Ideas for retiring early (at age 40ish)

2nd_time_buyer

ent_moot said:

Actually, my whole post was not asking about the finances specifically, which I have a very good understanding of. It was more about what alternatives might there be to making a small income. Currently, there have been some good ideas:

• Airbnb
  
• Shove a load of it in index funds, and live off the growth
  
• Contracting
  

If I bought something with ~5 acres, would it be possible to make a small farming incoming, or would this likely be a lot more than 1-2 hours per day average? I'm interested in brainstorming ideas for a low-effort semi-retirement business, I guess.

Making money on a small holding is tricky. I have some friends who eventually made an okay'ish living from selling courgette flowers to top-end restaurants - they tried lots of other things on the way. Although, tthe solar panels on all the outbuildings still made almost as much money for a fraction of the work. But I think to make money you have to think niche.

Generally, it can make sense to reduce overheads rather than increase income beyond the tax-free allowance as savings are effectively tax-free income e.g., solar panels with: an electric car, heat pump, battery, can make a significant dent in outgoings in the right situation. 

Pat38493

If you are planning to retire now or in a few years from now, why do you need £200K savings?  Are you already putting the maximum allowed contribution into your pension because if not, in your situation and stated intentions, you should be putting the full £40K (plus any rollover allowance) into your pension, otherwise you are paying unnecessary tax now at 40-45% rates.

There will eventually come a time when you can't, or don't want to, work anymore - it's not immediately clear from your OP how this will be funded.

Other than that, I don't know what your risk appetite for life changes is, but if I was considering making such radical lifestyle changes and committing to such a large reduction in potential disposable income with so many years of my life to run, I would want to have a lot more money saved up before I pulled the trigger (or live in a smaller house).

I've met a few people on my travels who were previously senior executives but took up taxi driving to earn a bit of money in retirement (often luxury end taxi driving), not because they needed the money but they just saw it as a way to pass the time and meet people.

Your numbers are not that far off where I expect to be when I hopefully retire age 57 or so, but the difference seems to be that you have a much lower expected spending level into the future.

Also keep in mind that the bills for running a larger house will be significantly higher - we are going to go the opposite way and downsizing. 

ent_moot

Grumpy_chap said:

Something doesn't really seem to add up here.

All credit to the OP for having a very comfortable position for someone in their late-30's, both the mortgage free house and the income level but, the OP & wife have joint income over £200k (£10k per month take-home) and life on £25k per year.
Yet, the assets accrued are rather low given that level of excess income per year and assume both the house and pension fund have accumulated since acquisition.

The idea of the OP retiring age 40 yet the OP's wife continues working could risk substantial disharmony as there will be significant imbalances in the time choices each is able to make.  Unequal time could be more difficult to manage than unequal finances as finances are easier to swap.

It is perfectly good to not be materialistic, but the OP seems to take not being materialistic to the point of sacrifice. 
Is there any possibility that the OP / wife / child will ever develop a desire for any of the finer things in life?
Consider the OP's hobby <£500 per year playing tennis, but (if they can secure tickets) a day out to Wimbledon would easily come to that much for OP & wife.

As an aside, running a small farming freehold is going to take rather more time than the OP imagines.

It does add up, you just need to think a little harder. See if you can work it our yourself before reading the next sentence. I'll give you a hint: pay review. Got it yet? I started my career 14 years ago on a £28k salary, and am now at £170k. 

Also, do you realise that a £170k salary means 70k in tax? (I don't actually pay this much because I sacrifice for my pension, but you get the idea).

It is perfectly good to not be materialistic, but the OP seems to take not being materialistic to the point of sacrifice. 
Is there any possibility that the OP / wife / child will ever develop a desire for any of the finer things in life?
Consider the OP's hobby <£500 per year playing tennis, but (if they can secure tickets) a day out to Wimbledon would easily come to that much for OP & wife.

Not really. Given that the average household income is £31k, and that's for households that are likely paying rent or a mortgage, I think that £25k probably means we have more than the average household to spend. Certainly 35k would mean plenty more to spend than the average household. "The finer things in life" sounds like a euphemism for "overpriced". The best things in life don't cost much. Admittedly a decent house costs a lot, but then I'm planning to cover that.

Does your skill lend itself to specialist consultancy? I use to limit my hours by quoting high rates for projects I didn’t want to annoy by refusing but I’d say 90% of them asked me to go ahead. I retired at 50’ish having worked that way fro around 10 years. It allowed me to travel and it was exceptional fun.

