Early retirement. is this possible!

LivingTheDream73

Hi,

Am new to the forum, but have become interested in retiring early and have become absorbed into the potential for me to make this happen.

Would welcome comments on the stability of my numbers below........

Am looking for £30k per year income, and to be in a position to change working habits at 51 (which is 6 months away)

Details as follows and based around my financial position at 51:-

House, fully paid up with no mortgage circa, value £485k

No debts of any sort.

Easy access funds - £30k

ISA S&S Investment value - £210k

DC Pension pot value - £412k

Final Salary pension paying £14.2k per annum (+£45k tax free LS), available at 63 and this will rise in line with CPI each year (capped at 5% annually)

Fully paid up NI for (hopefully!) state pension.

So no debt and total assets including house of £1.182m + Final salary scheme + hopefully the state pension

So strategically. if I look at the following, ignoring inflation and assuming that investments grow 2% each year (is that a reasonable assumption). Then split into defined periods.

Age 51-57 - Use the ISA and easy access funds to bridge , so £30k per year requiring £180k withdrawal over the period, leaving the end of period at £79.5k residual after growth.

Age 57-63 - Use a combination of DC access (which should have now grown to pot of (£464k) and remaining ISA, say annually £10k Isa and £20k DC withdrawal. Thus at the end of this period leaving ISA at £25.9k residual and DC at £395.6k

Age 63 - 67 - Final Salary now active and topped up with DC Pension, so DC withdrawal of £16k per annum, therefore residual at the end of the period being £344k

Age 67 - 80 - State pension, final salary pension and any remainder from DC pension say £8k per annum, so DC residual at the end of the period being £327k

Age 80 onwards - Assume spending reduces and state / final salary pension is sufficient and will run down any DC remaining value.

From 51, my intention would be to start a hobby business (gardening / handyman etc), and any earnings made would reduce the withdrawal within the 51-to ?? age period. The overall aim is to leave a stressful career, do something I enjoy and involve my autistic son with the venture when he leaves school, is doubtful that he will ever be capable of working otherwise. In addition I want more free time for family, DIY and to travel (as a family), as such have my eye on a Camplet 😉

Unexpected or large one off costs could be covered by my ISA and / or FS lump sum if over and above that budgeted for.

At some point I will downsize house, so predict to release an additional £150k equity, this could be brought forward and used if required to bolster funds.

Partner does not work, provides full time care for our autistic son, she will have full NI record for state pension and also a small DB and DC pot, also receives DLA etc all of which have ignored for this.

3 children, 13, 15 and 17.

Views would be appreciated...........

MallyGirl

tax doesn't seem to be mentioned - you will lose some of the income to that from 57 onwards.

QrizB

Sequence of returns risk.

What happens if, say, you are 52 and the stock market has one of its moments and falls by 50%? And stays there for two years?

Your £210k ISA is now worth £105k. You take £30k out each year for two years and you only have £55k left. Even if the stock market then doubles (back to its previous value) your SSISA is now only £110k, with permanent loss of value.

Or the same thing could happen when you're 58, knocking your DC pension back.

While no-one can say when it'll happen, you can be pretty sure that you'll see two or three events like this during your retirement.

LivingTheDream73

Good comments from both, need to up the extraction rate to cover tax when withdrawing from the pensions.

SOR risk, again good point. Is the best way to manage maybe divert some funds into a lower risk holding to enable these to be pulled against during periods of dips in the market, is that the usual approach??

Marcon

LivingTheDream73 said:

Fully paid up NI for (hopefully!) state pension.

Are you sure, especially as you've been in a final salary scheme (which was almost certainly contracted out of the State Additional Pension)? You are in the 'transitional' period, so don't assume that 35 years of NI is a magic number: check! https://www.gov.uk/check-state-pension

QrizB

LivingTheDream73 said:

SOR risk, again good point. Is the best way to manage maybe divert some funds into a lower risk holding to enable these to be pulled against during periods of dips in the market, is that the usual approach??

Discussion of drawdown strategies have filled pages of posts but the challenge you have is how to de-risk (by eg. buying index-linked gilts that you hold to maturity) without also suffering too much loss of growth (real growth of index-linked gilts is typically nil, give or take).

So at 51 you could buy £180k of IL gilts, £30k maturing each year, and you'd know for certain that you'd receive an index-linked £30k pa for the next six years. But you'll miss out on your assumed 2% pa growth on that money.

Edit to add: where withdrawals are a small fraction of the pot (low single figure % per year) you can generally hold your nerve and trust to future growth making up the difference. It's less easy when you're committing to spend 75% of your available assets in six years!

LivingTheDream73

Thanks all.

NI contributions are maxed out, this is as per Government Gateway, yes was contracted out for a while.

Re SOR risk, need to put some more thought into this, sounds like a big tin of worms........

LivingTheDream73

Just double checked.

34 years of full NI contributions, state pension forecast of £203.85 with the message that you cannot improve your forecast further.

Albermarle

MallyGirl said:

tax doesn't seem to be mentioned - you will lose some of the income to that from 57 onwards.

Inflation also not mentioned . To maintain spending value of £30K then after 10 years you might need £45K ( after tax ) 
Normally you would hope that the S&S ISA and pension investments would at least keep up with inflation long term, but still can not be ignored.

LivingTheDream73

Albermarle said:

MallyGirl said:

tax doesn't seem to be mentioned - you will lose some of the income to that from 57 onwards.

Inflation also not mentioned . To maintain spending value of £30K then after 10 years you might need £45K ( after tax ) 
Normally you would hope that the S&S ISA and pension investments would at least keep up with inflation long term, but still can not be ignored.

Yes, did consider inflation and just assumed levelized growth would outstrip this, effectively zero'd out and worked on 2% growth (above inflation)

Albermarle

LivingTheDream73 said:

Albermarle said:

MallyGirl said:

tax doesn't seem to be mentioned - you will lose some of the income to that from 57 onwards.

Inflation also not mentioned . To maintain spending value of £30K then after 10 years you might need £45K ( after tax ) 
Normally you would hope that the S&S ISA and pension investments would at least keep up with inflation long term, but still can not be ignored.

Yes, did consider inflation and just assumed levelized growth would outstrip this, effectively zero'd out and worked on 2% growth (above inflation)

OK 2% is not over optimistic, but the more cautious on the forum usually work on 1% and hope to be pleasantly surprised.