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Early-retirement wannabe

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  • Its been a while but I have a quick update.

    First of all, Cyprus has come up on the agenda as a potential early retirement destination. Why? Well, if I understand the tax rules correctly, provided you are not earning any money locally you can decide to be taxed at a special rate for retirees which is 5% of total income.

    This is potentially very interesting as one of my retirement funds is a deferred compensation scheme which pays out after the age of 60 at (broadly speaking) a lump sum. If I could get that sum taxed at 5% rather than 40-50% it could make a big difference (in fact enough to pay for a property in Cyprus!).

    Of course those rules could change between now and receiving the fund but worthwhile thinking about.

    Still don't have that full list of spendings / outgoings and am tempted to leave until after Christmas :D
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
  • First of all, Cyprus has come up on the agenda as a potential early retirement destination. Why? Well, if I understand the tax rules correctly, provided you are not earning any money locally you can decide to be taxed at a special rate for retirees which is 5% of total income.

    Sounds good!

    And I believe the UK State pension remains index linked (such as it is) there rather than frozen like a lot of countries.

    Currently [without holding my breath!] taxation is not quite crippling for us early retirees. By stashing money in ISA'a over the years (and more 'ordinary' accounts), I calculate our joint tax bill (wife and I) of little more than about 12% - possibly less. This will rise a bit once we take more pensions, but it is not a 'killer' reason to go abroad.

    However, I might take a holiday there. Have a look. As long as I can get Gordon's Gin and Castella cigars, I might be able to survive!
  • That needs a pot of £18208, that will grow by £10k every 10 years.
    But you can asume you don't need an endless supply of cars the pot to buy each car is
    1st car £6070
    2nd car £3684
    3rd car £2236
    4th car £1358
    So cars till 100 needs less than £13400k much less than the £18k for a neverending pot.

    I have taken my own 'depreciation' approach to cars. I have to make assumptions on (a) inflation, and (b) interest rates.

    But after that, starting with the time I have just bought a new car (as I did in 2006), I follow the following 'recipe':

    1. Decide how long I am likely to keep a car (in my case, I have a good one - XJ6 - which I assume will last me 10 years).

    2. As at the time of purchase, find out the 'used' value for exactly the same car 10 years old - that day's prices.

    3. Hence, using inflation, it is easy to calculate the additional cost - over and above the cash for selling the old one - required for a new one 10 years later.

    4. I then do a calculation of saving £X per month (inflated by the same assumed inflation figure each month), and let the fund roll up at assumed interest for 10 years. A "Goal Seek" calculation tells me exactly what X needs to be to be. It goes up each month.

    5. The 'final' action would normally be to 'spend' that amount by putting it into a specific bank account for that purpose - and you would not normally count the value of that fund as true 'savings' or 'net worth'.

    [In practice, however, I manage my money 'holistically', without any of it being dedicated for any purpose. But my accounts always have a 'debt' - represented by what the mythical car fund would be worth - which is always taken into account when I add up my net worth.]

    It follows that if my 'net worth' were to be, say, £400K, I could go out, buy a brand new car for £60K, and the day after, my net worth would still be £400K, and my outgoings the following months would be virtually the same.

    * Of course since I do this for Mrs Loughton Monkey's car as well, then renewing mine in 8 years, and hers after 15 years might produce the same financial result! I wonder which might be the 'optimum' solution?
  • Have been reflecting on the early retirement plans over the holiday period and now have in place a provisional spreadsheet setting out my pension income possibilities. I know this is something we should have done a long time ago but - to be honest - I guess we just get caught up in living!

    Anyway, I have now nailed it down to three scenario's:

    1. We could retire within the next 12 months and enjoy a moderately comfortable retirement.
    2. We could wait three years and have a more relaxed standard of living.
    3. We could wait 7-8 years and continue to enjoy the standard of living we enjoy today.

    The main difference between scenarios 1 and 3 are the type of property we want to live in and the things we want e.g. cars we will drive etc.

    At the end of the day I have come to the conclusion that it is an even balance between and emotional decision (i.e. how much I want to continue to work) and a financial decision.

    This year we are putting a significant sum into our pension funds and if we can manage that over the next three years we will be in very good shape.
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
  • getmore4lessgetmore4less Forumite
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    1. We could retire within the next 12 months and enjoy a moderately comfortable retirement.
    2. We could wait three years and have a more relaxed standard of living.
    3. We could wait 7-8 years and continue to enjoy the standard of living we enjoy today.

    That indicates that some carefuly selected reductions now could get to a point where a partial retirement could get more than 2 and close to 3 but much sooner and build back up to 3 depending on how much you filled the gap.
  • GatserGatser Forumite
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    Anyway, I have now nailed it down to three scenario's:

    1. We could retire within the next 12 months and enjoy a moderately comfortable retirement.
    2. We could wait three years and have a more relaxed standard of living.
    3. We could wait 7-8 years and continue to enjoy the standard of living we enjoy today.

    Pleased I am not the only one "playing" with my retirement spreadsheets over Xmas!:beer:
    It always seems like a good time to reflect on "Christmas past & future though!"

    We are going for "Option 2", which will be 2013 for us.
    It's always tempting to keep striving for lifes comforts/luxuries but I must keep reminding myself that health,
    fitness and free time are the true luxuries in life and for that we are prepared to sacrifice the monetary one's.

