Idle Day Dreams

numpty_dumpty

Idle day dreaming today and wondering how realistic it would be to jump ship.

Current status:-
Age: 50, day dream target to jump =51
DC Pensions £271k
S&S ISA £90K
Other investments/savings £48k
Additional savings for next year =£25k, hammering it to jump
So a total of £434k available next year.

DB Pension at 60 of £6800/yr
Full state pension at 67 of £8800/yr

Required income is £1900/month pre 60 and £1500/month post 60, so this gives a requirement of (in today money):-

51-54 = £1900/month take home = £22800/year x 4 = £91200 tax free from ISA
55-59 = £1900/month take home = £24350/year x 4 = £121750 maximizing tax free income from DC
60-66 = £1500/month take home = (£19375/year - £6800 DB)*7 = £88025
67on = £1500/month take home = (£19375/year -£6800 DB - £8800)*25) = £95195

So total required = £396170, giving a £38k buffer, assuming investments keep pace with inflation.

Also highly likely to downsize giving another £40-80k which could mean to post 60 take home could be closer to £1600 but would be happy in the £1400-1600 range.

So what is everyone's view on how realistic it would be to jump?

AnotherJoe

I'd say not enough of a buffer.
You could of course supplement your burndown with 2 or 3 days a week part time work you liked more than your current job, if such an option was available. Or part time at work perhaps?
And downsizing just to release possibly as little as £40k doesnt sound great either.
Each to their own but I'd be wanting a few more years of saving.
You could start by seeing if you can live on £1900/month saving any excess and see how that works out. Any one off work related expenses say season tickets. petrol for commuting etc, treat separately

Linton

I think it looks too tight and agree with Another Joe. You have shown you need all your money for living expenses only leaving a small buffer/emergency/large expenses fund.


Why does your income requirement go down significantly at 60? How much are you living on now? Is it £1900/month? Or £1500/month?



I also agree with AnotherJoe that if one downsizes it should be for a larger amount.


Another say 2-3 years working would put you in a much better position.

numpty_dumpty

Thanks for the responses, I'm currently living on <£1900 a month already so happy with that.


The reduction at 60 is the end of my mortgage payments.


What do people think is an acceptable buffer?


I could release more downsizing but would likely mean moving further away. Currently plan move to be smaller more manageable house in same area, I'm interested in why it should be for a larger amount I assume there is a reason you have both stated that?

davidwatts

Feels a bit close to the bone for me. I know someone who did so at a similar age but with roughly double the DC pot (no DB) and treble the savings and investments. Similarly modest income requirements.

That feels more comfortable. Maybe halfway in between would be fine, anything less than that feels like a "proceed with caution" scenario.

numpty_dumpty

Sounds like its going to stay a day dream for a while then


Interested in the responses though as I just put the numbers into Firecalc, with a "couch potato" investment and 1% fees and it gives a 98% success rate. Why would there be such a difference between the opinions above and the fire-calc results? (Or am I likely using fire-calc incorrectly?)


Perhaps I should start a thread working the other way, giving a proposed income level based on available funds.

Thrugelmir

numpty_dumpty wrote: »

So total required = £396170, giving a £38k buffer, assuming investments keep pace with inflation.

No guarantees that investment performance will match inflation in any one year or over any given period of time. You need a contingency against the potential market decline or volatility , or simply stagnation. Don't be lulled by an extended bull market. One day it will end.

kangoora

Because the Firecalc results are an average over 100 years, what if next year we get a 30% drop in global markets and your investments are now only worth £268k and not £400k. That would royally screw up your plans. I tend to agree that planning on drawing down to that extent is inherently risky.

I retired at 54 on much the same amounts as you are predicting with a little more spending money BUT I have slightly over double the DB pension maturing at 60 and a shorter timeframe of risk/drawdown.

I also think you are probably well positioned to retire at roughly 54 especially with another 3 years saving (and not spending) in the bank/investments. If you can put away £25k/year for another 3 years you will have circa £500k, a 30% drop then will take you to £335k but you will need to access it for 3 less years so it theoretically should put you in roughly the same boat as your original plan - except you've survived a 30% drop in assets.

If markets climb for the 4-5 years after you start drawing then great, you're quids-in and can probably have a couple of nice cruises/new car/help the kids out etc if you want to.

I do think a lot of people on here are belts, braces, suspenders and carry a piece of string in their pocket (just in case) - maybe they are right but in this instance I do think you would be sailing a bit close to the wind.

Wilson_Fisk

Interesting - your finances are very similar to mine. I'm thinking possibly 2 more years before I pull the plug on work.

A few observations:

After you've exhausted your ISA and savings, won't you begin to be taxed? If you're withdrawing near-enough £20k pa, have you factored in losing a chunk of that to the taxman?

You might already be aware, but handy to remember to grab the 'free' £720 pa by paying £2880 into a pension and getting the helpful tax handout from HMRC (think you can get that between the ages of 55-70, under current legislation).

This might be why folks think it's a bit tight - since a fair chunk of your money is tied-up in your DC pension, and you'll be draining your ISA/savings first, the DC is at risk of a market drop. As a buffer, it might be worth building up a spare 2-3 years of emergency savings that can be used if a drop occurs (in expectation of waiting while your fund recovers).

Dazed_and_confused

You might already be aware, but handy to remember to grab the 'free' £720 pa by paying £2880 into a pension and getting the helpful tax handout from HMRC (think you can get that between the ages of 55-70, under current legislation).

I think it's birth to 75 not 55-70.

AnotherJoe

numpty_dumpty wrote: »

Sounds like its going to stay a day dream for a while then

Interested in the responses though as I just put the numbers into Firecalc, with a "couch potato" investment and 1% fees and it gives a 98% success rate. Why would there be such a difference between the opinions above and the fire-calc results? (Or am I likely using fire-calc incorrectly?)

Perhaps I should start a thread working the other way, giving a proposed income level based on available funds.

The issue for me is the £38k buffer is very small. If you retire and then markets drop not only has your buffer gone meaning your income drops, but you've got no lump sum for one off larger expenses - car, house renovations, whatever. So whilst in 98% of cases you are OK it's very binary, in the other 2% you could be in trouble right from the off with reduced income and no way of paying for the inevitable big spends over the next 30+ years.
So as a starter I'd want triple that buffer, to consist of double in investments to allow for a big drop in the year or two after retirement, and a separate buffer for large expenses which you might need over the next 30+ years. In that context of a "big spend" cash fund to last 30 years, £38k isn't much.
Then there's downsizing. Did the £40k lowball estimate include all the hidden expenses of a new house? Because after moving you might potentially be be looking at new kitchen, bathroom, flooring and so on. That could easily cost you £40k. Hence I'm sceptical that your downsizing will release as much as you think.
So getting back to your original Q I'd be looking for 3 or 4 years more work which will have multiple effects. It reduces the time you are living on savings which means your savings go further, it increases savings, it gives investments time to rise to better weather a fall, or for you to see a market fall and decide to hang on a bit. And maybe you'll get made redundant and be able to take a decent package.
You could also look at what job you could perhaps do part time for a year or two after retiring.
As said by another poster, this is the belt, braces and a bit of string strategy.