Can i afford to retire (if pushed)

bostonerimus

You have a larger pot than most, but you are proposing retiring early and say you need an index linked 50k/year...so I don't think you are exactly safe. Because you should plan for at least 40 years in retirement you need to take out less annually than the 4% rule of thumb. In the UK that is usually reduced by half a percent anyway and if we take another half percent off for a 40 year retirement then 3% * 1.43M ~ 43k/year. Your SP will help when it kicks in, but even if you implement a variable withdrawal plan, you will have to managed your money sensibly, be disciplined in your spending and avoid bad down markets for your plan to work. Personally I'd want a bit more headroom.

bostonerimus

Robwales said:

Thanks for all the feedback - the 4% is for Pension only right....or would inc ISA??

"4%" is only a rough guide. It assumes historical US returns on a 60/40 portfolio and a 95% probability of you having money left after 30 years. It applies to pensions and ISAs, but obviously some of the "4%" from the pensions will be used to pay tax. FYI in the UK the rule of thumb is often tweaked to be a bit less than 4% and you need to reduce that even more to account for a potentially longer retirement than 30 years. Also does you 50k annual starting budget include all expenses including taxes?

I would start your planning by doing a detailed budget.

SouthCoastBoy

Firstly congratulations on getting yourself in a good position. I dont think you will starve if you were pushed.

Wrt uni. The maintenance loan is based on income, so if you weren't working potentially your children would get a full maintenance loan and also many unis also offer bursaries for household incomes less than 25k so they may also be eligible for a bursary.

If you are still working the min loan is around 4k, which is what my children get. I pay the accommodation and they use the maintenance loan for living expenses. My liability has worked out around 7.5k per year per child, however they both went to unis where accommodation is expensive.

Re the 50k per year  do you think that will be linear or may it taper off? I have planned for an initial 3k per mth after tax tapering to 2k a month at 75, then finally 1.5k per mth at 85. I am 56 and have a pot of 1.4m plus wife has a db of around 8k when she is 60 ( 7 years time) + 2sp at 67 so fairly similar to you, but I am still working as inflation and economy is a concern so feel the 1.4m could quite easily become 1m

Robwales

bostonerimus said:

Robwales said:

Thanks for all the feedback - the 4% is for Pension only right....or would inc ISA??

"4%" is only a rough guide. It assumes historical US returns on a 60/40 portfolio and a 95% probability of you having money left after 30 years. It applies to pensions and ISAs, but obviously some of the "4%" from the pensions will be used to pay tax. FYI in the UK the rule of thumb is often tweaked to be a bit less than 4% and you need to reduce that even more to account for a potentially longer retirement than 30 years. Also does you 50k annual starting budget include all expenses including taxes?

I would start your planning by doing a detailed budget.

Thank you - your posts are very useful.  I will refresh my detailed budget - and yes perhaps need to hit £1.7m if i need to hit my £50k goal (and conscious of LTA so might need to look for other vehicles eg VCTs / EIS if i continue work and get into that position).    To be honest - i have been just trying to save/invest to date, and I havent really thought about crystallising and withdraw and how that works tax wise...so my £50k was ballpark (stupidly didnt think about the tax impacts)

Its kinda daunting that as ive got older ive appreciated just how much you need (£1.7m !) to approach anywhere near some of the DB pensions my cohort will enjoy - especially as we are a single earning (pension) family.  Oh well - we all make choices & im not complaining - im just naively a little staggered by the figures. 

MaxiRobriguez

You've got more than enough to retire. 

Do you really need £50k a year?

Robwales

SouthCoastBoy said:

Firstly congratulations on getting yourself in a good position. I dont think you will starve if you were pushed.

Wrt uni. The maintenance loan is based on income, so if you weren't working potentially your children would get a full maintenance loan and also many unis also offer bursaries for household incomes less than 25k so they may also be eligible for a bursary.

If you are still working the min loan is around 4k, which is what my children get. I pay the accommodation and they use the maintenance loan for living expenses. My liability has worked out around 7.5k per year per child, however they both went to unis where accommodation is expensive.

Re the 50k per year  do you think that will be linear or may it taper off? I have planned for an initial 3k per mth after tax tapering to 2k a month at 75, then finally 1.5k per mth at 85. I am 56 and have a pot of 1.4m plus wife has a db of around 8k when she is 60 ( 7 years time) + 2sp at 67 so fairly similar to you, but I am still working as inflation and economy is a concern so feel the 1.4m could quite easily become 1m

Thanks for the feedback.  Seems concensus wrt Uni is about £6-£7k per anum depending on location of course.  My eldest wants to do Medicine so 5 yrs...will see.

Your comment on the tapering is a good one...and of course at some point we will get full SP (67?) that will mean an additional £18k gross into the house.  But I think you are right, that it wont be a flat expense...and your numbers seem about right to me

ie

£36k for the first 25 years (so thats £50k gross)

£24k for the next 10 (75 - 85) ie (£30k gross)

£18k (£22k gross) for the last 10 (85-95)

which comes to £1.77m

none inc the SP which will add another £9 or £18k as a decent buffer.

