Early-retirement wannabe

Triumph13

WantToRetireEarly wrote: »

Hi,

As someone who has recently taken the decision to retire early (by 45), just the thread I was looking for! To be clear, retirement for me means financial independence i.e. the choice to sit at home watching daytime TV all day or do any kind of work that I would like to do without looking at the pay check.

Basic info - 35 years old with a 32 year old wife and a child on the way. Living in London, annual household income around 80k, no debt besides a mortgage of £320k.

I don't want to put a downer on your plans, but I'm intrigued to know how you make those numbers stack up. Is that household income net or gross? If gross then I find it hard to see how you will get much further than just clearing the mortgage over the next 10 years, even if your wife goes straight back to work and you have free childcare from family. £40k each pre tax would be around £60k pa post tax. Take off £6k pa of mortgage interest, your living expenses (which will go up with a child) and your work related expenses and it's hard to see you saving more than £30k pa.
If the £80k was net then it's a little better, but I still think you'd need another couple of years.
I'm not trying to put you off what I think is an admirable quest, just concerned that you may have set your target retirement a little too early - unless there are other sources of wealth you haven't mentioned.

melanzana

Triumph13 wrote: »

I'd love to know what the average 'savings rate' in retirement is for those who, like me, save like mad in order to retire early. I suspect that the habit of trying to come in 'under budget' is going to be a very hard one to break!

I had a monthly amount placed in savings every month whilst I was working. And I too paid down debts and mortgage etc aswell in order to plan for an early retirement!

The savings standing order still stands, I just never got around to cancelling it, and to my surprise I can well afford it too. But I no longer need to save that much, so I save it to spend it now. The rainy day is here!

I know I am fortunate to be able to do this so I don't want to sound as if I am gloating at all.

Some months I don't use the saved amounts so it builds up, and then I can just take off wherever I like, or buy something nice for myself. The joys of retirement.

I do have other funds in long term investments though, so I have the security of knowing that. My house is too big for me, it's in a good area and it's well maintained. I have no intention of leaving it anytime soon, but the option to downsize and grab a huge chunk of equity/profit is always there.

I pinch myself sometimes. And I am not on a huge pension either. More than I though I would need though obviously!

WantToRetireEarly

Thanks for your frank comments, happy to receive a critical evaluation of my current plans.

The 80k is conservative net income (not including potential quarterly bonus amounts that my wife has been getting until now) and we currently have a savings rate of about 75-80% (in which I include the portion of the mortgage payment that goes towards capital, plus obviously all overpayments).

I based my 11 year period on the logic given in MMM's post - 'The Shockingly Simple Math Behind Early Retirement'. (Sorry, MSE isn't letting me post any links)

Having said that, I accept that it is a very rough estimate and expect to refine it and crunch the numbers properly in the coming years. I'll admit I chose 45 because it seemed like a nice round motivating number

Plus, there are a couple of things at the back of my minds which push me to be a bit liberal. My wife and I moved to London some time ago from a coastal state in south India and (once our sprog leaves home) expect to let out/sell our house and move there. I have a house there which my parents currently live in. Also, courtesy my wife's mum, we do have access to free childcare.

As you mention, there are of course very many things that can go wrong - a deep recession (the sector my wife works in is directly linked to the health of the economy), my parents falling ill (I would need to visit India more often or move there for a while), mil falling ill (caring responsibilities), stock market going into long term stagnation, etc.

As you can probably tell, the foundation of my plan is an extremely high savings rate and minimizing all expenses. As long as we continue to be happy with that (my wife is still a work in progress), we should make good progress towards the goal. However, I still have an internal debate going on over whether I can count mortgage capital repayments as "savings" given that there is no future income resulting directly from those.

