Early-retirement wannabe

gfplux

hugheskevi wrote: »

End of another financial year, so time for another update. Quick recap...household is myself and my wife, both aged 40 now, no children and no plans for any in future.

Back in early 2017/18, my wife and I spent a combined 4 months in Africa on holiday (me 3 months, her 1 month). Another good holiday opportunity there has come up, so next week we are off again, but only for 2.5 weeks. Still, that will all add up to a total of 5 months on holiday in Africa over the course of the year, an average of 2.5 months each. That has increased consumption quite significantly, from 21% of household income in 2016/17 to 25% in 2017/18. Household spend over time is now looking like this:



I still think I have about enough in pensions, as I did a year ago, although we are still both still contributing to some good DB AVC options and employer pension. This means the focus is increasingly on funding the period until age 58, when pensions can kick in (I'm assuming an increase in Minimum Pension age for caution).

Contributions to ISA are therefore much higher, and the amount of money borrowed on 0% credit cards increased quite a lot (currently at £68,000 down from £85,000 a few months ago), hence the sharp reduction in net debt repayment compared to 2016/17. But in a few weeks I'll be paying a third of the remaining mortgage off which will mean net debt repayment for 2018/19 should be quite high.

Future pension income looks like this:



We now have a total of £56,000 p/a of DB and State Pension accrued at Normal Pension ages (all in real CPI terms), or £42,500 if we both take a reduced DB pension with a protected minimum pension age of 50 at age 50. We are accruing pension (state plus employer DB, including some voluntary DB AVCs) at the rate of £4,300 p/a (based on the assumption we take the DB pension at age 50).

This assumes an earnings updated State Pension (no triple-lock) and that the increase to age 68 in State Pension age is brought-forward. It also assumes that 25% lump sum is taken from personal pensions, and that an income up to higher rate tax (current threshold assumed to increase in line with earnings) is drawn from remaining pot.

Using the formula:
Shows a household consumption figure of £34,000 for 2017/18 (this figure is akin to 'The Number' discussed in other threads). However, this is inflated by the Africa holidays. Looking at previous years and re-valuing them in line with change in earnings, a figure of £28,500 is more normal. Even allowing for that number to increase in line with earnings in the longer-term (I allow for earnings increase to State Pension age, and CPI increases thereafter), we should comfortably have enough DB and State Pension.

Projections now suggest retirement in mid 2022 to mid 2023, so about 4-5 years from now, at age 44-45.

I'm toying with idea of reducing hours at work, moving to a 4 day week. All the lost income would be taxed at higher rate so it would be quite tax efficient. I think it is something I will not do immediately, but at some point in the years between now and retirement. It may well be when I pay mortgage off in a couple of years, as then I should be in a position where I have enough pension, paid off all interest-bearing debt and would still be able to max out myself and my wife's ISAs doing a 4 day week.

There is potential for a few positive shocks, namely inheritance from 3 remaining parents or redundancy payments. I don't factor any of these into planning though as they are uncertain. I have also just started my own small business, so there is potential for that to go well - again, I don't assume anything about that in planning as it is uncertain.

Random stat: I was a bit surprised to see the average gross income of recently retired pensioner couples is now £43,000 p/a. Struck me as quite high but broadly in line with what I am targeting, taking into account future increases in this figure. Should be noted that £10,000 of the £43,000 comes from earnings. Source: Pensioner Income Series.

You are both looking good for retirement.
Have you considered health as a factor in all these calculations.
Having retired myself 21 years ago at 52 I now reflect that my high pressure job and lifestyle was a negative on my general health and retirement perhaps came just in time for me.

gfplux

MallyGirl wrote: »

We have had a few shocks recently which have slightly altered my focus. We are both 51 next month and I am aiming for retirement at 60, when DD will have cleared uni. FIL had a funny turn at his 80th birthday meal and left in an ambulance (thankfully nothing serious - diagnosis was that he was 80 and should maybe steer clear of rich food and hot restaurants). We need to make sure we plan in more time with in laws while they are still with us.
Then a friend died of liver cancer in his early 50s in February.
Then my boss had a heart attack at Easter, 2 weeks after his 40th birthday. He is recovering thankfully and needs to lose a significant amount of weight in the future.
I have decided that I was placing too much emphasis on what we would do in retirement when chance might mean one or other of us just doesn!!!8217;t get there. Instead we are going to take some of the shorter holidays, in particular, while we are still working. This means we may still have a small outstanding mortgage (flexible offset) at 60 but it will be manageable. To this end we are going to Canada to see Grizzly Bears this summer as this has been on the wish list for years.
I may also take my daughter!!!8217;s slot with the piano teacher when she goes to uni (2 years time) as learning to play has been on my list too.
Basically we are moving more towards a !!!8220;what are you waiting for!!!8221; mindset, whilst still contributing to the max to ISAs and making big Sal sac into pensions.

I had replied to Hugheskevi before reading your post.

Health and mobility should be a line in bold on everyones spread sheet.

AnotherJoe

hugheskevi wrote: »

That is across all pensioner couples (ie not just recently retired pensioners), and is median net income after housing costs.

I think your graph of you and wife's future income is skewed by including inflationary rises in your state pension income, which is what you appear to have done (apologies if I've misread it) .

