Bold leap into retirement

Smudgeismydog

I’ve started to have the sinking in my stomach feeling at the thought of going back to work on the 2nd. How many emails will I have? How can I look like I’m interested in my 1:1 that my manager treats as a tick box exercise, scheduled on my first day back?

I have just found @c’est moi’s thread, which documents his bold leap into retirement at the age of 48. Whilst he has now moved into part-time employment, this was not driven by financial reasons, and he sounds very fulfilled, with no regrets about the decision he took.
I have also been catching up with @sea-shell, who took early retirement. She clearly takes an interest in understanding her finances and reflecting on her income/expenditure, but I never feel they are counting the pennies or reigning in costs, they appear to live the lifestyle they want. Even over the last year, when investments have been uncertain, and inflation has been high, their total assets are higher at the end of the year than they were at the start.

Similar to @MetaPhysical I have tried to analyse my anticipated income/expenditure and impact of withdrawals on assets. Of course this is important, but as we are both in the position of having guaranteed income already in payment this of course takes away a huge amount of pressure.
As per one of the comments on MetaPhysical’s thread, and I’m sure Sea-she’ll and c’est moi would confirm, retirement expenditure is not going to be linear. Life is unpredictable and my plans will need to adapt and change, but reading these threads, and taking on board comments from very helpful posters will, I’m sure, allow me to take my bold decision into early retirement too

Roger175

Smudgeismydog, ah! but just think how much more interesting that 1:1 is going to be when you can say " are you finished, right now my news, I'm leaving in July". Good luck with the plans.

Albermarle

I have also been catching up with @sea-shell, who took early retirement. She clearly takes an interest in understanding her finances and reflecting on her income/expenditure, but I never feel they are counting the pennies or reigning in costs, they appear to live the lifestyle they want. Even over the last year, when investments have been uncertain, and inflation has been high, their total assets are higher at the end of the year than they were at the start.

I think you are misunderstanding the negative effects of inflation on investments, pension pots etc.

For example if you start 2023 with £300K and do not spend or add to it, then a typical medium risk portfolio would now be worth lets say £327 K .

However average inflation over 2023 is about 11%, so your £327 K will now only buy you £296K worth of goods compared to what £300K would have bought you on this day 12 months ago. So in real terms the value of your portfolio has actually gone down.

In 2022 it was much worse as  the headline value of portfolios went down and there was inflation as well, so significant drop in real values.

Smudgeismydog

Many thanks for your comments 

First Day back in work yesterday and it was in the office. In line with the push to get people back in offices, we were told we need to stay there all day to be visible, (regardless of productivity), the 1:1 was just as ridiculous. I can’t wait to speak to my next level up manager next week and tell him I’m going to retire in 6 months!!

LHW99

Smudgeismydog said:

Many thanks for your comments 

First Day back in work yesterday and it was in the office. In line with the push to get people back in offices, we were told we need to stay there all day to be visible, (regardless of productivity), the 1:1 was just as ridiculous. I can’t wait to speak to my next level up manager next week and tell him I’m going to retire in 6 months!!

That'll spoil his weekend

jamesd

4% is based on the latest US data but only for US residents using US investments, a mixture of large cap and Treasury bonds. It's for a 30 year plan, the percentage varies with the duration. The author, Bill Bengen, subsequently added some small caps to the mixture and now talks about his 4.5% rule. The rule starts out as the 4% or 4.5% then increases with uncapped inflation every year, not a percentage of the remaining pot. If you do live through a repeat of the worst times the pot is depleted to nothing.

None of the safe withdrawal rules aim to preserve capital, set aside some outside it if you want to. In practice you're likely to die before the end of the plan and investment performance is usually good enough for a lot to be left over.

The UK figure is different because UK investments performed differently. In practice few today would use just UK investments, instead adding at least something like a global tracker to the mix.

Being entirely current doesn't matter much because the percentage is the highest one that would have worked in all past sequences and recent times haven't been as bad.

Because it has to assume the worst without adjustments this is very conservative and around 98% of the time a US investor would finish with more money than they started with, not allowing for inflation 

One of the alternatives is the Guyton-Klinger rules. In the UK this starts at around 5% for a 40 year plan. It'll usually have uncapped inflation increases but depending on the times you live through it may skip some or add extra cuts or increases of 10% a year. This flexibility is why it can start higher and still work. It's also able to handle up to a couple of percent above the actual safe limit if you want to deliberately start high, perhaps because you want to spend more when younger. This makes skips or cuts more likely if you don't live through at least average times or happen to have a bad initial five to ten years. The 10% standard cut is what limits this, you could go an extra percent or two if you use 20% and accept the faster income change. This would make skips and cuts almost certain even in average times. A better way would be to just set aside some of the capital for the early years boost and use the rules for the rest.

jamesd

sea_shell does that well in part because they greatly underspend their potential and in part because times haven't been challenging.

Bengen has said that what worries him most is sustained high inflation in the first five to ten years. The uncapped inflation increases mean that there's more stress on the ability of the investments to keep up with the plan.

The recent bout of inflation adds some stress but it's not high or prolonged enough to be a big deal, though taking say 98% of income instead of 100% might be good for a particularly cautious person in their first five years even though it's not necessary.

Smudgeismydog

I’m due to speak to my next up line manager on Tuesday to tell him I’ll be retiring at the end of June. I feel both excited and nervous at the prospect.

In the run up to this I have spent time analysing my anticipated expenditure requirements and accumulated assets, projected market crashes and the impact of periods of sustained inflation. The level of detail and insight provided by posters on this forum has been both insightful and extremely helpful.

However, I feel what is also really important for me, and perhaps spoken about less, is the psychological aspect of moving from accumulation to decumulation. After working so hard, making sacrifices and being a saver watching my asset values grow, I’m now going to move to a position of drawing from those assets and becoming a spender. I’m aware this will be a huge mind-shift for me.

If I am honest, part of me almost feels a little reckless in walking away from a career in which I’ve worked so hard, and for which I’m relatively well paid, I’ve never left a role with nothing to go to before. But then I’m also reminding myself that this is what I saved for, to give myself financial independence so I had choices.

Let’s be honest, there might never be the ‘perfect’ time to do this. Clearly another year or two would allow me to plough more into my pension, and inflation might be lower and investments might be more stable. But that also means less time to do the things I’d like to do, and spend more time with the people I want to.

After being widowed at 36, I appreciate life can be unpredictable, challenging and plans will need to adapt. Whilst I started planning this journey from an almost mathematical point of view, I feel one of the issues with the analysis is that it is often based on historic data, and can be linear, life isn’t like that. So I intend to keep my plans under regular review, take on board insight and opinions, but also remain flexible and adapt where necessary.

wish me luck
x

Albermarle

I started planning this journey from an almost mathematical point of view, I feel one of the issues with the analysis is that it is often based on historic data, and can be linear, life isn’t like that. So I intend to keep my plans under regular review, take on board insight and opinions, but also remain flexible and adapt where necessary.

The mathematical stuff gives you an idea and some confidence of what is possible, but once on the journey it is best to be flexible.

As one astute military man once said ' no plan survives contact with the enemy' 

Smudgeismydog

Thanks Albermarle, I feel the mathematical stuff is the best place to start, and you are right, after running lots of figures, I began to feel this could be possible.

It gave me the confidence to start believing my bold leap into early retirement would be achievable