Planning for early retirement

NumberMan

Thanks for all the responses. It is continuing to be fascinating to hear the variety of views on my plan and I am surprised how balanced the poll is (virtually even between all the options except the run away winner "Serious problems anticipated").

I always thought that retiring at 40 is very optimistic and would require an exceptional positive shift in investment markets, but I am surprised at how many people are doubting that 45 is doable. I've done some approximate calculations below. For the people who disagree with my plan - why do you think this is unrealistic.

Based on my plan and an investment return of 3-4% above inflation, I would expect my ISA to grow to over £400k at age 45. At this point my outstanding mortgage will be around £100k. Just dividing the remaining £300k by the 13 years I have remaining until retirement results in a projected income of £23k. In practice, any investment returns in excess of inflation over this period will result in a real uplift to my income.

At retirement, I would have an expected pot of £750k-£900k which should comfortably provide the income level I am targeting even before allowance for state pension.

In my view the above is relatively prudent (for example it ignores salary increases between now and retirement and the investment return assumptions are below long-term averages) so I am struggling to see why this is not considered a reasonably solid plan.

uk1

NumberMan wrote: »

In my view the above is relatively prudent (for example it ignores salary increases between now and retirement and the investment return assumptions are below long-term averages) so I am struggling to see why this is not considered a reasonably solid plan.

Hi, you seem receptive to ideas, so another that has frankly changed our lives has been my investment in time and cash at punting in advance of and during retirement ways of securing high luxury travel in retirement,


The great thing about this is that although it will always be a "punt" and uncertain - the fact that so many poo poo it, improves the opportunity that do it. To be honest we have always attained the trips with slight flexibility on dates we have sought. Quite literally I have saved hundreds of thousands of pounds (well not saved exactly .... because I'd never have paid full price ..... ) during retirement and enjoyed a lot of extremely luxurious travel.

A few thoughts I posted a couple of years back on the topic is below .... but if you want any further answers just ask ....

https://forums.moneysavingexpert.com/showpost.php?p=70199824&postcount=96

https://forums.moneysavingexpert.com/showpost.php?p=70208088&postcount=98

https://forums.moneysavingexpert.com/showpost.php?p=70246582&postcount=101

The very best of luck with your plans. Everything is possible if you make a plan, plot a path and ensure you get there.

Terron

"Plan for the worst, hope for the best"


You seem to be planning for slightly worse than average. That's not necessarily a problem if you are prepared to adapt if things do not go as well as you hope, such as by delaying your retirement.


For example it has been proposed that the earliest age for taking a pension be raised from 55 to 10 years under the state pension age. what would you do if that happened?


I think here is at least a 60% chance your plan would work. But I would aim for more like 95%. Then if things go as you expect it is a pleasant feeling, rather that the disappointment of failure.

atush

NumberMan wrote: »

Thanks for all the responses. It is continuing to be fascinating to hear the variety of views on my plan and I am surprised how balanced the poll is (virtually even between all the options except the run away winner "Serious problems anticipated").

I always thought that retiring at 40 is very optimistic and would require an exceptional positive shift in investment markets, but I am surprised at how many people are doubting that 45 is doable. I've done some approximate calculations below. For the people who disagree with my plan - why do you think this is unrealistic.

Based on my plan and an investment return of 3-4% above inflation, I would expect my ISA to grow to over £400k at age 45. At this point my outstanding mortgage will be around £100k. Just dividing the remaining £300k by the 13 years I have remaining until retirement results in a projected income of £23k. In practice, any investment returns in excess of inflation over this period will result in a real uplift to my income.

At retirement, I would have an expected pot of £750k-£900k which should comfortably provide the income level I am targeting even before allowance for state pension.

In my view the above is relatively prudent (for example it ignores salary increases between now and retirement and the investment return assumptions are below long-term averages) so I am struggling to see why this is not considered a reasonably solid plan.

This

We have one young child who is definitely one of our main expenses - although you could say she saves us money by restricting our ability to holiday too exotically!

I hadnt seen you mention this before- I thought it was a couple w/o children thinking bout retiring in 3 years.

Absouletly Mad.

You dont say how old she is, but having raised 3 boys I know how expensive they are- even w/o private schooling. And you are underestimating the costs of raising them (and underestimating how much help they might need in the atmosphere of unaffordable housing, and over 6% studnt loans).

fred990

Alternatively don't over analyse it too much? Plenty here will die still pouring over a spreadsheet when they could have retired years before. I bailed at 53, £1.3m final salary pension and the same amount in various funds. OH still works since she likes it. We get by on pennies, walk/cycle/old cars/camping/doing things that cost nothing. Love it.
You say £25k a year? Sounds extravagant to me! Only regret is I could have retired waaay sooner.

