Early-retirement wannabe

jimi_man

Sounds great!

It's funny about your flights to Anchorage taking 18.5 hours. I went some years back (Ok in the 80's!) and BA went direct in 8 and half hours. It was a stop off on their route to Japan as they couldn't fly direct and Japan probably took 18 hours all told.

Nowadays you can fly to Japan direct in about 12 hours, but now Anchorage takes 18! I guess that's progress - sort of!

But Alaska is fantastic, no other word for it.

westv

At the moment we don't need to fly to Alaska to see bears. 

hugheskevi

Another month closer to leaving on our two-year trip through the Americas, and thought I'd cover some of the financial position behind our plans. The numbers might seem high, but taking into account income from renting out UK house and what we would spend living in UK there really isn't much different between the cost of traveling compared to living in London.

My wife and I (combined, all in net terms, ie after tax, as this stands today) can divide our future into a few phases:

• Traveling until summer 2024: Funded by cash savings, currently £77,000 and will have income of about £1800 per month from rent, as well as income from salary until we start unpaid leave and tax refund for only working part-year.
  
• Return from traveling to age 55 (about 8 years): Funded by some more salary as we return to work for a period, then from S+S ISA funds, target income per year is £45,000 which is based on our Defined Benefit pension income after age 55.
  
• Age 55-57: This is funded by DB pension (protected minimum pension age) which will give £45,000 p/a
  
• Age 57-68: This is funded by DB pension, with DC pension providing the funds State Pension will provide after State Pension age, so that gives £60,705 p/a
  
• Post age 68: This is funded by State Pensions and DB pensions and gives £60,705 p/a
  

It is great that the post age 68 period is all sorted and not subject to any risk (DB is fully indexed with no cap). Although one downside of that is that next April it will increase by about 10% and that will create shortfalls elsewhere if I aim to smooth income to that level prior to State Pension age. But on the positive side, we only spend about £30,000 each year, so a retirement income of £60,000 seems rather excessive and I don't especially feel the need to have that level of income in all years prior to retirement.

Despite our DC pensions taking a bit of a battering recently, they still are sufficient to both fund purchases of voluntary class 3 NICs as well as augmenting DB income to post age 68 income levels. The DC which would have funded 55-57 had it not been for the change to minimum pension age has just been lost to investment returns, so it doesn't really feel like much of loss, except on paper.

Age 55-57 will have DB income of £45K p/a.

Between now and age 55 we would have an annual income of £38,000 if we spread our savings and S+S ISAs across the period.

Strategy for full retirement

On paper, we have enough to fully retire. I'm not so fussed about the amounts as I am about risk, especially for our S+S ISA holdings which fund the period to age 57.

The original plan was to sell house and go traveling and not return to work. That then changed to rent house out (so as to remain in UK property market, to hedge price change between London and where we retire to whilst we are away). And if we are going to have to come back to sell house, we may as well return to work for a while given it would be convenient and very tax efficient as only working part-tax years and thus earning at a rate which would usually be higher rate but only paying basic rate tax.

That is great, as it means I don't mind very much about risk, at least for the next few years. We will go traveling for 2 years and during that time lots of things will happen for better or worse, and when we come back we can just go back to work for however long is needed to balance/smooth everything out.

As things stand, assuming 10% inflation this year, we will need to earn £83,000 when we return have an income level of £45,000 (increasing to £49,000 in April)  between age 48 and 57, and £60,000 (increasing to about £65,000 in April - frustrating to be taxed on inflation increases, given tax thresholds are frozen and so a reduction in real take home amount) after age 57. That assumes our London house sale funds all moving, purchasing and furnishing costs of a new property to retire to, and that our investments increase in line with inflation and costs after April 2023. Our take-home income is around £8K per month, but with the benefit of only working part-tax years it would be better than that, so probably would be looking at working about 9 months to make good the £83,000 shortfall - probably less, assuming we continued to spending around £30K per year.

Key risks/opportunities

• Real rate of return on investments
• Spending more/less than budgeted for travel - which is about £50 - £60,000 p/a. Spending less results in more being available for future years, spending more depletes savings and maybe S+S ISA which will need to be replenished. I've already booked and paid for almost £6,000 of travel-related things which I don't include in any of the figures here, so £50-60K p/a really should be plenty I think.
  
