Is a million enough for early retirement?

MallyGirl

The uni thread had slipped down to page 8 so I have posted a link:
https://forums.moneysavingexpert.com/discussion/6249357/did-you-retire-early-before-kids-went-to-uni-how-expensive-was-it/p1

theoretica

It might help to consider 'is it enough' separate from 'is it accessible at the right time'.

For is it enough I would simply subtract the expected mortgage and money for children - say another 200k.  Leaves you and your wife 850 total.  20 years at 20k (was that for both of you, or each?) to get to 68 leaves 450 when state and NHS pensions come in.  450k would cover 15k a year for 30 years- which takes you to 98 without taking interest into account at all.  So - seems doable if you want 20k a year as a couple - but maybe not if you want 20k each. 

Brenster

Hopefully you will live for another 50 years, that is a long retirement, it is everyones goal to acheive early retirement but this does seem a bit premature.  I personally look to take my foot of the gas at 55, and ease into full time retirement at 60.  This is both due to affordability and a concern about keeping my general focus and motivation.  You have obviously been successful in your career and are looking to exit, but perhaps there is a middle ground, career change etc.  Do something else with less hours / stress for the next 5 years, which will cover your living costs and allow our nest egg to mature for another 5 years, which will hopefully increase it by another £200k ish, so between the additional £200k and the 5 years less you will be eating into it, your numbers will be much more comfortable.

ex-pat_scot

£1m at 55 has a nice round feeling to it.
Long term, global equities have returned 8% and inflation 3% - so should be able to support sustainable withdrawal of roughly 4% / £40,000 pa.
That's the simple high level view.
There are realms of threads on safe withdrawal rates, sequence of return risks etc that caution against aggressive depletion of funds. You will also need to be mindful of costs, which can drag 0.5% off your annual returns as a minimum.
It's hard to know where you are now and where you will be in your life at 55, never mind what your "number" is for required spending.  All of these need to be fed into the mix.

For me, £1m feels enough.
Or £1.073m or whatever the LTA might be. It doesnt have to be an exact science.
My broad plan is to get close to LTA in 3 years' time, when I hit 55.
At that point, one will be finished uni; two at uni (requiring £500pm each parental contribution towards accommodation costs), and one in private school with a year remaining before A-levels and then university. 
There are lots of arguments on why "more" would be better, naturally, to cover house deposits, car purchases, student loan costs etc etc. The list could go on (and on)- children will soak up every penny and more, whether those pennies are "spare" or not.

I guarantee that when I hit 55, my pot will not be as I have calculated. Frankly it doesn't matter. I'll get to that point and ponder what life is throwing at us, what the finances look like, and stop / change / continue / adapt depending on circumstances.
It's enough to have a broad plan and take comfort that the basics are in place, and that the plan can be refined as the milestones approach.

Whatever, £1m is a nice vantage point to consider one's future. Most people are way off that.

bostonerimus

MaxiRobriguez said:

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. 

There's a lot of water to pass under the bridge before you retire...even if it is an early retirement. Those kids are the biggest uncertainty in the mix and life does tend to throw up unforeseen circumstances. In my case there were no kids, but a divorce made me change my plans. The most you can do is to have a plan and you are doing that. If you get into the habit of being frugal and putting money into pension and regular investments then you are well on your way. Also remember that one million today won't be worth nearly as much when you eventually retire.

My approach to ER was to invest aggressively while I was working and  to pay off all my debt while I had wages. That meant that I minimized my need for income in retirement. With interest rates low and the stock market booming I would have had more money right now if I'd kept the mortgage, but there would have been a lot more worry and pressure for my investments to keep performing and when the market crashes, like it did last year, not having to worry about it more than makes up for the non-optimal investment strategy that I see after the fact. Without my mortgage I am comfortable living off my small DB pension and rent from a downstairs apartment. So I literally don't need my investments or DC pensions to generate retirement income and I leave them aggressively invested mostly in some inexpensive tracker funds. I can also afford to keep a large amount of cash for emergencies. 

You are truly financially independent when you don't worry about money and the ups and downs of the stock market are irrelevant.

BritishInvestor

ex-pat_scot said:

£1m at 55 has a nice round feeling to it.
Long term, global equities have returned 8% and inflation 3% - so should be able to support sustainable withdrawal of roughly 4% / £40,000 pa.
That's the simple high level view.
There are realms of threads on safe withdrawal rates, sequence of return risks etc that caution against aggressive depletion of funds. You will also need to be mindful of costs, which can drag 0.5% off your annual returns as a minimum.
It's hard to know where you are now and where you will be in your life at 55, never mind what your "number" is for required spending.  All of these need to be fed into the mix.