Sounds like i might need to stick at it for a few more years (or £300k) yet!
Or find an old rich aunt to inherit from! (not gonna happen)

Cheers for all the insights - really helpful.

MaxiRobriguez

Typical costs tend in retirement tend to be higher in the early (having fun with the money) and latter (care needs) stages. It's the bid in the middle - ie your 70s which tend to be the least demanding on the wallet.
 

bostonerimus

Robwales said:

bostonerimus said:

Robwales said:

Thanks for all the feedback - the 4% is for Pension only right....or would inc ISA??

"4%" is only a rough guide. It assumes historical US returns on a 60/40 portfolio and a 95% probability of you having money left after 30 years. It applies to pensions and ISAs, but obviously some of the "4%" from the pensions will be used to pay tax. FYI in the UK the rule of thumb is often tweaked to be a bit less than 4% and you need to reduce that even more to account for a potentially longer retirement than 30 years. Also does you 50k annual starting budget include all expenses including taxes?

I would start your planning by doing a detailed budget.

Thank you - your posts are very useful.  I will refresh my detailed budget - and yes perhaps need to hit £1.7m if i need to hit my £50k goal (and conscious of LTA so might need to look for other vehicles eg VCTs / EIS if i continue work and get into that position).    To be honest - i have been just trying to save/invest to date, and I havent really thought about crystallising and withdraw and how that works tax wise...so my £50k was ballpark (stupidly didnt think about the tax impacts)

Its kinda daunting that as ive got older ive appreciated just how much you need (£1.7m !) to approach anywhere near some of the DB pensions my cohort will enjoy - especially as we are a single earning (pension) family.  Oh well - we all make choices & im not complaining - im just naively a little staggered by the figures. 

Taxes are very important as are financial fees and they will probably be some of your larger line items. Don't forget to include council tax and also one time big expenses like a new car or home repairs. The ISA and 25% tax free amount will reduce your bill but if say 30k of your 50k is taxable you'll be paying 3k a year in income tax

Secret2ndAccount

You've probably already paid enough NI this year; it just won't show on your record yet. So you would need to buy 2 yrs. Cost is about £800/yr, and each year purchased adds £5.50/wk to your pension. So it pays for itself in 4 yrs after State Pension starts.

I can't believe nobody has mentioned Lifetime allowance (LTA) yet. Once you've withdrawn a total of £1.037mil from your pension, any further withdrawals are taxed at a substantially higher rate, which often makes it not worth putting the money into a pension in the first place. Unless you are paying by salary sacrifice, It might be worth reducing your annual contributions. You definitely want to pay enough to get your employer's contribution, and you might want to get yourself out of 40% or 45% tax (don't know what your salary is). If you were to put 40k in for another few years, your pot could easily be at the LTA already, and you have 30+ years of growth to come yet. LTA will almost certainly be an issue for you, so I suggest a little study on the topic.

kinger101

Robwales said:

SouthCoastBoy said:

Firstly congratulations on getting yourself in a good position. I dont think you will starve if you were pushed.

Wrt uni. The maintenance loan is based on income, so if you weren't working potentially your children would get a full maintenance loan and also many unis also offer bursaries for household incomes less than 25k so they may also be eligible for a bursary.

If you are still working the min loan is around 4k, which is what my children get. I pay the accommodation and they use the maintenance loan for living expenses. My liability has worked out around 7.5k per year per child, however they both went to unis where accommodation is expensive.

Re the 50k per year  do you think that will be linear or may it taper off? I have planned for an initial 3k per mth after tax tapering to 2k a month at 75, then finally 1.5k per mth at 85. I am 56 and have a pot of 1.4m plus wife has a db of around 8k when she is 60 ( 7 years time) + 2sp at 67 so fairly similar to you, but I am still working as inflation and economy is a concern so feel the 1.4m could quite easily become 1m

Thanks for the feedback.  Seems concensus wrt Uni is about £6-£7k per anum depending on location of course.  My eldest wants to do Medicine so 5 yrs...will see.

Your comment on the tapering is a good one...and of course at some point we will get full SP (67?) that will mean an additional £18k gross into the house.  But I think you are right, that it wont be a flat expense...and your numbers seem about right to me

ie

£36k for the first 25 years (so thats £50k gross)

£24k for the next 10 (75 - 85) ie (£30k gross)

£18k (£22k gross) for the last 10 (85-95)

which comes to £1.77m

none inc the SP which will add another £9 or £18k as a decent buffer.

Sounds like i might need to stick at it for a few more years (or £300k) yet!
Or find an old rich aunt to inherit from! (not gonna happen)

Cheers for all the insights - really helpful.

Assuming you don't take a cash lump sup, 25 % of the income from your DC pensions is tax free.

That means only £37,500 of £50,000 pension withdrawal is taxable, and the first £12,500 is covered by the personal allowance.  So £25,000 @ 20% is £5K of tax.  £50K gross = £45K net.