Early Semi Retirement

JeffAllan

At age 49 following redundancy I suddenly find myself in the lucky position of having no mortgage, savings of c£220000 to live on, and an index linked pension from age 60. The plan is to live in semi retirement for 11 years taking occaisonal jobs to pay for lifes luxuries. How do I best invest for an income for 11 years ?

I calculate that with compound interest and investment income I could draw down c£22,000 per year. I could theoretically afford to have no money left by age 60 when my pension with a lump sum kicks in but the effect of inflation could present problems for my buying power during my later 50s. Presumably tax is not a big issue as I will be living mainly off my capital. I already have c£25000 in funds ISAs c£20000 in savings ISAs.

Any advice gratefully recieved.

bendix

JeffAllan wrote: »

At age 49 following redundancy I suddenly find myself in the lucky position of having no mortgage, savings of c£220000 to live on, and an index linked pension from age 60. The plan is to live in semi retirement for 11 years taking occaisonal jobs to pay for lifes luxuries. How do I best invest for an income for 11 years ?

I calculate that with compound interest and investment income I could draw down c£22,000 per year. I could theoretically afford to have no money left by age 60 when my pension with a lump sum kicks in but the effect of inflation could present problems for my buying power during my later 50s. Presumably tax is not a big issue as I will be living mainly off my capital. I already have c£25000 in funds ISAs c£20000 in savings ISAs.

Any advice gratefully recieved.

Not sure what advice you are looking for. Are you wanting people to say how to get income, guaranteed to keep you in your lifestyle for the time you want? Welcome to the club - it's the holy grail of investing

Are you asking if we think yuo can achieve what you want? At the end of the day, that's up to you and your personal drivers / needs etc.

MY view - based on me, not you - is that it's not enough and it would terrify me to have a plan based on using all my capital just in time for other pensions to kick in.

But, hey, I'm not you.

JeffAllan

Thanks

Guess I don't want to be the richest corpse in the graveyard and £20k pa tax free sounds ok to me. I can go back to work or look at equity release as back up.

I'm looking for any tips, and have I missed anything ?

bendix

Inflation.

Highview

My circumstances are much the same as yours - I took voluntary redundancy three years ago (I'm now 48). If you have the option to take your pension earlier (I can anytime after 50 but much reduced) this can act as a further safety net. Finally the state pension kicks in at 66 as well.

I've actually managed to add to my savings in the last three years by doing casual part time work. Interest rates look to be rising this year now which will add to the interest I get which will be a bonus. My current aim is too avoid drawdown of my savings for seven more years but take the interest, inflation will reduce it's buying power but I'm hoping that this will keep me funded for quite a few years to come.

Other side is spending - luckily I'm interested in pleasures that cost little or are free!

Peelerfart

It really is down to the lifestyle you want to live,one thousand pounds a month,all bills paid is plenty for a lot of people.

For others it's luxury living, but for some it's pov spec.

It's what you want from your semi-retirement that guides this decision.

IMHO

FLAPJACK

I too am in a similar position as the OP. I was retired at 49 and then 18 months later had an inheritance of £300k +.

That was 5 years ago. Being a cautious soul I put the lot (after paying off the mortgage and other debts...leaving £280k ish) in fixed rate bonds, making it that every year 2 would mature so I could maximise the interest rates..highest I got was 7.22% for three years.
and not risking going over the £35k protection figure as it was at that time.

As these bonds have matured the balence is almost back to the starting point.

At my age and because of what happened, my pension is paid as if I had completed 40 years service. Actually 31 years.
As I have this coming in I worked out the household bills for the year and took that sum from a maturing bond and each month D/D a 12th into my current A/c...i.e bills paid.

The rest of the money is spread between a cash ISA, S&S's ISA, Investment Bond (OEIC) and cash fixed rate bonds. We live off the monthly pension...albeit managing to still save over 50% of that each month into a Regular saving account and Lloyds Vantage accounts.

Obviously had I not been getting the pension then I would have had to do things differently...but as other posters have said, it's a personal thing..how you want to spend your money and your life....me I would rather attempt to make sure my later years 60/70's were being financed now, so then you would have a nest egg, work pension and also the state pension..check also you have the maximum NI contributions too..get a state pension forecast.

Of course non of us knows when the grim reaper will come calling so there is an element of enjoying the situation for today too...you can keep looking to try and make the future as profitable for yourself but at a cost of not living for today.

Age has a great deal to do with making decisions concerning lump sums of capital.

Loughton_Monkey

Well it's really up to you to do some calculations. Get out your spreadsheet and get cracking.

The key determinants will be (a) how much you spend, (b) What interest/investment income you get on your money, (c) the amount of 'casual' jobs you get and what/when you earn from them, and (d) inflation [or to be a bit more precise, the relationship between inflation and the interest rates/growth you receive on your money].

Depending upon your part time work, your only other taxable income is 'interest'. The extent to which this falls short of your full tax allowance means a bit of tax-free allowance 'wasted'.

Many of us have done similar things. I 'went' at age 56, but only after the most rigorous calculations and testing of assumptions. If you treat age 60 as the 'pole position' at which you could retire very comfortably - on existing pensions plus what you earn/save for the next 11 years. Then every year you step back from age 60 becomes progressively harder. Each year gives you (a) one less year's earning/saving, and (b) another year to support yourself. And stepping back 11 years is equivalent to at least 22 years of annual spending. So be very conservative in your calculations.

Just another caveat. I can only speak personally. When I retired, I had no intention whatsoever of working again. I find myself noting, though, that (a) in today's climate, had I wanted to, I would have found 'casual'/consultancy work rather difficult to find, and (b) the more I am fully retired, the less I would ever be inclined to work again. I would have to be 'desperate' to do so.

Hence in your position, I would offer this 'advice': Do the calculations, as above. If they indicate that you need to bring in a modicum of extra money between now and age 60, then consider very strongly the option of busting a gut to find some sort of full time job now - perhaps for just another 3 years or so - whilst you still have the 'work culture'. Take the pain for this length of time - but then go and go for retirement 'properly'.

kidmugsy

Bendix, LM and others: could there be a case here for buying a fixed term annuity?

JeffAllan

Thanks for the tips guys.

Not sure I can buy an annuity until 55 ? Also I need the money over the next 11 years

kidmugsy

I was thinking of your buying an annuity outside a pension scheme, using part of your capital. The tax treatment is quite favourable because HMRC treats part of your annuity income as return of capital, free of income tax. Whether such an annuity is too expensive a way of buying certainty of income, I don't know.