Planning for Early Retirement - what do you think?

Brricktop69

Relative newcomer looking for advice.
I am aged 52 and have a Company Pension pot of £115k, In the next couple of months I will pay off my mortgage which will leave me £600 a month better off, I want to use this money to give me a better retirement and so don't want to just stick it in my saving account with low interest.
I have started a Vanguard account recently which has £1k at present deposited.
Would I be better depositing the £600 a month into my Company Pension or into the Vanguard?
I am considering splitting it 50/50 at the moment.
Ant thoughts would be appreciated.

Terron

Somewhat optimistic but with a few tweaks could work

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.  

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.

"Having nothing to do" is no problem for me. There are always books to read or reread. I am less bored now than when I had a full time job and had routine tasks to do.

atush

Even by age 45, sceptical that retirement is feasible

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

Actually, in retirement Weekends do mean something- ie the time to avoid town, supermarkets shopping centers and even restaurants.  You want a wed-thursday for these to avoid all the mass people who do these things on the weekends only.

fred246

I think a lot depends on earning capability. I would have thought a £75K a year job would be difficult to get back into after 10 years off. When I retired I thought I would do a few minimum wage jobs to stop my investments going down too quickly. I was earning less than a tenth of my previous hourly rate. Working 10 hours and receiving what you would get in an hour previously felt very silly and didn't really touch the finances in a meaningful way. Working full time in a minimum wage job is about £16K a year so wouldn't even be enough. I was surprised how much employers expected for a minimum wage. Some had hours of online learning which I thought "OK you're retired don't stop learning" so I was happy to do them but pushed the effective pay rate down to incredibly low levels. In my opinion it's worth doing a year or two extra at £75K and making sure you don't need to work again.

Alexland

Even by age 45, sceptical that retirement is feasible

fred246 said:

I was surprised how much employers expected for a minimum wage.

Yes I would agree the hardest jobs I have ever done have been for the lowest wage and the easiest jobs I have ever done have been for the highest wage. The trick is to maximise the proportion of your shorter than average career in the second category.

NumberMan

fred246 said:

I think a lot depends on earning capability. I would have thought a £75K a year job would be difficult to get back into after 10 years off. When I retired I thought I would do a few minimum wage jobs to stop my investments going down too quickly. I was earning less than a tenth of my previous hourly rate. Working 10 hours and receiving what you would get in an hour previously felt very silly and didn't really touch the finances in a meaningful way. Working full time in a minimum wage job is about £16K a year so wouldn't even be enough. I was surprised how much employers expected for a minimum wage. Some had hours of online learning which I thought "OK you're retired don't stop learning" so I was happy to do them but pushed the effective pay rate down to incredibly low levels. In my opinion it's worth doing a year or two extra at £75K and making sure you don't need to work again.

I definitely agree that it would be difficult to get a well-paid job again after ten years out of the workforce but i think my plan is flexible enough that this would not be necessary. The scenarios that i see are:

1. Investments decline and/or returns are poor immediately after retiring - in this case i would be looking for employment much earlier than after ten years
2. Investments perform fine before crashing at ten years - in this case i potentially have an investment cushion built up in previous years and would have around three year's expenses in cash so surviving the five years to age 58 wouldn't seem difficult

You are correct that i get a lot of additional protection for each additional year worked and in practice i might work a little longer than i am envisioning to take advantage of this. However there has to be a point where the margin of safety should be consideted "enough".