• Any issues with renting house out
  
• Property prices in London changing by more/less than where we will retire to - as things stand, our London house is probably worth around £550,000 and we would want to move to a house costing around £450,000. If prices increase equally, the gap between prices in absolute terms would increase which would be helpful.
• Taking a mortgage on retirement property to smooth out income to avoid a big step-up at age 57
  
• Working on return from travel
  
• Redundancy whilst traveling - this is really a huge opportunity, as if either of us is made redundant from unpaid leave we would get about £80,000 each, which would perfectly smooth our retirement income based on current figures.
  

Costs of travel so far:

I've pre-booked various things covering the period between 8 September up until to 1st November. Most things are covered up until 27th September, after that just car hire. These are costs for both myself and my wife:

• £264 to renew passports (wife has Irish passport as well as UK)
• £488 vaccinations - primarily rabies
• £823 travel insurance for 18 months (longest available, will need to extend or get new cover when it expires)
  
• £638 accommodation up to 27th September
• £886 for an 8 day cruise between Anchorage and Vancouver (there will be cost of tips on top of this, about £193)
  
• £775 flights from Dublin to Anchorage
• £1,968 car hire and insurance between 10 September - 1 November - looks a big amount, but I expect to drive around 6,000 miles, so cost per mile isn't bad, especially with the much cheaper price of petrol in USA.
  

So that lot is £5,842 so far before even setting off But the USA will be the most expensive part of the trip, and a lot of the costs is for one-offs that won't recur (vaccinations, travel insurance, flights). The exchange rate of the £ is crippling - last time I traveled in 2006 the £ was 2:1 against the dollar. I suppose lots of people would spend that amount on a couple of weeks in the States though, which sort of puts things in perspective.

We will also spend quite a bit on things to take traveling, but that is personal choice and we could spend next to nothing on that but I want a good laptop and GoPro to record the trip. That will probably all add up to maybe £1,500 so isn't that much. There have also been costs to rent out house, although those are not especially large either, perhaps something like £1,000 - £1,500.

On the plus side, after we leave we receive £15,000 as a result of remaining leave before unpaid leave kicks in, and income tax refund

gadgetmind

You seem to have it well thought out. All I'll add is that being a Yorkshireman, I don't go to the expense of Class 3 and instead my wife is registered as self employed, does a tax return and declares a few £100 quid as income (within personal allowance) and pays very cheap Class 2 on a voluntary basis. 

Pat38493

hugheskevi said:

Another month closer to leaving on our two-year trip through the Americas, and thought I'd cover some of the financial position behind our plans. The numbers might seem high, but taking into account income from renting out UK house and what we would spend living in UK there really isn't much different between the cost of traveling compared to living in London.

Hi - this actually triggered a conversation between myself and my wife about this topic as she has recently taken early retirement and I am thinking of doing so in a few years.

The same thought crossed my mind that in the early years of retirement, you might actually be able to travel around the world continuously for a year or three, and it might actually even work out cheaper than just sitting in the UK watching telly if you get rid of all your UK costs (sell house etc).  

An extreme example but it crossed my mind that if you book a long time in advance, you could pretty much spend the whole year on back to back cruise holidays on a cruise ship and it would probably cost about 35K for a couple all inclusive.   This might be cheaper than living the same lifestyle in the UK, although obviously this extreme approach might get a bit boring after a while.

Have you already spent a lot of time looking into the details there?  For example I'm also wondering if you could avoid paying any tax at all by travelling continuously around the world and never staying more than a month or two in each country.

MallyGirl

Pat38493 said: Hi - this actually triggered a conversation between myself and my wife about this topic as she has recently taken early retirement and I am thinking of doing so in a few years.

The same thought crossed my mind that in the early years of retirement, you might actually be able to travel around the world continuously for a year or three, and it might actually even work out cheaper than just sitting in the UK watching telly if you get rid of all your UK costs (sell house etc).  

An extreme example but it crossed my mind that if you book a long time in advance, you could pretty much spend the whole year on back to back cruise holidays on a cruise ship and it would probably cost about 35K for a couple all inclusive.   This might be cheaper than living the same lifestyle in the UK, although obviously this extreme approach might get a bit boring after a while.

