FIRE - have I got enough?

starving_artist

I've been reading all the incredible threads on this board and wondering if what I am contemplating is doable.  I could really do with the wisdom of those more experienced and knowledgeable in assessing if it's realistic.

I will be 60 later this year and qualify for full state pension from 67.  I would like to retire immediately or as soon as possible.  I've looked at my spending and reckon I need an absolute minimum of £13,000 net annual income but would ideally like £20,000. 

I have £30,000 in cash and short term fixed rate savings accounts, £105,000 in stocks and shares ISAs and £185,000 in various DC pensions.

Seems like the way to do it would be to make TFLS withdrawals from the pensions up to basic tax allowance and use cash from savings accounts to top up income until I reach the TFLS limit then use mix of drawdown and ISAs.  Obviously the years until SPA will use up a lot more of my funds.  

One concern (ironically) is that I've always enjoyed excellent health and I come from a family with long life spans (well in to the 90s)!

jimi_man

One way to look at it very simply, is to work out how much you need per year, which you’ve done, then multiply that by the number of years. So from 60-67 is 7 x £20k - £140k. Thereafter state pension takes care of £10k so you just need £10k a year till you die. You have £180k remaining of your £320k, which is 18 years. 

In practice it’s a little more complex with issues like tax, inflation, investment returns, whether you are married/they have pensions etc. There isn’t really the detail in your post to answer accurately but thinking about those things will put you in the ball park. 

Personally, at £20k a year I’d say it was tight. At £13k a year it’s doable on the basis that in seven years you only need £3k to make up the shortfall. 

Stubod

 I would set up a simple spreadsheet starting with the numbers you know, eg year, income (including pensions at whatever year they kick in), income from savings/investments and outgoings.

You will need to increase your desired income by inflation, (eg you could simply add 4% each year to your desired starting income). Likewise you can add interest to whatever your remaining "pot" is and add this to your income.

You can then play around with the numbers to see if you can achieve your desired income. 

There are more sophisticated programmes available on the internet, but at the end of the day it's all speculative regarding inflation and interest rates, but you have to start somewhere!

To my mind you are not giving yourself much of a life if you think you can live off £13k per year, and on the face of it £20k looks a little bit high given the numbers you have quoted particularly as you "want to go now"?....but each to their own, and whatever you think works for you.

NB You have not mentioed any current debt, eg mortgage, so assume you don't have any??

You also need to consider whether you intend leaving anything to anybody, or just spend down 'til it's all gone? Again a basic spreadsheet will help you plan either scenario.

Albermarle

Seems like the way to do it would be to make TFLS withdrawals from the pensions up to basic tax allowance and use cash from savings accounts to top up income until I reach the TFLS limit then use mix of drawdown and ISAs.  

There seems to be a bit of confusion here. Maybe it is the terminology.

The way it is often done is that you take some of the tax free cash from the DC pots, along with just enough taxable income to keep you under the tax personal allowance of £12570. In this way you do not pay any tax.

Cash from savings accounts and withdrawals is not taxable income, and therefore is not included in any tax calculation.

Overall you need to do some calculations as suggested, as you do not want to use all the money up and find your self at some point trying to live just on the state pension or a bit above that.

On the other hand as said living off £13Kap would be a bit miserable but if you want to have £20K + you might be better working for another year or two to get a bigger buffer.

starving_artist

jimi_man said:

One way to look at it very simply, is to work out how much you need per year, which you’ve done, then multiply that by the number of years. So from 60-67 is 7 x £20k - £140k. Thereafter state pension takes care of £10k so you just need £10k a year till you die. You have £180k remaining of your £320k, which is 18 years. 

In practice it’s a little more complex with issues like tax, inflation, investment returns, whether you are married/they have pensions etc. 

I’ve only started thinking about pensions and retirement recently and am discovering a whole new world of complexity so this is a really helpful starting point.

starving_artist

Stubod said:

 I would set up a simple spreadsheet starting with the numbers you know, eg year, income (including pensions at whatever year they kick in), income from savings/investments and outgoings.

You will need to increase your desired income by inflation, (eg you could simply add 4% each year to your desired starting income). Likewise you can add interest to whatever your remaining "pot" is and add this to your income.

You can then play around with the numbers to see if you can achieve your desired income. 

There are more sophisticated programmes available on the internet, but at the end of the day it's all speculative regarding inflation and interest rates, but you have to start somewhere!

