How early can you retire?

billchecker1

Sorry to hijack this thread. Whilst looking at various FIRE threads the consensus seems to be to ensure that you pay a certain, fixed percentage of you income into invesments.

Now that seems easy but my personal situation is shall we say slightly odd.

My main job includes a defined benefit (police) scheme for which i pay in 13.44 percent in.

My wife has LGPS which she pays (i think around) 5.8% into, again this is DB.

I have a second job in which I pay all of it 100% into pension. This is matched up to 6% but payment is sporadic as it is a zero hour contract.

I pay random ammounts (minimum of £20 but can be as high as £400) per month into a stocks and shares ISA. I would like have a target of this to aspire to but am struggling to work it out with all my various schemes and if it should be net or gross. Any thoughts?

bigadaj

billchecker1 wrote: »

Sorry to hijack this thread. Whilst looking at various FIRE threads the consensus seems to be to ensure that you pay a certain, fixed percentage of you income into invesments.

Now that seems easy but my personal situation is shall we say slightly odd.

My main job includes a defined benefit (police) scheme for which i pay in 13.44 percent in.

My wife has LGPS which she pays (i think around) 5.8% into, again this is DB.

I have a second job in which I pay all of it 100% into pension. This is matched up to 6% but payment is sporadic as it is a zero hour contract.

I pay random ammounts (minimum of £20 but can be as high as £400) per month into a stocks and shares ISA. I would like have a target of this to aspire to but am struggling to work it out with all my various schemes and if it should be net or gross. Any thoughts?

The majority of your provision seems to be defined benefit so investment returns are less important for you than many. The amount you are paying into your pension is irrelevant you need to project the actual amount you will be receiving and at what age. There are only three variables you can really consider, which is what level of income you need to retire on, when you will want to retire and how this matches when you can take your defined benefit pensions.

The db schemes should be useful in paying a secure and fixed income, meaning that you could arguably go for more risky investements within another pension or isa.

DireEmblem

Well thanks for all the comments, I've gone through all the figures, worked out how much I need to 'live' and do the things I would like to do along the way. All in all I should be able to save around 25% of my salary each year(I think). Some of the things I found are scary - once I accounted for bills/holidays/gifts etc there is a large hole where I have no idea where the money goes - I suspect 'socialising' or boozing is the answer.

In terms of going forward, I have setup some new bank accounts - a 'bills' account - I have figured out how much my fixed bills are, and each month I will setup a DD to transfer enough to cover this plus 5%. I have setup seperate 'holiday' and 'living' accounts as well, so I can control my disposable income a bit better, and what is now left for me to decide where to put my savings if I am to save 25% of my salary. I'm thinking something along the lines of maxing out a monthly saver, with the rest being split between a p2p savings account, and a S&S ISA. I think I can save 25% without restricting my lifestyle too much.

The problem I have now is working out how much I need 'in theory' to quit work. If I say that I can save 25% of my salary, then I only need to earn an income the equivalent of 75% of my current salary. On the basis of an average 5% return per year and allowing 1% for inflation, then I need 0.75/0.04 = I need to save approximately 19x my current salary to have the same lifestyle, or at least thats the way I work it out. How do I then work out how long it would take to get to that point?

racing_blue

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

save 0% = never retire
save 5% = 66 working years
save 10% =51 working years
save 25% = 32 years
save 50% = 17 years
save 80% = 5 years

Ballard

I would reiterate what others have said. It's good to plan your retirement but not at the complete sacrifice of your life. It's all very well not having to work at 45 but where are your memories? From my perspective I've done well. I've put money aside but also had some great holidays (holidays are my thing). I'm currently in my 44th country and am moving on to my 45th next week. I'm a few months off 47 and hope to get to my 50th country in my 50th year. That's the sort of goal I prefer.

I have got the balance right for me. Perhaps you have no desires such as holidays or a bigger house so your goal of early retirement is perfect but I'd suggest that you think long and hard.

