Getting Ready to Retire

brokenglasses

Hi,
I'm 52 and my wife is 48. We have 3 kids (aged 8, 12, 13) and have been working and saving hard all our lives.

We have a £900k house with 290k mortgage (at 1.89%).
I have £1m SIPP + £550k ISAs + £85k Endowment Policy Maturing next year
My Wife has £220k SIPP + £70K ISAs + £4k/year DB pension from age 60

SIPPs and ISAs are invested mostly in Equity Investment Trusts and ETFs with some REITs. Because my SIPP is right on the LTA I intend to crystallise benefits when I reach 55 and invest the 25% lump sum and move in ISAs in both our names over the following year.

We both have about 5 more years of NI contributions to qualify for full state pension.

Expenses are high now due to the kids and aggressively overpaying the mortgage to get it paid off within about 5 years. We'll use the endowment policy to help pay the mortgage next year. So after 5 years our expenses will start to reduce.

I'm getting sick of work so my plan is to retire in 2-4 years time and initially withdraw about £120k/year reducing as the mortgage is paid off to £70-80k and when the kids leave home/university to £50-60k by 10-12 years time and this will reduce further when the State and DB pensions kick in.

I worked this out on a spreadsheet and also used cFireSim to play around with a few options and it seems to be viable. According to my spreadsheet I'll still have some money left at age 90 even with a 1% real return.

If the markets turn against us then we could reduce spending and/or downsize the house.

I've found the information on this forum really useful to help me formulate my plan and would really welcome any helpful comments.

Audaxer

brokenglasses wrote: »

If the markets turn against us then we could reduce spending and/or downsize the house.

I'm sure with that amount invested in SIPPs and ISAs, if you plan it carefully you really should be able to retire very comfortably within the next 2-4 years without having to reduce spending or downsize your house. You just need to ensure you keep a comfortable cash buffer so you have sufficient income available when, rather than if, there are equity crashes in the markets.

Brynsam

Are the kids in state or private education?

brokenglasses

Brynsam wrote: »

Are the kids in state or private education?

The kids are in state schools

Audaxer

Is your £1m SIPP and £550k ISA all with the one platform/broker? If so, I would be concerned about the fact that you will only be covered by the Financial Services Compensation Scheme up to £85k (from April next year) should the worse happen like a major fraud. I know the risk is very low but the impact would be very high in your case if it did happen. I know it's not practical to have funds on lots of different platforms, but it may be worth considering not having it all on the one platform if that is the case.

tacpot12

Your plan is likely to work ok, but did your spreadsheet make realistic assumptions about how long you might need to support your children for? We have provided for three children attending university, one finished their degree two years ago and it took them a year to find any work. We're expecting to have to support the others for a similar length of time during their degree and after graduating.

I prepared for my retirement by creating a "Retired" version of our monthly budget, and used this to estimate the degree to which some costs would fall away (e.g. travel to work) and be replaced by other costs (more holidays and hobbies). With this, I had a good handle on how much we needed as a minimum and how much we needed to do things with (our ideal income). Keeping two to three years of the ideal income in cash (as recommended by Audaxer) will allow you to survive any downturns and still do the stuff you want to do in retirement.

I have also saved the money necessary to buy the NI years because I retired early, and will buy these as soon as I'm allowed to.

If you want to downsize, do so when the market for your property is good, NOT when you need the money. Make sure your wife is as happy to downsize as you are, and keep checking as she may have second thoughts as you start the process. If you are going to downsize, I would do so before you get too old. Moving and settling down in a new house is pretty stressful, so do it while you both still have the energy and inclination to move.

If you are prepared to flex your withdrawal rate from your SIPP in order to avoid taking money out during a downturn, have a read of the EarlyRetirementNow articles on CAPE: start with https://earlyretirementnow.com/2017/08/30/the-ultimate-guide-to-safe-withdrawal-rates-part-18-flexibility-cape-based-rules/

Personally, I prefer the idea of using a CAPE based rule, over other techniques such as Guyton-Klinger guard rails, to guide any reductions in withdrawal rate as it is a forward-looking methodology and acts to smooth out the changes in withdrawal rate during market corrections.

Tealblue

brokenglasses wrote: »

The kids are in state schools

Don't underestimate just how much of a drain further education could be. If you're used to budgeting for school fees it is just more years of the same financial pain, but otherwise it can come as a bit of a shock to the bank balance.

brokenglasses

Audaxer wrote: »

Is your £1m SIPP and £550k ISA all with the one platform/broker?

