments to pay off a mortgage, usually (always subject to market variations, of course). Inflation lowers the real, inflation-adjusted value of the mortgage debt over time, so the longer you wait, the cheaper paying it becomes. Those two things mean that the best time to pay off a mortgage tends to be the latest possible time. Which means interest only on the last day or repayment as late as possible.

It was indeed your good self who warmed me up to that discharging that mortgage was a misallocation of capital when I read one of your posts to that effect on here. After I had done it. Live and learn, eh, though I've tried to highlight that issue since so more people get to hear it and at least decide knowing the opportunity cost.

With regard to paying it off after retiring it's a bit more complex, for instance one of my aims was that Mrs Ermine would not end up still paying a mortgage etc in the event that I go before her. A paid off house does in fact pay a dividend - it stops you paying rent. It's not the only way to do that job, you can achieve that with life insurance too, but say I go gaga then she still wouldn't have the payout and have to pay for housing so it's a safer bet to discharge it - they don't kick a surviving spouse who is still compos mentis out of a house to claw back care costs.

Some financial calls are just a gut thing - freedom is sometimes worth paying for even if it isn't strictly the most rational path. So there's something to be said for and against paying it off with the PCLS. I take your point that aiming to never pay it is good - the obvious person for whom that would be a classic win is a single person . That would maximise lifestyle and cash flow in life, and why not pay your debts after you're gone, it's not like you can take it with you

Paying down a mortgage before you get access to pension savings is pretty much always the wrong thing to do. If only because the 25% tax-free PCLS is indirectly a way to pay your mortgage down tax free as opposed to from taxed income. I will have to take that tax-free PCLS and invest it into unwrapped+ISAs over several years to win an income from it, slowly shifting into all ISAs over time. And of course I paid tax on earning the money for the savings with which I discharged the mortgage. D'oh

green_man

Thanks Ermine and Jamesd for the responses:

The one thing you must not must not must not do without a really good reason is pay down that mortgage before you are 55

You both recommended against paying off the mortgage, however in our case it's not that we are paying it off early, it's just our term ends in 18 months and we hence complete payments then. (we have in fact been overpaying but only to allow for an expected endowment shortfall).

Defined benefit pensions do not normally have fixed earliest dates so you probably can take the other pot as well.

My OH is in the police and can draw her DB pension from age 50 (in 18 months) however she only gets her full 30 years in 2 years later. As yet we (she) is undecided on retiring with 28 years contributions or 30 years.

why not save into a SIPP for her

Humm, interesting.
Can she start a SIPP now (being a full member of the Police scheme)? and if she gets her full 30 years in she would have full 2/3 salary pension how does this work with lifetime allowance etc?.

If she starts taking her pension at 50 (or 52)can she start a SIPP then and contribute to offset standard rate tax she would be paying?

green_man

Paying down a mortgage before you get access to pension savings is pretty much always the wrong thing to do. If only because the 25% tax-free PCLS is indirectly a way to pay your mortgage down tax free as opposed to from taxed income. I will have to take that tax-free PCLS and invest it into unwrapped+ISAs over several years to win an income from it, slowly shifting into all ISAs over time. And of course I paid tax on earning the money for the savings with which I discharged the mortgage. D'oh

I'm not convinced this argument is valid (though please convince me if you think otherwise). At the end of the day you could make the same argument about any capital purchase leading up the retirement (car etc). I think the main argument about paying off the mortgage is the interest rate you are paying vs expected alternate returns on that investment.

ermine

I should probably have qualified the paying off early issue applies to early retirees who are retiring before 55. Anyone retiring before 55 won't be able to get hold of their pension savings expect in particular cases - a protected rights DB pensions is usually that exception.

If they retire before 55 they will experience an income suckout for the simple reason that they will stop working but not be able to use their pension savings. I have a zero income and have had for the last 2 and a bit years. I have some years' former salary in AVCs. I will get that as cash when I draw the pension. Had I not paid down the mortgage I could have used that PCLS to clear the mortgage debt, effectively paying it with money earned tax-free. The money I used to pay down the mortgage I could spend now, raising my lifestyle a bit. I don't need all the AVCs when I get my pension, and will have to invest it to get a higher income. A higher income is always nice, but in retrospect I'd rather not have the suckout. It's not a huge deal as I saved enough cahs to bridge the suckout, but for some people it could make the difference between running up debt in the intermission or not. A mortgage is a very low-cost loan these days, better than running up debt any other way, usually.

