Can I retire now? (age 40)

Storcko14

jimi_man said:

Just some comments/questions that occur to me. (I'm assuming growth = inflation so all figures are in today's numbers).

No matter what anyone says, if you retire at age 40 then at age 50-55 you decide you want to go back to work for a bit, that's going to be difficult. 10-15 years out of work is a huge gap and doesn't look good on a CV - employers don't like gaps for one thing. Also many industries will have changed hugely - often in terms of tech and there might be a significant learning gap. Just worth bearing in mind. I know some people who have tried to get back to work after a long time out of work and it's not easy.

In terms of getting a mortgage, how would this work in practical terms? Let's say they give you the £200k loan based on your savings. You will then have £200k to live on but you'll have to pay the interest back on a monthly basis. You can't get an offset mortgage with pension savings AFAIK and you obviously can't delay payback of the interest. So, I'm guessing that will be another £7500 a year maybe?

Just a general point. You say that you live a relatively frugal lifestyle, (though that's a slightly meaningless term since it's quite subjective), but how does that translate to things like holidays, treats for your child, days out and stuff? If I was having to tighten my belt and reduce family/child spending/opportunities because I couldn't be bothered to work then personally, I'd feel a little guilty. It's a different kettle of fish if your figures were very healthy, or you're twenty years older but that's not the case here and the figures are marginal. My wife and I are just retired at 59, we consider we are relatively low spenders and yet £32k net wouldn't be enough. 

The bit that would concern me the most is, that having made the decision to retire at age 40 with £x amount of savings to last until the first pension became eligible, you are then immediately blowing 40% of that £x on purchasing a new house, which if nothing else is a hugely illiquid asset. That seems foolish to me.

Then once you reach 57 and you can access your £400k pension (£600k minus the £200k which will have paid of the mortgage) that will have to do for the rest of your life along with SPs. Is that enough? It does look slightly more encouraging than the figures from age 40, which look decidedly poor. 

I don't know about others, but from 40 onwards I really started to plough more money into savings as financially we got in a better position, but you're giving that period up in order to live frugally? Why? The one thing you haven't said is why you are giving up work, what's the reason behind it?

Spot on. early 40s to late 50s for me was peak earning and also I was getting better at what I did which meant less stress amongst other things.  I could probably have retired in my early 50s but I was enjoying work and the reassurance of the financial snowball increasing in size.

Final thought.  Even though I enjoyed work mostly I hated the January blues period and realised it wouldn't be smart to ever make life altering choices then.

Steve_s1

I was in a similar financial situation and took the plunge to retire early a few years ago, but aged 55, not 40!

Absolutely no regrets; it's so liberating having time to do the things I couldn't do before, due to work. But having said that, putting the money aspects to one side, you do need something to retire to, so you are not just leaving work. This is even more important if you want to retire at 40. Especially at this time of year, when the weather is rubbish and days are short, you have a lot of time to fill. Luckily I have plenty of hobbies / interests and my wife no longer works, but loneliness and boredom can be an issue, especially if you are used to a busy work life.

Youtube has a lot of videos about early retirement and is worth a look.

guymo

It seems to me OP could quit work now and experiment with a new lifestyle to see how it works out, without mentally labelling it as a "retirement", so that returning to employment a couple of years later is still an option that doesn't feel like a failure. Cut the shackles for three years and see what it's like. Why not?

Niv

Really interesting thread. 

I was initially a hard no on if it could be done. But after reading through I think its doable but feel its heavily based on everything going to plan with few if any bumps. If the OP already lives on £32k then the biggest shock to that would be not receiving that monthly income and seeing overall assets increase in value which could have a negative impact.

OP, I don't think you have fully outlined this so suggest you also consider what you would do with your new found time. I very much doubt you want to turn your hobby into 'full time' hours, so what are you going to do that's low cost? Big garden and like gardening for example is quite a time sink, but its not for everyone.

