Early-retirement wannabe

Gonzo230

Hey folks,

My first post on MSE forums. I've been reading this thread for a few weeks, so thought I'd add in my situation. Apologies in advance if it's long and rambling!

I'm 38. I was lucky enough to start employment in my dream job when I was just 19. I also know I'm incredibly lucky to be remunerated well for that employment.

I have just taken the plunge on coming out of the company DB pension scheme and transferring my CETV into a SIPP.

I did this for a few reasons:

-Control of my pension

-While my pension T&Cs are good, they are gradually being eroded at every pay negotiation. To be honest I cannot see me getting the pension I am currently forecast to receive due to this ongoing erosion. There has already been a cap on increase in pensionable pay in effect for a few years, and I can only see actual pay and pensionable pay continue to diverge in the future.

-The CETV I have received is large enough to permit me to cease contributing if I so wish.

-For coming out of the DB scheme, the company will give me a 25% uplift in pay in lieu of pension contributions.

-And perhaps the main reason; cutting the tie between my work life and my financial situation in retirement. Previously, whenever I have thought about part-time working or early retirement, my immediate thought was always 'ah, but that will mean xyz for my pension'. This is the case no longer, and I find myself thinking and theorising a lot on what I might want to do in my mid-50s, if not earlier, instead of my current job.

Now, I really do love my job! I work in a highly technical operational environment, that many outwith see as stressful but to me it's a highly pressured but very rewarding and, yes, fun environment. I not only work at the 'coal face', but I spend most of my time in an office where we develop the procedures and equipment used by the operational staff. Professionally I've advanced as far as I feel the need or desire, the next step would be a pure people-management role with no technical/operational work. Don't want that.

I seem to have carved a niche for myself within the organisation, and also within the UK as a whole, in some areas of my work, which allows me quite a bit of flexibility in terms of working patterns (I can work the odd weekend and have days off during the week, I can work from home at least once a week, when I'm at work the hours are pretty flexible provided I can complete the work (which I generally set myself!))

I represent my both my own organisation at UK/European/World level, as well as the UK as a whole at others. I have contacts across the world (so consultancy work may be an option at some point in a 'wind down/semi-retirement).

Well, that was a roundabout way of confirming that I love my job, but I want the ability to stop working in my early 50s, to give me the option.

I'm currently working with my IFA but any other thoughts/experiences would be welcomed.

If you had the opportunity to stop contributing to your pension/SIPP as it was a decent enough sum already, would you concentrate on developing wealth you could access in advance of that? I potentially have around £4k per month to devote to this.

Oh, nearly forgot! I'm into the clawback of personal allowance zone on income tax, married (wife age 31, same organisation, but staying in the DB scheme). No children, and we are not planning to have them. 150k on the mortgage, no plans to move, but considering loft conversion and other home improvements. I have around £20k savings at the moment, up until very recently I was paying for parents' mortgage until they had an inheritance and could clear it.

atush

My first post on MSE forums.

You are very much welcome

I have just taken the plunge on coming out of the company DB pension scheme and transferring my CETV into a SIPP.

I did this for a few reasons:

-Control of my pension

OK, what are you reasons to think you can do better investing than guaranteed DB pension?

While my pension T&Cs are good, they are gradually being eroded at every pay negotiation. To be honest I cannot see me getting the pension I am currently forecast to receive due to this ongoing erosion.

unlikely IMHO

-The CETV I have received is large enough to permit me to cease contributing if I so wish.

Which would be related to a lot of things we dont know like your Number, so figures are appreciated- esp if you want intelligent discussion of your assumptions

And perhaps the main reason; cutting the tie between my work life and my financial situation in retirement. Previously, whenever I have thought about part-time working or early retirement, my immediate thought was always 'ah, but that will mean xyz for my pension'. This is the case no longer, and I find myself thinking and theorising a lot on what I might want to do in my mid-50s, if not earlier, instead of my current job.

I understand why you feel this way, but this is an emotional response to investing and should be discouraged. AS emotional bias isnt logical

For coming out of the DB scheme, the company will give me a 25% uplift in pay in lieu of pension contributions.

Why do you think they are doing this? Out of the goodness of their heart? Or to persuade you to do something that is against your interest by appealing to your sense of greed?

I have commented on quite a lot of your excellent post and there is more i should do, but I have to get on with something else lol. But I will say:

I seem to have carved a niche for myself within the organisation, and also within the UK as a whole, in some areas of my work, which allows me quite a bit of flexibility in terms of working patterns (I can work the odd weekend and have days off during the week, I can work from home at least once a week, when I'm at work the hours are pretty flexible provided I can complete the work (which I generally set myself!))

