Early Retirement Plan

sebo0607

Hi,

I will not comment on your plan, I will leave that to more experienced but one area you may wish to consider is the impact on pensions and income when one of you dies to ensure the survivor has enough. Based on the size of your portfolio I expect you will have but it's worth just running the scenario.

Triumph13

MarkAdams wrote: »

Thanks xylophone. Yes and yes. But we will have both paid up the full 35 years by SP dates.

I trust that that is just a bit of terminological inexactitude and you meant to say ' we will both have full SP'. Based on what you have posted you will almost certainly need to have more than 35 years of contributions to get the full SP.

cfw1994

MarkAdams wrote: »

Thanks kangoora. I'm getting that feedback from other posters too.
You may be right. This is my first step to airing a plan. If it gets riddled with holes then I know I need to go back to the drawing board. If it stands up to scrutiny then I know I've done my homework and I understand this stuff correctly and I can play with permutations.
It seems to me that half of this is about the psychology of making the change. You might have climbed that mountain already. But I am still very much in the foothills. There's probably a thread or two about procrastination and the psychology of retiring that I've not read

I think your plan looks exceptionally well thought out.

I’m guessing you perhaps don’t have a FA or IFA? If you did, I would hope this would be almost exactly the sort of thing you might expect to get!

You appear to have been reasonably cautious.
One thing I worry inordinately about is a market crash wiping 30-40% off my main DC pot. Hard to really factor in: moving it to cash would definitely lose out to inflation, which is not insignificant over 10-30 years. I have a monster spreadsheet to try to help me model those sort of things. Happy to share a sanitised version if you like spreadsheets!

Right to comment on procrastination and psychology: we often get defined by what we do for work, and it is a leap to figure out that next step!

DairyQueen

The plan looks sound. It's a great example of how couples who accumulate pensions equally benefit tax-wise in retirement. Optimising tax is also high on our list of priorities.

You don't mention the plan for the survivor of you two. Is your partner a spouse? Are there widow/partner benefits from the DB schemes? nSP survivor benefits are zero to trivial and DB widows are commonly 50%. Expenses won't fall by 50% but the guaranteed income may.

One/both of you may be less able to manage drawdown in your dotage. One option is to plan to buy an annuity after age 75 (when the rates aren't as pathetic) as insurance against longevity and also against the inability to manage drawdown in old age. Alternatively, perhaps recruiting an IFA if the SIPP management becomes too onerous.

The dependency on drawdown to bridge until guaranteed income is in payment will require a disciplined drawdown strategy, and the SIPP asset allocation will need to be conservative to cover a front-loaded rate of withdrawal. The dreaded sequence of returns is a nasty risk in the early years of retirement, and it's not looking good relative to the current stage of the economic cycle. Have you considered the possibility of suspending drawdown as insurance against the worst case scenario (a market crash of 50%+)? A cash buffer to cover a few years income can offer peace of mind.

QE is still a mighty thorn in the side of savers/investors. Investment grade bonds are unlikely to return costs+inflation in the foreseeable. Many withdrawal strategies assume that bond prices are still inversely correlated to equities and that investment grade bonds are priced according to the conventions of pre-QE markets.

Thanks to QE government bonds issued by developed countries are returning a negative to paltry yield. Corporate bonds are behaving more like equities and investment-grade are becoming increasingly scarce. If the market crashes the expectation is that corporate bonds will suffer a substantial drop be it not as severe as equities. That leaves a conundrum of where to invest cautiously to meet drawdown requirements over a relatively short period of under 10 years.

SIPP-wrapped cash also returns zero to paltry. Platforms have no incentive to offer retail rates and even the best unwrapped rates are only just matching inflation.

I have been scratching my head over this for the last few months. It's a confusing environment for those seeking to meet drawdown requirements over the next 0-10 years.

This forum as has also guided me through the minefield of financial planning for retirement. Bless the day that it popped up on a google search.

crv1963

OP- I'm too much of a newbie despite my time on the threads to give reasonable advice on your figures as good as they look to me. I am with you over the psychology of the going into retirement, like you I hover thinking one more year (or as like you two more years).

I would say though that friends and colleagues who have retired at 50, 55 and 56 respectively have told me there is no greater feeling than enjoying being the master of their own time.

You do what is comfortable for you, but don't think having an under 18 year old at home is a reason to continue working, planning the retirement especially the 57-70 years is a valid task, it is not so much what we are leaving (aka work) as what we are going to that holds us back!

MarkAdams

Thanks sebo0607. That is a very good point as it is not something we have looked at hard yet (other than in a vague 'oh it'll probabaly be OK' way). we do need to make enquiries and pin down the survivor benefits etc.

MarkAdams

Yes Triumph13 - imprecise language. We have checked entitlement to full SP and we are both a few years short. being addressed now and over next few years. Gov.uk SP website is a tad confusing in terms of full years v actual entitlement but we will get full SP by 67

MarkAdams

Thanks cfw1994. Good to know it looks OK and cautious. That was the aim.
Yes the risk of market reversals is a big one. DC pots are diversified but a global crash would hurt. If the plan is a good one then that would be one of the biggest jobs going forwards - work on a strategy to protect us from pound cost ravaging etc. And I like a spreadsheet as much as the next guy.
As for the psychology - "you do what you know" is a very telling phrase. It's a big jump. Even though afterwards looking back it might seem like a little step.

MarkAdams

Thanks DairyQueen. That's a very comprehensive reply.
Point taken about the survivor benefits. Spouse by the way. We do need to look at this issue going forwards.
I also appreciate your point about managing £ going forwards. We don't mind a bit of light portfolio housekeeping going forwards. But we really don't want to be actively managing on a daily basis. Sounds too much like work. And you're right that it may get beyond us in later years.
At the moment the bridging years to 65/ 67 are where I see the greatest risk. For exactly the reasons that you say. But maybe that's wrong and high inflation could catch us out post 67?

MarkAdams

Thanks crv1963. Good to know that those who have already made the jump early have no regrets.
And I agree; this is very much about mind-set. One of the reasons for posting up the plan was to get feedback from all quarters on its feasability and obvious errors that I have made. But the other reason was to start to do something more than just thinking about it. Posting on the forum makes it more real. Talking about it makes it more real.
There will come a point when the decision makes itself.