Retiring early with a small "pot": can it be done?

Buttercup15

I'm hoping to read the experience from others who have retired early on a small retirement pot, or a small monthly "income" after retirement. I am desperate to stop working and although I think my numbers work on paper, I need reassurance it can be done. 

For context, I am in my early 50s, currently self-employed, working part-time. I have a long term health condition which is making it harder and harder to work. I have already reduced my hours to suit this but still have many days I feel I cannot do another day of it. Due to the nature of the work, I cannot reduce hours further, and anyway, I feel I need to be "mentally free" from work, if that makes sense. 

I have been tracking my expenses for years and anticipate I need £15k per year. This includes a couple of holidays in UK / Europe and a small amount for eating out, a couple of hobbies, so could be reduced by a few hundreds if desperate. No mortgage or car. I don't spend much on clothes/tech/subscriptions. £4k a year would come from PIP (for health condition mentioned). So I need to find £11k a year. 

I have a DC pension I can access at 55, currently worth £25k so anticipating will be about £30k+ in a few years. A S&S ISA worth £120k and savings of £45k (3 years of expenses + a bit more for contingency). 
My plan would be to use a cash ladder, where I use the savings at the rate of £11k a year (to add to the PIP) while I let the S&S ISA grow. At 55, start drawing down the DC pension so I can take less from savings. At some point, I would have to dig into the S&S ISA (a mix of taking dividends and selling some of the capital) to replenish the cash ladder savings.
Do that over 12 years until I hit 67 and state pension kicks in. 

The aim is not to drain all of the savings/S&S ISA. Even though the health condition doesn't affect my life expectancy, I may need some form of help at home or care in my 70s. So I want to make sure some of that pot is still there when I hit 67. With sate pension kicking in then, the S&S ISA could be left to grow again, if depleted.
Having witnessed the quality of care when you depend on local authority funding, I need the option to pay for better care. I also have adult children and it would be nice to leave them something or help with buying property etc. Not the priority but a side bonus if markets are favourable. 
I think on paper the numbers add up but I would use a withdrawal rate of about 6.5% for a few years so I need to get over the mental barrier of seeing the pot of money go down and spending without a traditional income. 

So, is anyone managing on very small numbers? I am worried about taking a big leap of faith. Anything that I have missed?

Albermarle

This older thread could be of interest

A Paupers Pension Tale (Not many nuts to dig up) — MoneySavingExpert Forum

Simon11

 Helpful if you could share your age & your condition, to allow suitable advice.

But assuming you are 52 now, you have 15 years till the age of 67.

Thus 15 years x £11k would cost £165k, leaving you £30k in savings upon the age of 67.

It is certainly doable on a shoe string budget for the rest of your life, but would leave you adrift if you had any unexpected expenditure such as a new kitchen, roof ect and unlikely to be anything for adult children (apart from your home?).

If you could find a flexible part-time on zero hour contract that you can dip into & out as your health/ personal circumstances allow, that may give you that extra cushion?

You should also consider risks to the markets- with S&S ISA worth £120k. What happens to your plan if the fall by 20% in the next several years? What would you do?

Buttercup15

Albermarle said:

This older thread could be of interest

A Paupers Pension Tale (Not many nuts to dig up) — MoneySavingExpert Forum

Interesting thread, thank you

Marcon

Buttercup15 said:

I'm hoping to read the experience from others who have retired early on a small retirement pot, or a small monthly "income" after retirement. I am desperate to stop working and although I think my numbers work on paper, I need reassurance it can be done. 

For context, I am in my early 50s, currently self-employed, working part-time. I have a long term health condition which is making it harder and harder to work. I have already reduced my hours to suit this but still have many days I feel I cannot do another day of it. Due to the nature of the work, I cannot reduce hours further, and anyway, I feel I need to be "mentally free" from work, if that makes sense. 

I have been tracking my expenses for years and anticipate I need £15k per year. This includes a couple of holidays in UK / Europe and a small amount for eating out, a couple of hobbies, so could be reduced by a few hundreds if desperate. No mortgage or car. I don't spend much on clothes/tech/subscriptions. £4k a year would come from PIP (for health condition mentioned). So I need to find £11k a year. 

I have a DC pension I can access at 55, currently worth £25k so anticipating will be about £30k+ in a few years. A S&S ISA worth £120k and savings of £45k (3 years of expenses + a bit more for contingency). 
My plan would be to use a cash ladder, where I use the savings at the rate of £11k a year (to add to the PIP) while I let the S&S ISA grow. At 55, start drawing down the DC pension so I can take less from savings. At some point, I would have to dig into the S&S ISA (a mix of taking dividends and selling some of the capital) to replenish the cash ladder savings.
Do that over 12 years until I hit 67 and state pension kicks in. 

The aim is not to drain all of the savings/S&S ISA. Even though the health condition doesn't affect my life expectancy, I may need some form of help at home or care in my 70s. So I want to make sure some of that pot is still there when I hit 67. With sate pension kicking in then, the S&S ISA could be left to grow again, if depleted.
Having witnessed the quality of care when you depend on local authority funding, I need the option to pay for better care. I also have adult children and it would be nice to leave them something or help with buying property etc. Not the priority but a side bonus if markets are favourable. 
I think on paper the numbers add up but I would use a withdrawal rate of about 6.5% for a few years so I need to get over the mental barrier of seeing the pot of money go down and spending without a traditional income. 