If pension rises mirror inflation then in real terms you are staying still. So you should then alter the scale of income each year to reflect the fact that each pound is worth less, or more simply, you should ignore inflation on the basis that the rises is cancelled out.

And if you have constant income from other sources, not rising to match inflation, decrease them by your guess at inflation.

OldMusicGuy

gfplux wrote: »

Have you considered health as a factor in all these calculations.
Having retired myself 21 years ago at 52 I now reflect that my high pressure job and lifestyle was a negative on my general health and retirement perhaps came just in time for me.

Nearly six weeks into retirement I would say this is one of the most important factors to consider. I am fitter, healthier and sleeping better than at any time in the last 10 years. The lack of stress is helping me get the best sleep quality I have had for many years. And as I've just read Matthew Walker's "Why we sleep", I realise how very, very important this is for my health.

On the financial front, my "number" was an annual target spend of £32,000 per annum as being pretty sustainable given our financial situation. The upper "number" that we can bear (but may put us under some challenges longer term) was £36,000. I think we will be closer to the latter rather than former number this year. Hopefully running costs will go down next year when we downsize. What I've found so far is:

- We are spending more on petrol than I budgeted for, as (to be expected but I still underbudgeted) we are doing more trips out.
- Pets can be expensive to maintain!

Generally though we are on track. We are both really enjoying having me retired and the health benefits are worth any financial cutbacks that may be necessary. Working for another 4 to 5 years would have given us financial security without having to worry much about our spending but the impact on my health and our general wellbeing could have far outweighed the financial benefits.

stoozie1

@Hugheskevi why is your wife's personal pension only a lump sum? Is there not a way that can become an annual income of some kind? Is most of that year's 200k in the form of tax-free lump sums?

hugheskevi

Have you considered health as a factor in all these calculations.
Having retired myself 21 years ago at 52 I now reflect that my high pressure job and lifestyle was a negative on my general health and retirement perhaps came just in time for me.

Very much so. It is one of the main reasons I haven't pursued promotion/salary escalation over the last decade. I worked out back in about 2010 that I could work for 12 years at the same level or 10/11 years at the next level up. It just wasn't worth it.

In terms of lifestyle, both my wife and I are very healthy, and are keen cyclists and runners. Aim for 2018 is to run sub 20 minute 5K for first time in nearly 20 years, but training for half-marathon in July before that happens. Managed 21 mins 14 seconds 5K time on Saturday, which wasn't bad given I was very tired from the half-marathon mileage training.

Having said that, my family health history is dire (father died at age 46 of heart attack, and lots of cancer in family tree) so it is something I am acutely aware about.

I monitor position of survivor should either of us die, and should either of us die the other would be left with a pension income in excess of £40,000 p/a plus decent lump sums immediately. Not quite to the level of instant retirement maybe, but that would be an option. Give it another year or two and instant retirement would be viable. We both also have excellent ill-health protection. However, that falls away when we leave employment.

I think your graph of you and wife's future income is skewed by including inflationary rises in your state pension income, which is what you appear to have done (apologies if I've misread it) .

The increase in State Pension is the difference between price and earnings uprating (the chart is in constant price terms), reflecting current policy to increase State Pension by earnings. Other pension income streams increase by CPI (aside from in period 50-54) so are shown as flat-line. It doesn't really matter what State Pension increases by really, as even if it was only CPI we would still have sufficient pension income.

@Hugheskevi why is your wife's personal pension only a lump sum? Is there not a way that can become an annual income of some kind? Is most of that year's 200k in the form of tax-free lump sums?

My wife's personal pension is pretty small, and should be able to be taken as 25% PCLS and the rest as a single (taxed) withdrawal without pushing her over higher rate tax in the year she is 58. We should have plenty of pension income, so it will be preferable to have cash as a lump sum to be used to fund the 58-68 age period prior to State Pension (and other DB pensions) starting to be paid.

The spike to £200K is indeed mostly tax free cash, plus the much smaller annual DB pension both of us will be receiving, plus personal pension withdrawals up to higher-rate tax threshold.

Wednesday2000

Health is one of the main reasons we want to retire early.

We are paying off our mortgage this week and then will be cancelling the mortgage protection insurance.

We wanted to get life insurance on both of us but we were worried as I have fibromyalgia and my husband has had cancer so we weren't sure how easy it would be to get a reasonably priced life insurance policy.

The mortgage protection is with Countrywide Assured and we thought that when we told them we were leaving them they might offer us life insurance instead?

Can anyone on here recommend an insurer?

tootallulah

MallyGirl wrote: »

We are spending a week on a floating lodge a fair way up an inlet off Vancouver Island so am optimistic that we will see some in the wild - plus Orca and other whales. Fingers crossed.

Seeing the orcas in Vancouver Sound is one of my favourite things ever, we saw bald eagles too - such a beautiful place.

atush

I totally agree you should lie for today (while also saving).

Right now I am looking out my picture window on the beach off Sarasota. Watching some thunderstorms roll in. Had a lobster roll at the beach cafe for lunch.

This morning on my way there, I saw a bald eagle in my neighborhood. Was being chased (if you can beleive it) by a crow of some sort. I assume trying to distact it from the crows nest.

Happy hour is next lol

mgdavid

atush wrote: »

I totally agree you should lie for today (while also saving).

........

hope that wasn't a Freudian slip !