Retiring at 57

LEP

So I did some calculations.....

If I put £117k in a mid range drawdown product factoring in 4% inflation it would give me 13 years income at £10k.

So this would give me:

Age 57 - 67: £6.7k DB + £9k rent + £10k drawdown = £25.7k

I then have around £69k cash spare. I need 3.4k/year from the cash (factored in I am not paying tax on this) per year to hit my 30k income target. Will assume I have roughly £40k cash left at 67

67-70: I add in my state pension and am now at £34.6k without touching my £40k cash

70+: lose the £10k drawdown so am now at £24.6k with the £40k cash to use up.....so could see me being able to keep a £30k income until I am 80.....at which point it would drop to around £20k.


Anyway going back to my first post does anyone know of any advanced drawdown calculators where you can mess around with changing the amount you want to draw down year by year?

Audaxer

LEP wrote: »

Anyway going back to my first post does anyone know of any advanced drawdown calculators where you can mess around with changing the amount you want to draw down year by year?

How long your DC pot will last depends on the Sequence of Returns. If for example you have an equity crash or two early on in retirement and you withdraw too much, you could run out of money. That is why it is good if you can hold a couple of years income as a cash buffer.

See Sequence of Returns tool below. Although it is in dollars it is interesting to see the differences in capital left depending on the sequence of returns and percentage annual drawdown.
http://www.winchfinancial.com/financial-planning/risk-management-insurance/sequence-returns-calculator/

DairyQueen

Your figures look very unrealistic:
- sequence of returns, already mentioned, is the biggie on the DC pot. An average return (after costs) of net 4% would require a reasonable allocation to equities. What happens if, for example, your returns begin with two negative years of, say -20% and - 5%? How much cash are you reserving to suspend drawdown when necessary?

- You have given a projected DB value of £6.7k in 13 years time. The real value will have significantly reduced by then

- Your income requirement will increase annually with inflation.

- Do you have a spouse? If so, what happens to the survivor when the first of you dies.

- Young adult children are very expensive. Have you factored in any big ticket costs for them? Cars? House deposit? Support through uni? Weddings?

In 2031, and assuming an average inflation rate of 3%, your 30k current income requirement will be in the region of £44,000 (and increasing by 3% each year). Assuming that the rental income also increases at 3%p.a.then £13,200 of that will be covered. Add the DB income and around £20k of your income (hopefully inflation-proofed) will be covered from age 57-67. You will need other assets by the age of 57 to generate £24,000p.a. (increasing with inflation) for 10 years and continuing by a lesser amount after SP kicks-in.

At age 67, SP would provide guaranteed income of roughly 30% of your requirement and the DB would add another 22%. You would be reliant on non-guaranteed income (BTL) for another 30%. You would either have to drop your income by 18% or have sufficient other assets to generate the balance. In 22 years time, the real value of £30k would be £57,000. You would therefore need a pot capable of supporting around £10kp.a. drawdown, increasing with inflation, from age 67 and for the rest of your life.

If you are still healthy by age 67, you could expect to live at least into your late 80s. You could, of course, live much longer. Health issues will kick-in in your 80s - domestic support? care home fees? in-home carers? Old age is expensive.

Rough figures suggest that you will need around £50k in cash to suspend drawdown for two years if necessary between ages 57-67. Assuming you will exhaust the assets reserved for that decades's drawdown it will require a pot of £250k-£300k, in addition to your other income, by age 57 to sustain that decade.

At a safe withdrawal rate of, say, 3%, you will need additional assets of £330k-ish to sustain a reduced drawdown of £10kp.a. (plus inflation) at age 67 and for the rest of your life. Plus around £20k in cash to suspend drawdown for two years.

These figures are very ballpark but I think your target, by age 57, is a pot of at least £450k-£500k, plus cash of around £70k, to provide the balance of the income you need in addition to your DB, rental income and, eventually, SP.

These drawdown figures are gross. If your income requirement is £30k net in today's value then you need a bigger pot as you will be paying tax.

This assumes taking zero TFC and you will need a cash reserve to cover all big-ticket items for 30/40 years. At some point you will probably need to sell the BTLs (age and BTL maintenance/management are not great bedfellows). You will pay CGT but given a few decades of house price inflation they may net sufficient capital to fill the income gap created by the lack of rental income.

ffacoffipawb

If you are 45 now, I think your state pension age is 68 and not 67.

May make a big difference when your margins are so tight.