Do i have enough for early retirement?

itwasntme001

The reason for the largish cash holding is because about £40k of it pays a rate that is around inflation. The rest i agree should be invested, was holding off till i got some income and now that i have a job, i will be looking to invest the cash soon.


When i say retire i don't actually mean retire - i would be looking to find some sort of part time work potentially or my own business (the reason for taking my current job is that it could lead onto me doing my own business). But since these things are uncertain, hence my questions including how to best optimise current assets and income.

fiisch

Personally I would be tempted to wait until the "inevitable crash" and dump a load of cash in then, but I'm a gambler, and a lot of people will tell you not to try and time the market.

What do you do now? The fact it pays you 80k at 35 suggests your fairly good at it - do you really hate it that much? Is there an opportunity to go contracting (so you can take time off between contracting), or do it part-time?

itwasntme001

Yeh i take a bit of an active approach and have some single shares so am always on the look out for opportunities that may present themselves so i can invest the cash.


I have been in banking pretty much all my career and now working for a small consultancy. I don't hate it yet anyway. Its just that i get pretty demotivated easily during my past jobs (i suffer from depression) and so i end up quitting them after sometime in the job.


No chance of part time and its doubtful in the future as well. What i could do is try something on my own in a year or two i guess similar to what you have been doing with contracting.

seacaitch

If retiring at a young age you need to be extremely mindful of sequence of returns risk and the capacity for markets to behave very unfavourably for a long period of time in a manner that may be very different from your experience of markets to date.

For these reasons, a robust very early retirement plan will be one that's (very) conservative in its assumptions about future returns and spending, and one that contains a lot of flexibility so as to maximise your ability to adapt to whatever fate has in store.

At 35, it's possible (likely) you've not held a large portfolio during a deep and sustained market downturn, so you may be unaccustomed to the stresses you might experience when this occurs...

It's one thing to be building a portfolio through such a period, earning good money and able to (ideally) increase your investment contributions when sentiment is grim and prices are low, but it's another thing again to live through such markets while drawing down a portfolio that you may be solely reliant upon for the whole of your income.

The depths of a bear market are not the time to discover that you don't possess an appropriate mindset, or a sufficiently robust investment plan, to cope with what are the inevitable challenges and difficulties that the future will serve up. During a very lengthy (early) retirement that might perhaps last half a century(!) or so, these difficult periods may (will) occur multiple times. You're likely to have quite a different journey in store compared to someone who retires at 68, for example.

I'd suggest thinking very carefully about this stuff. During a (very) early retirement your capacity to adapt to changing and unfavourable conditions may diminish considerably over time as your employability declines and your former skillset loses relevance to a changing world.

I'm not trying to be overly negative, just realistic. And it can be done*. But I also think that a relatively small proportion of people are probably suited, personality-wise, to truly retiring very early, and it's probably not the wisest thing to do as a reaction to a particular job/career that you're not happy with.

A wiser course might be to grow your savings/investment pots so that you achieve "f*c* you" levels of money which empower you to decide what work (if any) you choose to do in the future, opening up a load of life choices that most people never get.

It sounds like this may well be the angle you're approaching this from, and think that's sensible.


*I'm someone who did it; in my case, it had been my ambition from the age of 17, so I was positively and purposely aiming at it, as opposed to it being a reaction and escape from a career I didn't like (I liked my work!).

AlanP_2

itwasntme001 wrote: »

Job income/benefits:
Salary: £80k
Pension: I contribute 10%, employer 15%
Potential for bonus but not going to be meaningful (say 10%)

If £8k p/a is not meaningful to you can I suggest that you donate the after tax / deductions amount to a charity of your choice who would find it meaningful?

itwasntme001

Thank you seacaitch, agree with your very useful comments. Yes you are right my approach is to try get FU money so i can do what i like (in terms of being productive in a job i really like and part time too). I guess i will see how things are with this new job and go from there.

Apodemus

fiisch wrote: »

The basic maths dictates a 4% draw-down rule, so for £24k / year it's x25 i.e.: £600k invested...

Although, my reading is that the OP wants £24k expenditure, so needs to calculate a reasonable pre-tax income and apply the “basic maths” to that figure.

itwasntme001

Since much of my non-property wealth is in ISA (and will continue to pay into ISA every year), i would not have to pay much if any income tax?


I am thinking of contributing a lot of my salary in my pension from the next tax year to bring me to a basic rate taxpayer. This should boost my pensions savings quite considerably as its an area that is lacking at the moment. But then i do wonder what rate of income tax i will have to pay once i retire.

DairyQueen

itwasntme001 wrote: »

i do wonder what rate of income tax i will have to pay once i retire.

The flexibility offered by drawdown means that you can arrange your withdrawals such that you only pay BRT in retirement. Unless, of course, you will receive guaranteed pension (DB/SP/Annuity) exceeding the BRT upper threshold. In addition, 25% of the fund value of any DC/SIPP will be tax free at point of crystallisation regardless.

seacaitch

There are different ways to skin the tax cat, and it all depends on your circumstances, income requirements, where/how your money's held, but purely as an example and following on from DQ's comment someone might do the following:

- annually withdraw from a SIPP/personal pension up-to 15.8k (being 1.33 * the tax-free Personal Allowance of 11.85k) as an Uncrystallised Funds Pension Lump Sum (UFPLS). 25% of that lump sum is tax-free, with the balance fully utilising the personal allowance, so there's no income tax to pay on any of the 15.8k.

- supplement the pension withdrawal income by drawing down ISA investments and savings, on which there would be no tax to pay. On a 300k ISA balance, as in your example, a probable sustainable withdrawal rate of ~3% would give you 9k income, which added to the pension withdrawal would give you an annual tax-free income of 24.8k, ie around your 24k spending requirement.

Clearly, your pension pot would need to be big enough to sustain the UFPLS withdrawals etc.

The above is in line with what my partner intends doing during an early retirement, prior to her state pension arriving. After the state pension arrives (which will use up a chunk of the tax-free PA), the plan might be to reduce the UFPLS withdrawals to minimise tax, or just pay some basic rate tax; a bridge to be crossed later.

Clearly, the Govt can change the rules so it may (will) all change in the future.