Mistermeaner

Even by age 45, sceptical that retirement is feasible

HI

I've been thinking a little more about your thread as my numbers and age are not massively different to yours - i find this discussion very interesting
As before I think you may have underestimated the financial requirements of raising a child but thats alot about choices and outlook - as I have the capacity to earn well with minimal sacrifice I feel it would be appropriate to save lots while i can to give my children a boost in starting their life journey, simply because I hope I will be in a position to do so (ultimately thats why we're here I think)
Another thing to consider is whether you have covered inflation appropriately. I run a relatively simple spreadsheet with all my savings pots/pensions and growth assumptions and then have my outgoings as a separate column (with these inflating each year) - simple few calcs adds growth to the pots each year but then deducts the inflation adjusted outgoings.... when the balance of pots = zero its game over (im aiming for game over at age 100)
With outgoing of eg. £20K at age 40 and assumed inflation of 2% that amount quickly increases - by 60 its £30K, by 70 its £36K, 80 its £44K and 90 its £54K
Of course one would hope that investment pot growth at least keeps pace with inflation to keep up with these increasing withdrawals but i find in my scenarios I want a pension pot of about £800K ish to sustain spending of a level similar to you.... I also find that we need to maintain employment income of some sort up to retirement age 
My plan doesn't require me to remain in a high paying job but there's just too much gap to bridge with savings / pension alone from age 40-45 until death... out current plan shows us seeking some form of income between the ages of 50-60

My view with your plan would be to think about sticking with your job until at least age 50ish and then reviewing the situation - at this point your kid will be that bit older and your missus may well have her own career and things may look very different. Leaving a well paid job would for me be too much of a risk

zemarcopolo

Brricktop69 said:

Relative newcomer looking for advice.
I am aged 52 and have a Company Pension pot of £115k, In the next couple of months I will pay off my mortgage which will leave me £600 a month better off, I want to use this money to give me a better retirement and so don't want to just stick it in my saving account with low interest.
I have started a Vanguard account recently which has £1k at present deposited.
Would I be better depositing the £600 a month into my Company Pension or into the Vanguard?
I am considering splitting it 50/50 at the moment.
Ant thoughts would be appreciated.

In your situation,  I would make use of tax benefit of investing in pension. In doing so you get 20%,40% or 100% tax free from your £600. This equates to a guaranteed £120, £240 or £600 monthly. 
I don't think Vanguard can guarantee that level of growth. 

NumberMan

Mistermeaner said:

HI

I've been thinking a little more about your thread as my numbers and age are not massively different to yours - i find this discussion very interesting
As before I think you may have underestimated the financial requirements of raising a child but thats alot about choices and outlook - as I have the capacity to earn well with minimal sacrifice I feel it would be appropriate to save lots while i can to give my children a boost in starting their life journey, simply because I hope I will be in a position to do so (ultimately thats why we're here I think)
Another thing to consider is whether you have covered inflation appropriately. I run a relatively simple spreadsheet with all my savings pots/pensions and growth assumptions and then have my outgoings as a separate column (with these inflating each year) - simple few calcs adds growth to the pots each year but then deducts the inflation adjusted outgoings.... when the balance of pots = zero its game over (im aiming for game over at age 100)
With outgoing of eg. £20K at age 40 and assumed inflation of 2% that amount quickly increases - by 60 its £30K, by 70 its £36K, 80 its £44K and 90 its £54K
Of course one would hope that investment pot growth at least keeps pace with inflation to keep up with these increasing withdrawals but i find in my scenarios I want a pension pot of about £800K ish to sustain spending of a level similar to you.... I also find that we need to maintain employment income of some sort up to retirement age 
My plan doesn't require me to remain in a high paying job but there's just too much gap to bridge with savings / pension alone from age 40-45 until death... out current plan shows us seeking some form of income between the ages of 50-60

My view with your plan would be to think about sticking with your job until at least age 50ish and then reviewing the situation - at this point your kid will be that bit older and your missus may well have her own career and things may look very different. Leaving a well paid job would for me be too much of a risk

I think you are overestimating the cost of securing retirement income. With my current pot i would expect a pot around the lifetime allowance at age 58 ie around £1m in current rates. This would require real investment returns around 4-5% pa which is lower than long term averages and far below rates observed in the last ten years.

You could buy an annuity for that amount today which would provide nearly £20k pa inflation linked. With the state pension to come, you could relatively easily build a virtually risk free income in excess of £20k pa.

In practice, i would keep some equity exposure and would see an income of £30k+ as achievable. However i would anticipate a significantly lower level of actual spending until extreme old age when more income may be required (nursing care etc).