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

Buttercup15

Simon11 said:

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!

Appreciate you taking the time, thank you. 
Yes I've done a simulation with inflation as well. Didn't want to bore you with all the number so kept it in today's money for the sake of the discussion. Had discussions with partner who supports decision, wills etc. We haven't discussed pension and beneficiaries yet though. 

Buttercup15

Marcon said:

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.

  no worries.  

Triumph13

I hate to break it to you, but 6% plus inflation is not what many people would consider conservative.  Similarly your 4% on cash is really only 1.5% when you deduct inflation at 2.5%.

Your plans work, but only by spending down the great majority of your capital - £30k is the ball park number I was coming up with too for what might be left over.  If you want to keep the capital then  you really need to try and find an additional income, if your health condition will allow it.  Seven hours a week at minimum wage would probably be enough to let you keep the withdrawals from your capital to a sustainable level.

Bostonerimus1

You can make assumptions for growth and inflation where your plan works, but it's equally possible to come with scenario's where it fails. When you have a small pension pot you have to be more conservative with your capital as your circumstances are very sensitive to market drops, however, this also limits the income you might expect and budgeting becomes very important.

Buttercup15

Triumph13 said:

I hate to break it to you, but 6% plus inflation is not what many people would consider conservative.  Similarly your 4% on cash is really only 1.5% when you deduct inflation at 2.5%.

Your plans work, but only by spending down the great majority of your capital - £30k is the ball park number I was coming up with too for what might be left over.  If you want to keep the capital then  you really need to try and find an additional income, if your health condition will allow it.  Seven hours a week at minimum wage would probably be enough to let you keep the withdrawals from your capital to a sustainable level.

Thanks Triumph. Will run my numbers again. 

Buttercup15

Bostonerimus1 said:

You can make assumptions for growth and inflation where your plan works, but it's equally possible to come with scenario's where it fails. When you have a small pension pot you have to be more conservative with your capital as your circumstances are very sensitive to market drops, however, this also limits the income you might expect and budgeting becomes very important.

Yes, I see what you mean. I have made my own spreadsheet and also, used some FIRE calculators which give me an 80% success rate (so, 20% chance of running out of money, I appreciate this could mean being left with some but not a lot of money). I'll add a "disaster scenario" to my spreadsheet and see how that works out. 
What long term stock market growth would you consider conservative? I'm invested in global index funds like Global All Cap. 

Pat38493

I might have missed it but I didn’t see any info about your living arrangements - do you own your property?  Many people take the view that they will use the equity in their property to fund late life care needs, either by downsizing the property or by doing an equity release.  This is partly because on average less than 25% of people (even a lot less depending which survey you believe) actually need significant periods in care or nursing homes, albeit that your probability might be higher depending on your health condition.

Also you don’t say whether you are married or in a civil partnership with your partner, but this could also be relevant to any risks that you are running of having increased housing expenses at some future point.

Have you checked your state pension entitlement at gov.uk to be sure you have (or will have by SP age) the full amount?

Ref the comments from Triumph - 6% withdrawal rate on an ongoing basis over decades is too high.  However if you say it’s only for the first few years, and then drops a lot after that, it might be fine.  My current early retirement cash flow plan has a ridiculously high % withdrawal rate for the first 2 years, but then after 10 years it is almost zero, so the famous 4% rule is not really applicable to such situations.

Bostonerimus1

Buttercup15 said:

Bostonerimus1 said:

You can make assumptions for growth and inflation where your plan works, but it's equally possible to come with scenario's where it fails. When you have a small pension pot you have to be more conservative with your capital as your circumstances are very sensitive to market drops, however, this also limits the income you might expect and budgeting becomes very important.

Yes, I see what you mean. I have made my own spreadsheet and also, used some FIRE calculators which give me an 80% success rate (so, 20% chance of running out of money, I appreciate this could mean being left with some but not a lot of money). I'll add a "disaster scenario" to my spreadsheet and see how that works out. 
What long term stock market growth would you consider conservative? I'm invested in global index funds like Global All Cap. 

80% success isn't a level that most people would accept and a common target success rate for a plan is 95%. For the stock part of the portfolio I'd probably go with 6% average annual return, but obviously the standard deviation on that and the sequence of returns is key for the success rate, and put in 3% for inflation.

barnstar2077

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?

In your situation I would start living off of the money from my ISA today and put as much of my salary as I could into my pension.  I would do that until I was either able to access the pension or I just couldn't take it any more.  You may find that having a set date of retirement (your 55th birthday) will help greatly in getting through the day to day grind.

Then at 55 make sure that you drawdown at least your full personal allowance from the pension until it is all gone.

If you have read the Paupers thread, mentioned previously, then you will know that I am not a proponent of waiting until you can live on 3.5% of your assets until you decide to retire, but I have increased my retirement pot goal a couple of times since my plans first inception.  Mainly because of the affects of covid and the invasion of Ukraine on food prices, utilities, and public transport costs etc, and because when I dropped down in days at my current job I realised that I am now spending more money.  I hadn't factored in that with more spare time on my hands I was more likely to spend money keeping myself entertained.  My hobbies are pretty cheap really, mainly walking and hot drinks in cafes with friends and family, but but every bus fare, lunch etc adds up.

hugheskevi

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). 

If you joined before 2006, that date suggests you could have a protected age that is under 55. It might be worth double checking what the minimum pension age is unless you are certain it is 55.