Spending savings or not in retirement

mpeill

I'm getting close to my early retirement in 18 months when I will be 62 (a male, with retirement age of 65, at the moment!).
My income will plumit when I leave work by 60%, but I have some savings put by I can draw on.
As a general point, is it best to live within a sustainable income from pension plans and interest from savings only, or is it accepted that one can also spend a proportion of savings capital based on an assumed lifespan of say 80 or 85, after which the capital is gone?

hugheskevi

As a general point, is it best to live within a sustainable income from pension plans and interest from savings only, or is it accepted that one can also spend a proportion of savings capital based on an assumed lifespan of say 80 or 85, after which the capital is gone?

Based on 2010-based cohort life expectancy, you should expect to live to 86.

How you treat capital depends on your objectives. You will need some precautionary cash to hand at all times (say 3-6 months income to cover unforeseen expenses), and some set aside if you want to leave an inheritance.

The rest should be used to smooth income in retirement, using both interest and capital. Bear in mind you are likely to need more at the start of retirement when you are most active, and at the end when you are most likely to need support, so when planning what you need you should consider these things.

After that...well, you have to spend it one way or another So allocating it to whatever part of your remaining years you have least in would be sensible, which in your case may well mean using part of the capital it to bridge a gap to 65 when State Pension kicks in.