Ideas for retiring early (at age 40ish)

ent_moot

Hello,

I've been super-lucky with my career in the tech industry, and am nearing the point where I could potentially retire (or semi-retire) early.

I'd like to get some ideas for early retirement that could provide a small income with, let's say, on average, 1-2 hours of work per day.

My current situation is as follows:

Age: late 30s
Family: we have one child
Private pension: 300k
Personal savings: ~200k
House: ~550k
My salary: 170k (with 50% bonus)
Spouse's salary: ~20k
Debts: none (I have paid off all my mortgage)

My current plan (A) is: 

1. Work for 2-3 more years
2. Sell up and buy a house (outright, with no mortgage) for ~900k which includes an annex
   
3. Try to make a small income of ~10-15k per year by renting out the annex (e.g. airbnb)
   
4. Live a relaxed life off this income, with minimum spending (*)
5. Pursue some of my dreams, like writing a novel (I know it's cliched, but would be doing it with zero expectation of success)
6. If 3 fails, go back to working full time, but remotely (I expect my salary will be cut in 1/3 )

Downside: it might be stressful if 3. doesn't work and I have to fall back to fulltime work.


Alternative plan (B):

1. Work for ~5 more years
   
2. Buy a house for about 900k, and have enough cash to live comfortably until age 55, then rely on my pension
   

Downside: I have to work at my current job for 5 more years


Alternative plan (C):

1. Work for ~10 more years
   
2. Be ridiculously wealthy...

Downside: 10 years. Oh dear God.



Spending(*):

We tend to be very frugal, hence the large savings at an early age (the crazy salary helps too, though you'd be amazed at home much tax I pay!).We live pretty comfortably on around 25k per year, given that we have no mortgage or debts. We go on regular holidays, but have never spent more than 3k on a single holiday, and not more than 5k on holidays in a year. My hobbies are all inexpensive, and I have zero desire to drive an expensive car. I would like a nice house with a large garden.


So, my main question is: any other ideas to keep a small reliable income ticking over that requires not masses of work? 

ent_moot

Other things to note: 

• I enjoy DIY, though I suspect that I would hate doing other people's handywork because of the stress of getting it wrong
  
• In a perfect would, I would do my current job 1 day per week and get a 30k salary. However, I highly doubt I would be allowed to do this. Generally, anything less than 4 days per week is frowned upon in the industry

diystarter7

Option 'A' all day long as it's never too early to jack in your job.

Nebulous2

Have you seen 'the number' thread here where people calculate how much they will need in retirement? 

While you live frugally on £25k, what are your expectations in retirement? Would £25k indexed do, or do you intend to relax the purse strings and spend a bit more? 

Would your spouse continue working? Any plans to have more children? They can be a huge financial commitment, with expensive hobbies, before you get to things like private education. 

Are you tied to the area you live in, or could you relocate? You are a way short of buying a £900k house outright, and funding a retirement, but there are certainly areas of the UK where you could get the house, garden and a holiday let for half of that. I'm on holiday at the moment and overheard someone say he's just retired, sold a flat in London, and bought a 6 bedroom house in Wales. 

How are the savings and pension invested? A lot of people who intend to retire extremely early will be quite aggressive with their investment policy, but that could go wrong. 

Is it £170k plus bonus, or have you included bonus in that? 

With the limited information we have, I'd say plan B is more feasible. Given the tax you pay reducing that would help - such as using salary sacrifice for your pension, but you also need enough savings to see you through until you can draw a pension.

You will need to plan capital expenditure, such as big-ticket items in the house, the new roof, for instance.  People retiring can front-load expenditure, doing the new kitchen / bathroom now, but given you could have 50 years in retirement that becomes more uncertain. 

I'd say you need a lot of budgeting planning, recognising that the 'what ifs' bring a lot of variance with a lengthy retirement. You also need to discuss how important the goal of retirement and writing the novel is. Enough to move somewhere cheaper or is that a compromise you won't make? 

bostonerimus

If you have a home with no mortgage right now, why are you "upsizing" to a 900k new one? Have you done the sums on owning a rental? Have you done a budget? 

[Deleted User]

You are in a good position for your age. Your plan seems very risky though.  For example you are planning to wipe out a large chunk of your liquid savings at the exact point when you might have to rely on them.  Lets say you spent 15 years working and are going to have to provide for yourself for 50 years of retirement.  That’s a looong time.  

