Early retirement viability sanity check please

YellowCarBlueCar

Hi all,

I'm looking for some sanity checking of our current position and whether we're in a position to retire early at 55/56 please.

The numbers look good in my spreadsheet.

Our current situation:

I'm 53 years old (54 later this month) - my wife is 53, both working full time.

We both have small DB pensions of around 4.5K which can be accessed from age 60.  Both index-linked to CPI.

DC pots are pretty skewed - mine at around 630K and my wife's at around 55K

We will have both made qualifying NI contributions for full state pension by the age of 55, and can both access at 67.

Through an inheritance, we're in the position to be able to sell our current home (and move to an inherited house) which should release in the region of £500K after fees and mortgage repayment (estimate at least 600K sale, 70k mortgage).

We also have a furnished holiday let worth about 330K which would have a CG liability of around 11K, so say 310K available if we sold it after tax & fees.

Other investments in ISAs total about 220K.

No cash savings as our current mortgage is an offset (so all savings reduce the mortgage to a balance of 70K at present).

Spending in the last few years has included a lot of renovation cost for the inherited house, but taking those costs out we've been living off between 19K and 29K pa (the higher year included car repairs and a new boiler).  We're not especially lavish.

In retirement we'd like to be able to receive 50k pre-tax.

Our original plan had been to keep our current home and let it, which would realise around 10K pa pre-tax after all expenses.

With another 4K pa from the holiday let, state pensions, and DB pensions, we'd be pretty self sufficient without really digging into the DC pensions after reaching state pension age, and still have the assets of the additional houses.

But now I'm wondering if we really want or need the complication of maintaining 3 houses, and the responsibilities of being a residential landlord if we can still meet our retirement aims by selling.

In my spreadsheets it looks as though we could afford to retire age 55, and still have around 675k in the pension pot at 85 years old if we 'cashed in' the houses.  This is on the assumption that investment does no more that keep pace with inflation.

LTDR summary.

Couple aged 53/54

Combined DB pensions of 9K from age 60

Combined DC pots totalling 685K (split 630/55)

Full state pension (x2) from age 67

ISAs totalling 220K

Mortgage of 70K

Property which can bring in 14K income, or 910K if sold.

Current expenditure under 25k pa - but looking for 50K pre-tax in retirement.

So if we sold the property now, does that look to be enough to retire at 55?

The numbers look good to me, but it seems too good to be true and already has me in the 'one more year' mindset!

Thanks!

billy2shots

The numbers look very good to me. 

Personally I would sell all houses apart from the one you choose to live in. Don't need that stress in your life. 

3-5 years cash, the rest invested.

Market downturns you can use your cash or just take the £25k you can live on (or lower figure) rather than the £50k until the tide turns.

You my friend, are golden. 

Albermarle

You look to be home and dry financially !

However there are a number of interesting threads on here about retiring and spending, so I would not just think 'can we afford to retire' but think about what you are going to do.
Many with large assets find it still difficult to pull the trigger, especially if they do not hate their jobs.
For many the issue is not ' do I have enough' but find it difficult to start spending it . I note you said this
.

Current expenditure under 25k pa - but looking for 50K pre-tax in retirement.

That is quite a big leap, although in fact you could probably easily afford to spend more than that.

stuhse

Looks like you are in a great position.  One option to consider would be to keep your houses and rent them out for now.  The day you are too old/it becomes to much hassle cash them in.   PS why would you want to end up with 675K when you 85 years old ?  ...start spending it having more fun  whilst you can would be my advice.  and/or plan to  pass on what you can afford to the next generation whilst you can have the pleasure of seeing the smile on their faces and watch their lives be easier  (if applicable).

YellowCarBlueCar

Thanks for the comments and confirmation.  The countdown can begin...

Albermarle said:

.Current expenditure under 25k pa - but looking for 50K pre-tax in retirement.

That is quite a big leap, although in fact you could probably easily afford to spend more than that.

The reasons for the bigger uplift in spending, are that so much of the last few years has been taken with the renovation work (not to mention the expense) that we've been more frugal in other areas, so would like to open the spending taps a bit more.  50K may well be over the top, but buying another vehicle will add to the current outgoing, and I expect that more free time will equate to doing more travel & leisure stuff which all adds up.  It also adds a bit of margin for poor investment returns.

stuhse said:

Looks like you are in a great position.  One option to consider would be to keep your houses and rent them out for now.  The day you are too old/it becomes to much hassle cash them in.   PS why would you want to end up with 675K when you 85 years old ?  ...start spending it having more fun  whilst you can would be my advice.  and/or plan to  pass on what you can afford to the next generation whilst you can have the pleasure of seeing the smile on their faces and watch their lives be easier  (if applicable).

The holiday let is close to where we're moving to, so I think we'll keep that for a while yet, though market saturation and more regulation squeezed both income and expense this year, so we'll  see how that develops.
Our current home is about 3-4 hours away, so potentially a big hassle.  In the last few years stuff like having 3 lots of hedges to cut, 3 lots of drains to get blocked, plus all the normal house maintenance tasks x 3 has made me start to feel that I'm already at the 'too much hassle' stage.
There is also CGT to consider with the current house.  We've been here 25 years, and seen the value rise from 155K to 600-700K (meeting estate agents tomorrow and next week to get a better picture) - so say a 600K gain.  As our primary residence there is no CGT.  If we let it out then we begin to become liable to CGT in proportion to the time that it's let.  If future price growth exceeds the average over the last 25 years (just over 6%) we'd be winners, if not we could end up paying CGT on gains already made.

