How close am I to my early retirement?

IamWood

Age: 48
Annual Gross Salary = 75k   160K
Accidental Landlord = 1,450 monthly (since this year)
Workplace pension pot = 250K + 100K
SIPP = 75K. 100K
Spouse SIPP = 30K  70K
ISA = 40K 60K (as an emergency fund, will be moved to Share ISA)
Saving = 30K
Pension contribution since this year: 45% + 5% = 50%. 20% + 10% = 30%
NI qualifying years (self) = 7 years to full pension
No mortage
Two children 18, 16. Both will be going to universities

When can I retire without financial worry?

RacingDriver

How much is your monthly expenditure?

IamWood

Not much at the moment without holidays: Roughly £700 monthly

I may need a new car in a couple of years. The current car is almost 16 years - owned from new.

MX5huggy

What are the figures around the “accidental landlord”. Do own the property out right? How much is it worth, are you willing to sell, have you built up a massive CGT liability on it? 

IamWood

I should make it clearer.

At the moment I own two properties (no mortgages) due to job changes. The one rented out is reserved for my retirement. The one I reside in might be around 500K if I sell now (or for the boys if they want to settle here )

I bought my current house with cash for quick move 6 years ago, which was a mistake I'm afraid

Linton

IamWood said:

Not much at the moment without holidays: Roughly £700 monthly

I may need a new car in a couple of years. The current car is almost 16 years - owned from new.

Really!?Are you saying you and the spouse are happy to live on say £8500/year for the rest of your lives? Most people on this forum tend to say around £25K/year for a couple possibly going up to £40K+.

Well you could retire now with the £1450/month rent. Then your ISAs and savings will last 8 years.

The only snag is you may not get access to your SIPPs until you are 58 though depending on the dates you may be OK and get it at 55.  In the latter case your £250K pension pot would eaily last until you got your State Pensions when you would be in clover with about £18K/year.

Seriously though I suggest you get a handle on what you really need/want in retirement.  Only then can you plan.

IamWood

> Seriously though I suggest you get a handle on what you really need/want in retirement.  Only then can you plan.

I always wanted to do volunteer work abroad. I am making the worst assumption that there will be no income for the work I am going to do.

DairyQueen

IamWood said:

> Seriously though I suggest you get a handle on what you really need/want in retirement.  Only then can you plan.

I always wanted to do volunteer work abroad. I am making the worst assumption that there will be no income for the work I am going to do.

I may be wrong but I think that Linton was questioning the reality of your £700pm required retirement income. A single person without rent/mortgage would struggle to live on that but you are apparently supporting yourself and two teenagers (soon to be uni students), maintaining a £500k home, and paying all other expenses, on that sum.

I don't believe it either. 

IamWood

Sorry I misunderstood. The £700 is only for my current food and daily expenses. It does not include all the bills 😜

Triumph13

As others have said, it all comes down to how much you want to be able to spend.  But let's have a play with the numbers just for fun. 

Pensions total £415k.  Lets assume you use £180k of that to take the place of the two state pensions for 10 years between pension access and state pension, so that leaves £235k.  A cautious 3% drawdown on that £235k gives £7k pa.  Add that to £18k of state pensions gives £25k of pension income from age 58.

Assume you sell the 'spare' house tomorrow for £500k.  £250k of that goes on providing the £25k income we calculated above from age 48 to 58.  Take the other £250k, add in the £30k savings and again draw down at 3%.  That's another £8.4k pa.  We'll leave the £40k ISAs for emergencies.  Kids would get full loans as your relevant income would be minimal and ultimately get to inherit the other house and the two drawdown pots.

Put all that together and you are looking at retiring tomorrow with a gross income of something in the region of £33.5k and not much tax to pay.  Is that enough for your needs?  If so then you've already won.  If not, or if you want to keep more of the capital for eventual inheritance, then keep working.

jamesd

Triumph13 did the analysis I was going to do, though I'll add that at 3% it'd be of your initial capital then increasing by uncapped inflation every year for a 40 year plan. The US average for this spending is 7% but 4% in the worst case to give us the 4% (in the US) rule before adjustments that got things down to 3% after costs, allowance for 40 rather than 30 years and the 0.3 lower UK than US starting point for this rule. This assumes 50:50 equities:bonds.

Given todays often highly valued markets but low inflation the US person who can up with that rule is using 5% himself and you could take a similarly optimistic view.

Alternatively, you could use the Guyton-Klinger rules which start at 5.5% in the UK for a 40 year plan. This usually increases with uncapped inflation but sometimes skips that or takes a 10% once a year cut or adds more depending on the times you live through. Assuming 0.9% costs reduces this by a third of costs to 5.2%. The same optimistic view could add 0.5 or 1.0 to this. This assumes 65:35 equities:bonds. The built in flexibility and adjustment is why this can start out less pessimistic than the 4% rule.

If you do take the optimistic approach you may need to take a greater than allowed for by the plan/rules cut if you experience substantially worse than average conditions during your own retirement. Something like ten percent inflation for the first ten years of retirement could require such an adjustment if using the 4% rule.

You can read more about this subject in the Drawdown: safe withdrawal rates topic.