Analysis paralysis - do you think I could stop working soon?

Toucan13

Hello - this is my first post so please be gentle.

I've really enjoyed reading the threads on here for the last year or so - particularly the Marine Life, Sea Shell and Number threads so thank you for all your insight and sharing your experiences.  I've learned lots!

As the title suggests I think I'm suffering from analysis paralysis - I always had a number in my head which I thought would enable me to step back from working if I chose to and I'm almost there - however would really appreciate some views on how realistic I'm being.  I don't see many other people like me posting here (single parent with teenage kids still in school - eldest doing GCSE's with uni aspirations and the other planning something more vocational).  

Some info -
Age 53 and have worked since I was 16.  Checked state pension and have a full entitlement now to take at 67.
No DB schemes - all DC which I've paid into all my working life. 
Current pot of £530k in 2 SIPPs. 
ISA's of £227k. 
Offset mortgage of £65k which I have cash to match so paying no interest and this forms part of my cash pot.
Property value c£450k.

I'm invested in approx 65% equities, 20% bonds and 15% cash - portfolios are through a core of low cost multi asset funds plus some equity funds and IT's.  No IFA.  Happy with that mix and the drawdown and recovery last year (well perhaps happy isn't how I'd describe the drawdown but understand the risks)

Current spending is £29k which is plenty and includes mortgage payments.  £5k of this is covered by child maintenance but obviously this will stop as they leave school and their other parent will retire before that so it will reduce - they live with me pretty much all the time and I cover all their day to day costs, clothes etc (and they eat a LOT). So eventually my spending will decrease somewhat when they leave home but with the world as it is right now I've no idea how many years they will remain living with me so it's not just a case of downsizing short term to add to the pot.  I have always put money aside every month for them so they both have JISA's - they should have £25k each by 18 and this isn't included in the numbers above (I will strongly be recommending they use this towards a deposit and leaving it to grow).

About 3 years ago I stepped back from a well paid job that saw me travelling a huge amount and long hours - I now work freelance and just cover my annual living costs from that which is fine.  But there's a part of me that wonders if I could just stop. I think because of the kids and being the only adult it's tempting to keep plodding on forever.  

So I'd appreciate your views on whether my idle daydreaming of a world without work would be feasible or whether it's too soon to consider it because I don't have enough to do it yet.  I'm happy with my lifestyle and have no desire to suddenly start expensive cruises and holidays.  I've just seen so many former colleagues work on into their sixties to build a massive pot, retire and then either suffer ill health immediately or even die.

Thanks for any comments.

Cus

Much better advice will come after this comment 😁 but you want 29k a year, you have approx £780k available (you are not far from accessing the sipp) so at the often quoted safe withdrawal rate of 4% that's just about enough.  

Linton

Some very rough calculations based on what I think you are saying....

You want £29K/year.  From 67 SP will provide about £9K so you will need £20K/year from your £757K.  But between say 53 and 67 you will need 14 X £29K=£406K leaving £350K.  A lump sum of £350K could reasonably provide say £12K/year inflation linked from aged 67 which added to your £9K SP gives you £21K, which isnt enough.

However if you start living off your savings from 60 then you would have an extra £200K to be added to the pot at 67 - £550K.  This would provide about £19K a year which added to the SP is roughly what you want.

OK this is all very crude.   It does miss out having a cash buffer to cover your expenditure during times when the market crashes.  On the other hand it also misses out on investment growth beyond inflation between now and SP age. However it does give you some idea of  the amounts of money involved.  It may well be worth your while putting together a spreadsheet plan based on assumptions of investment return.

I think that it is a reasonable conclusion that giving up work entirely now is rather risky and that you should plan to work enough to cover your expenses for the next few years and see how your investments grow.  But you should be able to stop earning well before your SP age.

Cus's figure of 4% allegedly "safe" withdrawal rate is often quoted in the US but in the UK 3.5% seems to be considered more prudent.  In any case it is better to make pessimistic assumptions and be pleasantly surprised than the reverse which you may discover long after the time when you can do anything about the situation.

If my figures dont represent your circumstances you can easily change the numbers I used.

michaels

Try plugging your numbers into the SWR spreadsheet. 
Also think about modelling by splitting your pot into two parts, one part might be 9.2k x 14 years (130k) to see you through to state pension age, invested conservatively to hopefully match inflation without too many swings and the second part being the remainder from which you can expect a 'safe withdrawal rate' of probably 4% less your average fees if left 'invested' payable both up to and post the state pension age (650k x 3.5% = 23k pa)

This give a total of about 32k pa pre tax.