    We all have different priorities... good luck with your plans
    THE NUMBER is how much you need to live comfortably: very IMPORTANT as part 1 of Retirement Planning. (Average response to my thread is £26k pa)
    My Other NUMBER: ZERO Working Days to SEMI-retirement: Achieved! :beer: :j :T ;)
  • Some of the things we enjoy now could be cut back on but unfortunately the major expense items are not going to change significantly or at least they might change but in the wrong direction!

    The main expenses we have are the childrens school / university fees and the mortgage on the house. I assume the mortage will disappear when I retire as we will move to another area / smaller & cheaper house.

    I think the main thing that needs to change (to realise our plans earlier) would be more just to remove the general cavalier attitude to money that i am sure over a period of time costs us hundreds. Example in point - one of our TV's broke down on Christmas Eve (the one the children use for games) - so we just went out and bought a new one. No scouting for best deals (or even hesitating). The other "leakage" (as i have described earlier) is a bit of inherent laziness / lack of ability when it comes to things around the house (DIY and the like) which I (probably) with a bit of patience and time, could do myself.
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
  • Spent some time today playing with spreadsheets!

    Between us we currently have a number of different pension / retirement schemes. I am still refining the calculations:

    1. Two schemes from when we contracted out of SERPS - both have a current (transfer) value of around £30,000 each and a combined pension of arounf £4,000 from age 60/65 respectively.
    2. My wife has a small private pension that currently estimates a pension of around £500 per annum from age 55.
    3. I have a non-contributory pension scheme with my employer which is currently worth around £15,000 per annum (starts paying at age 62)
    4. I have a frozen UK final salary scheme which is worth around £10,000 per annum in todays money (starts paying at age 62).
    5. I have a deferred compensation scheme which currently has a balance of around £350,000 (starts paying at age 60 with the balance paid over 5 years).
    6. I have just started a new private pension scheme which, with what I have paid in to date, will have a minimum pension of £2,000 per annum. (starts paying at age 60)

    So of those, numbers 1, 2 and 4 are fixed i.e. we will not pay in any more.

    Number 3 will increase simply by me staying with my current employer. If I stay another 4 years it will increase to around £18,000 per annum.

    I am continuing to paying into option 5 and expect that this will increase to arounf £600,000 over the next 4 years.

    I will continue to pay into option 6 with the hope that this will increase to at least £8,000 per annum.

    Overall then we feel happy that (from age 60) we will have enough money to live a comfortable life and the big variable is how much of our savings we need to draw on between the day we retire and age 60.

    As has been said earlier in the thread (and in THE NUMBER) thread, we really need to go back and look at expenditure. I am currently avoiding this task as a) I don't want to scare myself and b) its a hell of a task!
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
  • GatserGatser Forumite
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    As has been said earlier in the thread (and in THE NUMBER) thread, we really need to go back and look at expenditure. I am currently avoiding this task as a) I don't want to scare myself and b) its a hell of a task!

    Well done... you seem to have accumulated a good basket of pension incomes there.

    As you say, your NUMBER will determine how much is surplus/safety buffer thereby allowing you to spend some savings before the pensions kick in.

    One good thing about phased/semi retirement is that its a great way to test the water and make sure we REALLY can survive without "a proper job"

    Good Luck with the spreadsheets!
    THE NUMBER is how much you need to live comfortably: very IMPORTANT as part 1 of Retirement Planning. (Average response to my thread is £26k pa)
    My Other NUMBER: ZERO Working Days to SEMI-retirement: Achieved! :beer: :j :T ;)
  • peterg1965peterg1965 Forumite
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    Fascinating thread and a really useful insight into how other people make judgements and decisions on their retirement options.

    For my own situation, I am in the not-so-unusual position of juggling the here and now expenditure against looking forward 10-15 years to full retirement and making adequate and appropriate financial plans. Both my wife tend to live for today a little more than we should; bringing up three children (we all know they are EXPENSIVE!), with university looming large for my daughter, big mortgage, the liking for the nice things in life.

    My overall aim is to have the option to retire at 55 (I am now 45). If I work beyond 55 I want it to be on my terms, ie. my own small business or to work in a consultancy capacity merely to provide more funds for discretionary expenditure. Here is my current position, and where I need to be: (I am actually thinking that my NUMBER is about £50-£60K/year in retirement.)

    - Occupational final salary pension which will pay out as soon as I retire at 53 or 55 (compulsory). At todays figures I get £36000 at 53 with a £120K lump sum. It will be more if I am eventually promoted, but the scheme is also subject to change as part of a Govt review, but with accrued rights unaffected.

    - SIPP, this includes a PR element. The fund currently stands at £70K and I am contributing £15K (gross) a year, I will hopefully be in a position to increase this in future years. I want to crystalise this at 55. Aim to have a fund size of £400K-£500K at 55. £120K ish lump sum and I would drawdown about £20K a year income.

    - My wife (3 years older than me) also has an occupational FS scheme which pays out at 60 (in 12 years time) which should give around £8000/pa with a lump sum of about £30-£40K.

    - I am also tring desperately to save in S&S ISAs, I have £30K in funds and ISAs at the moment.

    - we will both have full NI contributions so could expect £10K in State pension when we are 66/67.

    So, the combination of pensions should give me my target pension and with the lump sums, the ability to pay off my IO mortgage at 55. My worries are that legislation changes again and/or I am unable to continue to pay into my SIPP. My (our) tendency to live for today also may threaten our plans. I do put a lot of thought into the future and believe that we are in a good position. Worst case is that I have to find another 'proper' job post 53/55, I don't want to do this but accept that I may have to.
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