Early-retirement wannabe

NedS

Great post @hugheskevi

Just one question from me - I'd be interested to know what investments you were using for your defensively allocated ISA funds which will be needed in the shorter term, and are you still using the same investments?

hugheskevi

Give or take I guess you'll have a net worth of around £1M at retirement to (buy a home and) get you to the point where you'll take your DB pension and on to collecting SP.

Probably slightly below £1m, likely to be around £900,000. I expect to purchase a house in Wales for £400-£450K, but if necessary that could be reduced. Hopefully the sale of my current house will be enough to fund the purchase of the new property as well as moving costs and taxes.

Assuming DB/SP are both 'guaranteed' and 'inflation proof', then you have most of the retirement risks covered (sequence of returns, crashes, out-living assets, declining mental capacity to manage investments, asset management fees).

DB pensions are revalued and indexed by uncapped CPI. We plan to just have DB and State Pension income after State Pension age, with some precautionary savings. If we have more capital than we need at State Pension age we may well defer State Pension a bit to effectively convert capital into income.

So, what next? Definitely relax and spend no more time on expenditure data analysis you have that nailed.

I enjoy the spreadsheet planning/monitoring, and go much further than is necessary The most likely future plan is about 3 more years of work, 1-2 years of travel, then return and a buy house in mid-north Wales in a very remote area. We will get a couple of dogs, and probably some geese and a snake or two. We may well volunteer at one of the osprey projects, depending on where we live, and both of us are likely to be very active in a local running club. I might take up the card game bridge again after many years away from the game. There will also be cycling and probably swimming involved, and I am really looking forward to being able to follow sports events I usually wouldn't have time to watch closely, eg, big cycling tours, test match cricket, etc.

My only thought would be that you are planning an extra-ordinarily long retirement period, which means that even tiny risks can take on more importance, so check that you are happy with the long term viability of your DBs and also that they are balanced adequately between the 2 of you if one dies 'early' and the spouses half is enough either way around.

Our DB pensions are both public service pension schemes so are about as safe/viable as possible. Our DB pension assets are fairly evenly spread, but our DC pension is heavily skewed toward me, as I have previously earnt more and so took more advantage of higher rate relief. Fortunately that is the right-way round, as the DC pension just moves across on death. A big advantage of taking our DB pensions very early is that survivor benefits are based on the amount due at Normal Pension age, not the pension in payment. So the survivor benefit is about 58% of the amount in payment, and also gives a guarantee of paying out at least 5 years of pension in addition to survivor benefits if you die within 5 years of taking the pension.All that combined with generous death-in-service enhancements make us well-protected against death. Even in the worst-case scenario of one of us dying at age 55, the survivor would get about £26K p/a (pre-tax), as well as the c200K DC pension and their future State Pension.

We have generous redundancy protection, and if either of us were to be offered voluntary redundancy we would take it. The pensions give generous ill-health protection, so whilst that would be very unwelcome, financially it would be great.

The main risk to the plan is divorce. That would be a severe set-back, but at least I am well-placed to try to manage that risk.

I'd be interested to know what investments you were using for your defensively allocated ISA funds which will be needed in the shorter term, and are you still using the same investments?

Pretty boring, all in Personal Assets Trust. If that is all you hold in an ISA, the trust funds all trading and administration costs. The annual charge is a bit under 1%, so much higher than passives and a bit higher than other managed investments. It meets my requirements though, and I am still using it and expect to so do for the foreseeable future.

justcheckin

hugheskevi said:

....plan to retire in a few years to go traveling for 1-3 years before returning to live in mid/north Wales....

I have nothing financial to add, but as an incomer to Wales 25 years ago, I heartily recommend trying to learn some Welsh. It comes over very well to the community you find yourself in to have a good try. I find Welsh speakers are incredibly patient with mistakes but are delighted I am trying. Duolingo is a great app. 

nirajn123

For the people who retired already or imminently retiring without a workplace pension, what is your income strategy?
I am looking to retire at 50 in 7 years time and hoping to have a substantial sum saved by that time - in a combination of SIPP and ISA, but bulk of money will come from downsizing from a 4 bed London home to a much smaller property in outer London or outside of M25. But as I don't have any workplace pension or a rental property at this time, I need to ensure I have an income strategy in place to ensure I don't run out of money in the long retirement that I have planned. While I am perfectly happy to continue working part time, I am not counting on that income to see me through - it is just there as a backstop. 

I'll be interested to know how you managed to set up your finances so you draw out 2-4% of your nest egg to keep you going?

andy001

Hi Nirajn123
you might need to look at asset allocation strategies!
This might give you some idea:
https://forums.moneysavingexpert.com/discussion/5988319/asset-allocation-ideas

nirajn123

andy001 said:

Hi Nirajn123
you might need to look at asset allocation strategies!
This might give you some idea:
https://forums.moneysavingexpert.com/discussion/5988319/asset-allocation-ideas

Thanks Andy, as I am still working, I have a fairly good allocation strategy in place - Risk Parity. My question was specifically around how people have transitioned to an income based one and whether it is working for them. Looking for some real life examples (and just to be clear not looking for investment advice in case people don't feel comfortable)

andy001

Cheers. Sorry misunderstood you.
I'm sure someone will come up with answers soon. Best wishes

r2i

hugheskevi said:

Give or take I guess you'll have a net worth of around £1M at retirement to (buy a home and) get you to the point where you'll take your DB pension and on to collecting SP.

Probably slightly below £1m, likely to be around £900,000. I expect to purchase a house in Wales for £400-£450K, but if necessary that could be reduced. Hopefully the sale of my current house will be enough to fund the purchase of the new property as well as moving costs and taxes.

