Should I retire in August or December?

Pat38493

I am just contemplating when to actually hand in my notice.

I am using Timeline and Voyant Go to plan my retirement.  

According to Timeline, I can retire at January 2025 with my complete spend intact and 100% chance of success with zero failures.

If I already retire at the end of August this year, I can get 100% success with zero failures by putting in a 4% spending cut from 2029 onwards.  However if I keep the planned spending unchanged, the success rate is 96%, but the first failure is at age 65 (wife's SP age and 2 years out from my SP)

From age 67, more than 95% of our required spend is covered by DB/SP sources.

I'm wondering how many posters out there would feel comfortable with that risk of possibly having to take a small spending cut for a few years, but knowing that you can keep spending on highest planned level for at least the next 4.5 years, most likely longer if the first few years returns are above average.

tacpot12

I would be entirely comfortable with the possiblity of having to take a small cut. The tools that use historic stockmarket performance have a great many years data for when the stock market performance is very good. The most likely outcome of your retirement is that you will have way too much money when you die. Only the one or two worst years (ever) see your plan failing. The reality is that any retirement plan is likely to have to be tweaked over the years to reflect new information.

I started drawing on my retirement portfolio retired at age 55, based on simulations that predicted a 4% chance of failure at age 100. I knew I had little chance of making it to that age, but even if I did, the 45 years in between retiring and dying at 100 would give ample time to make adjustments. 100% of my income needs are covered by State& DB pensions and ISA and rental income from age 67. I'm 60 now and my pension portfolio is only worth a little more than I paid for it, but I've had more than five years of income from it.

I recommend retiring as early as you want to.

Pat38493

tacpot12 said:

I would be entirely comfortable with the possiblity of having to take a small cut. The tools that use historic stockmarket performance have a great many years data for when the stock market performance is very good. The most likely outcome of your retirement is that you will have way too much money when you die. Only the one or two worst years (ever) see your plan failing. The reality is that any retirement plan is likely to have to be tweaked over the years to reflect new information.

I started drawing on my retirement portfolio retired at age 55, based on simulations that predicted a 4% chance of failure at age 100. I knew I had little chance of making it to that age, but even if I did, the 45 years in between retiring and dying at 100 would give ample time to make adjustments. 100% of my income needs are covered by State& DB pensions and ISA and rental income from age 67. I'm 60 now and my pension portfolio is only worth a little more than I paid for it, but I've had more than five years of income from it.

I recommend retiring as early as you want to.

Thanks that's very interesting.

It sounds like your situation is not that dissimilar - the only downside is that because the withdrawals are mostly in the first 11 years, all of the 3% of failures all come before age 67 - once I both our state pensions are in payment there is next to nothing required from the DC funds so it won't fail after that.

The tricky part is, if you were in one of the 3% failure scenarios, how soon would you know about it?  Looking at the data available from the tool, I can see that at least in the first 3 years, one of the failure scenarios was tracking above the median up until about year 4, so in the absolute worst case (1973 if I remember correctly), you woud not realise you were in worst case scenario until you were 4-5 years in.  However - since my August plan calls for a reduction after 4 years anyway, I guess I would be covered, and it might be that the simulations look better even after 4 years.

Sarahspangles

I can’t visualise how far you are from SPA, but if you could see a shortfall looming how feasible would it be to get a part time job?

August is possibly a nicer time to start the adjustment to being retired?

Pat38493

Sarahspangles said:

I can’t visualise how far you are from SPA, but if you could see a shortfall looming how feasible would it be to get a part time job?

August is possibly a nicer time to start the adjustment to being retired?

I am 55 so if I go in August I would be about 11.5 years from SPA.

For sure I could certainly get a part time job if needed.  I would hope that there are lots of part time posts around even if it's just on minimum wage.

theoretica

How generous is your spending planning?  Only you can say how much you would mind needing to trim it down.

Sarahspangles

Pat38493 said:

For sure I could certainly get a part time job if needed.  I would hope that there are lots of part time posts around even if it's just on minimum wage.

It’s one reason I will be saying I’m semi-retired, rather than burning my bridges. I currently do project work, so if I needed a few months’ income I’d look for an ‘assistant’ role to the one I do now. Or a maternity cover.

leosayer

So you have a 1 in 20 chance that you might have to cut your spending by 4%. I could quite easily live with that but only you can answer whether a 4% reduction in spending is material to you or not. For example does it mean one less Michelin starred meal per month or living on beans for one month per year?

It's not clear when you intend to start your DB but does your plan include the flexibility of starting your DB earlier should the 1 iin 20 event occur? This may help to avoid needing to sell so much during a bear market. 

I know from experience that it's easy to get analysis paralysis from retirement finance planning. In the end though, the decision often becomes an emotional or circumstantial one rather than financial.

Pat38493

leosayer said:

So you have a 1 in 20 chance that you might have to cut your spending by 4%. I could quite easily live with that but only you can answer whether a 4% reduction in spending is material to you or not. For example does it mean one less Michelin starred meal per month or living on beans for one month per year?

It's not clear when you intend to start your DB but does your plan include the flexibility of starting your DB earlier should the 1 iin 20 event occur? This may help to avoid needing to sell so much during a bear market. 

I know from experience that it's easy to get analysis paralysis from retirement finance planning. In the end though, the decision often becomes an emotional or circumstantial one rather than financial.

The plan already includes putting the DB into payment early.  If I don't do that the failure rate is much higher - in other words putting the DB into payment early allows me to retire earlier.  My wife's DB is already in payment at full rate but retired early due to MHO status.  Putting DB into payment earlier plus paying off another chunk of the mortgage with TFC, also keeps open the option to go to part time working and still not be drawing on any DC pots beyond the TFC.

Even with the DB at the lower amount taking it 9 years early, the total net money after both SPs kick in should still cover all, or at least more than 95% of our requested long term spend.

I am also most likely going to take the lump sum from the DB partly for tax planning reasons due to high planned spend in the early years.

A separate issue is that because of the importance of spouse DB pension in our arrangements, I need to have enough life insurance in place to cover any losses from early death of one of use for at least a few years to allow time to rearrange finances / living arrangements if needed.  At the moment this is covered by keeping the mortgage insurance in place as it pays out a lot more than the remaining mortgage balance but at some point it will need to be re-arranged.  In any case there is no way I would want to stay in my current home long term as it would be way too big for one person and wife feels the same..

Also I keep tending to forget that my annual budget includes a £2.5K amount for capital spends, which in some years will just be set aside, so that on its own pretty much makes the 4% difference.

enthusiasticsaver

A 4% leeway in 5 years time is nothing.  That can easily be made up by adjusting expenditure, better than planned investment performance or by other life changes like house moves, inheritance etc.  It depends really on what your level of income will be though.  We just worked on a minimum of £2k a month and as soon as our anticipated retirement income hit that we bit the bullet and went at age 58 for my husband and 57 for me. We had already allowed for a buffer in investments and savings and we had our  DB lump sums.  We knew that £2k a month would more than cover our essentials and a few non essentials and in fact looking back at it we could probably have afforded to go a few years earlier. 

I don't think you can ever guarantee 100% as you have no knowledge of what the stock market will do unless all your income is covered by DB income. Presumably you are building a buffer into your anticipated spend or have an idea of what sort of retirement you want?  Will you want to travel or move house?