Is a million enough for early retirement?

MaxiRobriguez

Sorry if the title sounds braggy, but it's a small but genuine concern of mine. All of the following sums are in today's money:

My excel spreadsheet is spitting out that by the time I'm 49 I'll have about £750k in my DC pension and £300k in a S+S ISA. Planning to use the S+S ISA as a glidepath to the DC pension. Expecting to take £30k annually.

Problem is, my wife's NHS pension isn't accessible until 68 and I'd like to have enough in income for us both to retire early. She's got a DC pension on top of the NHS pension which should give her £200k from age 58, so it should only be those first 8 years or so needing my support.

I'd also like to pay to pay off as much of our children's university debts and also fund a deposit for their house after. That's likely to be for two kids.

Finally, I'm expecting not to have paid off our mortgage, and if possible I'm planning to run it as long as possible rather than pay it off lump sum, which is partly the reason I was hoping for £30k annually rather than £20k which I'd be fine with if it wasn't for a pesky mortgage. Remaining sum at point of retirement should be <£200k.

So - is a million actually enough considering there's probably about £600k worth is tied up already (albeit spent over the course of ten years after retirement)? What's MSE's gut feel on whether it's enough?

Spreadsheet_Addict

If your wife has an NHS pension, she can take it from 55 (57, more likely if her state pension age is 68,) it will just be reduced for early payment.  

kazwookie

How much do you spend a year on 'living' ie hols, cars etc, this figure will sort out if you have enough or not.

MaxiRobriguez

kazwookie said:

How much do you spend a year on 'living' ie hols, cars etc, this figure will sort out if you have enough or not.

Probably about £5k a year on holidays as a household. Our cars are bought 2nd hand and get run into the ground, a new one every 6 or 7 years. All in all as a household we spend under £2k a month - that includes mortgage, bills, cars, holidays, food. Will probably go up a bit but not much more.

I'm not particularly concerned about making our intra-year budget work, it's more the case of whether £1m - £600k = enough for 40 odd years of retirement. Doing the standard annual spending *25 suggests that it won't work, but that £600k allocated spending is flexible, both in terms of amount given (sorry kids) and over what timeframe, which makes it harder to work out how close to being enough it really is.

Marcon

Many people manage on far less. Depends how accurate your spreadsheet turns out to be (not sure how old you are now?) and how willing you are to cut your expenses if you need to.

jim8888

It took me a long time to accept the fact, but really know what you spend month to month in your budget. It's pretty easy to know the mortgage, the electricity bills, the car payments, even the monthly grocery bills and how much you want to spend on yourself. What's more difficult (I found) was to accept and budget for the unplanned stuff - the new boiler, the four new car tyres, that impulse weekend away, the meals out (when it was allowed) that just were palmed onto the credit card. Take a hard look at your credit card statements and where your money is going. When I did this I was taken aback over what my real spending was after I'd "budgeted for everything". I really hadn't. 

kinger101

£400K isn't enough to retire at 49 without another source of fixed income IMO. Particularly if you still have a mortgage. £1M should be.

So if you retired now, you'd be relying on the £600K you have earmarked for other stuff growing sufficiently, or at the very least, not being eroded and any remaining DC pot, state pension and DB pension being enough.

Personally, I think flexibility is the key.  Paying off student debts that might be written-off doesn't seem a good use of cash.  And viewing the deposit on the kids' homes being something desirable and even likely, but not certain. 

Personally, I wouldn't want to retire with £200K mortgage.  Sounds like you're effectively leveraging so you can increase amount of equities you hold.  I know a few people post that 100% equities is safest, but that's because they don't know the difference between the past and the future, or understand what a black swan is.

Thrugelmir

MaxiRobriguez said:

My excel spreadsheet is spitting out that by the time I'm 49 I'll have about £750k in my DC pension and £300k in a S+S ISA. 

Over the years my experience with using spreadsheets to create forecasts is that they tend to be unreliable. At best 3 months. Then the scenarios have changed. 

Inflation relentlessly erodes the value of money. A million is no longer what it once was. In terms of buying power. 

bostonerimus

Do a detailed budget to see exactly what you will need. Then include all income streams to see what your investments need to generate. Remember that if you go into retirement entirely debt free you will take a lot of pressure off your investments. Use a conservative rate of return (or better still use several to see the various scenarios). Most importantly set your mortality to be well beyond the average. Don't forget to include inflation, taxes and one time large costs like a new car or a new roof on the house.

As a rule of thumb I'd say you could plan for one million to generate an inflation linked 40k/year for 30 years and have a high probability of not exhausting your money.

MallyGirl

If you forget about the university funding bit it might be - there is a separate thread on this with quite a lot of info.

MaxiRobriguez

bostonerimus said:

Do a detailed budget to see exactly what you will need. Then include all income streams to see what your investments need to generate. Remember that if you go into retirement entirely debt free you will take a lot of pressure off your investments. Use a conservative rate of return (or better still use several to see the various scenarios). Most importantly set your mortality to be well beyond the average. Don't forget to include inflation, taxes and one time large costs like a new car or a new roof on the house.

As a rule of thumb I'd say you could plan for one million to generate an inflation linked 40k/year for 30 years and have a high probability of not exhausting your money.

Thanks. 

The reason for carrying the mortgage was to free up cash-flow to maximise self sacrifice. Mortgage could be payable with a TFLS from the pension if necessary. 

In terms of forecasting I believe I've been conservative enough, forecasting a combination of 6% growth, 2% inflation, no payrise ever again and no inheritance. The latter might be worth at the lower end of six figures based on value of parents house but I'm ignoring that prospect in case they ever need to go into care. 

I think given all comments received then my target may be a bit shy of what it needs to be to do everything I want to do, which is a bit frustrating but good to have some alternative ideas on flexibility and priorities.