Early-retirement wannabe

RickyBoyRoy

darkidoe wrote: »

Yes I meant 6 months to 1 years worth of emergency cash savings

Thanks, I thought it was some weird equation that I didn't understand . I 'll have to calculate my average monthly bills and build up that pot - I guess you never know when it could be needed to get you out of a hole!

Techno

Well, done the deed today, told the boss that I am moving into semi-retirement from next September when I reach 55 - I think a year of part time working will help to ease me in gently. Already planning what to do with the extra time.

Reckless_Saving

@RickyBoyRoy yes you got it, simplistic figures on the back of a packet, also didn't take account of increased investment income through reinvestment of dividends and annual increases in dividend - compounding effect is very powerful

jdw2000

Linton wrote: »

To answer your questions one by one:

1) I retired at 56, 5 years ago.

2) Serious planning - about 6 years previously. However from about 35 I was maxing out on pension contributions and had started on serious investing from around 45.

Driver - I realised that I would be in a position not to need to work and the increasing stress associated with a well paid job was becoming less justifiable. Anyway IMHO there are better things to do with ones life.

3) Strategy:
a) Decide how much income you want to retire on. To do this you need to know how much your are spending, on what, now. Just budgetting bottom up isnt a good guide.
b) Have good money and investment management tools so you know what you've got in detail without the need to repeatedly work it all out from scratch.
c) Put all your spare income into tax free investments - ie shares and funds. Doing this is vital. Whether those savings are ISAs or Pensions is a secondary matter.
d) Spend hours on a detailed plan to cover you and dependents until you are 90 at least. I used MSMoney lifetime planner, but its doable with a spreadsheet. You will need to have a column (or row) per year and calculate inflation adjusted assets at start,income and expenditure, assets at close. Make reasonably pessimistic assumptions on inflation and investment reuturns - I used 3% and 4%. Also understand how much increase in inflation/drop in returns would seriously compromise the plan.
e) Educate yourself on investing, pensions & annuities etc
f) From the plan you know what asset base you need, so when you get there - jump, ideally at the same time as your employer is offering voluntary redundancies.

4) I planned on a 10% increase in expenditure, rising with RPI. It's better to work from expenditure rather than income.

5) I dont have any major concerns, though halfway through the credit crunch I was possibly getting a little worried.

6) Despite the credit crunch progress is much better than planned. My total assets in cash terms are larger than when I retired. I am having difficulty spending as much as planned, though trying hard! It is clear to me that RPI is a very pessimistic measure.


Retirement isnt just a financial matter - you do need to know beforehand how you want to use your time in the long term. There would be nothing worse than retiring and then spend the rest of your life watching daytime TV because you have nothing better to do.

Very interesting post.

You started seriously investing from age 45. And you mention the need to educate oneself in investing.

In a nutshell, investing in what?

baj25

A week ago, I would never have imagined a thread like this existed, now I have become a serious follower.
I’m 54, and last week compulsory redundancies were announced in my workplace and it looks like I will go in 6 weeks. Scary times. I confess that although we are more savers than spenders, I have never planned towards retiring at a particular age. My wife however has long intended to go at 55 (in 18 months or so). We are both in good health.
I think we can do this, but a sanity check would be very much appreciated.
My pensions will give me c.13k p.a. (current DB scheme + deferred from previous employment), drawable from 55.
My wife’s pension will be just under 15k p.a. (NHS), drawable from 55.
With bits of lump sums added to long term savings/investments, we’ll have about 400k stashed. House is presently 600k+ and we have a vague plan to downsize and release capital in 10-15 years. No debts.
My spreadsheet says our outgoings including keeping one car are about 17-20k p.a.
We could both get reasonably well paid contract work in our professions to generate more if we needed for a while.
So, should I relax or develop a taste for baked beans? (Seriously, I have genuinely had sleepless nights already)
Any tips on reducing tax hit on a redundancy pay off (redundancy sacrifice is not an option in my scheme)?
Thanks in anticipation.

chiefie

baj25 wrote: »