For me, £1m feels enough.
Or £1.073m or whatever the LTA might be. It doesnt have to be an exact science.
My broad plan is to get close to LTA in 3 years' time, when I hit 55.
At that point, one will be finished uni; two at uni (requiring £500pm each parental contribution towards accommodation costs), and one in private school with a year remaining before A-levels and then university. 
There are lots of arguments on why "more" would be better, naturally, to cover house deposits, car purchases, student loan costs etc etc. The list could go on (and on)- children will soak up every penny and more, whether those pennies are "spare" or not.

I guarantee that when I hit 55, my pot will not be as I have calculated. Frankly it doesn't matter. I'll get to that point and ponder what life is throwing at us, what the finances look like, and stop / change / continue / adapt depending on circumstances.
It's enough to have a broad plan and take comfort that the basics are in place, and that the plan can be refined as the milestones approach.

Whatever, £1m is a nice vantage point to consider one's future. Most people are way off that.

so should be able to support sustainable withdrawal of roughly 4% / £40,000 pa.
Finishing at age 55? That's punchy.

Thrugelmir

ex-pat_scot said:

Long term, global equities have returned 8% and inflation 3% 

Investors generally don't have the benefit of a 120 year time frame. To quote the Credit Suisse year book. 

" Consider, for example, an investor at the start of 2000 who looked back over the previous twenty years, regarding this as “long-run” history, and hence providing guidance for the future. At that point in time, the historical real annualised return on global equities over the previous 20 years had been 10.5%. But, over the next decade, our investor would have earned a negative real return on world stocks of −0.6% per annum."

(For a US investor trading in US$). 


Myths are too easily borne out of misinformation and broad generalisations. That become increasingly diluted as they are passed on. 

zagfles

Thrugelmir said:

ex-pat_scot said:

Long term, global equities have returned 8% and inflation 3% 

Investors generally don't have the benefit of a 120 year time frame. To quote the Credit Suisse year book. 

" Consider, for example, an investor at the start of 2000 who looked back over the previous twenty years, regarding this as “long-run” history, and hence providing guidance for the future. At that point in time, the historical real annualised return on global equities over the previous 20 years had been 10.5%. But, over the next decade, our investor would have earned a negative real return on world stocks of −0.6% per annum."

(For a US investor trading in US$). 


Myths are too easily borne out of misinformation and broad generalisations. That become increasingly diluted as they are passed on. 

Plus over the long term (100 years or so) historic average inflation was something like 5.5%

ratechaser

Albermarle said:

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.

That is also looking at a kind of worst case scenario/over generosity from the Bank of Mum and Dad.

Firstly one or both may not even go to Uni, and in any case paying off student debt is only sensible if the student is destined to be a high earner . In which case they can probably afford to pay off their own debt.

Helping with a house deposit is a more likely scenario though .

My own experience is that although some support is gratefully received ,  they do not all like being over supported , preferring to make their own way in the world as far as possible.

I think 'high earner' is relative - it's about the £26.5k mark where you start paying back student debt, and (fairly chunky) interest on it has been accruing from day 1.

So Mrs RC and I are intending to fund it all ourselves for our 2 cherubs, on the basis that they are both fairly clear they want to study something that gives them a fighting chance of a decently paid career at the end of it. Neither of them are workshy (relative to the average teenager anyway...).

Thrugelmir

zagfles said:

Thrugelmir said:

ex-pat_scot said:

Long term, global equities have returned 8% and inflation 3% 

Investors generally don't have the benefit of a 120 year time frame. To quote the Credit Suisse year book. 

" Consider, for example, an investor at the start of 2000 who looked back over the previous twenty years, regarding this as “long-run” history, and hence providing guidance for the future. At that point in time, the historical real annualised return on global equities over the previous 20 years had been 10.5%. But, over the next decade, our investor would have earned a negative real return on world stocks of −0.6% per annum."

(For a US investor trading in US$). 


Myths are too easily borne out of misinformation and broad generalisations. That become increasingly diluted as they are passed on. 

Plus over the long term (100 years or so) historic average inflation was something like 5.5%

Those are the figures allowing for US inflation , which of course is different to the historic rate of UK inflation.