High risk, high reward: A pauper's dream of early retirement.

barnstar2077

As regulars on this forum will know, I am trying to retire early while working part time, with a current salary of about £21.5K.

Five years ago (after the loss of a loved one) I started to take my life and my finances a bit more seriously.  I was 43 at the time, with a combined pension and ISA of £73.5k.  I decided to make extra contributions and to take a few risks with my investments to see what I could achieve.  I figured if it doesn’t work out I will just work for longer, which is exactly what I would have had to have done if I did nothing anyway, so nothing to lose really.

And so it is that time of year once again, where I reassess my finances, review my results from the last twelve months, and see if my early retirement plans are still on track. 

The last year has been a real test of my resolve, with some big bills (and an overspend on a holiday) testing my ability to stick to the plan and put money away every month.  Therefore I have decided not to increase my SIPP and ISA contributions this year, so this year's pay rise should give me a bit of breathing room.

Also, I have created two new spreadsheets, one which is simply a list of any spend over £100 (listing if it was spent on house maintenance, entertainment etc.)  So I can predict with greater accuracy my needs in retirement.  With the other being a drawdown plan that takes the numbers from my combined ISA and pensions growth predictions and allows me to play around with scenarios (which has been very reassuring, so far :  )

And so, without further delay, the numbers are…

I put a combined total of £9k into my ISA and pensions this year (including the government uplift and my company’s generous 10% contribution.)  I have ended up with an ISA pot of £57.4k and pensions valuing £167.7k in total (Everything adds up to £225.2k.)  This is an increase over last year's total of 21.2k (or 10.41%.)

According to my new drawdown spreadsheet I should still be on track to retire at 55 with just a modicum of growth (even just an average of 2% a year growth, plus my usual contributions, would see me hitting my target.)  I would like at least £330k+ at 55 (in seven years time) before I would consider pulling the trigger.  The earlier I can afford to go the better though.

I am still 100% equities, and plan on staying that way for the foreseeable future (and well into retirement.)  In keeping with my high risk high reward philosophy I have also recently moved everything into US stocks only (As they were down over 10% and didn’t seem to be springing back up straight away.)  Without getting into politics, I believe this dip will be temporary.  Worse case scenario it will sort itself out in just under four years time :  )

I’m not saying that my strategy is right for everyone, but feel like I have very little to lose by trying, and if nothing else it will be interesting to see what happens if you take a few risks while also maintaining paying in every month (even if I just end up as a warning to others! :  )

Peterrr

Brave move on the US focus, and good luck. It would be informative to see this added to your previous thread(s) to see your progress. All the best

barnstar2077

Peterrr said:

Brave move on the US focus, and good luck. It would be informative to see this added to your previous thread(s) to see your progress. All the best

I did debate it quite a bit, but in the end I decided that as the Paupers thread wasn't mine, and as I am the only person regularly adding to it, that I should just start another thread.

I will add the link here though, in case anyone did not read it the first time round:

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

Cus

If you 'only' need 2% growth above inflation to retire at 55, then I would have thought that the risk level to take is linked to that.  You may do a lot better with the 100% equity US focussed portfolio , but only you know how disappointed you would be if you took unnecessary risk now and were not able to retire at 55.

barnstar2077

Cus said:

If you 'only' need 2% growth above inflation to retire at 55, then I would have thought that the risk level to take is linked to that.  You may do a lot better with the 100% equity US focussed portfolio , but only you know how disappointed you would be if you took unnecessary risk now and were not able to retire at 55.

True, but I wouldn't mind retiring earlier than 55 if I can get away with it (or just having more at 55 etc.)

If it all blows up in my face it will just make for a more interesting thread.  Also, I could just be 100% ITV stock, so...

Cus

barnstar2077 said:

Cus said:

If you 'only' need 2% growth above inflation to retire at 55, then I would have thought that the risk level to take is linked to that.  You may do a lot better with the 100% equity US focussed portfolio , but only you know how disappointed you would be if you took unnecessary risk now and were not able to retire at 55.

True, but I wouldn't mind retiring earlier than 55 if I can get away with it (or just having more at 55 etc.)

If it all blows up in my face it will just make for a more interesting thread.  Also, I could just be 100% ITV stock, so...

True, hell, just stick on red, that would be a thread 😁

Juno_Moneta

barnstar2077 said:

If it all blows up in my face it will just make for a more interesting thread.  Also, I could just be 100% ITV stock, so...

Yeah ITVs not for everyone but please keep updating - interested to read about your journey. 

ali_bear

Your strategy is a sound one. When you make regular (monthly) investments you average out the ups and downs of markets at the time of purchase. Hopefully you are invested across many equities and not just a few. If you can be flexible about when you sell/liquidise/retire, or convert those equities into say an annuity, you can time it so you are not in a market slump. 

SVaz

My only thought is what will you do if and when you reach your goal and retire?  

 You won’t be able to take that level of risk for the 12 years that it’s your only source of income so I’d be interested in your plans for ‘after’. 

When will be the right time to sell a big chunk of funds for income?  

Leave it too late and risk a crash, too early and risk hurting growth,  will you do it incrementally over a few years or take it to the wire?
It’s a big gap to cover,  I’ve only got 7 years to cover and I’ve agonised over the ‘best’ way to do things and I was lucky in that I sold at the top of the market last year after a fantastic few years .  

barnstar2077

SVaz said:

My only thought is what will you do if and when you reach your goal and retire?  

 You won’t be able to take that level of risk for the 12 years that it’s your only source of income so I’d be interested in your plans for ‘after’. 

When will be the right time to sell a big chunk of funds for income?  

Leave it too late and risk a crash, too early and risk hurting growth,  will you do it incrementally over a few years or take it to the wire?
It’s a big gap to cover,  I’ve only got 7 years to cover and I’ve agonised over the ‘best’ way to do things and I was lucky in that I sold at the top of the market last year after a fantastic few years .  

My plans have changed a lot over the years, but currently my thoughts are that when I retire I will stay 100% equities in a globally diversified fund and see what happens.

As for the large gap, I do not need much to live on, so have a lot of flexibility on how much I withdraw and when.  I have done a lot of playing around with the numbers and from a psychological point of view I like the idea of starting out with a small annual stipend, say £12k - £13k that increases by say £250 - £500 a year until I get to state pension age.  That way I can ride out any early bumps in the road and have more money later on as the novelty value of being retired diminishes and my mobility decreases (as I am very happy just to go for a good walk and stop for a cuppa in a café on a day off atm.)

I plan on living on my ISA until I can access my pensions, and at that point the remainder in my ISA should still be in the region of £30k+, which I will keep as a maintenance and white goods fund.  So that even if I should only have a state pension later in life I will have a self sustaining maintenance fund so I only have to worry about keeping myself entertained in old age and not concerned at all about replacing a boiler or washing machine etc.

barnstar2077

ali_bear said:

Your strategy is a sound one. When you make regular (monthly) investments you average out the ups and downs of markets at the time of purchase. Hopefully you are invested across many equities and not just a few. If you can be flexible about when you sell/liquidise/retire, or convert those equities into say an annuity, you can time it so you are not in a market slump. 

Currently invested in Vanguards US Equity Index for my SIPP and ISA and in a variant of the HSBC Islamic Global Equity Index for my works pension.  The latter I would prefer to be more diversified, but am limited on available funds.