Would you retire really early and burn down most of your DC pension assets?

barnstar2077

finance101 said:

Apologies for returning to the original topic (!) but this topic really interests me, and the comments are fascinating.  I'm 46, and have been planning for a while to retire early, when I can access DC pensions, so 57 for me.  However I have had a big focus on paying off the mortgage early (50 target) and I've started running scenarios where I don't do that, keep the savings and use them to bridge the gap till I can access the DC assets, and quit at 50.  Like many others I have an old DB scheme and that plus the state pension will give me a baseline income from 60, rising when state pension kicks in at 67.  I could downsize to get rid of the mortgage (although I have no desire to, i love my home), but running the scenarios has made me more aware of all the levers I have available to pull.  I'm trying to run a range of ideas to look for worst case and disaster scenarios at the moment.

I find the more I think about it the more it appeals!  It's not that I necessarily would quit but knowing I could seems very freeing.  Part time or lower paid work would also be an option for bridging the gap.  I do like my job, and live a good life while saving quite hard. I'm not a fan of full FIRE, that seems too much like jam tomorrow and no jam today, but I'm paid well and having seen a lot of colleagues match their spending to their income and being locked into high stress lives just to keep even, I want to be sure I bank some of the winnings.  I've looked at the boards where people with lower incomes have gone early and are living very frugally- I could do that now, I'm sure I would live a lot cheaper in retirement based on Covid experience but I don't want to stop and have no money for holidays and live in fear of a large bill.  So I think the goal is 50, but that means accepting burning assets and a greater level of uncertainty than going later.  Seems worth the risk though!

Just an idea, but have you looked at extending your mortgage term instead of trying to pay it off quickly?  Assuming it doesn't already, you could ring up and ask them how much your payments would be if you extended the term till you were 67 say. 

You could then pay the difference into an ISA while simultaneously making the number you need to live on smaller.  If interest rates suddenly went up you could always pay some of it back off of the mortgage.  If all goes to plan though you could retire earlier.

This is what I did anyway.  There is also the psychological impact to consider as well though, as it took a while for me to adjust away from the mindset of just wanting it gone. 

finance101

Barnstar2077 thanks! I already have a term till 67- it’s fixed at a great rate for 4 more years and I can make 10% overpayments every year which I have so far. I think interest rates are going to rise so I have been quite fixated on paying it off - totally get the psychological side. It was only reading a few other posts and blogs that made me do the sums on it and I was quite surprised! But yes the plan would be to pay maybe one more 10% lump sum and then just direct all savings to ISA or investment account when ISA maxed out. That way when the fix ends I can hopefully lower the payments and keep the term to 67.

 I do think though that interest rates will be higher then so payments may be the same, but the other option is to hit 50 and have a paid off house but small savings- even without mortgage they wouldn’t be enough to live on for 7 years. I’m certain I have enough from 57, it’s bridging from whenever I stop till then that’s the challenge! But the ideal
of no mortgage is hard to shift!

Dead_keen

ajfielden said:

It is incredibly freeing, knowing that you don't have to do your job, and could quit tomorrow. 

Funnily enough, that's what I'm doing at 10:30 tomorrrow morning. 

I will burn through my savings for two years and then start on my DC pot.

cfw1994

Dead_keen said:

ajfielden said:

It is incredibly freeing, knowing that you don't have to do your job, and could quit tomorrow. 

Funnily enough, that's what I'm doing at 10:30 tomorrow morning. 

I will burn through my savings for two years and then start on my DC pot.

Congrats on your liberation!   Enjoy the months and years ahead 🎉🍾🥂😎👍

In my 3rd month now, it has been pretty non-stop - as many said to me before I "stepped away", I have no idea how I found time for work!   A lovely day today (book-ended by somewhat turbulent storms), time for a bike ride 🚴‍♂️☀️😎

Retired_Minky

What software are you using to model this? I ask as I'd like to run some scenarios myself.

cfw1994

Retired_Minky said:

What software are you using to model this? I ask as I'd like to run some scenarios myself.

Not sure who you are asking.....I have my own spreadsheet, here is a sanitised view of it (message me if you are happy using excel & would like a copy)



This thread was one I which talks about some tools.   

Another forumite mentioned Voyant - sign up as if you were trialling as a financial advisor to get 30 days free testing (I have not yet tried it).

Anonymous101

finance101 said:

Barnstar2077 thanks! I already have a term till 67- it’s fixed at a great rate for 4 more years and I can make 10% overpayments every year which I have so far. I think interest rates are going to rise so I have been quite fixated on paying it off - totally get the psychological side. It was only reading a few other posts and blogs that made me do the sums on it and I was quite surprised! But yes the plan would be to pay maybe one more 10% lump sum and then just direct all savings to ISA or investment account when ISA maxed out. That way when the fix ends I can hopefully lower the payments and keep the term to 67.

