Early-retirement wannabe

gtat

How is the the trip going @hugheskevi, I believe you're now six months in?

hugheskevi

gtat said:

How is the the trip going @hugheskevi, I believe you're now six months in?

Yes, 6 months and 2 days into the trip now - the fourth time I've got past the six months of travel on a single trip, but the first since 2007. Everything is going well - perhaps surprisingly there haven't been any problems at all traveling! All the problems have come from the UK, namely Trussonomics affecting Sterling and the shower breaking in my house which is rented out (easily fixed, but expensive, especially sorting it out from Mexico).

Travel
We are now in Nicaragua, about to enter Costa Rica next week, after traveling down from Alaska. A detailed trip map is at this link (a bit dodgy north of Vancouver, but very accurate after that) and a Google Map of the trip is at this link. We should reach South America sometime in April.

The daily cost of travel by country (for both myself and my wife) has been (detailed records available at this link):

USA/Canada: £171 (Staying in AirBnb rooms, driving a rental car, cooking our own food - public transport just isn't viable for visiting all the National Parks and other sights)
Mexico: £111 (Staying in apartments or hotel rooms with air-con in hotter areas, taking public transport or tourist shuttles, and eating out for most meals - same for the rest of Central America)
Belize: £128
Guatemala: £103
El Salvador: £81 (but only there for a few days)
Honduras: £105
Nicaragua: £96

We receive £60 per day from our rented-out and mortgage-free London house (after estate agent's costs, but not including any repairs), so the cost of traveling is not very high net of rental income. We are actually spending less - net of rental income - than we would spend if we were living our normal life in London.

I'm not sure how long we will spend in South America, but thinking we will be there until a bit after Christmas. Then I hope to spend some time in Indonesia, Australia and New Zealand, returning to the UK and work around summer 2024.

Finances
Our investments (DC and ISA) have been disappointing in real terms since we left in September. Our Defined Benefit pensions are linked to uncapped CPI, and from next month our post-tax retirement income after age 68 including State Pension (after the 10.1% increase) will be £66K. Once we reach age 55 our post tax DB income will be £49K, and from age 57 we will augment that with DC pension such that total post tax income will be £66K.

So that just leaves the period between now, aged 45, and age 57. If we didn't work again and our investments net of charges achieve a return in line with CPI, we would have (post tax, p/a):

• £43K per year from age 45 to 55 (cash and ISA);
• £49K between 55-57 (DB); and 
• £66K from 57-68 (DB and DC)
• £66K from age 68 to death (DB and State Pension).

Currently I'm at 73% of LTA if I take DB pensions at age 55, but would be at 87% if I were to take them at age 60. My wife is a bit lower, at 51% and 64% respectively.

Future plans
Our plan is to return to work briefly after travel, and I think I'll aim to get to a position where we have purchased, furnished and moved into our retirement property and done things like all major repairs/refurbishment, renewed car, etc, and have an annual income of at least £49K p/a post tax before leaving work. That wouldn't take long to achieve, as I'd only need a further £65K to reach that position if the sale of our London home covers all the purchase and moving costs. It will also be very tax efficient, as hopefully, we should be able to return at a time such that we avoid higher rate tax in two consecutive tax years by avoiding working the first few months of the year in which we return, and the last few months of the following year when I would be planning to leave employment.

It would require a further £256K of non-pension funds to fully smooth income and have £66K p/a post tax in all future years, but that is far more than we spend so I think aiming for £49K p/a post tax is a nice balance between efficiency, smoothing income and retiring early.

I also hope to be able to take out an offset mortgage on the new property which I will immediately 100% offset, but which would then give flexibility for the future - if we were to need to dip into it, it would then be repaid with DC pension at age 57. 

Musings
I've noticed that there are far fewer Brits traveling now than when I last traveled in the early 2000s. Perhaps that is because of the much lower Sterling rate - back then it was around $2 to £1, now it is around $1.20 to £1. Or as it is mostly younger folks who do longer trips in these areas, maybe the much higher costs younger people in the UK face nowadays is the reason, with the cost of housing and student loans in particular. It is a shame that our younger travelers are much outnumbered by Germans, French, and Dutch, in particular.

I'm increasingly glad of the security of DB pension which limits the period of greatest uncertainty to just the period up to age 55, and also having the flexibility to go back to work, as it means it doesn't really matter what happens to markets, I can just work a bit longer to get to whatever position I wish. If instead I were reliant on DC the uncertainty and volatilty would be much greater - especially as our DC pot is relatively small as the hard work will be done by the DB pensions, whereas volatility would be much more important if DC were the primary resource.

