Early-retirement wannabe

gadgetmind

marlot wrote: »

My gut feel is that I'm being pessimistic. What do people think?

If you like creating mathematical models, buy a copy of Living Off Your Money by Michael McClung.

It shows how to construct a retirement portfolio, which assets to use first and how to replenish them, what starting rate you can afford regards drawdown, the effects of Guaranteed Income, and how to adjust drawdown (spending!) based on market gyrations.

Alexland

The problem my parents have found with their DB pension is that inflation is not very linear so in some years when it is low they have got little and in other years when it is high they have been capped. Over many years this has caused a compounding of below inflation growth. So even gold plated inflation linked pensions can reduce in real value over time.

k6chris

Alexland wrote: »

The problem my parents have found with their DB pension is that inflation is not very linear so in some years when it is low they have got little and in other years when it is high they have been capped. Over many years this has caused a compounding of below inflation growth. So even gold plated inflation linked pensions can reduce in real value over time.

The other point to make is that for years the basket of goods that make up the official inflation measure has been altered (manipulated) so it is no longer the case that CPI or RPI are a true reflection of the 'cost of living'. Whilst working, this is a theoretical 'conspiracy theory' type discussion, once you are living off savings and investments it becomes a very real consideration. OMY? Nooooooooooooo

Terron

OldMusicGuy wrote: »

Our view is that our generation has done very well out of the growth in the housing market and it's only fair to pass some of that luck on to the current generation for whom it is much more difficult to get on the housing ladder.

I don't remember it being easy - double digit interest rates and a housing price crash that dropped me into negative equity.

badmemory

Terron wrote: »

I don't remember it being easy - double digit interest rates and a housing price crash that dropped me into negative equity.

It certainly wasn't & if it wasn't a wedding present it was a hand me down. I avoided negative equity but my neighbours moved in & a few weeks later the price dropped by 25%.

Very few rate fixes then & when the mortgage rate went up it went up in your next payment.

I'm not totally convinced that the cost of housing, whilst it is an important issue, is the main issue for young people. I believe it is their employment terms, which seem to be getting worse & worse as the years go on. When I was younger I assumed that employment would actually become mutually beneficial, well how wrong was I?

gadgetmind

westv wrote: »

Don't forget to factor in a 90% drop in stock markets the same year you retire - or is that a little too pessimistic?

Living Off Your Money uses a "worst case" period of 2000 to 2010 to get the dot com crash and the credit crisis, and it then "wraps around" to 1928 to add the great depression into the mix.

BTW the worst real year to retire based on the dataset was 1969.

k6chris

westv wrote: »

Don't forget to factor in a 90% drop in stock markets the same year you retire - or is that a little too pessimistic?

A little(!) but I have used RetireEasy and cFIREsim to run sense checks on the plan and have based it on 100% success rate historically. The models are not perfect but do give a nice second opinion to help you sleep at night. I am safe in anycase as I intend to invest 100% in BitCoin and that only goes up.

OldBeanz

Terron wrote: »

I don't remember it being easy - double digit interest rates and a housing price crash that dropped me into negative equity.

I think the difference is inflation, pay rises and the amount you could borrow. During the 80's and 90's not only were you constrained by what you could borrow; but inflation eased the payments as a percentage of take home salary over the years; double digit interest rates did not last long; pay rises were more than inflation - Public Servants (for example) have had a 10% drop in real terms over the past 10 years but again those on the housing market have been protected by low interest rates compensating for actual drops in salary. So today's starters (millennials) have a tougher time getting on the ladder and if interest rates rise could really be in trouble. As ever negative equity is only an issue if you need to move house.

OldMusicGuy

Terron wrote: »

I don't remember it being easy - double digit interest rates and a housing price crash that dropped me into negative equity.

It was easy for me but I bought my first house in 1979. I was able to get an affordable mortgage on a starting salary, something that's just impossible for my son and I suspect many other young people. There have been ups and downs since then but I think it's harder than ever just to get on the housing ladder.

bluenose1

OldMusicGuy wrote: »

It was easy for me but I bought my first house in 1979. I was able to get an affordable mortgage on a starting salary, something that's just impossible for my son and I suspect many other young people. There have been ups and downs since then but I think it's harder than ever just to get on the housing ladder.

Totally agree. I got my first house in 1986 and had no trouble getting on the housing ladder on a basic salary. The irony is the young are paying more to rent than they would if they could get a mortgage.
I am fortunate as will probably be able to help them financially, though only if I think it is required, feel sorry for those who don’t have Bank of Mum and Dad.