What if I retired today / financial independence 'game'

PasturesNew

My plan is:

Retire on the state pension (£8,500).
Hopefully have £5-10k emergency money, which will need to buy new cars too ... and when the money runs out downsize the house to something tiny (studio flat/similar) ... then spend that money. At today's values that'd release about £100k give or take ....

There's still a chance I might win the lottery, or randomly marry some rich fella that's on his last legs... but I think we can discount both those options....

The game is to die with £0 in the bank isn't it. Or, better "owing thousands".

ams25

I am working on 3% as my guideline rate....everything I've read that looks into safe withdrawal rates - which is quite a lot - guides me to this level. especially if you are outside the U.S, need to account for fees, want a 30 year plus retirement and do not want to have to cut back substantially in a sustained period of poor/low returns.

Of course any swr is a guideline and actual performance could be better or worse. But better to plan on a more realistic basis and be surprised on the upside...

I prefer the endowment approach as oulined by retirement planning guru Wade Pfau...

50% of your swr is the starting % (say 3%) rising with inflation each year
50% of your swr is an actual % (say 3%) of your portfolio

so if investment returns are poor this put some break in your withdrawal rate
And if they are better gives you some upside.

I would definitely not want to plan based on 4%.....even though it might (just might) turn out to be ok.

Spreadsheetman

michaels wrote: »

So for my game as it is based on 'retiring today' regardless of age we need a safe withdrawal rate that could carry on for potentially 70 years if someone who is 25 decided to play - is 3% better?

At 70 years you are so far into crystal ball territory that any attempt to plan is futile.

Really I think 30+ years forward planning is pushing it too - anything could happen in that time span and past performance may not be representative. Unfortunately it's all we've got, there'd be no way to guide our decisions if we didn't assume future=past (approximately).

If I was projecting out to a 40+ year timespan I'd be thinking <2.5% and expecting to work at least part-time for some of it.

pensionpawn

Take the 25% to repay any debt, provide 1 year emergency fund at desired pension income level, help kids onto property ladder. Hope to retire between 57 -59 with zero in the pot at 85 (when father checked out). If I don't make it that far wife / kids get whatever balance remains. If I'm still around past 85 I honestly don't see myself needing the same pension as at 60 as I'll be happy if I can still wipe my !!!!! by myself. State pension is the 'annuity' safety net from 67. So tapered drawdown strategy, retiring on current net figure in my pay slip, reducing to 66% @ 75 and basic tax threshold (of which state pension is approx 2/3's) from 80. Wife has own pension which should provide income at basic tax threshold until reducing to state pension at 67. We're not going to be buying a yacht and moving to Monaco however with solar panel FiT cancelling our the energy bills until 70 and the excess energy charging the EV we hope to have a comfortable retirement for whatever quality life remains.

RADDERS

PasturesNew wrote: »

My plan is:


The game is to die with £0 in the bank isn't it. Or, better "owing thousands".

When we went to see our Financial Adviser, she suggested that the last cheque we should write would be to the undertaker and that it should bounce

ex-pat_scot

ams25 wrote: »

I am working on 3% as my guideline rate....everything I've read that looks into safe withdrawal rates - which is quite a lot - guides me to this level. especially if you are outside the U.S, need to account for fees, want a 30 year plus retirement and do not want to have to cut back substantially in a sustained period of poor/low returns.

Of course any swr is a guideline and actual performance could be better or worse. But better to plan on a more realistic basis and be surprised on the upside...

I prefer the endowment approach as oulined by retirement planning guru Wade Pfau...

50% of your swr is the starting % (say 3%) rising with inflation each year
50% of your swr is an actual % (say 3%) of your portfolio

so if investment returns are poor this put some break in your withdrawal rate
And if they are better gives you some upside.

I would definitely not want to plan based on 4%.....even though it might (just might) turn out to be ok.

At the risk of being optimistic (!) I have a couple of contrary thoughts.