I haven't got an age in mind to retire but it'll probably be 58-62 ish. Much earlier than that and my friends will still be working anyway.

darkidoe

As some have mentioned, the perks of financial independence is freedom. Freedom from having to work for a living, freedom do make independent and personal choices in life. The journey to financial independence is not easy but the goal will be saving today for a better tomorrow.

boglehead

DireEmblem,

I am very much in your boat, just boarded 4 years ago but stumbling on mrmoneymustache.com

I am planning to retire by the age of 42 (I am 36 today), and living off my investment portfolio, on a 3.5% withdrawal rule. This enables you to not deplete your portfolio and let it appreciate with inflation overtime.

The rule of thumb is that you need a portfolio of roughly 30 - 35 times your cost of living - which for you means roughly £400k (£12k x 35), assuming you only need £12k a year.

I suggest you go check that website and do some reading - loads of people have managed to amass 30-35x their cost of living over a short period of time (less than 10yrs) by living frugally, on average income.

Good luck

billchecker1

bigadaj wrote: »

The majority of your provision seems to be defined benefit so investment returns are less important for you than many. The amount you are paying into your pension is irrelevant you need to project the actual amount you will be receiving and at what age. There are only three variables you can really consider, which is what level of income you need to retire on, when you will want to retire and how this matches when you can take your defined benefit pensions.

The db schemes should be useful in paying a secure and fixed income, meaning that you could arguably go for more risky investements within another pension or isa.

Thanks for your reply, it is appreciated.

You are right that my DB pension will be the main part of my retirement income.

Also I do hold a 100% of my ISA and pension in equities which closer to the time (say 5 years) I will sell for bond funds and use the income to suppliment my DB pension.

I do have a spreadsheet upon which i include my forecast DB pension alongside that I have my current totals for pension and isa. I then use a 3.25% number to work out what my potential income might be. I add these together but they are still less than my annual spend (although that does include my mortgage which by then will be significantly reduced). This is at age 55, i have 20 years to go.

I suppose my question is two fold: forgetting for a moment my end goal, what is a reasnoble amount, as a percentage to save after paying a DB pension?

Next is how can i work out how to fill the gap whilst taking into consideration an element of compounding> This seems difficult to calculate.

bigadaj

There isn't necessarily a reason to sell equities for bonds when you retire, income and growth from shares can be more attractive than bonds if you can ride ten volatility over time, though a percentage in each will work for many. That level of income appears conservative.

People have to make their own decisions about lives in terms of what to live for today and what to put by for the future. Probability plays a large part, everyone will know someone who died young but average life expectancies ar in the eighties with many living into the nineties.

What you don't spend now you have to save for the future, so dependent on the split between enjoying life now and retiring is a personal choice, the more you spend now the less you have in future. Similarly the later you retire then the higher income you can enjoy, how much is time worth to you against income. A reasonable amount to save from income can be form near zero to 50% or greater.

Compounding can be estimated but will be variable, easiest to ignore inflation so you are back looking at 2-5% maybe and every year up to retuirement this increases, and after entire net reduces.

DireEmblem

I have to say - reading mrmoneymoustache is very interesting bogle, and so going by its figures, I am ~21% of my way to the ultimate goal. I believe I can save more of my my current salary without a noticable detriment to my current lifestyle, and I am still looking at ways to further this. Budgeting and allowing some extra cash for treats once in a while are key to steering the course!

The question is not sacrificing too much of life to get there. The site raises some interesting points - move closer to work to reduce travel costs. At present I currently get the bus to work an walk home - this is more for convenience than anything really. This works out at 7.50 a week in transport, or £345PA. So yes, I should walk to work as well. The only problem I have at the moment is that I have a fractured metatarsal, so I have to watch what and how much I put on my foot over the day. In that sense I may consider buying a bus pass for a month(£54 for 4 weeks) as health is key. This does work out cheaper than paying £15 per week, and allows multiple use while I am on the mend.

From next week I also plan to stop having breakfast at work. In general I spend £1.40, and combined with a bottle of bru makes £2.90 a day, or £667 per year. Yes food at home will cost me money, but if I kick the bru and make my own breakfast, combining that with walking to work would save 1,012PA. That just seems insane since I am not really losing any 'home comforts' in my lifestyle, yet in the long run I would be significantly better off. In fact I have already setup a weekly direct debit to a savings account for this with the appropriate narrative:D