Planning for Early Retirement - what do you think?

NumberMan

Alexland said:

NumberMan said:

Do you have a view on whether it would be better to pay off the morrgage in full at retirement or to remortgage for 5(+?) years at around 2% and trust that i should gain on investment returns. This feels like my most difficult decision.

Do you have a view yet on the asset allocation you will hold when running down the ISAs to ensure you draw at a stable withdrawal rate and don't suffer sequence of return risks which can ravage a portfolio? If the reduced returns you see average at about 2% then running a mortgage might be an unnecessary risk in your plan.

This is something i haven't settled on yet.  One possibility is holding around £40-50k in premium bonds (ie 2-3 years of spending) at and the remainder in equities. The plan would then be to top up the premium bonds regularly except in the event of a large fall. I accept this would leave some risk but i could return to work in the worst case of a sustained fall in investments just after i start drawing down.

NumberMan

green_man said:

NumberMan said:

Do you have a view on whether it would be better to pay off the morrgage in full at retirement or to remortgage for 5(+?) years at around 2% and trust that i should gain on investment returns. This feels like my most difficult decision.

Borrowing money to invest never seems like the wisest move to me. Of course with interest rates so low  it does make it a viable option, and more than likely it will make you money. But unless I thought markets looked particularly cheap (which is the opposite of how things look right now) then it’s not something I would be doing, and I certainly wouldn’t be relying on any returns that might come this way.

My own (cautious) philosophy is to just assume my investments will maintain rate with inflation, if I think I’ve got enough funds with no real investment return then I know I’m happy.  Of course I can then use any such returns as cream on the top. (To most this is way too cautious).

I generally agree with this. My only counter-argument is that on a failure scenario i would need to go back to work and this would be the easiest relatively soon after retiring. Thus i could justify a slightly higher chance of failing within the first five years (where "failing" means my funds have fallen to a level where i can no longer justify being retired") if it led to a lower risk of failing later on. Ie By keeping the mortgage, my expected position in five years would be better so i would have lower risk after this point.

Spreadsheetman

NumberMan said:

barnstar2077 said:

Looks good.  My only concern in your position would be the mortgage.

Edit:  I am pretty frugal though, so I could easily make that money last a long time.

I definitely agree things would look better if the mortgage didn't exist!

Do you have a view on whether it would be better to pay off the morrgage in full at retirement or to remortgage for 5(+?) years at around 2% and trust that i should gain on investment returns. This feels like my most difficult decision.

I think that whatever you do with the mortgage you need to have a plan that involves paying it off without having to ever remortgage as you will find it difficult to qualify if not working.

Are you planning to move ever? Will you have enough accessible capital on top of existing equity to do it?

NumberMan

Spreadsheetman said:

NumberMan said:

barnstar2077 said:

Looks good.  My only concern in your position would be the mortgage.

Edit:  I am pretty frugal though, so I could easily make that money last a long time.

I definitely agree things would look better if the mortgage didn't exist!

Do you have a view on whether it would be better to pay off the morrgage in full at retirement or to remortgage for 5(+?) years at around 2% and trust that i should gain on investment returns. This feels like my most difficult decision.

I think that whatever you do with the mortgage you need to have a plan that involves paying it off without having to ever remortgage as you will find it difficult to qualify if not working.

Are you planning to move ever? Will you have enough accessible capital on top of existing equity to do it?

Agreed with all of this. The question of remortgaging only arises because it happens that my existing term runs out just as i am potentially reaching the retirement decision. We have no particular desire to move and definitely not to somewhere more expensive so i don't see additional capital being needed for this.

Thrugelmir

Utterly crazy and fundamentally flawed plan

Forecasting investment returns into the future is a complete lottery for a whole variety of reasons. I'd stick to a range of short term objectives that act like solid building blocks for the future. Investment underperformance could happen at any time.  

Hullheed_Tam

Question on the Lifetime Allowance and honest its hypothetical and wishful thinking:-). If i l reached the LA  limit before I am ready to retire would it be sensible to cystallise the pot at that point. My thinking is that because it has been  crystallised the LA would now be irrelevent and would avoid the tax penalties of exceeding LA  if the pot continued to grow ?  . Is my thinking correct or am I way off the mark.

atush

Even by age 45, sceptical that retirement is feasible

green_man said:

Yeh, I think you plan is a bit tight.  

Again the cost of bringing up a child could add significantly to your outgoings.  There are things you may not have thought of like:
- extra holiday costs due to not being able to go off season etc
- your child might like an expensive hobby or two (my lad does MX motor biking - expensive)
- might you have another child?

Your plan is just about doable by 45, but I’d be wanting a bit more contingency, it’s a long way (hopefully) from 40 -> Death.

I agree, figures are tight esp with a child so young.  I think you need to go to ager 45 perhaps

NumberMan

Hullheed_Tam said:

Question on the Lifetime Allowance and honest its hypothetical and wishful thinking:-). If i l reached the LA  limit before I am ready to retire would it be sensible to cystallise the pot at that point. My thinking is that because it has been  crystallised the LA would now be irrelevent and would avoid the tax penalties of exceeding LA  if the pot continued to grow ?  . Is my thinking correct or am I way off the mark.

My understanding is that this is correct although there are some anciliary concerns. For example if you were still building up pension elsewhere and your fund reduced after crystallisation, you would have been better waiting to crystallise the lower amount. Also platform charges seem to be higher on crystallised vs uncrystallised funds. In my situation, i am planning to crystallise as soon as possible even if i still have isa funds at 58 as i antivipate i will be at least close to the LTA.

Secret2ndAccount

If your job is paying 75k and you don't hate it, I think you should do it for several more years. Let me tell you the story of my next door neighbours. Mr neighbour had a decent job, and, like you, was able to put away a good sum every year. He could have retired earlier, but waited until his daughter was through education. This left a nice chunk of change in reserve - he didn't have a reason why he needed all that extra money, but it wasn't a big hardship to accrue it. Then two things happened together. Mrs neighbour's mum was getting on in years, and needed constant help with day-to-day living. At the same time, the house next door came up for sale. Mr & Mrs neighbour were able to buy that house for cash, and move Mrs neighbour's mum in next door. Now Mrs neighbour could visit her mum 3 times a day, or all day if she wished, and could provide her with everything she needed in her twilight years. Then they passed that house to their daughter as a BTL, so she was well set on her path too.

I think you are targeting retirement date like it's some sort of competition - like your only thought about work is 'how soon can I be outta here'. If you are shoveling dung for £8 per hour, I can see that point of view. If you like your colleagues, or you have good toys to play with (I know people who work on supercomputers and racing cars, and someone who rides a horse for a living), or you are earning a lot of money, then work is a two-way street. Why the urgent need to be out of there when you have no knowledge of what life will look like in 30 years' time. You are limiting your choices, and you might not find it easy to walk into a 75k job if you decide at 54 that you need 100k for something.

fred246

I always wonder if people go through these scenarios in their head. You retire at 40 with £250K in shares and £60K as cash. Your spreadsheet says £310K. You are happy. Suddenly shares drop 50%. You don't trust shares any more and you now value cash because cash doesn't suddenly drop 50% in value. However you know the drill. Shares can drop in value for 3 years so you use cash. So after the next 3 years you have no cash and your shares are worth £125K. You have 15 more years to make the money last. It's not exactly a happy retirement is it?