So, is anyone managing on very small numbers? I am worried about taking a big leap of faith. Anything that I have missed?

I think that's very optimistic given your age now and the slim resources at your disposal. If you want the option to pay for better care, stopping work in your early 50s is unlikely to give you that option - but sometimes it's a case of live now and worry about the future later, especially if your health condition could be life-limiting.

Buttercup15

Simon11 said:

 Helpful if you could share your age & your condition, to allow suitable advice.

But assuming you are 52 now, you have 15 years till the age of 67.

Thus 15 years x £11k would cost £165k, leaving you £30k in savings upon the age of 67.

It is certainly doable on a shoe string budget for the rest of your life, but would leave you adrift if you had any unexpected expenditure such as a new kitchen, roof ect and unlikely to be anything for adult children (apart from your home?).

If you could find a flexible part-time on zero hour contract that you can dip into & out as your health/ personal circumstances allow, that may give you that extra cushion?

You should also consider risks to the markets- with S&S ISA worth £120k. What happens to your plan if the fall by 20% in the next several years? What would you do?

Thanks for the reply. 51 now. I won't share health details to keep it totally anonymous.  
Unexpected house expenditure are covered by partner. I didn't include her as we keep separate finances (personal choice, previous divorces, children from previous relationships etc.). She has no plans to retire soon and earns more so is happy to do so. We split bills and general overheads. 

I didn't calculate it as 11k x 15 leaving 30k. The S&S ISA should grow and the savings bring in about 4% interest. So even with a conservative 6% growth on the S&S ISA, it shouldn't get as low as 30k. 
Yes I have considered the S&S ISA is more high-risk. That's why I use a cash ladder. If the portfolio drops in value, I would do nothing. Wait for the market to recover. This can take up to a couple of years, this is why you use the cash ladder in the meantime, while the portfolio recovers. If or when the market is up, you can choose to sell some of the capital to top up the cash ladder. When the market is down, don't touch it and live off the cash ladder. I've held the S&S for a few years and am already 35% up so can take a bit of a drop. According to my plan, I wouldn't touch it for another 4 years anyway. 

Marcon

Buttercup15 said:

Simon11 said:

 Helpful if you could share your age & your condition, to allow suitable advice.

But assuming you are 52 now, you have 15 years till the age of 67.

Thus 15 years x £11k would cost £165k, leaving you £30k in savings upon the age of 67.

It is certainly doable on a shoe string budget for the rest of your life, but would leave you adrift if you had any unexpected expenditure such as a new kitchen, roof ect and unlikely to be anything for adult children (apart from your home?).

If you could find a flexible part-time on zero hour contract that you can dip into & out as your health/ personal circumstances allow, that may give you that extra cushion?

You should also consider risks to the markets- with S&S ISA worth £120k. What happens to your plan if the fall by 20% in the next several years? What would you do?

Thanks for the reply. 51 now. I won't share health details to keep it totally anonymous.  

Unless you have a birthday before 6 April this year, or you can access your pension on the basis you are too ill to work again, you can't access your DC pension until you are 57 - the minimum age changes from 55 to 57 on 6 April 2028. 

Buttercup15

Marcon said:

Buttercup15 said:

I'm hoping to read the experience from others who have retired early on a small retirement pot, or a small monthly "income" after retirement. I am desperate to stop working and although I think my numbers work on paper, I need reassurance it can be done. 

For context, I am in my early 50s, currently self-employed, working part-time. I have a long term health condition which is making it harder and harder to work. I have already reduced my hours to suit this but still have many days I feel I cannot do another day of it. Due to the nature of the work, I cannot reduce hours further, and anyway, I feel I need to be "mentally free" from work, if that makes sense. 

I have been tracking my expenses for years and anticipate I need £15k per year. This includes a couple of holidays in UK / Europe and a small amount for eating out, a couple of hobbies, so could be reduced by a few hundreds if desperate. No mortgage or car. I don't spend much on clothes/tech/subscriptions. £4k a year would come from PIP (for health condition mentioned). So I need to find £11k a year. 

I have a DC pension I can access at 55, currently worth £25k so anticipating will be about £30k+ in a few years. A S&S ISA worth £120k and savings of £45k (3 years of expenses + a bit more for contingency). 
My plan would be to use a cash ladder, where I use the savings at the rate of £11k a year (to add to the PIP) while I let the S&S ISA grow. At 55, start drawing down the DC pension so I can take less from savings. At some point, I would have to dig into the S&S ISA (a mix of taking dividends and selling some of the capital) to replenish the cash ladder savings.
Do that over 12 years until I hit 67 and state pension kicks in. 