Have you already spent a lot of time looking into the details there?  For example I'm also wondering if you could avoid paying any tax at all by travelling continuously around the world and never staying more than a month or two in each country.

I remember reading an article a while back about retired people who cruised for the majority of the year. They were 'more senior' rather than early retirees and they talked about the facilities including the leisure/exercise and food but also having easy access to an onboard doctor.

westv

My brother and his wife went on a cruise a couple of weeks ago. They had to spend the last 4 days in isolation!

hugheskevi

The same thought crossed my mind that in the early years of retirement, you might actually be able to travel around the world continuously for a year or three, and it might actually even work out cheaper than just sitting in the UK watching telly if you get rid of all your UK costs (sell house etc).  

An extreme example but it crossed my mind that if you book a long time in advance, you could pretty much spend the whole year on back to back cruise holidays on a cruise ship and it would probably cost about 35K for a couple all inclusive.   This might be cheaper than living the same lifestyle in the UK, although obviously this extreme approach might get a bit boring after a while.

Have you already spent a lot of time looking into the details there?  For example I'm also wondering if you could avoid paying any tax at all by travelling continuously around the world and never staying more than a month or two in each country.

Personally we will avoid tax, at least in the first full tax year after leaving. Although that has more to do with a low taxable income than it does a lucrative tax avoidance arrangement. Most of our assets will be in housing, pensions and ISA, and rental income will be within our Personal Allowances. Hence we won't be paying tax (but building up a possible Capital Gains charge, although it won't be large). Even travelling you have to be tax residents somewhere, so won't escape UK income tax if you have taxable income.

There are many countries where you could travel and live on considerably less than you would spend in the UK. I came across an AirBnb on a remote island in Indonesia where for £15 per night a couple could stay with all meals included in a beach hut. Not much else around though! 

Taking into account council tax, gas and electric, water, internet and phoneline, house insurance, and so forth, there are many parts of the world where you can pay less to stay the night in hotels than you would pay just for UK utilities for the home.

In my case, we will be getting about £60 per day rental income which will mostly cover accommodation in USA, and cover accommodation, food and most travel in Mexico and more southerly countries.

HCIMbtw

looks like your well planned and budgeted hugheskevi, and it doesn't look like you are but the only thing I wanted to add is do not skimp on that travel insurance, can never plan for 'inconveniences' and having good cover can be a lifesaver 

hugheskevi

HCIMbtw said:

looks like your well planned and budgeted hugheskevi, and it doesn't look like you are but the only thing I wanted to add is do not skimp on that travel insurance, can never plan for 'inconveniences' and having good cover can be a lifesaver 

Actually, I am skimping on travel insurance - £823 for a couple for 18 months is about as cheap as it gets

One issue is that we start in the USA, so generally need to take 'Worldwide incl USA+Canada' insurance for the entire period despite not being there for most of the trip. Some policies can be refined a bit, but we are spending 2 months in the USA whereas longer-term policies allow just a few weeks in USA if choosing something like worldwide excl USA+Canada. We could get separate policies, but then wouldn't be departing from home country for second period so would have a limited pool of insurers.

Another issue is that, by and large, we wouldn't be using the benefits of more specialist cover. In the past I've used better insurance when doing things like climbing Kilimanjaro and traveling to places with FCDO travel advisories against them (many insurers won't insure in those circumstances, more specialist ones will insure but not cover anything associated with the travel advisory, eg, if in a region advised against all travel due to violent protests you wouldn't be covered if injured during protest, but would be covered if you tripped over pavement and broke ankle).

So for this trip I just chose basic travel insurance to cover medical costs primarily. Everything else isn't that important.The nature of these sort of trips is that something will go wrong every now and again, and you just deal with it. In some ways, that is part of the fun - although often more in hindsight than at the time. The Americas should be much easier than traveling across most parts of Africa. When things do go wrong in more remote parts you are on your own at the critical time regardless of insurance, eg I once was traveling on top of a carpet truck in a remote part of northern Kenya that got hijacked. Most of my things were stolen, although I managed to hide passport, money, cards, etc, so got away with those. I had very good travel insurance and was fully compensated, but it still took a few weeks, and I could only sort the claim out after traveling up to Addis Ababa.