This sounds like you are very valued where you are, and are secure in your employment.

Not a reason to not look elsewhere (after all you are very good

But it is a reason to look at all the facts, incl a good DB scheme is worth 30% of your current salary.

Gonzo230

Hi atush,

Thank you for the welcome.

OK, what are you reasons to think you can do better investing than guaranteed DB pension?

It's not necessarily that I think I can do better, it's the flexibility to weight the draw down to the earlier years of retirement, and the fact that on a DB scheme, apart from the spouse pension upon my death, that's it. I value both of those highly.

“ While my pension T&Cs are good, they are gradually being eroded at every pay negotiation. To be honest I cannot see me getting the pension I am currently forecast to receive due to this ongoing erosion.
”
unlikely IMHO

I beg to differ sadly. The DB scheme was closed to new joiners 8 years ago, since then a DC pension has been in operation. In the last pay round there was already an attempt to provide diferent pay awards depending upon which pension scheme an emplyee was in. Sadly, many of the newer employees in the DC scheme see those who are on the DB scheme as 'shafting' the new joiners when the ballot went through to agree to the DB scheme's closure to new joiners. There is a feeling that there will be considerable pressure brought by the company as soon as the DC participants outnumber the DB participants.

I can't go into too much detail here, but in some areas of my organisation's business, our customers have a direct say in the charging structure and what gets covered in terms of costs. Pensions are their number one concern when it comes to our costs. My company has already set up a 'low cost' operation, with very basic pension provisions. This offshoot is already winning new contracts, whereas the parent company is losing contracts due to cost.

To maintain the DB scheme, the employer contribution is something like 40% of salary and likely to increase soon. There will come a point when something will give.

Hopefully this articulates why there's also a defensive move in here for me.

Which would be related to a lot of things we dont know like your Number, so figures are appreciated- esp if you want intelligent discussion of your assumptions

Ha! Yes, that would have helped I'd imagine! CETV is £1.4m

I understand why you feel this way, but this is an emotional response to investing and should be discouraged. AS emotional bias isnt logical

I expressed it poorly. I hadn't really thought about it until I had actually gone through the process. Having done so now, I find myself energised by the possibilities. Financially I could easily go part time tomorrow, to give me more time to enjoy my hobbies and perhaps volunteer (National Coastwatch Institution is something that attracts me, and I've been toying with the idea of trying to become an accredited battlefield guide too). This door was closed to me up until now, in fact I hadn't really known it was a door at all, because of the perceived impact upon my DB pension of going part time.

seekstris

This is a very interesting thread indeed, having just completed my pension planning.

I am at the tender of age of 28 but am aware how important it is to start early, and so far have been enrolled in my company pension contributing between 2 and 4% myself which has either been doubled or more by my employer.

I also although started investing as a bit of a backup option. This is just in index funds at the moment. This is currently small as I have had to spend money on the house instead but am planning on ramping that up.

So being an Engineer I did the typical thing and created a spreadsheet (yay!) to look at a variety of scenarios, but essentially the assumptions are similar to the public available spreadsheet, but just broken down year to year so I can vary input etc. I have a few questions I would love your opinion on (as I dont think there is a proper answer)

When you guys are creating your plans how long are you assuming you will live to? I know that this is a bit funny but what do we plan for? I have put to 100, but is that wise?

From what I see expenses are key but I suppose I am still figuring that part out. Is it reasonable to assume 2/3 of my current salary (so approx 30k) as we aim to have our mortgage fully paid off by then?

What sort of growth should one predict (obviously on the poorer side of this is better to be safe)? I have done some "clever" (possibly moronic) stats and have come up with just under 4% growth as the most probable (after costs and inflation).

Finally what % of salary do you think is sensible to put away? I understand this is a "how long is a piece of string?" question but his one has me a little confused as my alternative would be to invest myself rather than in the company pension. I basically have 15% contribution requirement to get to where I want but that seems a lot...

Thanks for any help!

Triumph13

seekstris wrote: »

When you guys are creating your plans how long are you assuming you will live to? I know that this is a bit funny but what do we plan for? I have put to 100, but is that wise?

From what I see expenses are key but I suppose I am still figuring that part out. Is it reasonable to assume 2/3 of my current salary (so approx 30k) as we aim to have our mortgage fully paid off by then?

What sort of growth should one predict (obviously on the poorer side of this is better to be safe)? I have done some "clever" (possibly moronic) stats and have come up with just under 4% growth as the most probable (after costs and inflation).

