Early-retirement wannabe

atush

madeinireland wrote: »

Hi,

I was planning on leaving a couple of years ago but some wonderful advice on this forum persuaded me to hang on a bit longer and take advantage of various pension uplifts and tax saving ideas to put me into a better financial position. Although my job at the time was stressful and still is to a point I have changed to work in a different area internally with much nicer people.

I am now in a position to retire at 55 with financial independence and now just waiting on the next redundancy scheme to be offered within the company as I couldn't really pass on the £70k leavers payment I would receive. I expect it to happen within the next 6 months.

Good luck all

Always worth hunting out a redundancy scheme if you can if you want to retire.

atush

Grabs39 wrote: »

Well I tend to read this section of the forum out of interest I'm at the other end than most of you. I'm 23 and have been working for 6 years. A couple of years ago I noticed that it's expected that I won't reach state pension age until about 70 (if such a thing exists then, if it does it could be means-tested). That's 47 years away. Yes, forty seven. No thanks!!

I've set a rough goal of 60. My strategy, although loose is/was to buy a house as early as possible to save on future rent. I did that last year, fortunately I live in the North East so bought a two-bed ex-council house in a not-very-nice area for £62,500. My mortgage is less than most peoples rent and will still pay it off in about 12 years at that rate, though I actually aim for more like 8. I then plan to use this place as a deposit (unless the stamp duty rules are changed) and buy a 4-bed semi or similar currently around 160,000 in a nicer area around here. Once that's paid for the money can pile into pensions/ISAs or whatever options there may be then.

I pay into works DC pensions, though it's not enough, I put in 3% and my employer matches it. This will go up in 2017 and any pay rises will go into AVCs. I'm at around £1200 now. I also have a SIPP with around £4600 in which I normally put money in now-and-then. I earn about 18-19k after overtime at my main job and about £1k a year through additional jobs.

My Fiancee has a really good DC scheme - much better than mine so she is almost better prepared than me without trying!

My main concern is that the goalposts will move. The state pension keeps going up, and it seems that the age at which pension can be drawn follows it. I also fear that investments won't perform or simply that I can't put enough away. But I suppose a risk is that I spend my life worrying about old age, and forget to live while I'm young!

Well one thing I would say is, to start a pension before you buy property 2 (or in your case i would boost your current pension payments or at the very least start a S&S isa). Never not join a pension with free money (you didnt- congrats)..

And if you expect the state pension to move out (wise) then the best thing you can have is a DC pension. right now you can take it at 55. But in future they are talking about pegging it to 10 years before state pension age. So can help fund 10 years or more of early retirement.

Because the earlier you invest, the longer you have for compounding returns (look up the explanation at Monevator.com)

Marine_life

So let’s deal with the three aspects to early retirement mentioned above. Money, health and personal motivation and I will give you my philosophy on how to decide whether you are ready to retire.

The first one – Money – should be relatively straightforward – either you have enough money or you don’t, right? Wrong! What constitutes enough money is dependent on a number of variables. Some will quote the mathematical formulae which say “it should be 25% of your annual expenses” or “it should be 4% of your total net worth”. But the problem with both is scenarios in that the assumptions are based on historical track record of returns rather than a projection (e.g. who can tell me when this period of historically low interest rates will end? The longer it goes on the greater the chance of economic Armageddon once interest rates star to rise again. It also does not contemplate an individual’s attitude to risk both in terms of the investment returns and extent of the buffer e.g. an individual who has greater risk tolerance may be happy with 20x annual expenses (but at the same time risks running out of money if everything decides to go pear shaped). Secondly, I know few people with the discipline to say what there expenses are today, never mind the foresight to say what they will be 10 years from now.

In both cases (investment returns and spending), most will plan for a buffer.

In terms of the second case – health – we all know people who know people who’s friend/relative/co-worker, dropped dead the day before were due to retire so you should a) Retire now b) spend all your money now because tomorrow you might get run over by a bus. In actual fact, statistically you won’t die tomorrow and, as Atush says, there are reasonable preventative steps you can take to make sure you improve your statistical chances. Nevertheless, it’s true that time is a finite commodity and the more days in the office means less days doing the things we want but see next point – are there really so many things you want to do, and – previous point – do you have enough money to do them?
And so the final point – personal motivation. I classify people into three groups 1) Those that are running away from something towards early retirement, typically a job that is either boring, poorly paid, where they feel underappreciate or a combination of all three 2) Those that are running toward something e.g. travel, learning to play the guitar or maybe giving more time to worthwhile causes; or 3) (I expect the majority) Those who tolerate work or maybe even like it a little but have really no idea what they would like to do in retirement and worry that they may just get stuck into watching daytime TV and going to bed early. There are also those – like me, I will admit – who quite like the status that work brings and think they might miss it (even just a little bit).