Personally, for me the numbers are too tight and I think that even with my time sink hobbies I would struggle with satisfactorily filling my time. For the OP, I think that doing the house move before retiring would paint a much rosier picture.

Ibrahim5

I think it will definitely work. Just get the wife working full time on minimum wage for the next 20 years. Easy.

dont_use_vistaprint

ent_moot said:

I'm planning to retire in the next few months, and wanted to sanity-check that it sounds reasonable, given my situation: 

Equity: 
- house worth ~500k 
- ISA & cash, and shares  ~500k
- private pension ~600k (not accessible for 17 years)
- state pension (not accessible for 28 years)

(not guaranteed)
- mum owes me 50k
- inheritance of ~60k 
- wife might work part-time for ~min wage for a few years

Debt:
- nothing, but we are planning to buy a house worth ~700k - so would spend £200k from ISA & cash to close the game between the value of our current house.

Lifestyle: 
- We live a relatively frugal lifestyle. We have 1 child.  We plan to live on a little below the average UK household income , at about 32k (obviously will adjust for inflation in the future).  I'm assuming this should be comfortable since we have no mortgage to pay.

I have modelled it all in a very sophisticated spreadsheet, but would appreciate someone sanity checking that I've not 

Thanks in advance,

You have a million in cash & stocks, half a million in property. People will tell you of course  you need to continue to be part of the system and go to work but of course you don't. I retired at 52 ,my kids will all retire at 40 or younger. There's more to life than work if you run out of money just get a job for a while or downsize 

MeteredOut

dont_use_vistaprint said:

ent_moot said:

I'm planning to retire in the next few months, and wanted to sanity-check that it sounds reasonable, given my situation: 

Equity: 
- house worth ~500k 
- ISA & cash, and shares  ~500k
- private pension ~600k (not accessible for 17 years)
- state pension (not accessible for 28 years)

(not guaranteed)
- mum owes me 50k
- inheritance of ~60k 
- wife might work part-time for ~min wage for a few years

Debt:
- nothing, but we are planning to buy a house worth ~700k - so would spend £200k from ISA & cash to close the game between the value of our current house.

Lifestyle: 
- We live a relatively frugal lifestyle. We have 1 child.  We plan to live on a little below the average UK household income , at about 32k (obviously will adjust for inflation in the future).  I'm assuming this should be comfortable since we have no mortgage to pay.

I have modelled it all in a very sophisticated spreadsheet, but would appreciate someone sanity checking that I've not 

Thanks in advance,

You have a million in cash & stocks, half a million in property. People will tell you of course  you need to continue to be part of the system and go to work but of course you don't. I retired at 52 ,my kids will all retire at 40 or younger. There's more to life than work if you run out of money just get a job for a while or downsize 

Interesting thread.

But am I the only person wondering how the OP only has £1.5M assets (a third of which is their home) when earning £200K+ (and wife is earning too) and yet only spending £32K a year, especially with stock market returns over the past year.

Based on the figures, and with a fair wind, I think stopping working now is achievable, but I'm not convinced the £32K will be realistic for future life.

kimwp

MeteredOut said:

dont_use_vistaprint said:

ent_moot said:

I'm planning to retire in the next few months, and wanted to sanity-check that it sounds reasonable, given my situation: 

Equity: 
- house worth ~500k 
- ISA & cash, and shares  ~500k
- private pension ~600k (not accessible for 17 years)
- state pension (not accessible for 28 years)

(not guaranteed)
- mum owes me 50k
- inheritance of ~60k 
- wife might work part-time for ~min wage for a few years

Debt:
- nothing, but we are planning to buy a house worth ~700k - so would spend £200k from ISA & cash to close the game between the value of our current house.

Lifestyle: 
- We live a relatively frugal lifestyle. We have 1 child.  We plan to live on a little below the average UK household income , at about 32k (obviously will adjust for inflation in the future).  I'm assuming this should be comfortable since we have no mortgage to pay.

