Early retirement sense check

PipPip

Hi all
I am considering whether I will be in a position to retire early - I am 47 and would like to retire at 55. I worry that I’m being unrealistic though. I earn a decent salary but my wife doesn’t work so I earn for two adults and two kids and have a lot of commitments.
Pension planner tools all suggest you should aim for 80% of salary to maintain your lifestyle but this seems really high to me.
My current salary is £102k and I get about £20k bonus but no way do I think I need £80k+ in retirement. Bonus all gets put into my SIPP so I discount that. Monthly take home is about £5,500 and out of that £1,000 goes on an overseas mortgage, £1500 on UK mortgage, £500 travel to work by rail, £500 to wife’s SIPP and kids junior ISAs. So i reckon we live on around £2k per month excluding stuff we won’t be paying for in retirement. I keep thinking this must be wrong but we’ve always been reasonably prudent so I guess it’s right. To allow for luxuries I am thinking we’ll need more like £3k net per month in retirement.
Current investments are:
Workplace defined contribution schemes £165k and contributions £20k pa so around £300k in 7 years.
SIPP around £500k between my wife and I and we pay in maybe £25k pa in. Should be around £675k in 7 years.
ISA and cash savings are around £85k.
Overseas propery has a mortgage that will be repaid in 7 years and it will be worth £200k.
Our main home is worth around £650k and has around £200k mortgage. The mortgage balance will be £130k in 7 years. Its a tracker with a current interest rate of 1.15%.

So in total I think pensions, investments and overseas property will be around £1.2m but we will want to repay UK mortgage (maybe with tax free pension cssh) so more like £1.1m. Assuming a 3.5-4% withdrawal rate would give us a gross income of around £40k which should be enough to give us close to £3k after tax if we do it tax efficiently. We should both qualify for full state pension at 67 so this will really help. Main worries I have are whether £40k is enough for someone earning over £100k today, although as noted a massive chunk of my earnings just disappear on mortgages, pensions and train fares which will stop in retirement. Also another big worry is that my kids are 9 and 11 so in 7 years time the eldest will be just going to university (which she will as she passed the 11+ and will start grammar school in Sept). Youngest also likely to go to uni. Maybe I need to keep working until kids are through uni? I’d rather not though!

crv1963

According to Which, couples having a luxurious retirement spend around £39k pa. I did another calculator- can't find the link which suggested that those earning 60k+ pa need around 50% income to have a similar lifestyle retired.


The best way is to look at What's Your Number thread, work out how much you need total the bills, council tax etc that are paid regardless, food (for however many you'll have at time), add a bit for cars, holidays, house maintainemce, flights etc, then for us we added a bit on top for hobbies, pets.


A lot of your outgoings would end when you retire as like many mortgage (at least abroad) will finish, commute costs and work expenditure end.


Mortgage will fall in real terms with inflation, but you look in a healthy position, we all have hopes for children but don't plan your life around paying Uni costs- they may or may not go depending on how they carve their lives out.

marlot

I had a similar dilemma, but with slightly lower numbers.


I downloaded 3 years of bank statements so that I could get a better understanding of real spend - separating out the one-offs and items that didn't continue post retirement. I was then able to factor in pensions replacing salary, and am fully confident that I can go very soon.


You say you put in £500 to wife!!!8217;s SIPP. If she's not earning then that's too high, unless you have some spare allowance to carry forward. The max for a non-earner is £2880 net (3600 gross) per year.

PipPip

marlot wrote: »

I had a similar dilemma, but with slightly lower numbers.


I downloaded 3 years of bank statements so that I could get a better understanding of real spend - separating out the one-offs and items that didn't continue post retirement. I was then able to factor in pensions replacing salary, and am fully confident that I can go very soon.


You say you put in £500 to wife!!!8217;s SIPP. If she's not earning then that's too high, unless you have some spare allowance to carry forward. The max for a non-earner is £2880 net (3600 gross) per year.

Thanks. It’s £500pm to wife’s SIPP and two kids junior ISAs.

