Early-retirement wannabe

OldMusicGuy

Just to pick up on the topic to retirement planning, which I guess any potential early retiree needs to think about, there are a lot of interesting articles on the three phases of retirement (just Google it), which are typically an active phase (up to around age 75) when you will generally spend more, a less active phase from say 75 to 85 when your spending goes down, and then a later life stage post 85 where your spending could go up dependant on your healthcare needs.

I think that fits us quite well, and one of the reasons for retiring at 60 instead of waiting until later was to maximise the number of years in the "active" phase. I can certainly see me slowing down a bit after 75 and dropping some of the more active things I do now.

Early retirees need to think about how they will fund the "active" phase without using up all their funds prior to the later life stage when they may need additional healthcare spending.

Anonymous101

OldMusicGuy wrote: »

Just to pick up on the topic to retirement planning, which I guess any potential early retiree needs to think about, there are a lot of interesting articles on the three phases of retirement (just Google it), which are typically an active phase (up to around age 75) when you will generally spend more, a less active phase from say 75 to 85 when your spending goes down, and then a later life stage post 85 where your spending could go up dependant on your healthcare needs.

I think that fits us quite well, and one of the reasons for retiring at 60 instead of waiting until later was to maximise the number of years in the "active" phase. I can certainly see me slowing down a bit after 75 and dropping some of the more active things I do now.

Early retirees need to think about how they will fund the "active" phase without using up all their funds prior to the later life stage when they may need additional healthcare spending.

I'd be really interested to know how you've planned for spending in the post 85 phase.

Most early retirement conversations and planning I've read, focus on the active phase. Understandable given my bias towards reading very early retirement information but as unpredictable as these costs may be 50 years from now its still important to make at least some provision.

Very little I've seen goes beyond the infernal that "savings" from the reduced spending phase will go towards financing the additional costs of care in the later phase. So I'd be interested to hear the thought process you went through to gauge what level of care you may need and the potential costs. It doesn't seem the easiest thing to predict.

AnotherJoe

Anonymous101 wrote: »

I'd be really interested to know how you've planned for spending in the post 85 phase.

Most early retirement conversations and planning I've read, focus on the active phase. Understandable given my bias towards reading very early retirement information but as unpredictable as these costs may be 50 years from now its still important to make at least some provision.


Only if its realistically feasible. Which for most I dont think it is


Very little I've seen goes beyond the infernal that "savings" from the reduced spending phase will go towards financing the additional costs of care in the later phase. So I'd be interested to hear the thought process you went through to gauge what level of care you may need and the potential costs. It doesn't seem the easiest thing to predict.

Seems to me that since for residential care the costs are so high that very few people can realistically fund long term care without selling their house, its pointless trying to actually accommodate that in your plans without house sale, because you'd back end load all spending to what is a fairly low probability event at the cost of destroying a decent retirement pre that event.


Of course some may be able to have both a decent retirement and pay for care and not need to sell their house, but in that case they would have enough money not to have to worry about it anyway. Or if like the vast majority it comes down to a decent retirement or miserable retirement stashing it all away for possible care home fees 20 years later which likely will not materialise, the latter is a bad bet in my opinion.


I've got a lot of money, more than most, but if i deducted what i might need for care home fees x2 for say 10 years (how belt and braces should you go?) I'd be living on baked beans right now. So screw that, when / if the time comes and the house and remaining assets doesn't do it, all I'd need is enough for a one way plane ticket to Switzerland.

OldMusicGuy

Anonymous101 wrote: »

I'd be really interested to know how you've planned for spending in the post 85 phase.

A number of things. I think the biggest one is planned downsizing. We are downsizing next year to a smaller house that will be set up to last us into the 80 to 90 age range. At some point in the 80 to 90 age range we will downsize to a flat, depending on how quickly our health and mobility declines. Each downsizing move frees up equity which can help fund the following years. Ultimately after one or both of us moves into a flat we will either die or we may need later life care. So I'm ensuring in the long term plan that we have enough capital (with the flat and pension.savings) left at age 92 to fund at least 5 years for one person in care at a level of 60K in today's money.

In terms of annual spending, I've run a number of scenarios. The most likely one allows for a drop in spending to 85% of our number levels at age 80. That leaves us with plenty of contingency for one-off costs while still having a healthy level of capital aged 92. I can then run various scenarios where I can phase up expenses say post 85 (although my model currently stops at age 92) to see how that impacts things.

Overall, things look pretty good for us but it's really hard to predict what will happen to investments, inflation and us over the next 30 years. The main thing is I am confident we are not overspending now. The plan will be continually adjusted as we get older and we start to see how our health progresses (or doesn't).

The two circumstances I haven't planned for are either or both of us having a serious illness in the next 5 years (before SP age), and both of us having to go into care in later life. If either of those things happen then I will have to revisit everything, but I see the first as highly unlikely (partly why I retired early!) and the second as less likely, because I think it is likely that one of us will go before the other.