Triumph13 wrote: »

I don't want to put a downer on your plans, but I'm intrigued to know how you make those numbers stack up. Is that household income net or gross? If gross then I find it hard to see how you will get much further than just clearing the mortgage over the next 10 years, even if your wife goes straight back to work and you have free childcare from family. £40k each pre tax would be around £60k pa post tax. Take off £6k pa of mortgage interest, your living expenses (which will go up with a child) and your work related expenses and it's hard to see you saving more than £30k pa.
If the £80k was net then it's a little better, but I still think you'd need another couple of years.
I'm not trying to put you off what I think is an admirable quest, just concerned that you may have set your target retirement a little too early - unless there are other sources of wealth you haven't mentioned.

jamesd

A savings rate of 75-80% can accomplish a lot, not least demonstrating how little of your income you need to spend. Ignoring potential growth you're in line for perhaps 33 times the spending level need in accumulated capital and that's quite reasonable.

I don't find 11 years at your sort of savings ratio unreasonable. I accomplished my initial retirement target in under ten years but have since changed it to give me more flexibility about where to live. At present cfiresim with my specific situation is giving me 100% success rate at about 20k income with 12k minimum income and Guyton-Klinger and I still haven't reached the end of the eleventh year. I did have one advantage you probably won't have: to date almost all of my investing (not the initial saving) has been done during a long bull market. That makes it look easier than it really is in more normal circumstances.

It's nice to know that I really don't need to worry much about being unemployed any more. Luxury of choice of county to live in might go but not the ability to live quite well for life.

I'd be happy to count the mortgage capital as savings since the theoretical alternative is an interest only mortgage that you have to save money to pay off.

Triumph13

WantToRetireEarly wrote: »

Thanks for your frank comments, happy to receive a critical evaluation of my current plans.

The 80k is conservative net income (not including potential quarterly bonus amounts that my wife has been getting until now) and we currently have a savings rate of about 75-80% (in which I include the portion of the mortgage payment that goes towards capital, plus obviously all overpayments).

I based my 11 year period on the logic given in MMM's post - 'The Shockingly Simple Math Behind Early Retirement'. (Sorry, MSE isn't letting me post any links)

Having said that, I accept that it is a very rough estimate and expect to refine it and crunch the numbers properly in the coming years. I'll admit I chose 45 because it seemed like a nice round motivating number

Plus, there are a couple of things at the back of my minds which push me to be a bit liberal. My wife and I moved to London some time ago from a coastal state in south India and (once our sprog leaves home) expect to let out/sell our house and move there. I have a house there which my parents currently live in. Also, courtesy my wife's mum, we do have access to free childcare.

Thanks for the additional information. Those two key facts - the £80k being net and the fact that you won't actually need the house to live in and can regard it as an investment - do indeed put a completely different complexion on things! I withdraw my previous reservations :rotfl:
That looks an eminently achievable plan, particularly with the long term intention to move somewhere with a much lower cost of living. I wish you every success with it.

WantToRetireEarly

Triumph13 wrote: »

particularly with the long term intention to move somewhere with a much lower cost of living. I wish you every success with it.

At least that's what we hope to do!

I've seen quite a few people (maybe us in future) who move back to India from the west in their 60s with the aim of retiring there only to beat a hasty retreat a year or two later.

Nostalgia is a powerful emotion and tends to lend an unnaturally rosy hue to the past, glossing over some of the practical aspects that made us emigrate from there in the first place!

lisyloo

At 55 – access 25% tax free lump sum of pension to clear mortgage

Andy1977 - I realise things do change, but at the moment it's looking like it will be 57 for you and not 55.

enthusiasticsaver

My OH retires a month today at the end of October after working for the same company for almost 34 years. He will be 58 next week. I work part time (20 hours per week or 3 days) although one of those days is done at home usually and hours are flexible. I intend to retire in February 2018 when I reach 58 too. Just put a deposit on car for OH as he gives his company car back when he leaves.

