Early retirement planning?

davidscot

Triumph13 wrote: »

I forget to say, also add in investment growth (net of inflation) on your pot up to the point you retire.

Out of interest, I have also modelled my own situation the other way round to work out what sustainable lifetime income I could expect if i retired at each of the next ten tax years. I found that very enlightening indeed!

How do you do that? Might make interesting reading

davidscot

If that £10k is your only emergency money I'd suggest that you don't yet toss it into the pension since you won't be able to take it out again until you are 55.
Yes the £10k is our emergency funds so don't really want to use that

Eric_the_half_a_bee

davidscot wrote: »

How do you do that? Might make interesting reading

I have done something similar. For each year that retirement is delayed,

a) allow an additional year's real return on total investments (say 3.5%)

b) increase the effective annuity rate generated by those investments, by reference to what additional % on the total investment a traditional annuity would buy as you get a year older (this provides a useful benchmark, even if you're not planning to buy one)

The results are quite dramatic, delaying retirement provides for a much higher income in retirement. Obvious I know, but much more concrete when expressed in £.

So the question then becomes, not "do I want to work an additional year", but "is it worth working an additional year for an increase in annual income in retirement of £x"

atush

With only 10K of savings at 52, I am thinking you may find it hard to go early, but you do have some time.

MSE all your outgoings and see where you can cut down. You and your OH need to maximise income/cut spending and save save save. Some at least in a DC pension.

Triumph13

davidscot wrote: »

How do you do that? Might make interesting reading

Very simplistically!

One spreadsheet row for each tax year. In the 'accumulation' section the b/fwd DC pots, contributions and investment growth coming to a c/fwd value.

Then a DB section with what DB schemes and State Pensions would pay at maturity based on service / NI contributions to the end of the tax year in question.

Then calculate a 'bridging' amount with a formula referencing each DB value multiplied by the difference between its maturity date and the retirement date of that line on the spreadsheet so if state pension was due in 2029 you'd multiply it by 15 in this tax year.

Then deduct the bridging amount from the c/fwd in the accumulation section to give your 'long term' pot.

Multiply your long term pot by your withdrawal rate (I use a conservative 3%) and add that to your DB total to give your estimated 'long term' income.

It is of course at this point that the fun really starts as you try to weigh up the value of that extra money against the value of not having to go to work any more.

Note, my model doesn't allow for any investment growth on the 'bridging pot' during the retirement phase. I would plan to invest this very conservatively, just aiming to cover inflation

Triumph13

Eric_the_half_a_bee wrote: »

I have done something similar. For each year that retirement is delayed,

a) allow an additional year's real return on total investments (say 3.5%)

b) increase the effective annuity rate generated by those investments, by reference to what additional % on the total investment a traditional annuity would buy as you get a year older (this provides a useful benchmark, even if you're not planning to buy one)

The results are quite dramatic, delaying retirement provides for a much higher income in retirement. Obvious I know, but much more concrete when expressed in £.

So the question then becomes, not "do I want to work an additional year", but "is it worth working an additional year for an increase in annual income in retirement of £x"

That's quite an agressive real return in the current market - I'm using 2 to 2.5%
I agree that the relevant annuity rate is a good figure to use - assuming you are using inflation linked annuity rates rather than flat ones. I personally have ambitions to leave a reasonable sized legacy pot to the kids so intend to keep my long term pot 100% equities and take a natural yield. That plan may change once they hit their teenage years and start to annoy me.