 I do think though that interest rates will be higher then so payments may be the same, but the other option is to hit 50 and have a paid off house but small savings- even without mortgage they wouldn’t be enough to live on for 7 years. I’m certain I have enough from 57, it’s bridging from whenever I stop till then that’s the challenge! But the ideal
of no mortgage is hard to shift!

The psychology interests me, I view it as a defensive vs a attacking move. I think its interesting that many on here, a money saving forum, opt for your approach. Pay the mortgage off first then tackle the "saving". Where as on various investment sites I read others prefer the opposite approach.

Personally I've gone the other way. Focused on building wealth through pensions and S&S ISA's and worry about the mortgage later.

LV_426

Retired_Minky said:

What software are you using to model this? I ask as I'd like to run some scenarios myself.

Voyant. You can sign up for a 30 day trial. 

finance101

Anonymous101 said:

finance101 said:

Barnstar2077 thanks! I already have a term till 67- it’s fixed at a great rate for 4 more years and I can make 10% overpayments every year which I have so far. I think interest rates are going to rise so I have been quite fixated on paying it off - totally get the psychological side. It was only reading a few other posts and blogs that made me do the sums on it and I was quite surprised! But yes the plan would be to pay maybe one more 10% lump sum and then just direct all savings to ISA or investment account when ISA maxed out. That way when the fix ends I can hopefully lower the payments and keep the term to 67.

 I do think though that interest rates will be higher then so payments may be the same, but the other option is to hit 50 and have a paid off house but small savings- even without mortgage they wouldn’t be enough to live on for 7 years. I’m certain I have enough from 57, it’s bridging from whenever I stop till then that’s the challenge! But the ideal
of no mortgage is hard to shift!

The psychology interests me, I view it as a defensive vs a attacking move. I think its interesting that many on here, a money saving forum, opt for your approach. Pay the mortgage off first then tackle the "saving". Where as on various investment sites I read others prefer the opposite approach.

Personally I've gone the other way. Focused on building wealth through pensions and S&S ISA's and worry about the mortgage later.

Yes it is interesting- I think for your main home there is a very strong urge to own it! Although it could be thought of as portfolio management as well- paying it off takes away a large fixed monthly payment which gives freedom to pursue a more aggressive investment strategy as fixed costs are lower so you have more ability to flex income through the cycle. So you can have a lower cash buffer.  The other thing I am appreciating is that having savings outside of an overpaid mortgage and pensions is very important- it’s possible the pension age will move up again, and I doubt I will be able to remortgage at the rates I have now in 5 years.  More spare cash means more options!

Anonymous101

finance101 said:

Anonymous101 said:

finance101 said:

Barnstar2077 thanks! I already have a term till 67- it’s fixed at a great rate for 4 more years and I can make 10% overpayments every year which I have so far. I think interest rates are going to rise so I have been quite fixated on paying it off - totally get the psychological side. It was only reading a few other posts and blogs that made me do the sums on it and I was quite surprised! But yes the plan would be to pay maybe one more 10% lump sum and then just direct all savings to ISA or investment account when ISA maxed out. That way when the fix ends I can hopefully lower the payments and keep the term to 67.

 I do think though that interest rates will be higher then so payments may be the same, but the other option is to hit 50 and have a paid off house but small savings- even without mortgage they wouldn’t be enough to live on for 7 years. I’m certain I have enough from 57, it’s bridging from whenever I stop till then that’s the challenge! But the ideal
of no mortgage is hard to shift!

The psychology interests me, I view it as a defensive vs a attacking move. I think its interesting that many on here, a money saving forum, opt for your approach. Pay the mortgage off first then tackle the "saving". Where as on various investment sites I read others prefer the opposite approach.

Personally I've gone the other way. Focused on building wealth through pensions and S&S ISA's and worry about the mortgage later.

Yes it is interesting- I think for your main home there is a very strong urge to own it! Although it could be thought of as portfolio management as well- paying it off takes away a large fixed monthly payment which gives freedom to pursue a more aggressive investment strategy as fixed costs are lower so you have more ability to flex income through the cycle. So you can have a lower cash buffer.  The other thing I am appreciating is that having savings outside of an overpaid mortgage and pensions is very important- it’s possible the pension age will move up again, and I doubt I will be able to remortgage at the rates I have now in 5 years.  More spare cash means more options!

I agree on the mortgage rates. Although I did think that 5 years ago too.
Two main points for me are the cashflow and investment approach. It comes down to risk appetite and tolerance which is of course very personal. You've summed up what I considered whilst I was deciding which way to go. I think the important thing is to be aware of the issues rather than just assume one way is "better" than the other.