Can I retire in 25 years?

ferox666

Hi all

Age:33
Current DC pot: £17k~

Aim: Retire at 58 with a net monthly income (including state pension at 68-70, so take less from DC pension when that starts) of £1500pm until age 80 when DC pot can be depleted and have state pension only From age 80. I would explore equity release if live beyond 80(no plans for kids to inherit).

Current pension contribution £350pm gross. From age 53-58 will be mortgage free so put £400pm additional into cash at that age.

How much extra would I need to save into pension to achieve this? Struggling with the calculation so grateful for any advice!

BLB53

I think you would need around 450K to £500K to provide the £18K and the current levels of contributions are unlikely to get to that level in 25 yrs so I think you may have to increase your monthly pension contributions or work a bit longer (or live on less).

Maybe work through the calculations with the assistance of the framework on the DIY Investor site?
http://diyinvestoruk.blogspot.com/2017/02/work-out-your-retirement-figure.html

Dox

I don't think there is 'a calculation', or at least not a remotely reliable one. With so many unknowns, the only realistic advice is to save as much as you can. Not much help, I know - but anything else really is complete crystal ball gazing.

jamesd

UK safe withdrawal rate is 5.5% of capital if the Guyton-Klinger drawdown rules are used, though about 30% of total charges needs to be deducted, so call it 5%. That means 360,000 to provide an initial 1,500 gross a month for an assumed 40 year retirement. This also ignores the state pension and your age 80 cutoff so it's excessive.

For the existing pot, use a scientific calculator and enter 1.04 x^yButton 15 x 17000 = 30,616 to get the projected value after 15 years assuming use of a high equity balanced managed fund.

Regular savings calculator next for two calculations.

1. 350 a month 15 years 4% = 86,131
2. 400 a month, 5 years, 4% = 26,519

All three combined is 143,266, a considerable undershoot, by around 216,000. Repeating 1 on the regular savings calculator and varying the monthly amount until the amount reaches 216,000 takes you to an extra 880 a month to get to 360,000.

The next bit is too crude, but gives a very rough idea. You'll have 8,500 state pension for 13 years. 13 x 8500 = 110,500 you can deduct from your required pot. Regular savings calculator again 15 years at 4%, what monthly amount to get to 110,500? About 450. So you next approximated extra monthly extra amount is 880 - 450 = 430 gross a month.

That 450 more a month is very rough, doesn't allow for tax and uses variable income income drawdown. But it does give you some idea of what is needed.

Too much? Wait an extra year and use 16 instead of 15 for the number of years.

An optimist, use 100% equities and 4.5% or 5% growth instead of 4%.

Flexible in your income need? Use Guyton-Klinger with a lower success rate, say 75% instead of 90%. More chance that you'll need to cut income more than the rules do but you may like that trade-off.

Experiment with cfiresim. You can put the constraints you want into that.

ukdw

One factor to consider is inflation. If for example we assume an annual rate of 2.5% for the next 25 years then the £18k in todays terms will be something like £33k in 2043.

Also worth considering tax - which would push the £18k up to about £19.5k gross, and therefore the £33k up to about £36k

Personally I would not want to be relying on the state pension only from age 80 so have not factored reducing withdrawals at age 80 in.

By the time you reach 58 the state pension should hopefully have reached about £16k - so the effective withdrawal rate would be about £20k a year on top of state pension with an extra £16k from age 58-68 to cover the time before SP kicks in.

In crude terms based on a 4% safe withdrawal rate you would need a pot size of about £500k to cover the £20k, plus say about £150k to cover the 10 year wait for state pension - so a total pot size in 2043 of about £650k.

If you go for a 5% withdrawal rate it would reduce the pot size requirement down by about £100k

It is then simply a matter of working out what annually increasing contribution level and growth rates over the next 25 years would be required to meet the £550k to £650k goal.

I would expect the £400 a month from age 53 to contribute about £25k to the total.

Sea_Shell

Who's to say what direction your life may take over such a long period of time...

My advise would be save, save, save, and maybe one day much nearer the time, you can look more closely at your figures and start making plans then.

But amongst all that saving....don't forget to have a life too!! (Just not too extravagant a one!!!)

jamesd

ukdw wrote: »

One factor to consider is inflation.

It's usual to do pension contributions in today's money terms, so x a month means x increasing with inflation each year and growth rates after inflation.