Can I afford to retire at Xmas?

DoDa

Hi,

I am planning early retirement at the end of this year and would like the forums thoughts on my finances:

Status: Divorced with no dependants, age 51
Renting a room in friends house, no other financial commitment
Current salary package cira £60,000 including pension contributions

Assets:
£250,000 Cash (average interest rate 2%)
£250,000 DC Pension (20% UK Government Gilts, 5% Corporate Bonds, 7% UK property, 20% UK Equity & 48% Global Equity including Emerging Markets) and will add £3600 pa until drawdown.
2017 new car (last one kept for 11-years and 155,000 miles)
Deferred DB Pen (AFPS) £6,250 @ 60 + £18,750 lumpsum

Deferred DB Pen £8,350 (RPI or 5%, 95% funded) @ 65
Additional 4 years NI required for full state pension, will make up the missing years with voluntary NI contributions in my 60's.

Require a minimum of £21,000 net income PA rising with inflation.
Plan to travel for a few years, staying for a few months in each location to enjoy my passion for mountain sports (mountaineering, climbing, skiing & paragliding) I did this for 27-months a few years ago, so have a good idea what this costs. Happy with house shares, campsites, bunkhouses etc.

I plan to send approx £75,000 in cash until I can access the DC Pension at 55.
Take 25% PCLS to top up my cash fund (future house purchase) and then withdraw sufficient income to give a net income of £21,000.
The amount required from the DC fund reduces at age 60 and 65, as the above DB pensions start paying out and then once the state pension starts is not longer required i.e. the DC fund can be run to zero balance by age 67.

Does this seem realistic plan?

justme111

very much so to me. do both of your db pensions plus sp give you those 21 net? suppose even if not you are likely to have about 50 k left anyway in your dc pension so if you take about 2 k yearly out of it to top other pensions up it will be about 30 years that it runs out and by then you will be close to 100 if still alive and likely to reduce your requirement by a k or two to what your db pensions and sp give you.
congratulations for being in a position you are .

kidmugsy

Remember to take a look at whether you could usefully pay more NICs to increase your eventual state retirement pension.

When you start drawing from your DC pension you might aim to get as much out as possible at 0% and 20% income tax to add to your house fund. That's the sort of detail that you can consider at the time.

ams25

How much do you intend to spend on a house purchase. That makes a difference.

Does the 21k pa allow for major expenditure items, like new car, boiler, work on house etc. If not, I would hold a capital fund for such eventualities.

then re-run the numbers....

marlot

DoDa wrote: »

...
Deferred DB Pen (AFPS) £6,250 @ 60 + £18,750 lumpsum
Deferred DB Pen £8,350 (RPI or 5%, 95% funded) @ 65
Additional 4 years NI required for full state pension, will make up the missing years with voluntary NI contributions in my 60's.

Require a minimum of £21,000 net income PA rising with inflation...

You're not far off you income requirement based just on your DB and state pensions. So even allowing for tax, and funding until the pensions kick in, I'd have thought you'd be fine.

What I've done is an annual cash flow - for each year of retirement noting my income (before tax) then deducting my tax and other anticipated spend. This feeds into the reduction (or sometimes increase) of my savings.

I've gradually made the model more complex - so adding inflation assumptions, and interest on my savings.

Triumph13

The house is the big unknown - how much are you planning to spend, when will you buy it and what impact will that have on your £21kpa? Does it go down because you no longer pay rent, up because of maintenance and mortgage payments?
Doing a quick calculation using the whole DC fund for permanent drawdown at a very conservative 3% pa to give you your £21K pa, rising to £27k once SP kicks in would leave a gap of about £160k to bridge from cash and DB lump sum - so about £110k spare for the house purchase. If that's enough then you're laughing.
Divert the DC lump sum to house purchase and your house fund goes up to £140k, but your post SP income drops to £25k.
Go for a more aggressive 4% withdrawal (which is probably more reasonable as you can afford to be aggressive with so much of income covered by DB and SP long term) and the post 67 income goes back up to £26k and the house fund to £170k.
If you plan to spend more than that on a house then you need to take out more of the DC fund (paying tax on it) and you have less DC fund providing income over the bridging period. I make it around about £210k as the most you could realistically spend on a house and still have £21k pa post 67.

enthusiasticsaver

I would say so providing the house you plan on buying is not too expensive and that your travelling does not come to more than the £21k per annum. I am interested in why you bought a brand new car though if you plan on spending a few years travelling although I guess you could mean in the UK. Maybe a camper van might have been a better idea

I have a spreadsheet which models our income up until spa as all our pensions pay out at different ages and we took/are taking early retirement at 58. I am interested to know how you have managed to get your cash saved earning 2%.

Your plans sound good and you have done well to build up those pensions/investments.

[Deleted User]

I'd look at it a totally different way around in that I'd buy a house and then plan everything else around that. Once I knew what the house cost I'd work out the travel costs etc around that.

It is such a major purchase and who knows what prices may be in a few years and costs aside a nomadic life of travelling and mountain sports sounds idyllic until illness, accident or a n other unexpected issue arises and then the security of a 'home' to come back to is all the more important.

crv1963

You could purchase the house before your travels depending on area/ cost and your thoughts on whether prices will go up or down. Rent it out using an agent to deal with the tenants/ repairs/ rent collection etc to provide a supplement to your income and have the knowledge that you have somewhere definite to return to?

Drp8713

If you have no dependants, and you like travelling, and youre happy with renting a room, is a house purchase really needed?

Round here a room costs £650 a month or £7800 a year. A 1 bed flat is £350k, so it would take 45 years to break even or age 96 in your case.

And i assume the room includes bills whereas the flat wouldnt.

DoDa

Hi thanks for taking the time to respond! Here are a few answers to some of the great posts so far……
The DB and State Pensions will just about net £21K, given no NI to pay from pension income and the DB values are from 2014 so are probably a little higher as they increase with RPI. Whatever the value is will have to be sufficient. The DC fund can be drawn down to a zero balance by age 67.
I plan to send around £200K on a house, but don’t know where or when. I would not take on a mortgage or any other debt. Buying a house is not high on my agenda as I don’t know where I want to settle and think that the UK housing market at the very least will cool down over the next few years. Who knows maybe I’ll have another life partner by then who can share the costs of a house (I was previously happily married for 26-years). I have considered investing the house fund and using the return to rent, but feel this is too risky.
I expect to maintain a £50K buffer throughout retirement for capital expenditure and/or ride out stock market lows.
I expect to manage on £21K regardless of owning a house or not (rising with inflation). I may even do a bit of paid work or voluntary work when travelling to help with the budget.
I didn’t go for a camper as will use a mixture of rented rooms, camping and bunkhouses. This way you get to meet people. Also a camper can be a security risk parked up unattended in a remote areas and I know plenty of climbers who have had them broken into. I also have a 4x4 particularly useful in winter mountain conditions.
2% average interest achieved by having fixed some savings in December 2015 @ 2.8% and 3.1% for 4 and 5 years respectively, using all the usual MSE tricks with banks and regular savers and a large chunk on 1-year fixes at 1.85% and 1.9%, which were available in July.
So far so good as no-one is saying NO!