The 676K at 85 bit... I don't trust my spreadsheet (or any forecast) to be accurate enough over 30 years to really tell me that there would be 40% of the pot left at the end, so I suppose that's my 'comfort blanket'.  A few years into retirement if everything look rosy then maybe we'll spend more, but we'd already be living more lavishly than of late.

In fact we don't have any dependents, so I suppose we could release further equity from our main home if we needed to in later life.

Roger175

YellowCarBlueCar

We are in a broadly similar position to you financially -  obviously not the same, that would be spooky! but in the overall same ball park. My wife who is now 60 retired at 58 and I have just pulled the trigger age 59, albeit I have to fulfil a few contracts (being self-employed) and therefore wont be fully retired until later this summer.

We had a second property until May last year, which was sort of accidental, in that we built a new house, but ended up keeping the old one. We used the old house to finance the new and ended up with a small mortgage on it and were renting it out, but this time last year, having rented it for 4 years, we just became disillusioned with being landlords - things like the boiler needing to be replaced and then just over a year later the new boiler breaking down 3 days before Christmas, just when our heating engineer disappeared with stress and nobody else would pick up the phone, let along come and look at it. I ended up stripping it down and mending it myself. I would think long and hard about keeping the properties, it's just hassle! - the yield you are getting (£14k on £910,000) is bonkers low. Even if you just stuck that money into saving, you could currently expect to generate over £45k per year.

We didn't plan to sell our property quite so soon, but are so glad we did. The only problem is that we've ended up with over £300k in cash, which we are struggling to shelter into pensions/ISAs. I can only put total net earnings in for this year which will probably only be about £35k and at £40k per year (2 x £20k) into ISAs it's going to take a while. Still it's a nice problem to have, especially when we have stuck it into 1, 2 and 3 year fixed rate savings accounts earning well over 5% average. My point is do consider selling sooner rather than later so you can have a fighting chance of sheltering the proceeds.

Regards projections, I have spent the Christmas break doing a lot of playing around on spreadsheets and have downloaded the free trial version of Voyant which has proved to be brilliant. What is interesting is that in our best case scenario we will die at 90 (the default), having never drawn any of my SIPPs or S&S Isas (about £570k in todays values) if I increase expenditure and stress test it all with higher inflation and lower growth projections etc, we will still not run out of money and won't actually start drawing on the SIPPs until well into our 70's. Like you I am a bit sceptical by all this but I've analysed it in detail and can't find any flaws yet.

Good luck with it all.

YellowCarBlueCar

Thanks Roger,
Yes it does sound like a similar set of circumstances, and it's very useful to get the perspective of someone that's been there.

The returns are incredibly low for rentals in the South East.  Living remotely we'd be paying a hefty premium for a local agent to handle repairs.  We'd get to keep 32% of the rent after fees, insurance, interest, and tax without any repair work actually being needed, so that could soon get consumed if any significant repairs are needed. As the rental returns are so low, the capital growth would be the main factor.  So a gamble on whether house price growth continues at the historic rates - which could open up a whole new debate.
Coming from the perspective of "If I was living in the new house and came in to a windfall of £500K, would I chose to buy a house 3-4 hours away and become a landlord?" I think that's a definite "No".  If we get to 65 and find that the find that the value had doubled, would we kick ourselves for selling now?  Maybe.
But if the numbers work for retiring early already, maybe anything more is just being greedy.

Another option could be to but a rental property closer to (new) home, but living in Surrey now with good transport links to London we benefit from the London property growth premium which wouldn't see then.

If we do sell then investing the money is indeed a (welcome) challenge.  If we sold this FY we could get a maximum of about an additional 140K into company pensions and SIPPS (maxing both for this year and next), 80K into ISAs before retirement, which would still leave a lot outside of any tax wrapper.  Realistically we'd be very unlikely to complete a sale this FY which would halve those numbers.

It sounds as though you've got decent rates on those savings accounts.  I was thinking along the lines of investment funds which I could transfer into ISAs as the opportunity arose.  This may be a time where a speaking to an IFA may be worth the cost to look at pros and cons, but I'll keep reading on here and the investments boards for now, as I've never really needed to look into investments outside of tax wrappers before.

cloud_dog

YellowCarBlueCar said:.

So a gamble on whether house price growth continues at the historic rates - which could open up a whole new debate.

Don't take this the wrong way, but why? 

How much do you need?  And how much can you spend from the other side anyway?

YellowCarBlueCar

cloud_dog said:

YellowCarBlueCar said:.

So a gamble on whether house price growth continues at the historic rates - which could open up a whole new debate.

Don't take this the wrong way, but why? 

How much do you need?  And how much can you spend from the other side anyway?

Not taken the wrong way at all, hence my comment about (paraphrasing) "if the numbers work now, is anything more being greedy?"
I work in an industry where it would be nearly impossible to jump back in after a few years out.  I don't think it's really sunk in that I should be in a position to leave in a little over a year so still processing all the options...