4-7 Years Before Retiring....

Wurly

A few years ago i really thought i would have to keep working until aged 66. The thought of it was a bit worrying.

However, since i decided to save like crazy and clue myself up on investments and pensions i now have a plan. Yep! a spreadsheet. By the time i figured out where i was, i could then see where i needed to be.

I also made a few discoveries on the way with regard to existing pensions and can now see the light at the end of the tunnel. The pension rule changes also helped but the biggest input to my pension pot was deciding to reduce my tax by paying into AVC's into my pension - 66% of my wages for the last two years have made a significant improvement. I am fortunate enough to be able to afford these payments. The mortgage is gone, my daughter has a family of her own and i can live very cheaply. Retirement can't happen soon enough.
Depending on a few work related events, i should be able to semi retire soon and completely retire by the time i'm 60.
I no longer worry about myself but i do worry about my daughter and family. I am trying to get her to have a retirement plan but with a big mortgage etc there isn't much left after bills. I had partial success today, i think a new spreadsheet is about to be created...

greenglide

However, since i decided to save like crazy and clue myself up on investments and pensions i now have a plan. Yep! a spreadsheet. By the time i figured out where i was, i could then see where i needed to be.

This thread seems to be full of postings which sound as if plans, especially the dreaded spreadsheets will be the holy grail.

Planning is what should have been done a long time before retirement and then the important bit is actually implementation this, serious funding of pensions etc and monitoring to ensure the objectives are met.

A spreadsheet with no action qchieves nothing. Actions are key. Accumulating pension wealth, for most of us, is hard work.

PeacefulWaters

I had a few things on my spreadsheet.

DB scheme
AVC pot
DC scheme
Share options
Share holdings
Cash savings
Essentials living budget
Luxuries living budget including car replacement
Basic state pension (assumed just the old basic)
Tax thresholds and rates
Inflation assumption

I managed to plug the Excel into real time share price updates which recalculated the values for the shares and share options. I also manually updated the DC fund value most days.

I had an output sheet that would pre-populate all scenarios from age 50-67 which identified a sweet spot at age 53 (48 now).

It was surprising how much the pension freedoms introduce by Osborne helped and effectively allowed me to plug the gap from age 53-67 with drawdown and an assumption that those funds would run dry as the state pension kicked in.

Getting the employer share schemes on to the spreadsheet also opened my eyes. One scheme allows tax relief on share purchase, gives matching shares and can be released tax free after five years. Those funds could then be fired into a pension with more tax relief and more employer match.

I worked out that £17 a month net (optimum amount for matching shares) for five years (c£1k), assuming no change in share price, would release around £4,500. This could be recycled into a Sharesave over 3 years benefiting from a 20% share price discount (£5,625). This could then be drip fed into DC pension where tax relief would take it to £9,700. Employer match would double this to £19,400.

Withdraw 25% tax free. Utilise against £11k allowance. Pay very little income tax.

A year's retirement funded from £1,000 outlay. Excessive exposure to a single company share but that's a two way risk and the other funds spread the risk elsewhere.

Snakey

Oh my. I really am a little kid trying to play with the big boys!

My spreadsheet consists of a cash flow plan in which if my income is X (current year gets updated each time I get a new piece of freelance work) then I can pay such-and-such amount of pension contributions, mortgage capital repayments, ISA investments and major works savings (new windows apparently cost around £25k when the council is involved) and if I can do all that then I will be able to retire on such-and-such a date.

I don't make it any more detailed, because the only number in there that isn't subject to changes outside my control is the outstanding mortgage. If the government abolishes tax relief on pension contributions, or I lose my job, or the stock market crashes and stays there, I'll have to rip it up and start again.

I am definitely in the "boring" part of the process - I know what I want, I've worked out how to get it, and the next six years is all about sticking to the plan to make it happen. I console myself with the knowledge that it's a sight easier than e.g. wanting to be a doctor and having to spend the next six years passing exams and working long hours. At least all I need to do is go to work and not do anything stupid like fall in love with a con man.

chiefie

Some good thoughts here-one thing for certain - we are all going to die so best make the most of that retirement. I'm willing to forego extra pension for an early work bath ��

Stubod

The spreadsheet I use has been "refined" many times, but in general consists of the last 20 years of our spending pattern.

This considers basic spending analysis summarised into 3 types of expenditure -
1/ "annual essential costs" (food elec council tax etc),
2/ "annual other" costs, (eg holidays, spending money, 2nd car etc),
3/...and a 3rd cost which is probably every 3 years or so, for larger "1 off" costs, eg replacement car, work on the house, domestic appliance replacement etc..

This gives an overall "average" annual spend used for future planning. (currently about £26k (includes £2k towards "big ticket" items eg a £6k spend every 3 years)

This is then offset against any income expected, (Private pensions, state pensions, interest on savings), and the year they kick in

The big unknown is always going to be interest rates and inflation, (not so much of a problem if your pensions are index linked (mine ain't..so we are relying heavily on savings and investments).

To be "safe" I have "assumed" we will need an inflationary increase each year of about 4%, (although for the last 20yrs our actually total expenditure has only gone up by an average of 1.5% per annum ?)... and ongoing interest rate on capital and investments of 1%.

robin61

I must admit I am not a very good spreadsheet jockey. So any spreadsheet work I have done is pretty primitive compared to the expertise some of you guys have.
I have been using the RetireEasy website and have all my numbers plugged into that and have found it a very useful sanity check.
Because I am putting a lot into my pension scheme I am not currently taking as much net income as I could do and we have been managing on that fine. I work from home so do not have the usual going to work and commuting expenses. So really all I need to do is make sure our retirement net income is more than my current net income to allow for the loss of my company car and to pay for some nice extras in retirement. Plus of course ensure that level of income is sustainable. I am pleased to say I am confident as if anything I have been cautious. The State pension when we both get it is icing on the cake as is any inheritance we might get at some stage.
I guess the last couple of years have been a kind of trial retirement as far as our income is concerned as it has proved to me we can live to a good standard on a bit less than I expect our retirement income to be. Of course not having a mortgage is a big help.

Nebulous2

I work in a job which is a sideways move for most people, a way to maintain most of your salary with less responsibility. Unsurprisingly it is full of people who are cruising to retirement. I don't want to. I feel I still have something to offer at work and don't want to be seduced by their castle-building.

and yet ....... It is creeping up and it's hard not to let that seduce you. We have friends who motorhome in Europe all winter. We had three weeks in France/Spain in September and met people who were just starting their winter as we were heading home.

Moneywise a decent final salary pension is the main asset. Able to take it at 60 with a big hit in terms of reduced pension or 63 with what looks a much more modest one. 65 without deduction. I'm 54 at the moment.

We have a house which is bigger than we need, especially if travelling 6 months a year. I've always been quite scathing about people rattling around in a big home who refuse to downsize and was determined to do that sooner rather than later. However it is already proving much more complicated than I thought. We live in an expensive area an house prices are quite compressed. You can move to a house with considerably less room / amenity without freeing up much money at all after fees are paid.

My work has recently offered sabbaticals of up to two years, possibly to save budget. One of the reasons to ask for that is 'travelling.' I've considered taking a year out to trial our winter in Europe plan to see how we like it in a couple of years. The personal work replacement stuff is much more of a worry than money.

We're going to be a tad over an average wage in retirement, maintaining most of our income when state pension kicks in, with less people to feed so no real worries on that score.

robin61

Nebulous2 wrote: »

You can move to a house with considerably less room / amenity without freeing up much money at all after fees are paid..

Good point. Especially if you are going from a house to a bungalow.
You can bet that after you have paid all the fees and moved in you will find that the boiler you thought was OK is on it' s last legs, the carpets that looked OK with their furniture look awful with yours and having previously said she liked the kitchen has decided she cannot possibly put up with it.

Eventually we might move to a smaller place but I am thinking we will probably not make money out of it unless we move to a cheaper area. Which really I cannot see happening. I guess the main advantages would be less maintenance and cheaper gas and electricity etc.

pandora205

robin61 mentioned RetireEasy website a couple of posts ago, which is fab for those who are not spreadsheet techies and give lots of options. It's well worth the time to plug in the figures to have a play. It's free to generate a Life Plan giving forward projections to age 100+.