Planning for Early Retirement - what do you think?

green_man

Somewhat optimistic but with a few tweaks could work

It very much depends on your mentality as to whether you can cope with ‘having nothing to do’.  I retired at 47 with no grand plan (54 now) but amongst other things I have had much more to do with my sons schooling and hobbies (he’s now 15) than I would have otherwise.  However I have a couple of other friends that hated it and subsequently went back to work.  

Also when retiring so early and having (hopefully) so much longer to make your pension last things like sequence of returns risk need careful consideration, most discussion of this subject looks at a 20-25 year horizon, if you have a 40+ year horizon how does that impact the risks?!

If you read the Marine Life thread on Retirement planning it’s easy to see how, ‘just one more year of work’ can turn into never retiring. So if you are confident you are covered I would say go for it, your plan seems tight to me, but....you know better than anyone what your situation is. I had a plan and once I met my goal (pot size etc) I then looked for an opportunity and fortunately got offered voluntary redundancy, this gave me some extra contingency that gave me the confidence to go ahead.  I can actually start drawing down my pension pot next month and if I could go back I would still make the same decisions.

Mistermeaner

Even by age 45, sceptical that retirement is feasible

My thoughts ;

I think you're underestimating how much the kid might cost... And that you might have more (not long ago I was single with one teenage child and planning early retirement... I now have 4 children and a huge mortgafe)
Also I wouldn't feel comfortable leaving a well paid job with a mortgage still to pay 
Your pension amount also looks low when considering safe withdrawal

My suggestion would be to keep saving as you are but plan on still working - pay the mortgage off then reassess your position .... A lot might change in 5 years but don't get fixated on leaving work as it might be difficult to jump back in it required - also folk at work may notice if you appear to be looking out of the door

atush

Even by age 45, sceptical that retirement is feasible

NumberMan said:

Secret2ndAccount said:

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.

You are correct that having extra contingency money might be helpful and in practice, i might not leave work the moment it seems feasible. My work is not unpleasant but does come with a level of stress and i don't see the value of sticking with it until age 60 just because that is what everyone else does. This sort of argument could be used to prevent retirement at any time. The scenario i am tryimg to avoid is dying early with a huge bank balance.

There i a huge difference between retireing age 42 and Ag 60. And children are expensive, esp if you want them to go onto frther education.  So pick a realistic date somewhere inbetween?

jamesd

Somewhat optimistic but with a few tweaks could work

NumberMan said:

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.

Keep the mortgage because that reduces the risk in your plan and improves likely net worth and hence future spending potential.

Most lenders will view you as having no income once you retire on income drawdown and that means no remortgaging into an income-based product, including retirement interest only. Lifetime mortgages would eventually be available once you're old enough. There are a few who will consider income drawdown, though.

To deal with that, remortgage onto a life of mortgage rate soon, not a few  years deal. That will eliminate regular remortgaging. Get as long a term as you can without discussing retirement plans. Could be 65 or 85. Assuming it's a repayment mortgage this long term reduces your committed monthly payment amounts. After state pension age, with all income streams in place is the second best time to do extra payments. When you're both dead with no use for the money is best. Next best is after you get access to personal pension money.

I got a life of mortgage interest only offset mortgage. I've been retired with plenty of money available to pay it off for a couple of years and I'm unlikely to unless I must.

jamesd

Somewhat optimistic but with a few tweaks could work

NumberMan said:

...my target is to build up sufficient funds to have a reasonable expectation of supporting an income of £20-£25k pa ... I am now in a position where I feel we are well covered for the period after age 58 (£450k in DC pensions plus state pensions). I will continue to add to this through my work to avoid leaving money (employer contributions and tax relief) on the table, but don't think this is strictly necessary to meet my objectives. ...

• Is there anything I have missed in my conclusion that post-58 is covered

The Great Depression. A large drop and slow, decade plus, recovery would heavily stress your 58+ plan but I am ignoring future contributions.

For that plan you'd set aside 19 or 20 years of 9k to substitute for the state pension, though that assumes interest matching inflation. Assuming you see no growth that leaves 279k. Using 3.2% as after costs UK safe withdrawal rate with inflation increases takes you to 8.9k for life plus the 9k.

Just inflation increases isn't enough when wages tend to rise by 1% more. Over a 40 year plan that cuts your income compared to society around you by around 33%.

This no growth scenario is a tough one but you should test using tools like cfiresim to verify that the plan would have worked historically. Yours probably would but it's perhaps a year to three more work away for prudence.

You probably won't live through a worst case but you're planning for a long time and restarting work wouldn't be fun.

Another potential option is to look into using VCTs to reduce your effective income tax rate to nil. HMRC pays 30% of the purchase price as tax relief, repayable if you sell within five years, capped at tax paid in the year. Tax exempt dividends and capital gains. Plus or minus investment growth in quite small companies. In effect a nice addition to your saving rate.