On the thread about Budget, it has been interesting to read views about how much tax affects work incentives. Personally, I have always been very strongly motivated by tax considerations. In the early years of being a higher rate tax payer I avoided it by taking unpaid leave to go traveling. Then I used pension contributions to avoid higher rate, until I ended up with plenty in pensions. Then for about the last 7 years from about 2015 onwards I didn't really have much choice but to pay higher rate tax (working part-time wasn't attractive, as I'd end up doing much the same amount of work just in less time). 

I doubt I ever have to pay higher rate again, as I've arranged our finances to be well-balanced between my wife and me, and now we are largely financially independent I don't want to work at marginal deduction rates of 42%. However, I might just do something like work one day a week until age 55, as that would use my income tax and NI allowances, and I'd get to keep almost all of the salary, plus get State Pension qualifying years. I think that could be quite enjoyable too, but no more than one day a week I think.

hugheskevi

Background
We are now 10 months into our two-year period of unpaid leave, and the future is becoming a bit more certain. My wife and I left work back in August 2022 to go traveling, both aged 44 at the time, now both 45. We rented our London house to tenants on a 12-month contract and other than intending to return to work within the 2-year maximum period, we didn't have any definite return plans.

Although in some respects we have already retired, our plans as they currently stand won't result in full retirement for another 2 years yet.

The journey
After starting in Anchorage, hiring a car to see Alaska, taking a cruise ship to Vancouver and a bus across the border we then hired a car to spend 6 weeks driving around western USA. Then we took buses all through central America, and flew from Panama City to Cartagena in Colombia back in early April. We've again been taking buses south from there.

We are now in Peru. We still have 4,275 miles to complete the Alaska-Ushuaia journey by the most direct route, but it will take quite a bit more than that as we see things along the way. To date, we have covered a total of 23,843 miles overland, of which 21,157 have been in a car/van/bus. The map below shows the route, and an interactive version is at this link.



It is very striking in South America just how much more cost-effective long-term travel is compared to short trips (eg a typical 2 week holiday). The flights from the UK to South America are extremely expensive, whereas doing activities here is fairly inexpensive. Taking all things into account (including renting out property), I estimate that the cost of long-term travel here is about 20%-30% of the cost of a short trip, so it is a huge cost difference. 

For example, next week we are off to spend 10 days going deep into the Peruvian Amazon. Including domestic flights from Lima, this will cost a total of £1,638 for 2 people. But flights for 2 people from the UK would add around £1,500 to the cost and during those 10 days we will receive around £600 of rental income, so our net cost is around £1,000 compared to a cost of over £3,000 for someone doing it from the UK as a short trip.

I think that by the end of the trip our average daily spend will be around £120 per day, with our rental income funding about half of that. That is less than it would cost us to just live in the UK, so doing this 18 months of travel rather than 18 months of retirement in the UK will actually save us money.

Return to work
After 10 months on the road, we are a little jaded. Our plan is to have another 6 month tenancy agreement with our tenants, and return in February 2024 after 18 months of travel - I think we will be more than ready to return then.

The next stage of early retirement will be to move from London out into a more rural area, around the north-west of England, or Shropshire or maybe eastern Wales. My rough plan is to do that in the first half of 2025, giving us time to settle back into normal life after travel before moving into the next stage.

Early Retirement
I got the very pleasing, and rather surprising, news that our DC pensions have a protected minimum pension age of 55, which is fantastic news. Our DB pensions can be accessed from age 50, but to access them before age 55 has some rather penal reductions involved, so I only plan to take them with reduction at age 55. With the news I can also take DC pensions at age 55, that means cash is only needed to fund the 9.5 years until I reach age 55.

We will probably end up with spare money from our move - although we will be moving to a bigger house, the difference in prices between London and where we are moving should mean the house sale should fund purchase, furnishing and all moving costs for the new property. I'm not counting on this though, and instead assuming the move is cost neutral.

Further saving
I have enough to retire now if I wished, although that would mean a rather unsmoothed retirement income, with less before age 55 in particular. Once we reach State Pension age our net income will be around £66,000 p/a (guaranteed and indexed to at least uncapped CPI). If we were to retire now we would have £43,000 p/a up to age 55 from a combination of cash and ISA investments.