There are a few other bits and pieces looking at bank statements that I won’t need to spend in retirement like life insurance attached to the mortgage and income protection insurance. Close to £100 per month that would also stop.

crv1963

Another thing we did when working out our number was round up expenditure so 81 for dog food became 100, and round down income so 2660 pm became 2600 to build some slack in our favour!

PipPip

crv1963 wrote: »

Another thing we did when working out our number was round up expenditure so 81 for dog food became 100, and round down income so 2660 pm became 2600 to build some slack in our favour!

Thanks I will do that. I’ve been playing with these numbers this week and it’s been both uplifting and depressing in equal measure. Depressing to observe just how much of my hard earned salary vanishes instantly each month and uplifting to realise that actually by living like that we’ve set ourselves up reasonably well for retirement. I may not have the designer gear, sports cars and long haul resort holidays that many of my peers seem to enjoy but I bet I will be able to retire before many of them. A work colleague of a similar age was astonished this week when I told him I am thinking I will retire in 7 years. He confessed that with a salary of £90k and aged 45 he only has £150k of pensions and investments. Not surprised as he spends £10k on very flash holidays every 6 months.

runninglea

Sounds like it is possible - even though your income is very good, children always have a way of spending it.

What are your plans with the overseas property and do you plan to keep living in the same property when the children are grown up

PipPip

runninglea wrote: »

Sounds like it is possible - even though your income is very good, children always have a way of spending it.

What are your plans with the overseas property and do you plan to keep living in the same property when the children are grown up

Good questions. The overseas property is a ski apartment and we plan to keep this until later in our retirement, i.e. when knees or backs don!!!8217;t like skiing any more. I guess we!!!8217;ll sell it by the time we are 70. We will likely sell our main home when kids go to university as it!!!8217;s a thatched cottage and incredibly expensive to run (£1200 pa property insurance, £20k to thatch the roof every 15 years). I haven!!!8217;t factored in any released equity for retirement money as although we are likely to move to a cheaper property my assumption is that we!!!8217;ll put any surplus to one side to help the kids buy properties later.
Edit. We could potentially earn £10k pa from renting out the ski property during ski seasons but we don!!!8217;t really want to do that in retirement. We want to use it.

crv1963

PipPip wrote: »

Thanks I will do that. I!!!8217;ve been playing with these numbers this week and it!!!8217;s been both uplifting and depressing in equal measure.

PipPip wrote: »

A work colleague of a similar age was astonished this week when I told him I am thinking I will retire in 7 years. He confessed that with a salary of £90k and aged 45 he only has £150k of pensions and investments. Not surprised as he spends £10k on very flash holidays every 6 months.

We (I mainly) played around with our numbers for a couple of weeks, then looked at saving current costs using some of the other boards on the site. We changed utilities, phones etc, internet provider, car insurances, re-mortgage- lots of little cuts and we saved over £400 per month! Then using this we are splitting it between overpayments and savings.


It is surprising when you talk to colleagues about the lack of planning some have, and even if he took one flash holiday a year and one at half the cost he'd have 5k into a pension, but you make your choice and pay your money.
I think spend a bit, save a bit and invest a bit is our best mantra!

MallyGirl

My current plan is to work until DD finishes Uni. Kids get more expensive as they get older! Unfortunately for us she is aiming for a 5 or 6 year course and is currently in the middle of GCSEs so we have a way to go yet. I would be putting the max you can into your pension for the tax relief (and NI if salary sacrifice).

PipPip

MallyGirl wrote: »

My current plan is to work until DD finishes Uni. Kids get more expensive as they get older! Unfortunately for us she is aiming for a 5 or 6 year course and is currently in the middle of GCSEs so we have a way to go yet. I would be putting the max you can into your pension for the tax relief (and NI if salary sacrifice).

I think I am gradually discovering this! Eldest is already demanding an iphone (not gonna happen!).
I do put the max into pensions and I’m using a bit of rollover of previous unused allowance. HRMC actually challenged me on this last year as they believed I had exceeded the £40k limit and did not have any previous years surplus to use. Luckily I keep a good spreadsheet on this and proved them wrong.