In order to decide where you are on the journey to retirement with 1 being “I am definitely ready” and 10 being “I am definitely not ready”. Once you hit a score of greater than 15 you are more ready to retire than not. Whether you actually take the leap may be a different decision e.g. you may score 10 on the health and personal motivation scale but practically don’t have the money. If that’s the case maybe you should start looking for alternate ways to earn money. Etc.
On the above scale I rate as follows:

Money – 8
Health – 5
Personal motivation - 4

So with a score of 17 I am closer to “retire” than don’t and my personal motivation is holding the decision back. If my health score goes up (e.g. I feel less well) or I don’t get promotion (which pushes my personal motivation score up). The rating will change pushing me closer to retirement.

kidmugsy

madeinireland wrote: »

now just waiting on the next redundancy scheme to be offered within the company as I couldn't really pass on the £70k leavers payment I would receive.

It's priceless, isn't it? One spends years carefully accumulating a "get stuffed" fund, and then the employer spins on his heels and offers a "sod off" bonus.

edinburgher

I pay into works DC pensions, though it's not enough, I put in 3% and my employer matches it. This will go up in 2017 and any pay rises will go into AVCs. I'm at around £1200 now. I also have a SIPP with around £4600 in which I normally put money in now-and-then.

Well done on buying less house than you could probably afford, a great decision that will have long lasting benefits

Before adding to your SIPP, check and see how the fees compare to your work pension, factoring in any salary sacrifice etc. that might make it more efficient to use the work pension for extra monies. I have a work pension and SIPP as well and while the SIPP gets used for assets that aren't available in my work pension, I don't save any NI payments with it.

jamesd

kidmugsy wrote: »

The evidence is that tests for non-symptomatic conditions are largely a useless expense, and can even do more harm than good. The "annual check-up" is a huge money-spinner for US medics, but seems to be a bad idea.

I'm now close to ten years older than my father was when he died of a heart attack. Significant differences in risk factors but I did find it beneficial to know that my coronary calcium is normal average for my age, no heart enlargement and that my intestines and lungs are basically OK. Of course this isn't an annual check, once every five years the maximum frequency. This check didn't directly increase my life expectancy but did suggest that I shouldn't be unduly pessimistic about life expectancy based on family history.

jamesd

Marine_life wrote: »

we would have enough money to be really, really sure of never running out of money. ... a big promotion and potentially double the money I am on now. Honestly it would be difficult to turn down

What will you be able to do that you can't do now if you took the job? You know it'll cost you retirement time so that cost is there, what's the benefit?

I am delaying after nearly going this winter but I've adjusted my targets and objectives so do have a reason to stay on longer, in the form of increased flexibility to relocate to other countries.

Marine_life wrote: »

We have only a small percentage of our savings now in equities (around 15%) and have moved the rest to safety so even if there were a major financial meltdown we are set.

That's entirely sensible at the moment given the cyclically adjusted price/earnings ratio in many markets and the way that has been shown to correlate with future returns. It's a work in progress but this post covers some of that p/e stuff when it comes to reducing sequence of returns risk.

ex-pat_scot

There's nothing better than putting your own presumptions up for debate! Congrats to MarineLife for being so open about his thoughts, challenges and changing perspectives.


I'd like to think I'd be braver in heading into the brave new retired world, in his shoes, but am not confident I'd be certain to do that.


I hope that 55 to 57 is my broad exit, which is 8 to 10 years away.
I have not much idea of how I will feel when I get towards that point, and when the pot is hopefully at the level to which I am planning.


I do know that my family and friends will not be particularly helpful in this decision though, and that I will have to calibrate my position against online rather than offline peers.


I hope that I will be in a position of strength at that point: that I will be able to choose the how, when and why.

Triumph13

ex-pat_scot wrote: »

I hope that I will be in a position of strength at that point: that I will be able to choose the how, when and why.

You missed maybe the most important one: "who with".

Goldiegirl

Marine_life wrote: »

Money – 8
Health – 5
Personal motivation - 4

.

By most people's standards, your 'buffer' would score 30 points by itself!

I'd suggest your money score should be lower than 8, more like 6, as you are hankering after a promotion for more money.

Coupled with your other scores being low, with personal motivation being lowest of all, I'd say you are a long way from being ready to retire.

I'll be gobsmacked if you retire this side of 2025 - in fact I'd eat my hat if you do!:rotfl: