Do we have enough to retire now?

[Deleted User]

We're thinking of retiring early - when I turn 55 next year and my husband is 51.

Here's the situation. If you think the numbers don't add up please say!

We're currently self employed with a software business and book sales that will keep money trickling in for years to come without us doing any work. Additionally, my husband loves photography and makes money out of that. So we would still have income but we don't want to factor that into our calculations. We want to think of it as a bonus.

• We have savings of £155k.
• A combined pension pot of £155k.
• A house worth £200k - a large and fairly expensive house for our area. We could downsize when very old and release half of that.
• I have a civil service pension that will bring in £2500 year from age 60 - index linked.
• We both have paid enough NI for a full state pension when we eventually reach official retirement age of 67.

We don't have expensive tastes. We currently live comfortably on around £15k per year, although things like new cars or unexpected home expenses come out of our savings.

Our thinking is that we aren't too fussed about how we live when we're old and infirm - we may not live to see it and we have no kids to inherit our estate. We want to balance things slightly in favor of enjoying life now but not being destitute if we live to be very old.

I've worked out that if we just draw down on our savings, taking our pension as cash (in such a way that we stay under the tax threshold and don't pay any tax on it) then we can keep our income at £21k a year until I'm about 85 years old. After which we'd have to rely soley on state pension and equity from our home. If one of us dies the other is left with just £15k a year to live on.

Of course, this assumes that pension/savings keep abreast with inflation.

All thoughts / advice / opinions welcome. I'm just starting to look into this and I admit to being a bit baffled by it all.

inflationbuster

One thing i don't think you're factoring in is inflation. E.g., rising cost in food, gas, electric, water, council tax, etc. Your £15K won't get you as far as you get older.

It's something that's been on my mind as l think about retirement in future. I'd need to work out my cost of living now and then add inflation on a yearly basis to estimate what my cost of living might be in say 5, 10, 15 years time.

Bravepants

It would be good to keep drawdown of your pension to at or below 4% per annum. Google the 4% rule to find out more. Opinions are divided but that seems to be the standard drawdown rate; some poeple choose 3 or 3.5%. ANd there are more complex drawdown rules too, like CAPE.

Now if you take your total retirement savings, that would give you £12400 per annum from now on. You can then add your £2500 per annum from age 60.

Of course this depends on your £310,000 being invested in say an index tracker fund of equities (or preferably a mix of equities and bonds) giving a long term average return of 5% per year.

You could drawdown more before you hit 60 to make up the difference without your CS pension, and hope that your investment returns more than the 5% average.

kidmugsy

Once you've got two State Pensions plus your Civil Service pension you're already getting more than your minimum £15k per annum. So the trick is to bridge the gap to ages 67.

Move some of your savings into your pensions while you're still earning and keep contributing £3600 gross per tax year into each pension if your earnings fall below that. As you say, keep withdrawing the pension income necessary to use your Personal Allowances.

Alexland

Seems a bit tight to me especially after considering the effects of inflation and continuing to draw out when markets are low. I assume you have checked your state pension forecast and have contributed enough national insurance. The capital expense of replacing cars, maintaining a house (new kitchen, bathrooms, etc) plus fixing the hole in the roof will take a toll.

jennyjj

Alexland wrote: »

Seems a bit tight to me especially after considering the effects of inflation and continuing to draw out when markets are low. I assume you have checked your state pension forecast and have contributed enough national insurance. The capital expense of replacing cars, maintaining a house (new kitchen, bathrooms, etc) plus fixing the hole in the roof will take a toll.

I agree that it does seem a bit tight. Liquid assets and future pensions seem a bit lean. That said, a frugal lifestyle has put you in good habits.
Not to be morbid, but any inheritances on the horizon? They can really make a difference.

Good luck.

atush

I agree, feel it is too tight.

Thrugelmir

I'd downsize while you are still working and get the released equity invested.

Terron

Moving house is one of the most stressful things to do. Planning to do it when you are "very old" does not seem like a good idea to me. Since you aren't worried about passing money on, perhaps some sort of equity release scheme would work better.

15k plus covering unexpected expenses out of savings means you need a bit more than 15k a year. 21k a year seems reasonable. Subtract your civil service pension and you'd need to take £18,5k per year from when you are 60. The 4% rule suggests you will need a pot of £462,5k Assuming you can get £100k from you house you are about £50k short.

The 4% rule was developed in the US with the aim of having a good chance of not running out of money for 30 years of retirement. For the UK 3.5% might be better.

jennyjj

you might try https://www.retireeasy.co.uk/ they used to offer a free tier, but you could surely afford to try the basic package

Triumph13

Deleted_User wrote: »

We don't have expensive tastes. We currently live comfortably on around £15k per year, although things like new cars or unexpected home expenses come out of our savings.

That's the only bit that worries me. How big are those expenses? If they can indeed be covered out of £21k vs your £15k, then I'd say the numbers stack up. You have £310,000 of savings and plenty of time to get the pensions into ISAs tax free. Even if we use Terron's very cautious 3.5% drawdown rate, then if you put £75k of those savings into a drawdown pot and draw from that at 3.5% indexing for inflation, that would mean you'd need £233k of your remaining £235k to bridge through until the second SP comes on line - assuming the bridging pot earned just enough to cover inflation. From the second SP you then have closer to £22k until first of you dies. Survivor has their own SP 50% or 100% of your DB and the £2.6k from the drawdown.