Early-retirement wannabe

Marine_life

I was reading this article from the economist this week:
http://www.economist.com/news/finance-and-economics/21580493-pension-plan-members-need-focus-right-measure-pot-luck


...and I really like it because it tires to set out some fairly simple rules which are:

1. What is the worker’s desired retirement income?
2. What is the minimum acceptable income if the desired level cannot be achieved?
3. How much is the worker willing to contribute?
4. When does he want to retire?

In particular I think rule number 2. is one that I have not heard before.

The problem as i see is it is that there is a significant portion of the population who know (broadly) what those rules are but are not able to comply (principally becasue they do not have enough income) but there is an even larger portion who simply give up becaus ethe maths involved are too complex.

Anyway it got me to thinking whether the governmen couldn't invest in providing some free financial advice to those who are unable or unwilling to prepare a retirement plan, with some incentive for those who then go on to implement a suggested plan. Surely that would pay for itself in the long run?

Or maybe I am just hopelessly idealistic.

mgdavid

ttoli wrote: »

Thats my annual salary (part time job ) and I don't touch my savings

presumably in Cyprus 6k is sufficient....

ermine

Marine_life wrote: »

but there is an even larger portion who simply give up becaus ethe maths involved are too complex.

Anyway it got me to thinking whether the governmen couldn't invest in providing some free financial advice to those who are unable or unwilling to prepare a retirement plan, with some incentive for those who then go on to implement a suggested plan. Surely that would pay for itself in the long run?

Or maybe I am just hopelessly idealistic.

You're being hopelessly idealistic. The maths are not that hard. You can use annuity quotes as a proxy for all that actuarial stuff. Although I won't personally use an annuity for my pension I used annuity rates to qualify how much I needed to save on top to compensate for retiring early, and then added a bit on top. For most people around 55-60 it corresponds to a reasonable degree with the usual 4-5% assumptions on SWR on an investment portfolio for someone of that age. The problem is that many people don't like the answer that comes out - you have to save about 20-25 times the desired annual income, a bit more if you want to retire earlier

I'd also make the case that many spend a remarkable amount, my estimation errors on spending ended up overestimating, but each to their own. The maths still apply - pension saving is about living less large now to live larger later. For me not having a boss is a HUGE component of living large but for others it is about spending money on stuff - which will just result in a different retirement age.

The maths aren't the problem with pensions. It is working out what really matters to you. Once you have that then you can take appropriate action guided by the maths. The government can't help you with what really matters to you.

N1AK

ermine wrote: »

You're being hopelessly idealistic. The maths are not that hard. You can use annuity quotes as a proxy for all that actuarial stuff.

The maths aren't the problem with pensions. It is working out what really matters to you. Once you have that then you can take appropriate action guided by the maths. The government can't help you with what really matters to you.

I think there's a bit of truth to both. You're certainly right that working out what you want is the hardest part of 'good' requirement planning but I still wouldn't trivialise the mathematical aspect.

It isn't 'easy' for someone who isn't financially informed to work out what their pension means and what they should do. Questions like whether to index link, what rate of growth to calculate for, likely future income and proportion going into pension, even deciding a rough retirement age are all 'difficult' decisions.

Retirement is a vague and confusing subject for most people. It links to issues like age, health, and death and many people feel deeply uncomfortable about the entire concept; it might not be rational but it's understandable.

ttoli

mgdavid wrote: »

presumably in Cyprus 6k is sufficient....

If you live like a local rather than a tourist, Yes.

gfplux

N1AK wrote: »

I think there's a bit of truth to both. You're certainly right that working out what you want is the hardest part of 'good' requirement planning but I still wouldn't trivialise the mathematical aspect.

It isn't 'easy' for someone who isn't financially informed to work out what their pension means and what they should do. Questions like whether to index link, what rate of growth to calculate for, likely future income and proportion going into pension, even deciding a rough retirement age are all 'difficult' decisions.

Retirement is a vague and confusing subject for most people. It links to issues like age, health, and death and many people feel deeply uncomfortable about the entire concept; it might not be rational but it's understandable.

Not only retirement is vague and confusing, life before retirement is also. In other parts of this website I see postings by people who don't know how to live a proper and balanced life in their 20's, 30's, 40's and older.
It is only by asking questions do we even come close to getting a rough estimate about what to do about anything.
Many of us are too busy bailing the boat to think about what course to steer.
As I have said before, until you are retired you have no proper idea of what your life can be, even without the variables that life throws at you.
Some contributors on this thread have large pots and imagine a life in retirement of travel and Luxury. Perhaps I might have been one of those people.
Before retirement I could never have believed I was capable of or would have wanted to, for example, to replace a tap in a kitchen.
15 years after retirement, last week (after much research) I did just that and I can not describe how wonderful it felt. How proud and satisfied I was at performing a task that I could easily have paid someone else to do.
A lot more changes when you retire than you can ever imagine.

atush

ttoli wrote: »

If you live like a local rather than a tourist, Yes.

I will spend half the year abroad, but I don't want to live 100% like a local. Maybe 70%?

I don't want to kill every songbird like my french neighbors nor will I ever entertain early bird dinners like My american ones.

I want to live like I live now, like me. No, I wont' eat out every day (once) like I do when I go there now, but I will want to be able to eat out 2+ times per week. I'll also want to buy the ingredients I like, even if they are more expensive there.

bugslet

N1AK wrote: »

I think there's a bit of truth to both. You're certainly right that working out what you want is the hardest part of 'good' requirement planning but I still wouldn't trivialise the mathematical aspect.

It isn't 'easy' for someone who isn't financially informed to work out what their pension means and what they should do. Questions like whether to index link, what rate of growth to calculate for, likely future income and proportion going into pension, even deciding a rough retirement age are all 'difficult' decisions.

Retirement is a vague and confusing subject for most people. It links to issues like age, health, and death and many people feel deeply uncomfortable about the entire concept; it might not be rational but it's understandable.

I agree with N1AK ( as I usually do), and add that if it's a subject that you don't know a great deal about, from the outside it seems as if the goalposts keep moving and in some ways they do.

There are a lot of my friends, who don't have a pension because they can't afford to, or are putting £40.00 pounds a month in, which is not exactly going to achieve a great deal. Then there are those who look and read that a pot of 100k will get them an annual pension of between £3500 - 6000 and they wonder if it is worth going without the holiday to afford to do that. If they put money in now, will that mean with a future government that the state pension will be cut.and in effect subsidised by their sacrific/saving? Those are the types of queries and reasons I hear.

What people want is something straightforward, simple and some guarantees - at the moment it all seems too complicated and wrought with potential problems to them.

I'm just putting across what I hear, I have a pension pot, and about 17 years to go to get the state pension ( as it stands).

@ermine, just to say, I enjoy your blog and yes extroverts will need more money;). We need human contact and experience to thrive!:)

gadgetmind

bugslet wrote: »

What people want is something straightforward, simple and some guarantees - at the moment it all seems too complicated and wrought with potential problems to them.

Yeah, and I want a pony, a private jet, and an end to world hunger.

Sorry, we're adults and should be able to handle difficult things including deferred gratification.

kidmugsy

gadgetmind wrote: »

Yeah, and I want a pony, a private jet, and an end to world hunger.

Sorry, we're adults and should be able to handle difficult things including deferred gratification.

Not everyone has had your advantages in life (as my father used to remind me).