Probably yes, though I imagine it requires networking and travel to get going, neither of which I enjoy. I basically want to be left alone to do creative things: attempt to write a novel, create software (something I already do as a hobby), digital art etc. These hobbies are basically free and have a potential (albeit it a very low probability) to make money. I think the most likely thing for me to do is slog it out until I'm brave enough to make the leap. I'm certainly not brave enough in the next year, but pretty sure that I'll have easily enough safety net in 5 years.

ent_moot

billy2shots said:

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)

Yes, my gut is telling me that this is the best advice. 

billy2shots

ent_moot said:

billy2shots said:

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)

Yes, my gut is telling me that this is the best advice. 

And even better, accounting for some growth and pension contributions it should be a fair chunk higher than the £870,000 in my example. 

I think you'll be well over the £1m figure. 

SouthCoastBoy

billy2shots said:

ent_moot said:

billy2shots said:

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)

Yes, my gut is telling me that this is the best advice. 

And even better, accounting for some growth and pension contributions it should be a fair chunk higher than the £870,000 in my example. 

I think you'll be well over the £1m figure. 

You will need some growth to keep up with inflation, currently I model 3.5% growth after fees so well below the current inflation figures and over the last 12 months I've not achieved that. I think it is reasonable not to assume  any dc pot will necessarily keep up with inflation

billy2shots

SouthCoastBoy said:

billy2shots said:

ent_moot said:

billy2shots said:

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)

Yes, my gut is telling me that this is the best advice. 

And even better, accounting for some growth and pension contributions it should be a fair chunk higher than the £870,000 in my example. 

I think you'll be well over the £1m figure. 

You will need some growth to keep up with inflation, currently I model 3.5% growth after fees so well below the current inflation figures and over the last 12 months I've not achieved that. I think it is reasonable not to assume  any dc pot will necessarily keep up with inflation

Although we can't predict the future, history suggests that the current rate of inflation will not continue. 
History also points to real returns a fair way above inflation. 

To assume a DC pot will not keep up with inflation is just as foolhardy as assuming you will beat inflation by 20% each year. 

I am all for being cautious but modelling falling behind inflation or even only keeping pace with it will see 2 things. 

1. People working far longer than needed. 

2. People dieing with huge pots. 

Albermarle

billy2shots said:

SouthCoastBoy said:

billy2shots said:

ent_moot said:

billy2shots said:

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)

Yes, my gut is telling me that this is the best advice. 

And even better, accounting for some growth and pension contributions it should be a fair chunk higher than the £870,000 in my example. 

I think you'll be well over the £1m figure. 

You will need some growth to keep up with inflation, currently I model 3.5% growth after fees so well below the current inflation figures and over the last 12 months I've not achieved that. I think it is reasonable not to assume  any dc pot will necessarily keep up with inflation

Although we can't predict the future, history suggests that the current rate of inflation will not continue. 
History also points to real returns a fair way above inflation. 

To assume a DC pot will not keep up with inflation is just as foolhardy as assuming you will beat inflation by 20% each year. 

I am all for being cautious but modelling falling behind inflation or even only keeping pace with it will see 2 things. 

1. People working far longer than needed. 

2. People dieing with huge pots. 

If you read South Coast Boys posts, you will see that both 1. & 2. are highly likely to happen.
Although he was been proved right recently,  in being more pessimistic about inflation than most other posters last year.

[Deleted User]

SouthCoastBoy said:

billy2shots said:

ent_moot said:

billy2shots said:

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)

Yes, my gut is telling me that this is the best advice. 

And even better, accounting for some growth and pension contributions it should be a fair chunk higher than the £870,000 in my example. 

I think you'll be well over the £1m figure. 

You will need some growth to keep up with inflation, currently I model 3.5% growth after fees so well below the current inflation figures and over the last 12 months I've not achieved that. I think it is reasonable not to assume  any dc pot will necessarily keep up with inflation

If that is so, everyone should buy inflation-protected annuities because insurance companies are using the opppsite assumption. 

I am not saying that 100 years of data is a reliable source of estimates about next 50 years but its more reliable than 12 months. 

sharpe106

If you don't like your current job can you not get a job that pays less that you enjoy and can do part time, to earn the salary you are you must have some transferable skills.

If you want to leave work completely why not downsize somewhere cheaper and invest the money for an income? Why do you need a 900,000 house? as their is only 3 of you.