To my mind you are not giving yourself much of a life if you think you can live off £13k per year, and on the face of it £20k looks a little bit high given the numbers you have quoted particularly as you "want to go now"?....but each to their own, and whatever you think works for you.

NB You have not mentioed any current debt, eg mortgage, so assume you don't have any??

You also need to consider whether you intend leaving anything to anybody, or just spend down 'til it's all gone? Again a basic spreadsheet will help you plan either scenario.

Yes I need to work out a plan in more detail. 

No I don’t have any debt,

starving_artist

Albermarle said There seems to be a bit of confusion here. Maybe it is the terminology.

The way it is often done is that you take some of the tax free cash from the DC pots, along with just enough taxable income to keep you under the tax personal allowance of £12570. In this way you do not pay any tax.

Cash from savings accounts and withdrawals is not taxable income, and therefore is not included in any tax calculation.

Overall you need to do some calculations as suggested, as you do not want to use all the money up and find your self at some point trying to live just on the state pension or a bit above that.

On the other hand as said living off £13Kap would be a bit miserable but if you want to have £20K + you might be better working for another year or two to get a bigger buffer.

Yes, am still getting to grips with the terminology but am thinking along the lines you suggest.

starving_artist

What my plan doesn’t allow for is abnormal, unexpected expenditure although I would expect to be able to save a little out of 20k and gradually build up an emergency fund. 

One thing I don’t see many including in their budgets is potential care fees. I’ve heard of care home fees being £50k and upwards a year which would soon eat a chunk of most people’s funds. Even care in your home can add up. I know they say the average stay in a care home is around 2 years at the moment with people surviving longer with medical conditions it could end up being much longer, May be the numbers are just too scary to think about.

SouthCoastBoy

Care homes are very expensive and would erode most savings fairly quickly. If my wife or I ever get to that position I think the house equity will have to do the heavy lifting.

cfw1994

starving_artist said:

I've been reading all the incredible threads on this board and wondering if what I am contemplating is doable.  I could really do with the wisdom of those more experienced and knowledgeable in assessing if it's realistic.

I will be 60 later this year and qualify for full state pension from 67.  I would like to retire immediately or as soon as possible.  I've looked at my spending and reckon I need an absolute minimum of £13,000 net annual income but would ideally like £20,000. 

I have £30,000 in cash and short term fixed rate savings accounts, £105,000 in stocks and shares ISAs and £185,000 in various DC pensions.

Seems like the way to do it would be to make TFLS withdrawals from the pensions up to basic tax allowance and use cash from savings accounts to top up income until I reach the TFLS limit then use mix of drawdown and ISAs.  Obviously the years until SPA will use up a lot more of my funds.  

One concern (ironically) is that I've always enjoyed excellent health and I come from a family with long life spans (well in to the 90s)!

I think Sea_Shell’s thread proves your numbers are entirely doable for a happy life!

Take (numbers rounded down for easier reading!) £16k from your DC pot, with 25% (£4K) tax-free, keeping the ‘earnings’ under the 20% tax threshold.
Known as ‘Uncrystallised Funds Pension Lump Sum’ (UFPLS).
Then you would only need perhaps £4K from your cash or savings to get to £20k pa.

Read more at https://www.moneyhelper.org.uk/en/pensions-and-retirement/taking-your-pension/your-options-for-using-your-defined-contribution-pension-pot, & I would strongly suggest contacting Pensionwise for a free hour long discussion about pensions.  

Note that they will NOT give advice, but will hopefully clarify what options you have.  The more information you can round up prior to that meeting, the better informed you will become.

No idea what your work situation is, or whether there are any offspring/inheritance things to be considered (DC pensions are outside of an estate for tax purposes.

My suggestion is that spring is always a nice time to retire - a summer ahead of you instead of dark cold winter nights - so perhaps plan for finishing after April.  I went into May, but as a high rate taxpayer, part of that was to then get a nice tax refund by not taking any pension earnings out for my first year.
My other suggestion is to write lists.  Things you would like to dove over the next 5-10 years.  Mine included holiday ideas, but also craft/DIY/family things.  When you aren’t working, you might be able to do some of those ‘out of season’ to keep costs down!   


Good luck!

starving_artist

SouthCoastBoy said:

Care homes are very expensive and would erode most savings fairly quickly. If my wife or I ever get to that position I think the house equity will have to do the heavy lifting.

Good point