I can understand burning out at work but there are other ways of dealing with it. Working part time (for example) would provide income as well as ability to increase earnings if needed. Quitting for over a year makes it difficult to re-enter the the job market if s-t hits the fan.

tacpot12

I think Option A fails at no 4 - I don't think you will have a relaxed lifestyle while you have to earn some money. AirBnB seems too unreliable to base a retirement decision on. I think you need a bit more savings to retire. I would say that with £650,000 of savings invested in income producing assets, which should produce £26,000 a year indefinitely and grow with inflation, you will be very happy, and the AirBnB would produce some excess income when it is rented that can be used for treats.

Option B looks to be a better bet, and I think you can save enough to cut the time at work to 3 years if you focus on this goal. BTW: I retired at 53 and have a flat I rent out, so financially my retirement model is very similar to you own. I was also lucky in my career. 

With a larger property, you will get plenty of chance to practice your DIY skills, which will also be a good anti-dote to writers block. I use my DIY skills at home, at my parents and at the rental, and have done work for friends, but as you say, it's more of a worry when it is someone else's home. But there is a good market for professional handymen. It's a trade that is under-staffed, perhaps more so than many others. With an aging population, there are large numbers of people who need a younger person to go up a step ladder do simple jobs like change a lightbulb or get down on their hands and kees to fit draught excluder at the bottom of a door. Most of the time the expectation is only that the work is done to the standard than the householder can do themselves. If you reject jobs that you are unsure about, you would have no trouble making a living as a handyman. The biggest issue would be to avoid getting more work than you want to take on.

You are very close to being able to retire, and I can definitely recommend it. 

billy2shots

So you currently have £500k in liquid assets (all be it, some of it tied up until 57). 

Without including the bonus (we will say that's lost in pension contributions) you take home £100k a year. 

Your wife takes home £17,500ish

Total £117,500 a year minus £25k spends = £92,500 left

After 4 more years saving/investing £92,500 a year (£370,000) you could have £870,000 tucked away. 
That accounts for zero growth just keeping up with inflation. Also doesn't take into account your pension contributions. 

I work on a 3% safe withdrawal rate (the 4% scares me). 
3% withdrawal on £870,000 is £26,100 per year. 

I wouldn't bother with becoming a landlord. 
I would work 4 years and make sure assets are split equally between my wife and I to make sure we gain as much tax free advantage as possible. 

2 smaller pots are better than 1 large in retirement (DC anyway)

cfw1994

Congrats on achieving what you have so far!

The tech industry can be good to those who work hard (or get lucky!)….the fact you see 5 more years at your young age as a downside tells me you want out ASAP (it took me to my 50s to decide enough was enough!).

I’d therefore aim for closer to Plan A….but there might be a middle ground of 3 years or so.

If you are serious about the writing, I would start *now* in your spare time (find some!).  A great techie I worked with retired early to write SciFi, but had been doing some whilst he worked.   You may find you will get bored early on….or get hooked!

Don’t underestimate the running costs of your child: you don’t say the age, nor the schooling you plan: local comp may be fine in your area, but if you aim for Independent schools, that can raise the £££ stakes.  No right or wrong answers.   Our experience is that they were the best option near us, so I worked for longer to help fund it….& now they are functioning adults earning a reasonable wage, people we enjoy hanging out with, so all good 👍

Other thing to consider is time & ‘worth’.  

Clearly those who are time rich are in a great position, but it is also good to plan ways to “feel good” about yourselves.  See Maslow’s hierarchy of needs!
Maybe that is volunteering, or running a club, or mentoring, or finding a local ‘networking’ thing for businesses where you can share experiences and encourage others.

Good luck!

UrbanAchiever

You've said live off saving until pension at 55, but unfortunately you'll have to wait longer than that to access your pension.  I'm 48 and will need to wait until age 57.  Best that you check what age you'll be able to access your pension.

killerferret666

Is Option C... Part time,  an option?

This would give you the chance to unwind to do some hobbies continue to save without the higher risk. I'm in similar position and I actually think after a while I might miss a job / purpose so am probably going this route. Although I have no kids so less dependencies.