OldMusicGuy

AnotherJoe wrote: »

Seems to me that since for residential care the costs are so high that very few people can realistically fund long term care without selling their house, its pointless trying to actually accommodate that in your plans without house sale, because you'd back end load all spending to what is a fairly low probability event at the cost of destroying a decent retirement pre that event.

Based on experience of my older relatives and some acquaintances, failure to plan downsizing has been their biggest mistake in later life planning. I'll contrast that with my FiL who downsized to a flat at 88. This was just in time, because the move was very stressful for him (even though he's pretty switched on) and had he left it any later it might have seriously affected him. He got established in a small one-bed flat and it's actually given him a new lease of life because he has less stress, a community of similar people that he socializes with and he is closer to his family.

If he sells his flat (which he is happy to do), he will be able to fund at least 4 years of good quality care. He does have some other assets he could use as well.

AnotherJoe

OldMusicGuy wrote: »

Based on experience of my older relatives and some acquaintances, failure to plan downsizing has been their biggest mistake in later life planning. I'll contrast that with my FiL who downsized to a flat at 88. This was just in time, because the move was very stressful for him (even though he's pretty switched on) and had he left it any later it might have seriously affected him. He got established in a small one-bed flat and it's actually given him a new lease of life because he has less stress, a community of similar people that he socializes with and he is closer to his family.

If he sells his flat (which he is happy to do), he will be able to fund at least 4 years of good quality care. He does have some other assets he could use as well.

I agree and was going to comment on your plan about downsizing aged 80+, there was a moneybox or similar programme a few months back about downsizing in old age and one of the issues raised was that most people get too set in their ways to downsize and they should look at doing it a bit earlier than "necessary" because by the time its necessary it may be too late for them to stomach the move.

The other issue about downsizing is that it doesn't necessarily release as much money as you might think. A decent one or two bed retirement flat (even without going all "mcarthy& stone") can easily cost a fair proportion of the price of a 3 or 4 bed house. Obviously for some it will work, but as a general plan, i suspect most people wont release as much cash as they might think.

And of course theres the double whammy of benefits, downsize to release cash and wipe out benefits you may be getting thus negating many of the financial benefits.

michaels

The only insurance product available to cover longevity risk seems to be an annuity and yet it seems we all worry about the complete unknown that is care home fees.

You would think the insurance companies would come up with a product that allowed this risk to be pooled between those who ended up needing years of care and those who need none.

Anonymous101

It seems that planned downsizing (or planning for the possibility of downsizing) is the most obvious way to go. Using that as the mechanism also has the effect that you don't feel as if you're setting aside a large amount of funds for a possibility that may never happen. Since you need somewhere to live and the equity in property isn't thought of as liquid then that's a reasonable approach for me.

Perhaps the biggest issue with downsizing is an emotional one? Many people feel very attached to their homes and if you've managed to overcome that early enough then its just the upheaval of psychically moving that you'll have to deal with.

OldMusicGuy

AnotherJoe wrote: »

The other issue about downsizing is that it doesn't necessarily release as much money as you might think. A decent one or two bed retirement flat (even without going all "mcarthy& stone") can easily cost a fair proportion of the price of a 3 or 4 bed house. Obviously for some it will work, but as a general plan, i suspect most people wont release as much cash as they might think.

I don't disagree, which is why we have been doing some planning. The first downsize will release significant equity, the second one (to a flat) is more for quality of life. But I have been comparing prices for all the different types of property we would consider in potential locations at each stage, so I have a good idea of how much equity will be released at each stage (in today's terms).

I would avoid McCarthy and Stone places like the plague. Not only are they expensive for what they are (IMO), but they are loaded with all kinds of outrageous property management charges.

chiefie

michaels wrote: »

The only insurance product available to cover longevity risk seems to be an annuity and yet it seems we all worry about the complete unknown that is care home fees.

You would think the insurance companies would come up with a product that allowed this risk to be pooled between those who ended up needing years of care and those who need none.

My dad had a reasonable annuity and state pension (prob equivalent to £35k p.a now). When he went into care the council took all of this and gave him £7 per week pocket money. They then said he still only qualified for the basic care home. So they treated him just the same as others who had no pension provision whatsoever. So saving in a pension does not protect from the care home lottery.

The council supported us in him needing nursing care but the nhs denied it as they didn’t want to contribute towards his fees. He died as a direct result of falling out of bed due to his conditions and lack of proper nursing care.

Anyway, back to care costs....,

They then said to get a better quality care home the family needed to top up the amount. Even the better ones were downright awful. We paid £500 a month between us to get him somewhere half decent. And that still smelled of wee and was staffed by underpaid and overworked people who were not in the role to care for people. They continually lost his glasses, his underwear, his clothes.

So we have this to look forward to eh ?