Early Retirement - (nearly) one year on

OldMusicGuy

I retired early 11 months ago. I've just completed a detailed budget update for 2018 and have done the plan for 2019, so I thought I would summarise my experiences so far to help anyone considering early retirement.

Background: I am 61, retired at 60 from a high pressure IT job. SP age is 66, I was originally planning to retire aged 63/64 but stress forced me to reconsider. I live with my wife (no kids at home), also aged 61 with SP age of 66. My wife is also retired and has a small DB pension of around 6K per annum, apart from that all of our funding will come from savings and my DC pot (and SPs when we get them).

Our number: before retiring, I did some detailed retirement planning that estimated our "number" (annual spending) at between 32K and 36K (after tax). Based on actual expenditure, it seems that around 34.5K will sustain our lifestyle. This is for a couple with two pets (which cost us around 2.3K last year) in a large house in a high council tax area. We plan to downsize this year to a smaller house in a cheaper area and when our dog dies (she is quite old), we won't replace her and will just have a cat. This means our ongoing expenses are likely to be closer to 32K in the future.

These numbers don't include spending on holidays as for the short term we don't plan to take any (life is one long holiday when you are retired!), so folks that like to travel should bear that in mind.

Investments: I have put my DC pot into a pretty defensive set of investments. My long term goal is to match, or be slightly ahead of inflation. I don't need significant growth. My DC pot as of today is 0.6% ahead of where it was in October 2017, and is just under 4% down on its highest point in 2018. So not meeting my goal yet but avoiding any pound cost ravaging in the first year of retirement. I'm pretty happy with where I am right now and have plenty of cash/savings to see us through the next few years (which I think will be volatile).

The retirement experience: I will sound cliched, but like everyone says, I have far less time than I thought I would and have not achieved nearly as much as I thought I would. Partly that's because I enjoy a much more relaxed lifestyle now with no stress and am happy to let time drift past not doing much. I am also spending more time with my wife just enjoying time together rather than rushing round trying to meet deadlines. I'm sleeping better and my health has improved, and I spend more time walking and exercising than I ever did before.

I found it a bit difficult getting used to having no money coming in and just spending. I've worked for 40 years without a break and always had a wage coming in, so it was difficult to get into a "spending" mindset. This was made even more difficult for me because I have no DB pensions, so my DC pot (and savings) is what I have to live on for the rest of my (our) life. It should be plenty, it should all be fine, but I found it hard to lose the safety net of the regular paycheck. I'm still twitchy but as my strategy seems to be working ok I am getting used to the situation.

Our big plan for this year is to downsize to a smaller house. I spent a lot of last year doing various work on our current place and we are now house hunting seriously. The flat housing market suits us as we are downsizing, so no Brexit fears here (I think the best thing for us would be a delay of 3 to 9 months in Brexit).

Overall, I'm really glad I retired earlier than I planned. I just wish I had made better plans and investment choices 10 years ago as I would be in a stronger (and safer) position now.

[purplesignup][/purplesignup]

Spreadsheetman

Great report. I'm in similar circumstances (no DB) so it's interesting to hear your experiences. Rather than downsizing we plan to upsize slightly (urban semi to village detached), but in a lower-cost area.

Anonymous101

Thanks OMG, great post about your experiences.

With hindsight (I know a wonderful thing!) do you wish you had considered perhaps scaling back your career sooner? Possibly going part time if that was even a possibility?

Your struggle with a change of mindset from earning and accumulation to spending and protection seems to be a common feeling upon retirement. I can imagine that this is especially true for anyone retiring earlier.

Just out of interest have you investigated the possibility of buying an annuity? I know that rates are God awful at the moment however I have recently read an excellent article about the merits of splitting your investments and covering your basic income needs by purchasing an annuity with a fraction of the pot whilst leaving the remainder invested for draw down. The rational being that you do not need to reach for the stars just match inflation much the same as what you describe.

swindiff

How do you get to 32-36k after tax with no holidays. Even with £1k per month fun money and £500 per month on holidays I am only getting to about £34k. Perhaps I am forgetting something important lol

Bravepants

Congratulations on your first year of retirement!


I just please wondered, and only if you feel comfortable and it's not too personal, whether you could break down your £34.5k spend for us? Just the bigger items I guess really.


This would be a great help and guide to others, like myself, wondering if we have missed something obvious in our own retirement budget planning!


To see a retirement budget based on someone's actual experience would be very reassuring.

OldMusicGuy

swindiff wrote: »

How do you get to 32-36k after tax with no holidays. Even with £1k per month fun money and £500 per month on holidays I am only getting to about £34k. Perhaps I am forgetting something important lol

Quite easily, but it's probably the 3K on petrol that's pushing it up, as we do quite a lot of touring and I also run a classic car that I drive to a lot of events around the country. The 2.5K on pet food, pet insurance and vet's bills doesn't help. Also our council tax is 3K.