DT2001

Your plan looks O.K. especially if you are willing to be flexible i.e. get some p/t work if needs be. Have you said why you want to retire or is it just that you can? I’m thinking you could work less, maybe do contract work, do different more enjoyable work. My OH continues to work as she enjoys it and only takes on those contracts she wants. She has worked p/t for some while and that has allowed for long haul travel (which like Fred246 says are educational) including voluntary work. In addition our children have all had time in the French school system - no detriment to their U.K. education (as all before year 9) and to their benefit (language skills and culture) according to their teachers.
There are opportunities further afield that your financial planning can open up.

Sorry, digressed from your questions: -

Post 58 looks good assuming full SP with only proviso, do you intend to assist with Uni costs or house deposit?

42-58 - simple maths 16 years at £20-25k is £320-400k. There are people on this forum who can point you in the best direction for a portfolio that will match inflation with minimal risk of failure.

Mortgage - as jamesd says offset allows flexibility. I have one but only 5 years left and insufficient (proper) income to justify extending term, again especially as on b/r + 0.69%.

[Deleted User]

green_man said:

It very much depends on your mentality as to whether you can cope with ‘having nothing to do’.  I retired at 47 with no grand plan (54 now) but amongst other things I have had much more to do with my sons schooling and hobbies (he’s now 15) than I would have otherwise.  However I have a couple of other friends that hated it and subsequently went back to work.  

I retired early last month, my days are quite boring at this time. In fact I really don't know what day it is sometimes.
We have even got rid of the concept of weekends as that doesn't make much sense - just about to cook the Thursday Roast Beef dinner this afternoon

vacheron

Deleted_User said:

green_man said:

It very much depends on your mentality as to whether you can cope with ‘having nothing to do’.  I retired at 47 with no grand plan (54 now) but amongst other things I have had much more to do with my sons schooling and hobbies (he’s now 15) than I would have otherwise.  However I have a couple of other friends that hated it and subsequently went back to work.  

I retired early last month, my days are quite boring at this time. In fact I really don't know what day it is sometimes.
We have even got rid of the concept of weekends as that doesn't make much sense - just about to cook the Thursday Roast Beef dinner this afternoon

That makes a lot more sense though. I still remember my great aunt and uncle who had been retired for years but still used to go to the local "all week" carvery for Sunday dinner every Sunday, and would then complain every single week that it was "packed" and "full of screaming kids"! 

NumberMan

jamesd said:

NumberMan said:

...my target is to build up sufficient funds to have a reasonable expectation of supporting an income of £20-£25k pa ... I am now in a position where I feel we are well covered for the period after age 58 (£450k in DC pensions plus state pensions). I will continue to add to this through my work to avoid leaving money (employer contributions and tax relief) on the table, but don't think this is strictly necessary to meet my objectives. ...

• Is there anything I have missed in my conclusion that post-58 is covered

The Great Depression. A large drop and slow, decade plus, recovery would heavily stress your 58+ plan but I am ignoring future contributions.

For that plan you'd set aside 19 or 20 years of 9k to substitute for the state pension, though that assumes interest matching inflation. Assuming you see no growth that leaves 279k. Using 3.2% as after costs UK safe withdrawal rate with inflation increases takes you to 8.9k for life plus the 9k.

Just inflation increases isn't enough when wages tend to rise by 1% more. Over a 40 year plan that cuts your income compared to society around you by around 33%.

This no growth scenario is a tough one but you should test using tools like cfiresim to verify that the plan would have worked historically. Yours probably would but it's perhaps a year to three more work away for prudence.

You probably won't live through a worst case but you're planning for a long time and restarting work wouldn't be fun.

Can i check your calculations? You are assuming no real growth on the £450k between now and 58 (ie 20 years). This is possible but very much worst case. After this i have 10 years before state pension is payable (not 20). By my calculations this leaves a pot of 360k which would provide income of £11.5k using a withdrawal rate of 3.2%. Thus even in this scenario i would have income of over 20k.

I have looked into VCTs and while it looks interesting, i don't think i have the investing knowledge nevessary to succeed.

NumberMan

There have been a few interesting comments on keeping the mortgage. I understand that keeping it produces the best expected financial outcome. In particular, paying off with the tax-free cash from my pension would be ideal as i have no obvious other use for this. However i think back to the covid falls where i went from nearly having enough capital to cover the mortgage twice to barely being able to cover once and i'm not sure i would want that sort of uncertainty in retirement.

Saying this, it would be tempting to remortgage on a low fixed rate (c.1.5%) for eg 5 years and pay off after this period. This enables some advantage to be taken of the lower rates while limiting the risk to the earlier period where i am at my most employable.