1. the figures do point to a higher historical SWR for US than UK historically. However we are not limited to investing in our home markets - there is absolutely nothing to stop us investing in US (or worldwide) markets and getting that return. I would further argue that it is indeed a lower risk strategy, as much of our consumption is produced and priced overseas, and holding overseas assets is a natural hedge against price and fx volatility


2. Fees. My starting point is 0.25% ETF fees (Vanguard tracker - others are available) plus tiny platform cost.


3. Cutting back substantially in times of poor returns. Depends on the pot size and split between bills and luxuries. Clearly there is a world of difference in your SWR driving a £15,000 pot vs £50,000 pa pot, and you can afford to scale back without compromising on key stuff.


4. I do take contention with the "4% just might turn out to be OK".
I would define "just might turn out to be OK" as a 50% probability of success. A "should be OK" as a 75% probability of success and a "pretty certain to be OK" as 95% probability.
Translating this gives you something like:
99% = 3.5% SWR
95% = 4% SWR
75% = 5.5% SWR
50% = 6.5% SWR.
(it's quite a while since I ran the detailed numbers through cFireSim, so apologies for the roundings here as i am running off memory).


Frankly, from my recollection, I had a strategy with 95% success, drawing 6% of the current (not initial) pot value each year from 55, with 2 x SP kicking in after 10 years. For a notional pot of £1m, starting at 55, I calculated that I could take approx £55,000 to £60,000 each year until SP, at which point I could drop the withdrawal by £8,000 (ie to compensate for the SP kicking in) and still end up overall with 95% probability of success.
Clearly at that income level, I should also be able to take a fair bit of flexibility to cut my cloth according to the phases of the market.

Malthusian

RADDERS wrote: »

When we went to see our Financial Adviser, she suggested that the last cheque we should write would be to the undertaker and that it should bounce

I like that saying. Nevertheless, you see a few threads on the Deaths board from people whose relatives' cheques to the undertaker did bounce, and they never sound as happy as those who died with plenty of money unspent.

Personally I would not want to live the final year of my life knowing that I'd better die in a year's time or I'm going to be skint. This is why the "worst case scenario" in my previous post where you end up with a third of your money left and spending a quarter of what's left every year after a mere 19 years is worth considering, even if it's very unlikely.

I expect that in my final years I will still prefer to have enough money to save me from having to think about such things, which is how I lived the rest of my life.

Money is fundamentally supposed to provide security and reduce worry. Any financial strategy that involves stress about money or a material chance of it is a failure, regardless of whether you can still technically afford to take your two holidays abroad each year.

My preferred version of the "undertaker's cheque" saying is "Holidays are Inheritance Tax deductible".

michaels wrote:

So for my game as it is based on 'retiring today' regardless of age we need a safe withdrawal rate that could carry on for potentially 70 years if someone who is 25 decided to play - is 3% better?

I really should save my spreadsheets...

Re-running my previous scenario with a 3% initial withdrawal (increasing with inflation) leaves you with £80k today after drawing £80k in income (compared with £33k today after drawing £105k in income for 4% withdrawals). So anyone living on 3% in retirement - even early retirement at around 55 - would still be feeling fairly happy. Their withdrawals are now at 7.5% but you know, cheque, undertaker, bounce, etc.

However I would not expect someone who started at 25 years old to be feeling happy. They have quite a few more economic cycles to go before they die: and each successive crash will knock the fund down further, and each time it does the withdrawal rate will increase and drag the fund down further. One or possibly two more crashes and they will be staring fund exhaustion in the face.

Taking natural dividend income would be one simple answer to the question of how to find a safe withdrawal rate which can keep pace with inflation for any length of time. But you then have to accept that your income will sometimes drop when dividends drop. Natural income, Guyton-Klinger or just not increasing withdrawals when markets are down, all of them come down to the same thing; accepting cuts to your income (either in real or nominal terms) which the "4% safe withdrawal rate" rule says you shouldn't have to.

bugslet

michaels wrote: »

EDIT: No one else seems to know there FI/Jack it all in tomorrow number off the top of their head, does this tell me something about me?