Assuming DB/SP are both 'guaranteed' and 'inflation proof', then you have most of the retirement risks covered (sequence of returns, crashes, out-living assets, declining mental capacity to manage investments, asset management fees).

DB pensions are revalued and indexed by uncapped CPI. We plan to just have DB and State Pension income after State Pension age, with some precautionary savings. If we have more capital than we need at State Pension age we may well defer State Pension a bit to effectively convert capital into income.

So, what next? Definitely relax and spend no more time on expenditure data analysis you have that nailed.

I enjoy the spreadsheet planning/monitoring, and go much further than is necessary The most likely future plan is about 3 more years of work, 1-2 years of travel, then return and a buy house in mid-north Wales in a very remote area. We will get a couple of dogs, and probably some geese and a snake or two. We may well volunteer at one of the osprey projects, depending on where we live, and both of us are likely to be very active in a local running club. I might take up the card game bridge again after many years away from the game. There will also be cycling and probably swimming involved, and I am really looking forward to being able to follow sports events I usually wouldn't have time to watch closely, eg, big cycling tours, test match cricket, etc.

My only thought would be that you are planning an extra-ordinarily long retirement period, which means that even tiny risks can take on more importance, so check that you are happy with the long term viability of your DBs and also that they are balanced adequately between the 2 of you if one dies 'early' and the spouses half is enough either way around.

Our DB pensions are both public service pension schemes so are about as safe/viable as possible. Our DB pension assets are fairly evenly spread, but our DC pension is heavily skewed toward me, as I have previously earnt more and so took more advantage of higher rate relief. Fortunately that is the right-way round, as the DC pension just moves across on death. A big advantage of taking our DB pensions very early is that survivor benefits are based on the amount due at Normal Pension age, not the pension in payment. So the survivor benefit is about 58% of the amount in payment, and also gives a guarantee of paying out at least 5 years of pension in addition to survivor benefits if you die within 5 years of taking the pension.All that combined with generous death-in-service enhancements make us well-protected against death. Even in the worst-case scenario of one of us dying at age 55, the survivor would get about £26K p/a (pre-tax), as well as the c200K DC pension and their future State Pension.

We have generous redundancy protection, and if either of us were to be offered voluntary redundancy we would take it. The pensions give generous ill-health protection, so whilst that would be very unwelcome, financially it would be great.

The main risk to the plan is divorce. That would be a severe set-back, but at least I am well-placed to try to manage that risk.

I'd be interested to know what investments you were using for your defensively allocated ISA funds which will be needed in the shorter term, and are you still using the same investments?

Pretty boring, all in Personal Assets Trust. If that is all you hold in an ISA, the trust funds all trading and administration costs. The annual charge is a bit under 1%, so much higher than passives and a bit higher than other managed investments. It meets my requirements though, and I am still using it and expect to so do for the foreseeable future.

Hi hugheskevi
Nice explanations and reply.
I heard that Government wishes to change the minimum pension age to 57 in 2028, when state retirement age increases to 67  (10 year gap between minimum pension age and state pension age) and it may affect 'all' pensions and not DC alone..
If this happens earlier than 2028 , due to COVID rebalancing , then will your plan to retire at 50 with DB pension change?
In your opinion can Government change the rules for DB pensions where there is a pre defined retirement age such as 50 or 55? 
Apologies if I'm over reacting and worrying for no reason but thought to bring this up as a risk to our early retirement plans. 

hugheskevi

r2i said:
I heard that Government wishes to change the minimum pension age to 57 in 2028, when state retirement age increases to 67  (10 year gap between minimum pension age and state pension age) and it may affect 'all' pensions and not DC alone..
If this happens earlier than 2028 , due to COVID rebalancing , then will your plan to retire at 50 with DB pension change?
In your opinion can Government change the rules for DB pensions where there is a pre defined retirement age such as 50 or 55? 
Apologies if I'm over reacting and worrying for no reason but thought to bring this up as a risk to our early retirement plans. 

The Government announced in 2014 that minimum pension age would increase to 57 in 2028, but did not make the change in legislation. Hence there are questions about whether the increase will happen, and if it does exactly how it will be implemented.

However, both my and my wife's pensions have protected minimum pension ages from the 2006 changes to minimum pension age, and it would be extremely surprising if any change were made to that, as it would be a retrospective detrimental change which Governments strive to avoid due to the very high risk of successful legal challenge. Given the small numbers with this type of protection there is no reason a Government would want to force through a retrospective detrimental change on this.

If a change is made to minimum pension age, I would expect it to affect both Defined Contribution and Defined Benefit pensions equally, so would expect the minimum pension age of DB pensions without a protected minimum pension age to increase. The exception to that would likely be where there is a Normal Pension age which is lower than the new minimum pension age - I don't think there are many pensions with a NPA below 60, but there are a few around, eg I think Firefighters had that and probably some of the other uniformed services.

Hence I don't care about possible minimum pension age changes with regard to our Defined Benefit pensions, which are the bulk of our pension provision. They would however affect when we can draw our Defined Contribution pensions, so I assume minimum pension age is 58 in modelling (as our State Pension age is at high risk of being increased to 68 at the next State Pension age review, due in 2023). If minimum age is lower than 58 that is just pure upside, as I can fund the earlier period from tax efficient Defined Contribution pension rather than ISAs.

MaxZorin

Hi hugheskevi and thanks for the above useful information.  

Do you know if the Alpha minimum pension age is protected? I know Classic is but suspect Alpha isn’t (the wording in the scheme guide suggests it isn’t).  I’m just thinking this may be another consideration point regarding scheme choice when the McCloud resolutions are implemented.