13 years and counting....

[Deleted User]

Hi all,

Sorry for the long post but I am keen to get some feedback on my early retirement approach and whether there is anything I have overlooked. Compared to many posts on here I am definitely going to be on the lower income cohort when it comes to target retirement income but I know it is more than enough as I track costs in detail.

Background:
I am 47. 18 months ago I downsized from an I.T career and now work 4 days a week as a postman (love the job working in a rural area, keeping fit is a bonus so no gym membership needed). Massive drop in income from previous employment but I have already managed to pay off my mortgage and was going mad sat behind a desk everyday and getting stressed by ever more demanding projects and office politics so I decided to downshift my working life early. I am very happy in my work (especially some days when on an easy duty and am finished by midday while my former self would still have another 6 hours to toil in the office!).

My wife also switched from a full time well paying job to a part-time admin job a few years ago.

We already see ourselves as semi-retired (compared to our previous lives anyway!)

Income:
Combined income of 33k - approx £2,400 pcm take home (we both now work part-time).

Annual Expenses:
We spend 13k per annum on standard living costs (the rest of income we currently save or spend on holidays/kids etc). We live a fairly simple (but content!) life. We manage at least 1 foreign holiday a year and a couple of short breaks in the UK. Our hobbies do not cost much (mainly walking/hiking). We pay money into different accounts to cover future expenditure (cars/holidays etc) so are fairly organised in that respect. We currently have 2 cars and buy 2nd hand, 3 year old cars and run them while they are cost effective so try and get best value. My wife rarely uses her car so we are considering not replacing that when it reaches the end of its useful life.

Assets:

Me:
Cash Savings - 130k (Cash ISA/Premium Bonds/FRB)
DB from former employer - projection £6,000 p.a in today’s money - payable 2036
DC Pot 1 - £105k (invested but no longer contributing) - currently 60/40 in equities/bonds
DC Pot 2 - £1500 (contributing - if work until 60 this pot will be approx 36k in contributions + growth). Not yet paying any AVCs but considering it.
State Pension - NI contributions will be fully paid up by 2023 with full amount payable from 2037/2038 (I have checked online forecast)

Current Savings Rate
Currently paying in max % into existing DC Pension (6%, employer paying 10%)
Saving at least £4k per year into Cash Savings.

My main issue here is that, despite knowing full well about the problems with cash savings rates and inflation, I cannot bring myself to invest in a S&S ISA even though I know this will almost certainly provide much better results. I know I should invest in something like a Vanguard LifeStategy or Target Retirement Date fund and just forget about it but I am a very nervous investor and would panic and withdraw money at the wrong time (which I have already done a couple of times although fortunately did not lose out at the time). I think I need to employ the services of a hypnotist!!

Wife:
Cash Savings - 40k (Cash ISA)
DB Pension current projection £8,000 p.a in today’s money - payable 2030
State Pension - full amount payable from 2031

House:
Value approx £260k (mortgage free). We live in a bungalow so no plan or option to downsize further (other than possibly to a much flat later in life if we need to)

Inheritance
Likely to be an inheritance of 150k-250k in the next 20 years but I do not count that into any retirement models

Dependants:
2 children. Eldest has his own home/mortgage, good career so is no longer in need of ongoing support. Youngest has just over a year left at Uni (I have separate money set aside to contribute towards her costs).

Retirement Goal:
My wife will retire in 2031 and I plan on retiring “early” then. I will be 60 so have another 12 years or so to go. I may work beyond that but the plan is to stop as my wife is a few years older than me so we plan on stopping then.

Working on a combined required income of 18k (in today’s value) I have modelled various methods of drawing down DC & Cash pots to bridge the gap before the DB/State Pensions kick (including one of us kicking the bucket early!) and, barring a major inflation disaster rocketing the cost of living, I have yet to break the model (which I have set up to include variables such as inflation, cash/investment expected returns etc) even using pessimistic outcomes. In most scenarios the model shows I would still holding a reasonable amount of assets so could increase expenditiure if required.

Any thoughts/comments gratefully received. I am happy the required income level is high enough based on how we have live now and have in the past. I expect the main criticism will be our excessive weighting in cash savings (and that this is a bigger risk than investing) but I have struggled to get over the mindset of investing (other than in pensions where you get the uplift of employer contributions making it a no-brainer). I have taken a view that as long as I have “enough” then I do not really want to take any risks but I am up for a rethink if my current plans are flawed!

Many thanks for reading.

DT2001

Assuming your wife’s DB will grow inline with inflation, your income at 2031 will be £16.5k (8.5 from SP and 8 from DB) in today’s terms leaving a shortfall of £2.5 p.a. after tax until 2036?
If you use DC pot up your personal allowance you’ll extract tax free and continue to save.
As you are so risk averse it is difficult to know what to advise, maybe an IFA would Point you in the right direction. From my experience my mother has invested in cautious bonds with Friends Life, Standard Life and LV over the last 20 years. All have grown steadily and any paper losses (from one year to next) have been less than 1% so maybe that would fit your risk profile.
You appear to have plenty to do what you want so continue to enjoy live, you have made the move many talk about but.......

[Deleted User]

Thanks for your feedback DT2001.

Yes both DB pension forecasts are inflation linked.

The DC pot route in the bridging period is the one I favour due the tax free aspect as you point out.

Dox

Deleted_User wrote: »

My main issue here is that, despite knowing full well about the problems with cash savings rates and inflation, I cannot bring myself to invest in a S&S ISA even though I know this will almost certainly provide much better results. I know I should invest in something like a Vanguard LifeStategy or Target Retirement Date fund and just forget about it but I am a very nervous investor and would panic and withdraw money at the wrong time (which I have already done a couple of times although fortunately did not lose out at the time). I think I need to employ the services of a hypnotist!!

As you so rightly say.... Not sure what you're expecting anyone here to contribute to your financial wellbeing, when you already know what you're doing 'wrong' (or not so much 'wrong' as 'not to your best financial advantage').

badmemory

Not really directly related to money - but - if you go down to one car, who is going to be the one who doesn't go where they want to go because the other has taken the car? Or which of you is going to have to ask permission to use the car? I know all relationships are different but I remember my mother when my father insisted they no longer needed a second car after he retired. So this is something that you both need to seriously think about. Are you both going to be free to do what you would normally want to do? Or is one of you going to not drive for a few years?


Admittedly both my parents were both selfish (I've inherited this) AND controlling (thankfully not inherited) but it can really affect a relationship so is well worth considering before taking an irrevocable step.

GunJack

badmemory wrote: »

Not really directly related to money - but - if you go down to one car, who is going to be the one who doesn't go where they want to go because the other has taken the car? Or which of you is going to have to ask permission to use the car? I know all relationships are different but I remember my mother when my father insisted they no longer needed a second car after he retired. So this is something that you both need to seriously think about. Are you both going to be free to do what you would normally want to do? Or is one of you going to not drive for a few years?

Easy answer - get a 50cc scooter/moped !!!

Then if one of you needs to go in the car (carrying shopping, skip runs, etc.) the other has access to the scooter for bopping about on. At around £100 a year for tax & insurance and 70+ to the gallon, it's a cheap-as-chips method of transport