Early-retirement wannabe

Goldiegirl

spock007 wrote: »

Sorry if this is too personal, but was it a choice not to have kids? I have none at age 30 and don't think I ever will (tired enough as it is and I enjoy having money and free time!).

I agree with being frugal to an extent, but I still want to do fun things while I'm young and have SOME energy (e.g. nice holiday once a year).

Hello there, yes it was completely our choice not to have any children.

Having children was something that I thought I'd do when I was about 30.... but when 30 hit, we were very honest with each other and decided that we didn't actually want any children.

We'd had some nice holidays in our 20's, and decided to move house, our 'forever house' as they say.

We couldn't really afford any big holidays for a few years, but in the mid 90's we had holidays in the USA for a few years, and then in 2001 started having cruise holidays which we still do now.

We've always tried to balance our life in the present, with saving for the future, as we've always wanted some fun now as well as when we retire.

We have now saved a reasonable sum for holidays after retirement, and should have a pension we can live on reasonably for day to day life. I'm not going to be afraid to spend our savings when we retire, as the purpose of that money is for holidays etc.

You hear of people living frugally all their lives, saving for retirement and end up with hundreds of thousands in the bank. But when retirement comes, they find they can't spend it, as they aren't used to spending, and probably don't like spending either !

kidmugsy

spock007 wrote: »

Strange... as the people I work with are so smart, you'd think they'd be able to make more money!

You should be thankful that this isn't an American site: nobody here is likely to scream that they can't be all that smart because they're not rich.

Anyway, two bits of advice:

(i) Understand the simple taxes. There are lots of enquiries here that show that some people don't understand that income tax operates at the margin of what you earn - they really seem to think that once you pass the 40% tax threshold you pay 40% tax on all your earnings! Lots of people also seem incapable of working out the level at which they start to pay 40%.

(ii) Write a will: it'll cost you next to nothing but will save your parents, siblings, or whoever lots of time, worry, and money.

hugheskevi

After being one of the early contributors to this thread, I've been neglecting it for a while but meaning to add to it. Finally got round to it

Quick recap: Myself and wife now aged 35 and 36 respectively, no children or intention to have children, both working full time. Plans are going quite well. I recently updated all my spreadsheets to more accurately forecast lifetime income, spending and saving and based on that it is looking like I will have enough to retire in about 8 years, very roughly in summer 2021.

That is based on annual spend of £22,400 for my wife and myself (excluding mortgage payment, and all forms of pension and investment saving though these are all accounted for in budget plans), increasing in line with average earnings as forecast by Office of Budgetary Responsibility until I am 68, and by RPI thereafter.

I think that figure is a bit low (though was reassured by earlier posters and their experience of the cost of retirement), but equally I do not factor in any positive surprises into the forecast. Therefore I don't factor in any gain from selling house and moving from London to rural Northern Ireland, nor any possible inheritance (despite expecting a moderate sum) or any redundancy payment (both wife I have stable jobs with very generous redundancy protection, but who knows how things will be in 2021 and whether there will be any chance of an offer). It also assumes no income other than pensions (including state pension) and investments after retiring which is very pessimistic. As the time when I plan to retire approaches, I'll put more effort into better working out the exact annual income I'd like. The impact of an extra year or two of working is massive, and I'm suspecting that I'll enjoy working a lot more when it truly is optional.

When I say retirement, I mean only from my current job. I'd expect to work in the future, but it will be either voluntary work or a low paid job doing something I enjoy. The type of work I anticipate being involved with is something like working with this sort of project or maybe something like this in the local area. I wouldn't want to work full time for any sustained period of time, but would aim for about 3 days a week probably. Planning what we ('we' was more of an issue, as I know what I want) will do in retirement is also very important, and not something we are taking lightly - in fact, it is one of the first things to consider as it underpins the whole plan.

The plan does involve a lot of tax efficiency through use of pensions to remove higher rate tax liability. This means some very big pension contributions each year, and budgeting has sometimes been a challenge through buying house and getting married over the last few years. But use of 0% credit cards has given a very welcome liquidity boost. I did make sure I always had a decent amount of ISA money available I could use if needed, but tried (and succeeded) in not using it.

This has made my wealth distribution very biased toward pensions, but other assets are starting to come into play now. ISA contributions haven't been made for a few years, but I still have a decent cash ISA which will soon be converted into S+S as a 5% fixed interest rate comes to an end I doubt I can put the full £22K into ISAs this year, but from next year on that should be achievable, especially as the reduction to the Annual Allowance will limit my pension saving (I don't put £40,000 into a pension, but HMRC's silly method for calculating DB value deems me to be putting in far more than I am, due to my age and normal retirement date of the DB pension).

An interesting result of the forecasting was that I was on course to end up with too much in a pension for my needs, despite retiring so early and assuming I commence all pensions at the earliest possible age. Fortunately, I can take my occupational DB pension from age 50 so I'm going to start increasing AVCs to that soon in preference to a SIPP for a few years.

For me early retirement is ultimately about spending a lot less than my income, making a plan and then working to make it happen. Whilst I'm not going to pretend that having a couple of decent higher rate tax incomes and good final salary pensions from our employers is a huge help, neither myself nor wife have enormous salaries and many peers spend far, far more than us. For me, that means cycling to work, having a small 10 year old car we share between us (even that is a bit of a luxury in London), holidaying mostly in UK camping, and taking lunch to work with me. I'm fortunate (financially speaking) that a key interest is computing and internet, as that is very cheap, even though my only real luxury is a high spec gaming PC Doing all that also makes you accustomed to a lifestyle, so a reduced income won't be at all painful as the consumption will be much the same.

