Early-retirement wannabe

atush

true. but it isn't a whole lot of capital and from what I can tell is worth double what i paid in sales price + renovation.

AS a side note, it is where I honed some DIY skills like tiling, and is where I took my 3 small children on holiday first every month and for a few weeks in summer, then for a few weeks in summer every year. Lots of good family memories.

Marine_life

House on the market tomorrow.....one step closer.

Karmacat

Marine_life wrote: »

House on the market tomorrow.....one step closer.

:j:j:j Woo hoo!

hugheskevi

It is now 4.5 years since my first post in this thread . Just completed a full spreadsheet update following the end of the financial year, and here are the highlights.

Quick recap - both myself and my wife are 37 years of age, both in full-time employment with no kids and no intention of having any. We intend to retire by about age 45 to go travelling for several years before returning to UK for a conventional retirement.

First, one of the key things to have a good idea about is income needs. Personally I calculate this by applying the formula:

Long term consumption=Gross salary - pension saving - ISA saving - income tax - National Insurance - Mortgage + Saving interest - change in net minor debts and saving

In 2013/14 this worked out as £26,600. That was the first year I had calculated it, so was very interested in what it would be in 2014/15. It turned out to be £27,300 so very little change there.

My distribution of expenditure is in the pie-chart below. Debt repayment is mostly mortgage (although we have around £50K on 0% credit cards, and the balances fluctuate a bit which feed into this category).


The pattern is extremely similar to 2013/14, with only single percentage point differences in all categories. I was surprised it was so similar, as I do not manage my expenditure with any limits or targets applied.

Assuming I work until April 2023, my pension income is going to be roughly as set out in the chart below. Real-terms is defined as RPI, which is assumed to be as per OBR assumptions, who have revised their estimate of the RPI-CPI gap to be 1 percentage point, so RPI is assumed to be 3% per year and CPI 2% after the projection period.

This plan involves commencing both one of my pensions and one of my wife's pensions with protected minimum pension ages at 50 (as we will not be paying tax then, and it removes any Lifetime Allowance issues). Then commencing a SIPP as early as possible, which I assume to be age 58, drawing up to higher rate tax threshold each year until the SIPP is exhausted. Then commence a second DB pension, with State Pension starting a few years afterwards.

I now need to redirect pension saving toward additional ISA saving. This is because my tightest year in all scenarios is immediately before I can access my SIPP. As soon as I can do that, I have plenty of liquidity from Pension Commencement Lump Sums. This has always been the case, but has been exacerbated by the increase in the minimum pension age to State Pension age minus 10. This has not been legislated for, but announced as policy intent by HM Treasury. This is an annoying state of affairs, as I have no idea whether existing pensions will be given protection, in which case I wouldn't redirect savings to ISA just yet. Still, I have very little carry-forward left and am skirting around Annual Allowance so reducing pension contributions a bit might not be such a bad thing.

One thing that concerned me a lot was assumed age of death, and how exposed to increasing longevity I am. It turned out that the answer was not at all, unless State Pension policy changes (which is a big uncertainty given all the pension tinkering all Governments routinely undertake). Due to the combination of Defined Benefit plus State Pension income, combined with an assumed income need which escalates by RPI after age 70 (and by earnings up to age 70), income will always be above level required regardless of age of death. Not being exposed to longevity risk is a very comfortable position to be in, which increasingly fewer people will be able to have in future.

One welcome finding was that the reduction in the Lifetime Allowance to £1m, but with CPI indexation from 2018, will have no impact on me. This is because HMRC's method of valuing DB benefits will woefully undervalue the DB pensions I take at age 50. Again, there is a risk that HMRC's valuation methodology will change to something more sensible as a number of industry figures have been calling for a revision of this methodology due to the advantage it gives to DB schemes compared to levels of income which can be secured from insurers with pots of £1m, but not much I can do to mitigate that risk.

