Do I have enough to live off investment income?

bendix

amcluesent wrote: »

Am seriously thinking of becoming 'economically inactive'. Can I do it?!?

Age 47, single, no kiddies, mortgage free (just a basic 2-bed terrace valued at £100K, lowest band CTax), ISA/premium bond/cash savings about £200K, share investments maybe £25K.

Three deferred final salary schemes would kick in at 60, 62, 65.

Sorry if this is distasteful, but I could reasonably expect inheritance of about £500K as parents are 93 & 88 and I'm the only child.

I don't have expensive tastes, am happiest pottering in the garden.

Currently out the house 12 hours/day in a job/industry sector I have come to loath.

Is there enough capital to make early retirement feasible? I'd previously set an financial target of £500K by 50, but TBH everything's doing my head in at the mo.

My word. What a strange morning on MSE, with some of our normally most vigorous posters revealing insecurities.

First we have gold and precious metals tycoon revealing probably more about his financial circumstances than he would have liked to, and now our resident bulldog amcluesent says he's unhappy but it's ok because he has great expectations and do we all think he can retire early.

Whatever next? Sibley revealing that that his life isn't so perfect after all?

Jonbvn

bendix wrote: »

My word. What a strange morning on MSE, with some of our normally most vigorous posters revealing insecurities.

First we have gold and precious metals tycoon revealing probably more about his financial circumstances than he would have liked to, and now our resident bulldog amcluesent says he's unhappy but it's ok because he has great expectations and do we all think he can retire early.

Whatever next? Sibley revealing that that his life isn't so perfect after all?

Sounds like you want to come "out" Bendix.:p

sabretoothtigger

Your parents have got to a fine age there. At 47 you have to then anticipate that you need an income for 50 years possibly. Unless you pull an Arthur C clarke and retire somewhere tropical but cheap and work independently its best not to presume you have enough money


http://uk.finance.yahoo.com/news/The-5-consequences-working-yahoofinanceuk-1409097602.html

Masomnia

bendix wrote: »

My word. What a strange morning on MSE, with some of our normally most vigorous posters revealing insecurities.

First we have gold and precious metals tycoon revealing probably more about his financial circumstances than he would have liked to, and now our resident bulldog amcluesent says he's unhappy but it's ok because he has great expectations and do we all think he can retire early.

Whatever next? Sibley revealing that that his life isn't so perfect after all?

Indeed, I actually like it when the 'human' side of MSE comes out.

amcluesent

>Your parents have got to a fine age there. At 47 you have to then anticipate that you need an income for 50 years possibly.<

Nah, good health skips generations I find. I don't feel I'll make 'old bones' and, as I've said here, soon enough the living will envy the dead as England faces up to the grim austerity years ahead, stretching into decades.

organic_wanabe

My DH retired in the Summer of 2010 after many years of hating his job - he was 59 so quite a bit older than you. However, it was not an easy decision as we have one DS and he was about to start his first year of University in Autumn 2010. DH is so much happier now and wishes he had made the decision to do something about his situation many years ago. No-one knows how long they have on this earth, so in your situation I would not hesitate to take a 'gap year' and see how you get on. If you are a worker, you will always manage to get some type of job if you have to - it might not be as well paid but you might find you enjoy it.

bristol_pilot

I am a similar age to you, with similar expectations of future pensions that I can live on, but with twice the savings you have. I worked out that I couldn't possibly give up work, the key factor is that I reckon I need £20K+ to live on - more with future inflation risk. In your position, I would consider that £500k inheritance to be key. Why not keep working until you have actually got it?

jamesd

There are three key parts to your problem.

Pensions first. If those plus the state pensions will be enough to live on, your problem is merely to support yourself until they have all started. If you need to top up their income then you'll need to preserve some capital to do that.

Investments next. I work with an assumption of 6% of investment value as income, with 4% for large safety margin, expecting both income and capital to grow with inflation. That's from £13,500 to £9,000 a year in income, depending on safety margin. That's with no capital value reduction at all, other than normal market variations. This assumes a mixed set of investments using high yield bond funds, commercial property funds, equity income funds and some more growth funds for long term inflation protection. You'd do something like setting up a savings account with a few years of spending money and live off regular monthly transfers from that, while it's topped up by income from the investments. Adjust the income level if the value in the account is lower after a few years, to allow for variations in investment income levels.

Finally there's the income level you need and the one that you want. You seem to have sufficient capital to cover need. Want is up to you, don't know what spending level you want to have.

The inheritance isn't a key part because you can't count on it until it happens. However, if your parents have ample liquid funds of their own, they could transfer some money to you before they die and you could then use that in your planning. Assuming that you do eventually inherit £500,000 then that could produce another

Given my own frugal lifestyle I think that you have sufficient money to do this, even completely ignoring any possible inheritance. You certainly do have enough to meet my own minimal target.

One thing you need to watch for is excessive caution in investments. You can't really just use savings accounts, you'll need investments of some sort to give you reasonable inflation cover and income while limiting large-scale capital value reduction. The market value variations are nothing compared to the losses you'd suffer by not investing.

If you won't need to draw on the capital to reach your income target you could consider locking some of the money up in a pension until you're 55,to get the tax relief and extra taxable income that it brings. That may force you to draw down the capital of the money outside the pension to meet the income target. The 25% lump sum from the pension may be sufficient to top it back up again.