As a minimum, I plan to have net income before age 55 equal to our DB income at age 55 (£49,000). For that I need another £53,000 which would take around 6 months back at work. If I want to perfectly smooth income then I need £208,000 more cash and £37,000 more DC pension, which would take something like a bit over 2 years back working. I save a bit over £15,000 p/a from normal employee/employer contributions into a workplace DC pension anyhow, so will probably contribute any higher rate tax due before I retire, given the good news about the protected minimum pension age and the (probable) removal of the Lifetime Allowance.

In practice, I expect to have about 12-18 months more of work. That depends a lot on how much we enjoy work when we get back of course. I could move earlier, but apparantly February is the best time to market our type of property in London, and that seems fine to us, hopefully moving into a new property in summer 2025. If work is going well I'd plan to work full-time until we move then resign and do 3 months notice whilst living in our new house. If work isn't enjoyable then we might resign around January 2025. I wouldn't rule out doing 1-2 days a week if possible after moving, but I don't think that is too likely to happen.

It is very useful to be able to return to work for a relatively short period just to smooth everything out before a conventional retirement - it is a great way to be able to respond to volatility without having to cut income, especially as we wanted to do a lot of travel with uncertain costs prior to a conventional retirement.

I still plan to purchase the new property with a fee-free offset mortgage if possible and fully offset it, to give contingency for the pre age-55 period should it be required. Although higher interest rates make this option much less appealing, and more of a last resort option.

saucer

What an amazing trip! Thank you for all the detail and reflections 

Simon11

Absolutely love the map and exploring everywhere you have been.

I have done nearly 4-5 months travelling previously but found the hardest bit was having to always plan for the next day, next week ect to book accommodation, travel and activities. How have you managed? Do you float and do off the fly decisions on the day or plan in advance?

cfw1994

Simon11 said:

Absolutely love the map and exploring everywhere you have been.

I have done nearly 4-5 months travelling previously but found the hardest bit was having to always plan for the next day, next week ect to book accommodation, travel and activities. How have you managed? Do you float and do off the fly decisions on the day or plan in advance?

Can’t speak for Hugheskevi, of course….but we completed 2 months Interrail late in May (part of the cohort who spotted the 50% sale last year for 50yrs of Interrail).  Very different to my 1987 experience (didn’t get chased out of Morocco, for one thing, and slept entirely on beds aside from two overnight sleeper trains for another 🤣)…
…but we found planning about a week ahead worked very well.  

The world is so connected, & I imagine the same holds for South America as much as it does for Europe 🤷‍♂️

We had also worked backwards - knew we needed to return on a certain date, knew we wanted a couple of nights in Amsterdam, then found a US friend was in Nuremberg and had planned a day brewery hike with his wife, so knew we wanted to join that 🍻
Also had some friends to catch up with in Slovakia & Poland.  
By about weeks 5-6, the back end had dovetailed into the direction of travel.   

Zero issues of note at all.   Couple of minor tweaks for strike days as we went….& a late change for the day after Nuremberg, having realised we could stay at Wuppertal and see (& ride) the amazing schwebebahn suspended train 🤣👍

We both agreed we were pretty exhausted by the end - I can’t really imagine us doing a 6-12 month journey like the adventures above - but it has whetted our appetite for future travels…..

ex-pat_scot

I'm loving the updates from @hugheskevi and @cfw1994 ! Inspiring tales from (almost) the other side.

I've got 9 months until I'm due to hit 55 and the LTA , which were my triggers for the "what next" possibilities.
However, I'm having a bit of a rethink. 
Child #3 is shortly starting on a musical theatre course, which sadly is not eligible for student loans / funding, so it looks like I've got a heavy 3 years of unplanned payments.  I had expected to fund the accommodation element of studying at university, as I've done for the others, to the tune of about £500 - £600 pm. This will be more like £2,500 pm, or an additional c£25,000 pa required for 3 years. 
This will likely kick the legs from underneath the planned financials, so I'll be looking at options from next summer - perhaps consulting work, or continuing in full time (lucrative, but v stressful) employment for a year or two longer.

hugheskevi

Simon11 said:

I have done nearly 4-5 months travelling previously but found the hardest bit was having to always plan for the next day, next week ect to book accommodation, travel and activities. How have you managed? Do you float and do off the fly decisions on the day or plan in advance?