DairyQueen

You plan looks feasible income-wise at age 45-50 but the problem I see, with the benefit of 20 years on you, will be your lack of future options. Children are very expensive. Not just undergrad but (possibly) postgrad, weddings, house deposits. They stay at home for longer too. Then there a myriad of additional costs that you haven't mentioned. Want/need to move home? Change car? Replace capital items such as white goods and furniture? Then there are those unexpected (expensive) one-off, house maintenance costs.

What about when you reach extreme old age? Care at home? Residential home fees? Housing adaptations? Domestic support?

It's very difficult to visualise the expenses you will in your 50s/60s, let alone age 80+, when you are still in your 30s. You won't just need an income you will need a sizeable pot in addition in order to fund the one-off costs.

MK62

NumberMan wrote: »

For the people who disagree with my plan - why do you think this is unrealistic.

It's not so much disagree or think it's unrealistic - it's just that you have little margin for error.

NumberMan wrote: »

Based on my plan and an investment return of 3-4% above inflation, I would expect my ISA to grow to over £400k at age 45. At this point my outstanding mortgage will be around £100k. Just dividing the remaining £300k by the 13 years I have remaining until retirement results in a projected income of £23k. In practice, any investment returns in excess of inflation over this period will result in a real uplift to my income.

At retirement, I would have an expected pot of £750k-£900k which should comfortably provide the income level I am targeting even before allowance for state pension.

If things go that way and your ISA investments do average 3-4% above inflation for the next 8 years, and you continue to put 20k in each year, then that £23k pa from 45-58 may well be possible.......but what if they don't do 3-4% pa......what if it's only 1%?.....or less?
As someone said earlier, if you are happy to work on past 45 if things don't go the way you've planned, then that would at least be something of a safety margin in the run up to retirement, but you still can't discount it all going pear shaped say 5 years in......your £300k has become £200k (after 5 years of withdrawals and some investment growth), and then suddenly, at 50, your £200k becomes £120k......uh-oh!!!!

Spreadsheetman

MK62 wrote: »

It's not so much disagree or think it's unrealistic - it's just that you have little margin for error.

If things go that way and your ISA investments do average 3-4% above inflation for the next 8 years, and you continue to put 20k in each year, then that £23k pa from 45-58 may well be possible.......but what if they don't do 3-4% pa......what if it's only 1%?.....or less?
....

My current plans are based on 0% above inflation, more is a bonus, but not necessary.

Lrimas

Another one here who is working towards timelines similar to yours. I would like to retire at 40 but I realise that time is (very quickly) running out so it might have to go up a few years.

I have less savings than you do (I started being sensible with money much later in life) but a much higher income which should help me finish at around the same time.

Most of the people I speak to about my plans assume that I am either mad or extremely rich. I once approached a financial adviser with a question about transferring part of my pension (as I'm considering immigrating when I retire) only to be told by him: "I think you should work much longer". He didn't even bother answering my question (or offer to assist me with my plans). Due to this I've mostly stopped talking to people about my plans. Maybe we should keep this post alive to help and support each other (like Marine Life's retirement thread) - I've noticed a few people mention they are working towards similar timescales.

What I've done for my mortgage is to extend it as long as possible. That gives me a few years after 58 (when I'll have more money available) to continue paying it off. It's important to be with a sensible bank (who tends to have good rates and allows you to switch easily when your deal expires) as you will be unable to change banks once you retire (or if you are close to retirement). There is off course the risk that interest rates will increase drastically but you don't retire in your early 40s unless you are willing to take a few risks. You can always revisit should this happen (and the worst thing that can happen is that you will have to find a part time job. Considering that most people work full time at that age you are still better off than most)

I'm also 100% equities right now. Considering going 90% (or maybe even 80%) just before retirement. Should we get a drop right before I retire I will have to work a bit longer. I won't be happy about it, but once again retiring at 45 instead of 43 is still better off than most

My one tip for you would be to try to increase your income. Every pound that you earn more now is a pound you can save. I was on a similar income as you at the end of last year but decided to quit my job in order to become a contractor - something I could really only do because I had the funding to support myself for a few months (uhm, years) if needed. Thanks to that my goals should now be much easier to reach and I'm also able to upgrade my house (we are moving next month )

Good luck with your journey! Keep me updated on how things go.

cns06

NumberMan wrote: »

Why are you overfunding the pre-retirement pot by so much? Surely it would be more efficient to drip feed the £300k you expect to still be available in your pre-retirement funds at age 58 into your SIPP and take advantage of tax relief?

Its just a vehicle the timing is the key when you can *get* the money, tax is always due one way or another at one time or another.. Read the comments about market wobbles. SIPPs are actually not the best idea for people who want to FIRE in their early 40s... IMHO.