DT2001

If you look at what you need at SPA (children flown the nest or contributing to household). Maybe £21k as you say £29k inc mortgage payments and 2 extra hungry kids. 
Take off SP (£9k) leaves £12k to fund. 
Assume conservative SWR at 3% for ‘peace of mind’. You’d need pots to be £400k (hopefully enough in ISA pot to avoid any tax or pay minimal).
If the above figures are about right then the balance of £380k needs to cover intervening 13/14 years. Maybe looks a tad tight but expenses will reduce as years go on and presumably you’ll  get child benefit.
So I think it will work and if you are willing to go back to work even p/t in the next few years if your pots shrink too fast or downsize much later you have fallback positions to counter a poor sequence of returns.

BritishInvestor

Cus said:

Much better advice will come after this comment 😁 but you want 29k a year, you have approx £780k available (you are not far from accessing the sipp) so at the often quoted safe withdrawal rate of 4% that's just about enough.  

The best advice is to ignore the often quoted 4% rule.

cfw1994

BritishInvestor said:

Cus said:

Much better advice will come after this comment 😁 but you want 29k a year, you have approx £780k available (you are not far from accessing the sipp) so at the often quoted safe withdrawal rate of 4% that's just about enough.  

The best advice is to ignore the often quoted 4% rule.

Do you have a better, simple “rule of thumb” rule?

I think it is a decent start. 3.5% to be cautious.....maybe 5-6% if you have some knowledge, flexibility and follow Guyton-Klinger.
What else would you offer?

Dox

Toucan13 said:

Age 53 and have worked since I was 16.  

About 3 years ago I stepped back from a well paid job that saw me travelling a huge amount and long hours - I now work freelance and just cover my annual living costs from that which is fine.  But there's a part of me that wonders if I could just stop. I think because of the kids and being the only adult it's tempting to keep plodding on forever.  

Getting back into work after a break, especially in your 50s, is easier said than done if you find you can't manage financially, or at least not at the level of comfort you'd like. Do you enjoy what you do? If so, why are you thinking of stopping? If you don't enjoy it very much, could you cut back on the amount you do? If you really dislike it, could you do something else?

Stopping work at 53 might look appealing now, but the last year has shown just how unpredictable the future is - and having a bigger cash cushion behind you would you mean you are better placed to cope with the next onslaught, whatever that might be - even hungrier kids, or kids wanting help to buy their first property (on top of your wonderfully well organised JISAs for them!). 

You are vastly better placed than many, but if there's work coming in and you'd be happy to plod for another year or two, then I think on balance I'd plod.

Toucan13

  

Linton said:

I think that it is a reasonable conclusion that giving up work entirely now is rather risky and that you should plan to work enough to cover your expenses for the next few years and see how your investments grow.  But you should be able to stop earning well before your SP age.

Thank you - I suspected it might be a bit tight.  It's so good to have others to look over the numbers (I just go around in circles).

michaels said:

Try plugging your numbers into the SWR spreadsheet. 
Also think about modelling by splitting your pot into two parts, one part might be 9.2k x 14 years (130k) to see you through to state pension age, invested conservatively to hopefully match inflation without too many swings and the second part being the remainder from which you can expect a 'safe withdrawal rate' of probably 4% less your average fees if left 'invested' payable both up to and post the state pension age (650k x 3.5% = 23k pa)

This give a total of about 32k pa pre tax.

I hadn't thought of splitting it that way - must admit I've used a combination of my own (far too simple) spreadsheet plus the Aviva calculator (because it takes SP into account). I'll give that some serious thought thanks.
Cus said:

Much better advice will come after this comment 😁 but you want 29k a year, you have approx £780k available (you are not far from accessing the sipp) so at the often quoted safe withdrawal rate of 4% that's just about enough.  

Thank you - this is sort of how I started number wise, then read a lot more and started to wonder if there was enough wriggle room.

I'm also realising that there's an awful lot more to retirement planning than I had initially thought......

Thrugelmir

Are you making the most of the amount that can be contributed annually to your pension pot? 
If you've the cash why not settle the mortgage? 

michaels

If you stop working there is still the option to pay 2880 into your pension which the govt will gross up to 3600, exactly how much this is worth will depend on how much of your pension pot you are able to draw tax free but probably at least an extra 500 per year.  Given state pension counts as income for tax purposes but drawing from your isa does not it may well make sense for you to draw from your pension first and your isa second.