Also, none of that feels like a sacrifice, which is quite key - I doubt I'd stick with the plan (which was roughly a 10-15 year plan, starting in 2009) if it was making me miserable. The cycling keeps me fit, as do the lunches (way better than far more expensive sandwiches or canteen food), we only drive 3,000 - 4,000 miles a year, so although I could go and buy any new car I felt like (within reason) there is no point in doing so. Again rather fortunately I have little desire to fly somewhere exotic and expensive for a mere 2-3 weeks as in my younger days I spent about 3 years roaming round the world in a tent, so I'm very happy with holidays in the UK for now, and will start seeing the world again on a big jaunt when I retire (the wife is more of a challenge, so need to throw in the occasional overseas trip to keep her happy...).

kidmugsy

hugheskevi wrote: »

... I recently updated all my spreadsheets to more accurately forecast lifetime income ...

But how do you know that it's more accurate? It involves the future, doesn't it?

hugheskevi

But how do you know that it's more accurate? It involves the future, doesn't it?

More accurate as s/s now better models tax thresholds both pre and post pensions starting, contracting-out abolition, and the exact age and when different types of pension starting. Previously I'd largely lumped pension into just a couple of different types which although got the capital value quite accurate didn't properly address exactly when it came into payment and interacted with tax system. Now I properly account for 5 different types of pension for wife and I.

Sure things will change, and when they do plans will be tweaked in response. Part of the planning is to ensure that I know how I'll adjust to shocks, which is partly why I prefer to redirect some pension saving to the pension I can access at 50. Whether or not I will actually draw it 50 I don't know, but I can foresee from the forecasts that it is an option I am likely to find valuable in a number of scenarios. In particular, I may well not be able to get any mortgage when I return from travelling after leaving work as I won't have an income. That is likely to swallow up a lot more capital than I might like in advance of pensions becoming accessible, in which case being able to access pension income at 50 is likely to be beneficial.

The main adjustment however will be retirement date. If I retire one year later than forecast, then I am something like £100,000 better off (not drawing down savings to live on, plus saving from the additional year). That is a very good adjustment tool, along with conventional de-risking of investments. Although as a decent amount of future income will be from DB pensions de-risking isn't such a big deal, currently only got about £120K in SIPP and it isn't going to get more contributions until 2015/16.

spock007

BUMP - thanks for the replies. Just back from hols so will reply and read through the tread soon hopefully

littlemissbossy

My hubby would love to retire but how can you be sure its do-able?

He is 47, I'm 42. I would carry on working and my salary would cover our monthly out-goings. We have no kids, no debts, no mortgage.

Holidays/cars/home improvements would have to come from our savings.

Hubby has a personal pension which he could get at 55, its not much though, maybe £1,800 per year. To be honest although we've both paid into pensions since our teens we've not been paying enough in and kind of thought of it as a bit of a "black hole" so have preferred to save in traditional savings accounts.

I would love for my hubby not to have to work, I work in my families business so for me to carry on isn't really a big deal. My dad died from cancer 3 years ago at 61, that really brings home to you how short life is.

It would be great to hear some opinions/things we've not considered.

Marine_life

So here we are and it’s time for a significant update.

What means significant?

Well last week was my 49th birthday so that meanspotentially we are into the last working year and that leads to two keyquestions:

1. Is this (early retirement) really going tohappen?

2. How are the finances – are they in good shape?

The first question is really the vexing one. Having planned now for the last three yearsit would seem rather odd to take the foot off the gas so to speak as we speedtowards retirement. However, as Imentioned a few posts ago we had the beginnings of a Grand Plan. Well (and thanks for the feedback), the GrandPlan has morphed slightly into a slightly less grand plan in that we intend tonow combine the plan with my 50th Birthday meaning we would beginour trip towards the end of October 2014 with the objective of then taking atwo month trip. Returning to work inJanuary 2015 will then be the real test of where we stand.

Over the last few weeks and months I will say that I havewavered slightly, there are times when I feel like there is unfinished businessat work and there are times when I feel like never going back, not even for oneday. But at the moment it’s theunfinished business which fills my head. In addition, I recently bumped into a colleague who has “retired” but isnow working for our company on a few things at an agreed daily rate on acontract basis. Maybe there is anopportunity for a soft landing or maybe (….rather like the expectant groom) Iam simply getting cold feet about the unknown?

In addition, having felt like I was drifting into abackwater the department I work in has suddenly become a “priority” forinvestment and I have been given a promotion! I’m not sure what the promotion means in terms of additional cash but Ibelieve it will be not insignificant. Let’ssee what that does for the calculations!

So where does the uncertainty thing come from? It comes from a few things – firstly we havenot really gone down the much advised route of calculating in detail ourexpenses so we don’t really know how much we need. However, what probably really creates theuncertainty more than anything is the uncontrollable or the unknown. We all think our pensions are safe (or atleast we do to some extent) but when I see local governments going bust in theUSA, it makes you worry how safe or how well protected pension rights are. I know from my own company (or at least theUK arm) that they are wrestling with an additional cash contribution of (a notinconsiderable 30 million per annum) to make up a shortfall.

Financially we are in ok shape.

We have two payments left on the mortgage of which one willbe €300,000 which we have been stashing away over the last couple ofyears. So we should have two unmortgagedproperties with a value of around €800,000. We plan to sell both our houses and release around €300k which will go intoour income generating pot. If we add inour cash and investments we will have enough to keep us in decent comfort forthe 10 years between my 50th and when the pensions kick in.

Marine_life

littlemissbossy wrote: »

so have preferred to save in traditional savings accounts.

So what do your other "non-pension" finances look like?

Marine_life

I couldn't resist - had to grab the 1,000th post!