Is it worth paying into a pension when you're aiming for early retirement?

eskbanker

FIREwork86 said:

@Marcon Current situation is: We're 38/39. We have £300K in investments (S&S retirement tracker ISAs, premium bonds, fixed-term savings). We have £350K-ish house with no mortgage. We save around £80-85K per year which is unlikely to change.

You mentioned an expectation of "£45K per year income which interest and draw down should give" but £300K won't last many years at that rate of depletion - I was assuming you had seven figures invested!  Having said that, another ten years of £80-85K would obviously change that equation, but if you're currently earning enough to save that sort of money, are you sure that £45K (gross) would be an adequate annual income once retired, i.e. have you modelled changes in spending patterns between now and then?

Alexland

Cobbler_tone said:

Whilst it needs to be inclusive, the majority of 'common folk' don't earn £200k a year or save £80k a year and retiring after they leave school etc.

I'm waiting for the first poster at primary school looking for tax efficient ways to retire at secondary maybe sometime during GCSEs (depending on their first year of module results) using a ladder of fixed term child saver accounts before they can get access to the JISA at 18 to start income drawdown possibly using SMT as a core holding or maybe Gilts if they offer an even higher potential return by then.

FIREwork86 said:

I know I can access my workplace pension earlier, but that wouldn't be the full amount.

We'd be funding the years from 48 to 66 through interest on investments and draw down.

As a serious comment have you considered if you are able to make additional contributions to your workplace scheme in order to offset the reduction you would suffer from taking it earlier? If so it might be worth doing the maths on if that is better than living off a SIPP etc during that period.

FIREwork86

eskbanker said:

FIREwork86 said:

@Marcon Current situation is: We're 38/39. We have £300K in investments (S&S retirement tracker ISAs, premium bonds, fixed-term savings). We have £350K-ish house with no mortgage. We save around £80-85K per year which is unlikely to change.

You mentioned an expectation of "£45K per year income which interest and draw down should give" but £300K won't last many years at that rate of depletion - I was assuming you had seven figures invested!  Having said that, another ten years of £80-85K would obviously change that equation, but if you're currently earning enough to save that sort of money, are you sure that £45K (gross) would be an adequate annual income once retired, i.e. have you modelled changes in spending patterns between now and then?

I'm sorry if I wasn't clear. I mean we have £300K invested now which we don't touch at all. We add to this each year. The £45K income would be after the age of 48. At that point, we're hoping to have £900K-£1m saved which, between interest and drawing down should give us a £45K annual income. Sorry if I wasn't clear.

Yes, I think £45K per year would be enough. At the moment, we spend about £25K per year. While our holiday expenditure will increase, work-related costs will disappear. So we feel an extra £20K on top of what we spend now should be ample. 

QrizB

FIREwork86 said:

The £45K income would be after the age of 48. At that point, we're hoping to have £900K-£1m saved which, between interest and drawing down should give us a £45K annual income.

I'd suggest that a drawdown rate of 4.5-5% at age 48 could be rather optimistic. 3% might be more realistic.

What success rate does eg. cFIREsim suggest when you model it?

Bostonerimus1

FIREwork86 said:

@Marcon Current situation is: We're 38/39. We have £300K in investments (S&S retirement tracker ISAs, premium bonds, fixed-term savings). We have £350K-ish house with no mortgage. We save around £80-85K per year which is unlikely to change.

To be retiring at 48 you'll need enough in ISAs and GIAs to span the gap to pension and SP age. It's probably a good idea to use both pensions and ISAs as much as you can to maximize your tax saving opportunities. So you should be creating a spreadsheet or using something like cFIRESim to model you spending, portfolio balances and income generation. Historically to safely generate an index linked 45k from an equity and bond portfolio over a period of maybe 50 years you'll probably need 1.5M to 2M, but of course SP needs to be factored in.

HedgehogRulez

Would you expect to have full SP entitlement by age 48? Something to consider

MEL1981

One big factor for us is children. Without wanting to ask about your personal circumstances if you have young children then it might be a crystal ball for your outgoings as they become older and / or university kicks in. Will the 45k be enough to cover?

Good luck with your plans and commitment to save for the next 10 years! 

Mel

Ibrahim5

Student finance is weird. Say you budget £10k per year at university. If you are still working they get a £4767 loan. If you have retired they get a £10227 loan. The repayments are the same and according to Martin Lewis 83% will never pay it back. £20227 should be enough for living expenses even in London.

lisyloo

QrizB said:

FIREwork86 said:

The £45K income would be after the age of 48. At that point, we're hoping to have £900K-£1m saved which, between interest and drawing down should give us a £45K annual income.

I'd suggest that a drawdown rate of 4.5-5% at age 48 could be rather optimistic. 3% might be more realistic.

What success rate does eg. cFIREsim suggest when you model it?

I think we need to bear in mind this is a fixed period (48-67).
A typical safe withdrawal rate caters for the fact that you don't know how long your going to live e.g. 30-40 years.
I assumed this was the reason a higher rate was used.

GrubbyGirl_2

You're looking at £15k each looking OK in 19 years time except in 19 years time it won't look so great.  If you go back 19 years then £8,670 was equivalent to £15k today (Bank of England have a calculator) so my the time you retire your £15k will likely be half the value it is today