FIREside Chats

Karmacat

kaycastle said:

Thank you! I completely agree and always worth keeping that reality in mind - I never put it into calculations as I don't like the uncertainty. But my parents were fairly old when they had me - they are now mid 70s and they've been quite savvy about sorting things like that out as they have similar opinions and also ran into trouble with the whole care cost thing with my nan but they are lucky to have some very savvy solicitor friends who helped them with it. They love talking about it more than I do and always want to discuss what I'm going to get but I don't want them to think about it at all, probably why I mentioned it for the first time ever as they were just talking to me about it yesterday haha. And although I think there is a higher chance of something more than other people I also do tell them that they can blow it all on cruises, I don't mind haha. But yeh I don't include it any calculations and treat it as something "if it happens, then I just deal with it as and when" but I treat it like its not going to happen.   

Good for you!  I wasn't quite sure, so I thought it was worth sticking my oar in, it's such a big thing.  Your attitude is exactly the attitude I had with my mum (and your parents' attitude is the same as hers was) - 6 months before she died, I was begging her to buy private sector hearing aids, I'd found out how good they were, I went with her to an audiologist etc.  She wouldn't go for them, but at least I did what I could.  

hugheskevi

kaycastle said:

•  Use state pension as a safety net. I'm only 24 years away from qualifying for full state pension. I do have 2 incomplete years that I can choose to pay to qualify. One I need to pay £500 and another £800 by 2023. Is it worth doing this, it looks like it is on the surface. That will mean when I'm 50 I've only missed 2 years if I stop work at that point.

I would say it is definitely not worth doing at the current time. You have many years left which may be qualifying years. Whilst you certainly want a full record at retirement, buying missed years early runs a high risk that the money will prove to have been entirely wasted - probably if you, for example, have part-time work in the future that gives qualifying years, or caring for grandchildren, or just if policy changes (it is only 5 years ago that the number of qualifying years for full pension was lower than it is now).

Buy past years when it is clear you will need them, there is no hurry to do so now.

kaycastle said:

•  Its morbid and awful to think about and I never include it any of my plans because you never know but I will inevitably get some inheritance at some point which will be about ~150k - I like to leave that out of my plans and if I land up with that at some point, I'll just go on a few more holidays or use it to help my future children.

I was in a similar position, and like you did not include inheritance in my main planning scenario.

However, it is sensible to think about scenario planning and how you can arrange things to be efficient in the event inheritance does happen given it is a foreseeable and quite probable event. In my case, I exploited no-fee, 0% credit cards to borrow about £50-70K, rotating the balances around to always keep that level of completely free borrowing over the last 10 years. This money was used to accelerate my pension and ISA plans, and in my central scenario was the last thing which would be paid off. In practice, inheritance did occur, and although being less than it may have been was almost exactly the amount of the credit card debt and so avoided the situation of not being able to use a lump of capital arriving at an unknown date efficiently.

kaycastle said:

• Current employer pensions are ~18k. New job that I started a year ago is amazing and just combining my pots into that, They seem to have lots of tools you can use - I'm just not sure how to actually work out how much that pot might be when I'm 55.

Most calculators are just crude deterministic rubbish you can do yourself very easily on a spreadsheet. Starting up modelling spreadsheets at an early age is massively beneficial in understanding everything and how it will all fit together - v1.0 of my spreadsheets started at age 23 in 2001 and have evolved ever since and are in daily use to the current day.

You didn't mention Lifetime ISAs in the list of how to get there - they might have a role to play if you haven't considered them already.

Suffolk_lass

edinburgher said:

@Suffolk_lass - home equity, cash, DC pensions, estimates for state and 2x DB pensions. Not car

I think it was @Retireinten, rather than me that asked

Retireinten said:

edinburgher said:

Month end summary:

NW: £641,275.62 (+£25,066.02) / Target: £1,018,437 (+£16,140) / 62.97% there

A spendy month due to unexpected veterinary bills and booking three trips to replace the cancelled overseas trip we had planned for our 10th anniversary. This was offset somewhat by some investment gains and both our state pensions ticking up by another year. Yes, I know the cool kids don't include state pensions and home equity, but I'm not cool

The nerd in me is very pleased that I paid more into my SIPP this April than I did for the entire financial year that preceded it.

