Early Retirement Plan Viability?

TriumphGT6

Hi,
I’ve been lurking on this forum for a couple of months but would now appreciate some advice from people on my early retirement plans.

We are looking to retire early in April 2021 which will be my 59th birthday. My wife will be 50 at this time. I think we are both in good health. No outstanding mortgage on the house.
Current finances are:

Me:
DB entitlement £14K pa, of which £4K pa available at 63, the rest at 65
AVC & private pension pot: £360K
Full state pension of £8797.31 pa already accrued as checked on gov website, available from age 67

Wife:
DB entitlement £5.8K pa, of which £4.4K available at 60, the rest at 67
Currently 5 years short of Full state pension, which could be fixed I presume by buying additional years if necessary. Available from age 67
Child benefit for three children currently aged 15, 12 and 10.

Joint savings
Current valuation of £550K, of which 20% is in cash savings (mostly ISA’d), the rest in Legal and General Index Tracker ISAs which are invested approximately 50% in UK FTSE all share, 25% Europe, 25% US stocks.

Child Trust Funds
My biggest dislike of the UK today is the rotten start young people get in life, particularly regarding the cost of housing and further education. I have been saving £100 per month for each of them since their birth in what was Foreign and Colonial CTFs; the current total valuation for our three children is about £100K. Of course, the best way of spending this money is worthy of a separate discussion.

Our parents are all still alive and well; my assumption is that any money they have will be wiped out by future care home fees so there will be no inheritance.

My aim is to have an income of £3500 per month after tax, falling to £3000 per month after my 70th birthday (my youngest child will then be 23 so, who knows, the kids may have left home by then). I have put together a spreadsheet which calculates what will happen to our savings each month until my wife is beyond 68 if we take this income, according to the assumed investment return, the dates at which the various work and state pensions start and the progressive loss of child benefit as the kids get older. It works in current money value, so the assumed investment return is to be interpreted as that above inflation. It assumes that today’s tax rates and allowances are continued. I’ve assumed that the starting joint savings in April 2021 would be £500K, ie keeping back £50K from the current £550K valuation to give a separate fund for new cars etc.

I have assumed that one source of income will be the return above inflation of my AVC pot of £360K, so not looking to run down the capital value of this pot.

So, if I set the investment return at 2.5% above inflation, I think everything looks fine. I justified this 2.5% value as a possible value for the dividend return, assuming that the underlying trend in share values would account for inflation. The £500K savings reduce to a minimum of around £290K in 2032 before eventually starting to rise again as my wife’s pensions begin.

If the investment return is set at 0% above inflation things obviously get tighter. After my wife’s 68th birthday the £500K savings are down to around £87 K and are gently declining further because our total post tax income is around £100 short of the £3000 per month target. On the other hand, at 0% return above inflation, there is no income from the AVC pot but it has not been depleted either so we would still have its £360K value as an asset.

Can anybody see any flaws in the thinking? My biggest fear is that we would be facing the cost of getting the children through university (if they want to go) and started off in life, at a time when we would both no longer be in employment. I have a suspicion that things always turn out to be more expensive than could ever be imagined. Are my assumptions on investment returns reasonable?

Thanks for any help and comments.

balbs

Firecalc? Google, plug your figures in and this will give you a what would have happened to your finances on a 'looking back in history' basis. Obviously no one of these calculators is going to crystal ball completely (and keep in mind this is American. so you need to think about returns etc) but will give you food for thought)

michaels

I have a suspicion that if you are living off money in your isa this will not count as having any taxable income which means you could claim child tax credits of 9k pa until your kids go to uni - you may or may not feel this is ethical (I think with 3 kids you claim tax credits not UC which has a savings threshold).

Also with no 'taxable income' when your kids go to uni they will qualify for full maintenance loan so again better to be living off your isa than your pensions at this point. (Personally I think it is better that the kids use any funds from you or their savings for property deposit as uni fees loans actually operate like a graduate tax and are thus only payable if they earn above the threshold.

Edit - seems the above re tax credits is out of date and that even with 3 kids you still have to claim UC for a new claim. However I think the bit about uni loans does still apply.

Albermarle

Our parents are all still alive and well; my assumption is that any money they have will be wiped out by future care home fees so there will be no inheritance.

This is a very pessimistic assumption. Despite all the scare stories , most old people never go into a care home, and those that do are usually there only a couple of years on average .
Of course there may be some care costs even if they stay at home but assuming the absolute worst case scenario is not good planning.

My biggest fear is that we would be facing the cost of getting the children through university (if they want to go)

Most of the costs are covered by student loans, and as already mentioned it is not sensible in the large majority of cases to pay these yourself . You will have to top up their living expenses or ( as in my case ) pay for their accommodation = £4 K to £7K a year .

TriumphGT6

Thanks Michaels and Albemarle.


I had thought of the point that if we were retired the kids would qualify for the full maintenance loan if they go to university. It seems a bit unfortunate for them that our early retirement would result in them having greater debt after they finish, but on the other hand we have saved in the CTFs to try and help.


I'm still going to assume no inheritance. My wife's parents have a comfortable life but they rent their house so I don't believe they would have much to leave anyway. My own parents are better off, but my Mum in particular is well and has a healthy lifestyle, and her own mother lived to 97 despite an unhealthy lifestyle. So any inheritance could be a long way off.

Albermarle

I had thought of the point that if we were retired the kids would qualify for the full maintenance loan if they go to university. It seems a bit unfortunate for them that our early retirement would result in them having greater debt after they finish

It's best not to think of it as debt in the normal sense of the word.
https://www.moneysavingexpert.com/students/student-loans-tuition-fees-changes/