I have modelled it all in a very sophisticated spreadsheet, but would appreciate someone sanity checking that I've not 

Thanks in advance,

You have a million in cash & stocks, half a million in property. People will tell you of course  you need to continue to be part of the system and go to work but of course you don't. I retired at 52 ,my kids will all retire at 40 or younger. There's more to life than work if you run out of money just get a job for a while or downsize 

Interesting thread.

But am I the only person wondering how the OP only has £1.5M assets (a third of which is their home) when earning £200K+ (and wife is earning too) and yet only spending £32K a year, especially with stock market returns over the past year.

Based on the figures, and with a fair wind, I think stopping working now is achievable, but I'm not convinced the £32K will be realistic for future life.

Only 17 years since their career started, on £30k-ish. They won't have been earning £200k their whole career, only the latter part of it.

jimi_man

TheTelltaleChart said:

Yes, it will work, go for it!

For the rest, you really ought to move to the more expensive house while you are still earning, taking out (as somebody did suggest) a 60%-LTV fully-offset mortgage. It should also be interest-only. That gives you £420k to optionally draw down if needed (i.e. in years 11-17). And you might need that much! 7 years' spending is only £224k in today's money, but assuming 3% inflation, and also drawing a bit more to pay the mortgage interest (only applicable when you start drawing), I make that about £380k needed, so not much headroom.

Someone else above suggested this and I’m still unhappy with the premise. The OP is essentially asking if he can afford to retire now and if it has to be done by taking out a loan then that seems counter intuitive to me. 

hugheskevi

jimi_man said:

TheTelltaleChart said:

Yes, it will work, go for it!

For the rest, you really ought to move to the more expensive house while you are still earning, taking out (as somebody did suggest) a 60%-LTV fully-offset mortgage. It should also be interest-only. That gives you £420k to optionally draw down if needed (i.e. in years 11-17). And you might need that much! 7 years' spending is only £224k in today's money, but assuming 3% inflation, and also drawing a bit more to pay the mortgage interest (only applicable when you start drawing), I make that about £380k needed, so not much headroom.

Someone else above suggested this and I’m still unhappy with the premise. The OP is essentially asking if he can afford to retire now and if it has to be done by taking out a loan then that seems counter intuitive to me. 

Used properly, it provides a number of almost free options (as there are still some minor costs such as conveyancer charges for transferring money, small interest to pay between borrowing and establish the 100% offset, but these are likely to be under £100):

• Access to a pool of low-cost capital is available immediately for use if needed, eg, a large unexpected medical issue, but which does not have to be used.
• If there is a shortfall in future resources, you would hope the shortfall is small if planning has been broadly accurate and then monitored, and the shortfall should occur just before pensions become available. The capital would prevent more severe cutbacks being required, or more expensive finance, or a short-term return to work. This can enable planning to be based on central case, rather than having to include additional allowance to ensure that it is very unlikely there will be any shortfall shortly before minimum pension age.
• Provides a contingency for future policy change, especially for a change to the minimum pension age. 

Used with good planning, it enables tax-efficient retirement. In my case, I have pumped much more than I need into pensions, and expect to draw about £150,000 more than I need for the post age 55 period which will benefit from higher rate relief for both myself and my wife, On current forecasts, we are due to fund the period from age 53-55 by drawing from the offset savings account, and then use tax-free lump sum at age 55 to replenish the amount drawn and pay off the mortgage. That is just tax arbitrage to enable us to benefit from pension tax relief before age 55. If we had just saved it in an ISA we would have paid 40% income tax, but putting it through the pension with offset mortgage borrowing means we pay a combination of 15% and 30% income tax instead, taking into account tax bands and tax free lump sum.

Like every aspect of finance, used incorrectly without planning and monitoring this can exacerbate bad outcomes - just like Stoozing or matched betting are reasonably lucrative when done with understanding, planning, and self-restaint, but can be extremely bad if not used properly. Used responsibly in the right circumstances it can lead to outcomes that are tens of thousands of pounds better, and in all cases will provide an almost free option value for future use.