A week ago, I would never have imagined a thread like this existed, now I have become a serious follower.
I’m 54, and last week compulsory redundancies were announced in my workplace and it looks like I will go in 6 weeks. Scary times. I confess that although we are more savers than spenders, I have never planned towards retiring at a particular age. My wife however has long intended to go at 55 (in 18 months or so). We are both in good health.
I think we can do this, but a sanity check would be very much appreciated.
My pensions will give me c.13k p.a. (current DB scheme + deferred from previous employment), drawable from 55.
My wife’s pension will be just under 15k p.a. (NHS), drawable from 55.
With bits of lump sums added to long term savings/investments, we’ll have about 400k stashed. House is presently 600k+ and we have a vague plan to downsize and release capital in 10-15 years. No debts.
My spreadsheet says our outgoings including keeping one car are about 17-20k p.a.
We could both get reasonably well paid contract work in our professions to generate more if we needed for a while.
So, should I relax or develop a taste for baked beans? (Seriously, I have genuinely had sleepless nights already)
Any tips on reducing tax hit on a redundancy pay off (redundancy sacrifice is not an option in my scheme)?
Thanks in anticipation.

Goodness you look well placed. Don't forget your state pension forecasts and you can add NI contributions over the coming years should you not work but want to top this income steam up. You may also be able to claim no credits if you care for grandchildren.

If you are getting redundancy I would look at putting as much over the £30k non taxable element into a SIPP IF you are are 40% taxpayer until this takes you to the 20% area.

£400,000 in savings is great to have. You seem well placed, but it depends upon your expected lifestyle and expenditure.

Beans are ok once a week 😊

OneInTheHat

I would love to retire at 55 but not sure it will be feasible

I am 43, single mother with 2 teenage children.

I have a mortgage which I am hoping to pay off in 1-2 years time.

I only started a pension 2 years ago (hangover from the divorce...long story...but ex got to keep his extremely well funded final salary pension while I got the house but had to take out a mortgage to give him a portion of it, london house prices have a lot to answer for)

I am in a well paid job now so am maxing out my pension contributions but subject to the annual allowance. I can save over and above that so am also maxing out ISAs.

I only have 12 years to go.

What I am finding hard to define is how much I might need to live on. I also need to consider that the children will still need funding for a few more years.

jaydeeuk1

I'm aiming for 60. 35 now and recently started a 25 yr mortgage. I only started saving inc pension in the last 12 months or so, playing catchup in a huge way! Wife looks after children although employed by company which helps with tax, lucky to have a decent income so making hay. Currently saving £2k a month in pensions (split between mine and wifes), £1k a month in ISAs and £1k a month in p2p and savers. Wife probably has some savings too. Currently have our old house lying empty with no mortgage which we'll be selling after xmas which will help.

I'm thinking if we can save £4k a month over 25 years, at worst barring some global catastrophe, we should get back around £2000 a month over 50 years (so £1000 each) at inflation level growth and minimal tax. I've no intention on living to 110, so could take even more out.

frugal90

Saving 4k per month sounds amazing, you must both be very high earners!

jamesd

baj25 wrote: »

should I relax or develop a taste for baked beans?

You should relax and start living on a household income of about £44k a year. £55-60k is entirely possible if desired.

Your core long term income is the two work pensions of £13k and £15k plus two state pensions that I assume will be £8k each though quite likely higher. That's the long term 44k, all of which will be in payment at an assumed state pension age of say 69.

In the shorter term you would have need of:

1. Enough to get your household income up to that £44k until you're both at 55. From your wife's ongoing income and a bit of the £400k.

2. From 55 to 69 enough to top up with the £16k a year not yet being received from the state pensions. 14 years x 16k = 224k so you can easily handle this plus inflation.

Since you clearly have more capital than needed just to get to the 44k level you can use some of it to top up your income level above that. Very crudely and ignoring investment income the capital alone could add (400-224) / (90-54) = 4.9k a year to assumed life expectancy of 90.

But investment income happens and can't be ignored. Today I've be looking to get around 10% a year via P2P with perhaps half of it, so another £20k a year of income.

In the short term you can both make some nice tax gains by maximising your pension contributions into personal pensions. Those become available at age 55 with 25% tax free lump sum available, the remaining 75% drawn as desired under flexible drawdown and taxed as income whenever it's taken.

baj25 wrote: »

Any tips on reducing tax hit on a redundancy pay off (redundancy sacrifice is not an option in my scheme)?

I rather like VCTs like Albion for that sort of thing but you can also make non-work pension contributions.