The aim is not to drain all of the savings/S&S ISA. Even though the health condition doesn't affect my life expectancy, I may need some form of help at home or care in my 70s. So I want to make sure some of that pot is still there when I hit 67. With sate pension kicking in then, the S&S ISA could be left to grow again, if depleted.
Having witnessed the quality of care when you depend on local authority funding, I need the option to pay for better care. I also have adult children and it would be nice to leave them something or help with buying property etc. Not the priority but a side bonus if markets are favourable. 
I think on paper the numbers add up but I would use a withdrawal rate of about 6.5% for a few years so I need to get over the mental barrier of seeing the pot of money go down and spending without a traditional income. 

So, is anyone managing on very small numbers? I am worried about taking a big leap of faith. Anything that I have missed?

I think that's very optimistic given your age now and the slim resources at your disposal. If you want the option to pay for better care, stopping work in your early 50s is unlikely to give you that option - but sometimes it's a case of live now and worry about the future later, especially if your health condition could be life-limiting.

Yes you've hit the nail on the head. While it won't shorten my life, I'm worried I won't be able to do what I want to do later in life and would like to enjoy total freedom and control of my time now. Such a dilemma. 

Buttercup15

Marcon said:

Buttercup15 said:

Simon11 said:

 Helpful if you could share your age & your condition, to allow suitable advice.

But assuming you are 52 now, you have 15 years till the age of 67.

Thus 15 years x £11k would cost £165k, leaving you £30k in savings upon the age of 67.

It is certainly doable on a shoe string budget for the rest of your life, but would leave you adrift if you had any unexpected expenditure such as a new kitchen, roof ect and unlikely to be anything for adult children (apart from your home?).

If you could find a flexible part-time on zero hour contract that you can dip into & out as your health/ personal circumstances allow, that may give you that extra cushion?

You should also consider risks to the markets- with S&S ISA worth £120k. What happens to your plan if the fall by 20% in the next several years? What would you do?

Thanks for the reply. 51 now. I won't share health details to keep it totally anonymous.  

Unless you have a birthday before 6 April this year, or you can access your pension on the basis you are too ill to work again, you can't access your DC pension until you are 57 - the minimum age changes from 55 to 57 on 6 April 2028. 

I called the pension provider and they said my policy had a protected age of 55 and that the new rule wouldn't apply. I was surprised and checked their website as well which confirmed that (you have to have been enrolled prior to 2006 or 2010, can't remember). 

Simon11

Buttercup15 said:

Thanks for the reply. 51 now. I won't share health details to keep it totally anonymous.  

Unexpected house expenditure are covered by partner. I didn't include her as we keep separate finances (personal choice, previous divorces, children from previous relationships etc.). She has no plans to retire soon and earns more so is happy to do so. We split bills and general overheads. 

I didn't calculate it as 11k x 15 leaving 30k. The S&S ISA should grow and the savings bring in about 4% interest. So even with a conservative 6% growth on the S&S ISA, it shouldn't get as low as 30k. 
Yes I have considered the S&S ISA is more high-risk. That's why I use a cash ladder. If the portfolio drops in value, I would do nothing. Wait for the market to recover. This can take up to a couple of years, this is why you use the cash ladder in the meantime, while the portfolio recovers. If or when the market is up, you can choose to sell some of the capital to top up the cash ladder. When the market is down, don't touch it and live off the cash ladder. I've held the S&S for a few years and am already 35% up so can take a bit of a drop. According to my plan, I wouldn't touch it for another 4 years anyway. 

Firstly, you also need to consider inflation in your £11k target. You can't take the upside from investment growth & interest, if you don't consider inflation on the amount you require each year. Either base on today's money or consider both in the future.

Sharing a bit more detail is quite helpful and explains the need for a low amount per year. With separate finances, it's also worth thinking about scenarios- what if you break up, what if your partner passes away (are you in her will, will you get her pension to pay the house bills) ect

Finally its also really important to include your partner in these discussions as it currently looks that you only focus on yourself. However, based on what you have said, it is certainly doable with their full support and bearing in mind you want to take advantage of your health now to enjoy retirement!

Marcon

Buttercup15 said:

Marcon said:

Buttercup15 said:

Simon11 said:

 Helpful if you could share your age & your condition, to allow suitable advice.

But assuming you are 52 now, you have 15 years till the age of 67.

Thus 15 years x £11k would cost £165k, leaving you £30k in savings upon the age of 67.

It is certainly doable on a shoe string budget for the rest of your life, but would leave you adrift if you had any unexpected expenditure such as a new kitchen, roof ect and unlikely to be anything for adult children (apart from your home?).

If you could find a flexible part-time on zero hour contract that you can dip into & out as your health/ personal circumstances allow, that may give you that extra cushion?

You should also consider risks to the markets- with S&S ISA worth £120k. What happens to your plan if the fall by 20% in the next several years? What would you do?

Thanks for the reply. 51 now. I won't share health details to keep it totally anonymous.  

Unless you have a birthday before 6 April this year, or you can access your pension on the basis you are too ill to work again, you can't access your DC pension until you are 57 - the minimum age changes from 55 to 57 on 6 April 2028. 

I called the pension provider and they said my policy had a protected age of 55 and that the new rule wouldn't apply. I was surprised and checked their website as well which confirmed that (you have to have been enrolled prior to 2006 or 2010, can't remember). 

Oops! Apologies.