Before the trip I researched each country and marked on a Google map each place I wanted to go. This was from resources such as Tripadvisor, travel blogs, or even just pictures I happened to see and liked. This is very useful for deciding on a general route to proceed along. As we progress, I research each destination in detail to decide what to do there and how long to stay. For general timing, we are restricted by needing to be in Alaska and Tierra del Fuego in their summer months, so had to leave between May-September and arrive between about November- February. Hence we chose departure in September 2022 and arrival in late 2023.

The USA was the most inflexible for planning. Due to the need to hire a car, the route had to be planned in quite a level of detail and I knew almost exactly what we would do in the 8 weeks we were there. Booking accommodation was still only done a week or two in advance though. Also, the limited ESTA permitted time made the trip planning problematic - all other countries allow a sensible amount of time relative to their size for tourism, and usually other countries make it easy to extend if necessary (eg a trip to a neighbouring country) but the USA prohibits that. Cost is also a problem, eg in San Francisco the cheapest places were still $100 per night, whereas in other countries accommodation is never very expensive.

From Mexico onwards, everything is much more flexible. The exception to this is where flights are involved, eg, from Panama to Cartagena due to the Darien Gap, the Galapagos, and the Amazon. For these things, I need to plan about a month ahead and usually book everything in that time period. But otherwise, I typically book the next accommodation when arriving at a new place (or maybe the previous place, if not staying for very long). Sometimes I book quite far ahead if wanting a nice place to relax for 2-3 weeks, just to ensure I have a decent choice of options. Accommodation can often be free cancellation until very close to the booking, so if not entirely certain you can make sure you have the option of free cancellation.

All activities are best booked on arrival to a new place - trying to book ahead usually leads to massively increased costs. You can just turn up to travel by bus, in Mexico I booked by app but in South America where that is possible it doesn't seem to work in practice for one reason or another, usually issues with foreign cards. So typically it is only accommodation that gets booked in advance. That is only for convenience, not a necessity, as it is so much easier to arrive somewhere and get a taxi/Uber to an address.

cfw1994 said:

We both agreed we were pretty exhausted by the end - I can’t really imagine us doing a 6-12 month journey like the adventures above - but it has whetted our appetite for future travels…..

Very long-term travel is different from shorter travel. You need to have more downtime, and days doing very little, combined with longer stops in places to facilitate this. For example, we have 3 weeks in an apartment in Cusco coming up. During that time we will do the Inca Trail and various day trips, but there will be a lot of free time. You also need to plan in exercise which you probably wouldn't do on a shorter trip.

In some ways, I try to think of it like work, where each week I would have 2 free days at the weekend as well as bank holidays. Trying to travel every day for a year is quite exhausting (I've done it in the past, staying in hostels and camping!) but with modern tech and things like laptops, Airbnb apartments, etc, you can be very comfortable traveling over a long period.

I don't like I would have ever done a trip like this if I had not traveled extensively when young - there are just too many logistics to deal with before even leaving.

Also, this would be a great way to destroy a lot of relationships I suspect - together almost all the time, often in a single room, can be quite difficult to deal with.

michaels

I like the idea of having a few days break to unwind...in the middle of a 6 month holiday

cfw1994

ex-pat_scot said:

I'm loving the updates from @hugheskevi and @cfw1994 ! Inspiring tales from (almost) the other side.

I've got 9 months until I'm due to hit 55 and the LTA , which were my triggers for the "what next" possibilities.
However, I'm having a bit of a rethink. 
Child #3 is shortly starting on a musical theatre course, which sadly is not eligible for student loans / funding, so it looks like I've got a heavy 3 years of unplanned payments.  I had expected to fund the accommodation element of studying at university, as I've done for the others, to the tune of about £500 - £600 pm. This will be more like £2,500 pm, or an additional c£25,000 pa required for 3 years. 
This will likely kick the legs from underneath the planned financials, so I'll be looking at options from next summer - perhaps consulting work, or continuing in full time (lucrative, but v stressful) employment for a year or two longer.

If it wasn’t for those pesky kids 🤣

I stepped away from the daily job once ours had come out and were into the start of their careers.  Both now self sufficient, which is nice: they even offer to pay for a meal out from time to time!  
Until that point, it does mean looking hard at things.  

Ours don’t expect us to pay for things now, and I feel in some ways are inspired by their old man stepping away from Corporate life in his mid-50s - they certainly understand a lot more about about pensions & finances in general than most of their cohorts, many of whom have no ‘fiscal role models’ 🤷‍♂️