Although we didn't have a big holiday, this number does include nearly 2K on trips out for the day, meals out, trips to the cinema etc. That could be cut if money became tight.

Everyone is going to be different, but that's why doing a detailed plan is helpful in assessing what you need. I can assure you ours is pretty detailed......

Shedman

"I found it a bit difficult getting used to having no money coming in and just spending. I've worked for 40 years without a break and always had a wage coming in, so it was difficult to get into a "spending" mindset. "

"Overall, I'm really glad I retired earlier than I planned. I just wish I had made better plans and investment choices 10 years ago as I would be in a stronger (and safer) position now."

Totally agree with you on these two statements (plus the bit about doing things at a slower pace). Luckily I do have a reasonable DB pension to come in 3 years time but living off savings for last couple of years has been hard (from a mindset point of view) and has probably meant we haven't done some of things we would have liked to have done, as there is always a bit of that nagging feeling that once it's spent it's spent and won't get topped up by next months salary as it in the past, so it's better to be prudent at this stage. Hopefully though this will mean that (barring any economic disasters) we'll have more left over when the DB kicks in and then we can indulge a bit more.

I'm sort of in the same ballpark as you in terms of estimated income required for general living expenses but my budget also adds about £8k a year for holidays and about £8k a year for house maintenance/car replacements etc (and I effectively accrue these amounts on a monthly basis into sinking funds that don't get counted into the overall wealth figure so that that lumpy expenditure doesn't come as so much of a shock). When I see some of the lowish annual numbers for required income on these threads I do wonder if they actually take account of the not inconsiderable amounts that will be required to replace things over a long retirement period.

Keep enjoying your retirement. It's certainly great on these cold mornings not having to get up early anymore if you don't feel like it :T

swindiff

OldMusicGuy wrote: »

Quite easily, but it's probably the 3K on petrol that's pushing it up, as we do quite a lot of touring and I also run a classic car that I drive to a lot of events around the country. The 2.5K on pet food, pet insurance and vet's bills doesn't help. Also our council tax is 3K.

Everyone is going to be different, but that's why doing a detailed plan is helpful in assessing what you need. I can assure you ours is pretty detailed......

We have no pets and live in a modest 3 storey townhouse, so I guess our general living expenses will be considerably lower. This is what I have come up with, don't think I have missed anything out.


Car Lease £300.00
Council tax £135.00
Gas & Electric £91.00
Sky TV £64.00
Water Rates £30.00
Fuel £60.00
Mobile Phones £60.00
Home Insurance £20.00
Car Insurance £25.00
TV License £12.00
Food £300.00
Holidays £500.00
Property Maintenance £200.00
Fun Money £1,000.00
Gym membership £60.00

£2,857.00
£34,284.00

MallyGirl

I can easily see that sort of number coming about. I have a list of fixed costs (council tax, eye care, health insurance, broadband/landline, boiler cover, TV license) and one of variable costs (gas, electric, water, pet costs, mobiles, car costs, petrol, groceries, entertainment) and the 2 come to £27k pa. Throw in some more out and about, a bit of DIY, more entertainment, maybe gym membership and there you go.

OldMusicGuy

Anonymous101 wrote: »

With hindsight (I know a wonderful thing!) do you wish you had considered perhaps scaling back your career sooner? Possibly going part time if that was even a possibility?

I was on the verge of a nervous breakdown at age 58. That's when I decided I had to stop asap. Part time work was not a possibility where I worked so I decided I could hang on for 2 years. By that time our son would have finished uni and be off our hands. My countdown clock was running for 2 years....

I had plenty of offers of consulting work once I quit but I just wanted to walk away completely. I genuinely did want to fully retire.

Anonymous101 wrote: »

Just out of interest have you investigated the possibility of buying an annuity?

Yes, but I would not take one out at the present time. I have plenty of savings outside my SIPP that can tide us through until SP, plus I can also UFPLS from my SIPP without paying tax. I also want to keep all my DC funds available for my wife to inherit in case I go unexpectedly early.

Annuities will definitely from part of my retirement strategy later in life. I can see me using them in 10 years plus time to secure income and release us from the vagaries of the market in later life. If I survive my wife, I think it likely I will increasingly annuitize my assets so I have little left invested when I die. We don't plan on preserving wealth for our son as we will gift him a chunk of the equity we release from downsizing. He knows he will be getting an early inheritance.

OldMusicGuy

swindiff wrote: »

We have no pets and live in a modest 3 storey townhouse, so I guess our general living expenses will be considerably lower.

We live in a 5 bed detached house which is now too big for our needs. Hence the downsizing to a smaller place which should reduce running costs (which are higher than yours) and also council tax (a lot higher than yours!).

We have a total budget for "fun" money of 8K if you add our meals/trips out spend to the monthly spending money we allow ourselves. So not hugely different there.