Thanks for the suggestion.

Mine and my wife's SIPPs are both with AJ Bell YouInvest. My ISA is split between Fidelity and SelfTrade.

I may look into the possibility of a partial transfer of half my AJ Bell SIPP to another provider (if that's possible), maybe iWeb.

ams25

Have you done a cash flow spreadsheet?

I might look at it like this
You have a combined pot of 1.85m
You need 200k (+endowment) to pay the mortgage, so down to 1.65m
You need another 150k to fund kids (uni etc) over the next c.10 years so 1.5m
Excluding mortgage and kids you want around 55k pa
You'll have about 20k of pension income in around 15 years (more or less)
so you need 35k ongoing
20k x 15 = 300k to fund the gap to pensions, so leaves 1.2m to cover the 35k
3% withdrawal rate on 1.2m = 36k.

So I'd say you have enough to retire today.

Working another 1 of 2 years adds comfort. 4 seems unecessary if you are fed up with work. Why put yourself through it when you have saved so well.

Of course markets may take a hit in the next year or two, so I would ensure you enough in cash/bonds etc to cover the 200k mortgage payments and at least 2 years living expenses.

I gave up working a couple of years ago at 51 after c.30 years of corp life. Enjoyed most if it but had had enough. Now have time to enjoy my 2 young kids. I am using a c.3% withdrawal rate to model my spending. It gives us enough..more after tax, savings and mortgage than when working). My research (inc 2 books) indicates 3% is reasonable withdrawal rate for planning purposes.

If I was you I would be planning an earlier retirement. I highly recommend it. :beer:

brokenglasses

tacpot12 wrote: »

Your plan is likely to work ok, but did your spreadsheet make realistic assumptions about how long you might need to support your children for?

My spreadsheet assumes they no longer be dependent after they finish university, but perhaps I'll change my assumptions and add an extra year or two to see how the figures pan out.

tacpot12 wrote: »

I prepared for my retirement by creating a "Retired" version of our monthly budget, and used this to estimate the degree to which some costs would fall away (e.g. travel to work) and be replaced by other costs (more holidays and hobbies).

Yes, I've done something similar although not added extras for additional retirement holidays or hobbies yet. I estimate the kids are costing about £6k per year each

tacpot12 wrote: »

Keeping two to three years of the ideal income in cash (as recommended by Audaxer) will allow you to survive any downturns and still do the stuff you want to do in retirement.

OK. That makes sense. Do you think I should start selling equities and building the cash fund now or would you suggest waiting until I crystallise the benefits at 55?

tacpot12 wrote: »

I have also saved the money necessary to buy the NI years because I retired early, and will buy these as soon as I'm allowed to.

Thanks. I will look into this.

tacpot12 wrote: »

If you want to downsize, do so when the market for your property is good, NOT when you need the money. Make sure your wife is as happy to downsize as you are, and keep checking as she may have second thoughts as you start the process. If you are going to downsize, I would do so before you get too old. Moving and settling down in a new house is pretty stressful, so do it while you both still have the energy and inclination to move.

Good point.

tacpot12 wrote: »

If you are prepared to flex your withdrawal rate from your SIPP in order to avoid taking money out during a downturn, have a read of the EarlyRetirementNow articles on CAPE: start with

Thanks. I will read the link.I recently read "How Much Can I Spend in Retirement" by Wade Pfau and "Beyond the 4% Rule" by Abraham Okusanya and I these convinced me to follow a flexible approach but it'll be hard until we pay off the mortgage and the kids are no longer dependent.

tacpot12 wrote: »

Personally, I prefer the idea of using a CAPE based rule, over other techniques such as Guyton-Klinger guard rails, to guide any reductions in withdrawal rate as it is a forward-looking methodology and acts to smooth out the changes in withdrawal rate during market corrections.

The high CAPE at the moment does concern me somewhat. One strategy I had considered if there was a downturn was to rent out our current house and live in smaller rented accommodation in a cheaper part of the country. But again, that's not feasible while the kids are at home.

ams25

I would add

If your (younger) wife works and plans to continue for a few more years that would reduce the withdrawal, the impact of which could be significant.

Spending tends to decline with age (75 plus) so you may not need that 55k as long

You could downsize in c.15 years....to raise capital, help the kid's, fund long term care....

More options to give comfort to the plan. Good luck.