Finally what % of salary do you think is sensible to put away? I understand this is a "how long is a piece of string?" question but his one has me a little confused as my alternative would be to invest myself rather than in the company pension. I basically have 15% contribution requirement to get to where I want but that seems a lot...

Thinking about what percentage of salary you should have as pension / contribute to your pension is getting the whole thing backwards. The real question is how much money do you need to live an efficient, but contented life? Once you have that 'number', everything else just becomes a function of it. It is the answer to how much you need in retirement and earnings less your number less 'temporary' costs such as commuting expenses and mortgage payments is the amount you have available to invest for the future. Stick that into your spreadsheet and crank the handle and you discover when you can afford to retire.

Spreadsheetman

seekstris wrote: »

This is a very interesting thread indeed, having just completed my pension planning.
.....
Finally what % of salary do you think is sensible to put away? I understand this is a "how long is a piece of string?" question but his one has me a little confused as my alternative would be to invest myself rather than in the company pension. I basically have 15% contribution requirement to get to where I want but that seems a lot...

Thanks for any help!

You are probably not far off at 15-20% assuming you don't retire far below state pension age. There are lots of variables though and you might want to push that higher to give yourself more options as careers can get very rocky / insecure over 50.

seekstris

Triumph13 wrote: »

Thinking about what percentage of salary you should have as pension / contribute to your pension is getting the whole thing backwards. The real question is how much money do you need to live an efficient, but contented life? Once you have that 'number', everything else just becomes a function of it. It is the answer to how much you need in retirement and earnings less your number less 'temporary' costs such as commuting expenses and mortgage payments is the amount you have available to invest for the future. Stick that into your spreadsheet and crank the handle and you discover when you can afford to retire.

Hi Triumph13,

Thanks - It is something I am in the process of doing, but as I mentioned for now I have used 30k and part of my question thinking that being higher is much better? At the moment my expenses are around £18k per year but that obviously includes mortgage repayments, commuting and I do spend a lot on sports.

I guess that highlights an issue already, although in my head I was thinking would travel a lot (as thats the aim) although whether it would be to that extent I dont know.

Spreadsheetman wrote:

You are probably not far off at 15-20% assuming you don't retire far below state pension age. There are lots of variables though and you might want to push that higher to give yourself more options as careers can get very rocky / insecure over 50.

Yes, and then the idea would be that the extra investment on top of that will bring the age forward.

MallyGirl

seekstris wrote: »

Finally what % of salary do you think is sensible to put away? I understand this is a "how long is a piece of string?" question but his one has me a little confused as my alternative would be to invest myself rather than in the company pension. I basically have 15% contribution requirement to get to where I want but that seems a lot...

Thanks for any help!

Better 15% now than a lot more later. As a bare minimum put in as much as you need to in order to get the maximum contribution from your employer e.g. I have to put in 5% to get the max 10% contrib from mine.
I focused on mortgage payoff for a while and as a result of just doing the above (5% me, 10% them) I have recently realised that this is not going to make me my 'number'. As I am 50 I have had to add another 20% in as sal sac AVCs to try and make up for taking my eye off the ball when I was younger. So much of it is about 'time in the market'.

beaker141

seekstris wrote: »

When you guys are creating your plans how long are you assuming you will live to? I know that this is a bit funny but what do we plan for? I have put to 100, but is that wise?

I have modelled mine out to living to age 100, but also checked out the average life expectancy given I'm 43 now, which gave a life expectancy of 82.

So my pot has to cover until at least 82, ideally it should cover until 100, but at present it runs out at age 90 !

ex-pat_scot

beaker141 wrote: »

I have modelled mine out to living to age 100, but also checked out the average life expectancy given I'm 43 now, which gave a life expectancy of 82.

So my pot has to cover until at least 82, ideally it should cover until 100, but at present it runs out at age 90 !

There are plenty of resources that can guide to a good estimate for your longevity. Some are based on age alone; others add lifestyle factors to refine the score somewhat.

Oh and you might want to check the calc based on your initial one above, which looks rather low.
I'm 48 and the guides generally place me between 86 and 90.
For you as 43 then I'd expect yours to be higher again than me (slightly)
http://visual.ons.gov.uk/how-long-will-my-pension-need-to-last/


Beware that you don't want to plan for the 50th percentile (ie what does the calculator tell me is the best estimate) - you will want to plan for your funds to last a while longer.
Frankly, if you run the numbers through something clever like cFireSim, then you'll see that the %success figures won't change / deteriorate much if you stretch out the duration a few years longer (ie probability of pot success won't drop much for a 30 vs 35 year retirement).