Paying off a mortgage isn't totally about the money, there is also a visceral value in having a totally paid-off house. Some things are about more than the money. I paid off the mortgage without being aware of this tradeoff. Had I been aware of it I might still have paid it down because of that visceral feeling, since I was fearful at the time. If I were now where I had been five years ago I'd probably keep it running and take a smoother income profile. The important thing is to be aware of the tradeoff - which way you go is a matter of your preferences and values.

The SIPP isn't particularly attractive for someone who can retire before 55 if their pension is enough that they are paying BRT in retirement. Yes, they'll save the tax going in, but they'll pay 3/4 of it coming out, plus any SIPP fees and lose access to their money till 55. It probably makes no sense for your OH, compared with using an ISA. Her situation is atypical, most DB pensions seem to be designed to pay out at 60 or 65 so a SIPP can fill in the hole between 60/65 without drawing the pension early and taking an actuarial reduction on it.

green_man

The SIPP isn't particularly attractive for someone who can retire before 55 if their pension is enough that they are paying BRT in retirement. Yes, they'll save the tax going in, but they'll pay 3/4 of it coming out, plus any SIPP fees and lose access to their money till 55. It probably makes no sense for your OH, compared with using an ISA.

Right, yes that's what I was thinking. Many thx. My OH doesn't have a load of excess money that she could use for this anyway, so the flexibility of any cash she can put into ISA (thus reducing the amount of lump sum she will want to take) is probably as good a use of funds.

Marine_life

Personally I can come down on both sides of the fence when it comes to "paying off the mortgage early" debate.

In the first instance i think every portfolio needs some diversity, so if you are paying a mortgage interest rate of 3-4% (or higher) then for me thats not a bad return, especially when inflation is hovering at or below 1% (or actually lower than that in the Eurozone).

Secondly, it would be true to say that historical returns on investments have exceeded interest rates but who says that will continue in the future. I am not sure that we can look at the historical periods as being typical of that going forward. We already have markets which many believe are overvalued so if we consider returns for the next 10 years could be 5% on average or less, then the decision becomes a lot less clear cut.

Finally as has been pointed out there is the psychology of not having a mortgage, which is important in so many ways.

So i would conclude that whilst historical experience may suggest that paying off a mortgage is an economically poor decision I would say don't put all your eggs in one basket.

coyrls

Marine_life wrote: »

Personally I can come down on both sides of the fence when it comes to "paying off the mortgage early" debate.

In the first instance i think every portfolio needs some diversity, so if you are paying a mortgage interest rate of 3-4% (or higher) then for me thats not a bad return, especially when inflation is hovering at or below 1% (or actually lower than that in the Eurozone).

Secondly, it would be true to say that historical returns on investments have exceeded interest rates but who says that will continue in the future. I am not sure that we can look at the historical periods as being typical of that going forward. We already have markets which many believe are overvalued so if we consider returns for the next 10 years could be 5% on average or less, then the decision becomes a lot less clear cut.

Finally as has been pointed out there is the psychology of not having a mortgage, which is important in so many ways.

So i would conclude that whilst historical experience may suggest that paying off a mortgage is an economically poor decision I would say don't put all your eggs in one basket.

Doesn't it just come down to the fact that if you need to borrow money, a mortgage is the cheapest way to do it and therefore if you think you may need to borrow in the future if you pay off the mortage now then don't pay off the morgage now?

The idea that you can make more money investing than paying off the mortage depends on your attitude to risk, your view of future interest rates and your view of future investment returns.

Marine_life

coyrls wrote: »

The idea that you can make more money investing than paying off the mortage depends on your attitude to risk, your view of future interest rates and your view of future investment returns.

Essentially that's right.

Although in some cases there is a pure arbitrage i.e. I could invest money now for 5 years and get around 2,25% completely risk free. Over the same period i could get a fixed rate mortgage at around 1,25% (at 60% LTV). Remember I am Germany not the UK.

There are some timing considerations (i.e. when I want to sell the house) which would prevent me doing that but otherwise there is (very little) risk consideration involved.

That's where the psychology comes in or:

a. Having a mortgage at all
b. Paying any interest at all (to a bank - which I hate doing)