Looking back at my first post in this thread 4.5 years ago, I answered the question in the very first post about what my main concerns were back in November 2010. My answer was:

In order:

• Job loss
• Government changes pension rules again, in particular access at age 55, or lowers Annual Allowance
• A long-term decline in nominal house prices
• A long-term stagnation of investment returns

It is quite striking that both of my concerns about Government changing pension policy have come to pass, whilst none of the other factors have materialised (yet!). I think it demonstrates that policy instability really needs to be considered in any long-term planning. There are now multiple areas where policy instability is my main concern, far more than things such as investment returns and other similar risks which I can manage.

Aside from those observations, this year was very quiet really - nothing significant has changed in the year and my earliest possible retirement (a scenario requiring early inheritance and favourable redundancies for both myself and wife at the perfect time) is still April 2019, as it was last year. My central plan remains retirement in January 2023 (which uses somewhat pessimistic assumptions rather than central-case, although it is not a worst-case scenario).

kidmugsy

hugheskevi wrote: »

It is now 4.5 years since my first post in this thread . Just completed a full spreadsheet update following the end of the financial year, and here are the highlights.

Due to the combination of Defined Benefit plus State Pension income, combined with an assumed income need which escalates by RPI after age 70 (and by earnings up to age 70), income will always be above level required regardless of age of death.

How did you estimate future expenditure on "care"?

hugheskevi

How did you estimate future expenditure on "care"?

It isn't explicitly modelled.

In most scenarios I will be saving in retirement, and by the age at which it is likely that either myself or my wife would need care it should be easily funded from savings unless the period happens quite early in retirement and is for an extended period (ie years). That is fairly improbable, as most spells of care do not run into years. But it is sufficiently probable to be concerned about.

The contingency plan is to raise capital against primary dwelling - either reverse mortage if both of us are still alive, or sold to fund expenses in the event only one is left. Although I don't expect to have any need for assets to pass on (another advantage of no kids - pretty much everything will go to charity), I nonetheless do not plan to take any assets from my property in retirement in any central scenario.

Having primary dwelling available to raise capital against in event of need also serves as a contingency plan against other shocks leading to inadequacy, although care is by far the biggest shock which is likely.

gallygirl

Really interesting to read how you're progressing and consumption of 21% is admirable :T.

I share your concerns about possible further changes. I've now retired at 53 and don't need to access my SIPP for quite some time - but feel I need to do what you're planning and empty it asap to guard against future changes. Complicated by the fact I'll be living overseas - staying as a UK resident initially but can't pay into an ISA so will need to explore tax-free options abroad. Further complicated by the fact I'm not quite sure where 'abroad' will be . Presumably the same won't impact on you as you'll have returned from your travels by the time you access your personal pensions?

missyrichards

gallygirl wrote: »

Really interesting to read how you're progressing and consumption of 21% is admirable :T.

I share your concerns about possible further changes. I've now retired at 53 and don't need to access my SIPP for quite some time - but feel I need to do what you're planning and empty it asap to guard against future changes. Complicated by the fact I'll be living overseas - staying as a UK resident initially but can't pay into an ISA so will need to explore tax-free options abroad. Further complicated by the fact I'm not quite sure where 'abroad' will be . Presumably the same won't impact on you as you'll have returned from your travels by the time you access your personal pensions?

We were considering moving abroad after retirement, where do you have your other home if you don't mind me asking?:) Was it very complicated to buy an overseas property?

peterg1965

Hugheskevi - I do like your graph of income vs age, I wish I was as good on Excel as you obviously are! Your future income profile looks very encouraging for you.


There are very few of us who can access DB pension benefits before 50. As you are only 37, does that mean that there is a risk that pension changes (Govt or otherwise) could threaten your assumption that you can access your DB pension before 50? Apologies if this has been asked before - its a long thread this one!


It is also interesting that reflecting on your post from 4.5yrs ago, that the major change (threat) has come from legislative changes. I am sure that will remain the case going forward from here and is a real physcological barrier to some people investing in pensions.

DoDa

You may want to consider keeping an offset mortgage in early retirement. This gives you access to cheap borrowing should you require it in early retirement.


We aim to retire in Dec 2016 at ages 50 & 49 and have a tight budget until we are 55 when we have access to our SIPP's. We have taken a 'one account' mortgage out to age 65 to give us some flexibility and contingency. We do have the advantage that we have already taken 27-months off work to go travelling, so have a good idea of what our costs are when 'retired'