I'm just weighing up what I have literally this afternoon and whether to jump or not. (Yes, I was jumping and had told my main customer that I was winding work up, they came back promising to get rid of the corporate rubbish I don't like if I'll only stay). So I am pondering, though the only reason to stay really is that I will feel guilty at leaving the staff.

So I can sort of answer your question, but vaguely because I don't know what will be left in the business after everything and staff are paid off and the accountant does whatever tax avoiding manoeuvres he can.

But in short age 54, I can draw 267,000 out of the business tax already paid that is mine.

After paying everything off, I would expect to have around 300k (conservative assessment) less tax.

At 60 my work pension kicks in, circa 350k in the pot today. I'm not thinking of taking any earlier than 60 unless my IFA recommends it.

67 state pension, which for some reason relating to SERPS is enhanced at 174.00 a week.

That might not be big numbers compared to some peoples, but I don't plan to have more than a few expensive holidays, I'm happy with a second hand van to run round in, the house is coming to the end of a three year improvement programme, so the only big item I am expecting to have to finance is a new boiler at some point.

I also have no relatives, so I am working on not leaving too much;). If anyone can tell me when I'm going to die, that would be really helpful:rotfl:

michaels

bugslet wrote: »

I'm just weighing up what I have literally this afternoon and whether to jump or not. (Yes, I was jumping and had told my main customer that I was winding work up, they came back promising to get rid of the corporate rubbish I don't like if I'll only stay). So I am pondering, though the only reason to stay really is that I will feel guilty at leaving the staff.

So I can sort of answer your question, but vaguely because I don't know what will be left in the business after everything and staff are paid off and the accountant does whatever tax avoiding manoeuvres he can.

But in short age 54, I can draw 267,000 out of the business tax already paid that is mine.

After paying everything off, I would expect to have around 300k (conservative assessment) less tax.

At 60 my work pension kicks in, circa 350k in the pot today. I'm not thinking of taking any earlier than 60 unless my IFA recommends it.

67 state pension, which for some reason relating to SERPS is enhanced at 174.00 a week.

That might not be big numbers compared to some peoples, but I don't plan to have more than a few expensive holidays, I'm happy with a second hand van to run round in, the house is coming to the end of a three year improvement programme, so the only big item I am expecting to have to finance is a new boiler at some point.

I also have no relatives, so I am working on not leaving too much;). If anyone can tell me when I'm going to die, that would be really helpful:rotfl:

Thanks Bugs, so doing the sums, SP 9k in 13 years so 13 x 9 = 117k subtract from your savings pot (350+267) = 600k.

600k @ 3%pa draw down (apparently 4% was too risky) = 18k pa. Add 9k pa state pension and you could have 27k pa 'for ever' if you decide to jack it all in today.

Off topic, is there no one who you could sell the business to as a going concern, would none of the staff want to buy you out perhaps?

Oh and I am available for adoption

bugslet

michaels wrote: »

Thanks Bugs, so doing the sums, SP 9k in 13 years so 13 x 9 = 117k subtract from your savings pot (350+267) = 600k.

600k @ 3%pa draw down (apparently 4% was too risky) = 18k pa. Add 9k pa state pension and you could have 27k pa 'for ever' if you decide to jack it all in today.

Off topic, is there no one who you could sell the business to as a going concern, would none of the staff want to buy you out perhaps?

Oh and I am available for adoption

I'm not the motherly type:p, either that or I'm tired of mothering 22 drivers which sometimes like looking after a group of toddlers;)

Currently I'm out of contract, so to sell, I would have to sign up for another 3 years minimum, which would give a buyer surety, but there is no guarantee that my customer would let me sell ( clause in the contract). I broached my FM directly and my Ops Manager indirectly and the answer was clear, none of them want the hassle. Drivers, forget that one:eek:

It's purely down to if I can abandon them. I'd be happy with 27 p.a.