We will be mulling over our options for the TFLS over the next 2-3 months. The pension administrators say that it will be disinvested within 2 weeks of 31 October and first pension payment will pay out 1st December. Looking forward to getting some final clarity as although we have a firm quote on monthly pension income (part DB, part DC and a levelling pension until spa) we obviously don't know for certain as the DC pot needs to be disinvested on 31 October.

Any of those here who have already retired any hints or tips on how to decide on what to do with TFSL. Our monthly income will more than cover our essential living expenses even if I retire earlier than 2018 and we have no mortgage or debts. We have savings already and the TFSL will be six figures. My OH is very cautious so I am explaining the merits of stocks and shares isas (I already have one but he does not). We will be looking at splitting it into short term, medium term and long term savings/investments and may gift some to our daughters although we have already helped them a lot over last few years. Whatever we will be taking our time to decide.

Great to see so many planning for early retirement and hope you all reach your targets. I do not really feel old enough to retire but we have planned for this since our 20s so it has been a long time coming.

hugheskevi

Short update as yesterday I reached the point at which I could repay mortgage if I wished Not that I will, but it is another scenario I track in spreadsheets ticked off. At the moment household liquid assets and debts are distributed:

Assets
ISA - £78,000
Other cash deposits - £39,000 (higher than I would like, but this is covering repayment of a lot of credit card 0% offers ending soon - they hopefully get refinanced at 0% and the cash released will be used for other purposes and cash deposits will fall back to about £20,000 which I try to target)

Debt
Mortgage - £116,000
0% credit cards - £54,000
HMRC - £2,000

Most savings are in pensions, which I now have built up to a level I think will be fine for retirement and am not putting in as much as I have previously. Even so, both my wife and I have good Defined Benefit pension schemes we are contributing to, and contributing an additional £15,000 p/a on top of normal member contributions voluntarily to enhance Defined Benefit pension benefits (the certainty of DB is very welcome, and most of pension being enhanced by the additional contributions I can access at 50, so I am effectively buying out the actuarial reduction with tax-advantaged contributions).

Including accrued State Pension (and due to both myself and wife having been contracted-out we are still a long way from the full single-tier rate) we currently have £46,000 of (gross) annual income from pensions at various normal pension ages ranging from 60 to 68 along with £183,000 in SIPPs. I plan to access one of the Defined Benefit pensions which has a protected minimum pension age of 50 at 50, as I expect to have no taxable income at that point. That will reduce income by about £12,500 p/a. Then take SIPPS as early as possible, and probably leave other Defined Benefit pensions until normal pension age or even later, as they get actuarially enhanced for late payment. So that could see me commence one DB pension around 20 years after the other All pension savings are split well across myself and wife, so Lifetime Allowance and higher rate tax issues in retirement shouldn't be an issue.

I am now in the position that I could buy my planned retirement property outright (which will be very rural and so will be quite a lot cheaper than my current London property) and retire at 58 with no further pension saving. So the next 7 or so years before I plan to leave full-time work will be primarily about building up assets to cover the period between now (aged 38) and age 58 when I assume I will be able to access SIPPs, with a good secondary benefit of building up Defined Benefit pensions to offset the reduction in income due to taking pension early. If minimum pension age doesn't track 10 years behind State Pension age (or if my SIPPs get a protected pension age of 55 when legislation around minimum pension age is passed) then that would be a very welcome bonus.

I've found that as well as early retirement, a welcome bonus of planning early retirement is the much lower risk I am now exposed to. Even if a lot of adverse financial shocks happened to me, I would still be in a decent position and able to adjust. Back when I started this plan in 2009 there was limited protection against shocks I could take (particularly as most early saving was into pensions) - mainly protections which would give financial security for a period but all which would need resuming work at a decent income level at some point, now I could maintain living standards even with a much-reduced salary (albeit working for longer) which is a much more comfortable position. Still a fair way to go to complete the plan by about 2023, but the second half should be much more comfortable than the first half of the plan.

nicknameless

Why the high credit card debt? Stoozing?