May I ask what you include in your net worth calculation Ed? Do you include value of paid for assets such as cars, for instance, or are these ignored? And do you include an estimate for your Defined Benefit scheme? 

I don't really monitor our net worth, just value of retirement savings against our target income and reduction in our 'retirement savings gap'. 

Suffolk_lass

OhIJustLostMyShoe said:

edinburgher said:

@SuperSecretSquirrel - Yes - I couldn't think up any more sensible way to do it. I'm trying to plan a sustainable model for the relative value needed to replace employment income and that seemed the best way to model it. Granted, there are always doomsters saying the state pension won't survive, but if that's the case I'll adapt (reduce spending, a side hustle, a wee part-time job nobody else wants).

In theory, the best way of modelling it is to come up with multiple "expense periods".  

For the average FIREr that means:

1) Pre-retirement spending
2) Post-retirement spending (e.g. no commuting, dry-cleaning)
3) Post-state pension age spending

Effectively for (3) you can subtract your estimated state pension from the estimated spend.  So if you're getting a state pension of £150 per week, or £7,800 per year, and you expect to spend £14,000 per year in retirement, you can effectively assume post-SP retirement spending of £6,200.

Obviously if you're just trying to do some rough estimates of things, it doesn't matter too much.  The reason why it can matter is because especially for those of us planning to retire fairly early, we need to think not just about overall net worth and safe withdrawal rates, but also where that money will actually come from.

There is absolutely no point in putting all of your money into your SIPP if you want to retire at 50.  Equally, if you put all of your money into ISAs and taxable GIAs you're missing out on tax benefits.  Monevator did a great series on ISA vs SIPP that covers all of this.  Point is, for many of us we will actually have three (potentially different) SWRs.  One for our ISAs, one for our SIPPs, and one for our SIPPs when we also have income from DB / SP.

For what its worth, I haven't got round to modelling this for myself yet, but probably will later on in the year.

EDIT: My overall point, which I neglected to mention, would be that you don't count it as part of your net worth at all - it sits on the other side of the equation as a reduction in your required withdrawal.

@OhIJustLostMyShoe please can you explain what the TLAs are that I have put in bold? - that is three letter abbreviations

kaycastle

@hugheskevi

Thank you so much, that was all incredibly helpful.

Retirement years - thanks for the clarity there, I could work out I want full years but not all those sensible reasons to hold off until I need it. 

It was really interesting to read about how you used credit cards - very intriguing. 

I shall create a spreadsheet - love a good spreadsheet so thank you for the advice and I shall check out LISAs as well.

@OhIJustLostMyShoe  That's very interesting, I found your post very useful, I think I'll give that a go in a spreadsheet today

edinburgher

@Suffolk_lass - general investment account and safe withdrawal rate

OhIJustLostMyShoe

edinburgher said:

@Suffolk_lass - general investment account and safe withdrawal rate

@Suffolk_lass Yes, as edinburgher said.  Sorry - always too many acronyms out there!

edinburgher

I have been paid (including a small one off bonus). £112.92 paid into my SIPP (£141.15 after tax relief)

Karmacat

I love the way you give both figures, Ed, it's a real wake up call for what a proper pension/financial setup can do for you.

nightswims

Hello, inspired by a chat with a friend on retirement plans I've been reading this discussion over the bank Holiday weekend. It's been really interesting and I've book marked lots of things to read in more depth. I have a question about SIPPS, we are just starting to look at if a SIPP would be the best way of bridging the gap between our planned early retirement age and the state pension age. I think I could open a SIPP and then choose to draw it down in full over a fairly short time period, say 5 or 10 years is that right? Is there an easy way to calculate how much we need to be thinking about putting away over the next few years for it to be sufficient to cover our needs (we will also have ISAs as well). Many thanks