Can I retire now? (age 40)

hugheskevi

jimi_man said:

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?

The scenario here is having enough money to buy the more expensive house outright.

Instead of buying the house outright, you buy the house whilst still in employment and take out the offset mortgage as part of the purchase. 

The sequence in practical terms is:

• You apply for offset mortgage as part of the purchase of new property - this is probably going to be for about 60% of purchase price to provide maximum flexibility, but might be less.
• You sell your house and buy new house
• Your conveyancer has funds from sale of your house plus mortgage funds from provider. 
• The funds the conveyancer has far exceed the funds needed for the new property 
• Once all costs are settled, the conveyance sends the surplus funds to you 
• You fully offset the mortgage so there is no interest payable
• You quit work
• If your pre-pension funds run out, you have a big pool of liquidity available at reasonable interest rates (especially as you are only paying interest on what you draw out of the offset account, which is likely to be not very much, and only for a short time before age 57 and pensions being available).
• When pensions are available, either repay mortgage or return to being fully offset, quite likely using tax free lump sum.

So there is no need for mortgage provider to consider savings or pension (my research suggested they would not), and you do delay repayment of interest due to being fully offset. You only pay interest if you decide to access the offset funds in the future. 

A mortgage provider may well ask whether you anticipate income falling in the future, but the future is very uncertain, so it might be hard to be sure whether it will or not.

Pat38493

One other point - if fiscal drag continues to be extended, you will end up paying 40% tax on a chunk of your pension withdrawals - might need to take that into account also.

michaels

One thing I don't think people think about enough is income per head growth of the rest of the population.  Suppose you retire at median annual income in real terms for life plan, if real median income increases by only 1% pa for 50 years then in 50 years time you will only have 60% of median income and thus be relatively poor.

ljayljay

Just trying to understand the statement you made in an earlier post..

'I'm super-lucky in that my hobby is what makes me employable, so, whilst I certainly don't expect to go straight back into a £200k+ salary, I can be fairly confident of 50k (adjusted upwards for inflation), regardless of how long the break is.'

Unless I've missed it you haven't stated what your current employment is or if it is in any way related to your hobby. However, presumably you enjoy your hobby so what is stopping you from earning? 

ent_moot

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.

While this is generally true, it doesn't apply in my case.

I'll give you a fantastical analogy: suppose a distinguished carpenter is hired by the king because of his craftsmanship, and works for 10 years producing beautiful work. The carpenter decides to retire because his dream is to pursue his own works, with total freedom to experiment.  For his years of service, the king grants the carpenter a near-infinite supply of wood. 

10-15 years later, the carpenter decides he'd like to work for the king again. Unfortunately, the king is no longer alive, and so the administration of the new king says "you've not worked for 10-15 years, how do we know you have any skill?".  The carpenter invites inspection of his person workshop and gallery, and is able to demonstrate that, if anything, he's a better craftsman than he was 10-15 years ago.

I'm a Software Engineer, and a big part of why I'm valued as an employee is because it's also my passion: outside of work, I'm continually learning and experimenting, which means I can be ahead of my peers. The Software Engineering industry is incredibly open, with the majority of the best tools, documentation, papers, training, communities, etc. freely available to anyone. My desire to retire early is so that I can do more of what makes me a valued employee, not less. 

Also, in my career, I've lead organisation of 400+ software engineers, personally hired hundreds (i.e. interviewed and made the final decision), and reviewed probably thousands of CVs. The really good tech companies are pretty good at distinguishing genuine merit - sure , a gap in a CV needs an explanation, but it certainly does not automatically exclude a candidate, at least at any company worth working for. 

ent_moot

d6fs1l said:

Apologies if I am wrong, but I think your online model does not deduct any lump sum taken from the starting private pension, whereas you suggested in an earlier post you would use that to repay the mortgage you intend to draw to bridge the gap until the pension is available?

Yes, you're right-  the model I posted was just something I created in 10 minutes to demonstrate the theoretical point that constant rates are not inherently more optimistic (at least in average terms) than fluctuating rates. I'm not basing any decisions on this model, just illustrating a point. And also to illustrate that statements such as "you need understand that X "  where X is potentially untrue is going to be met with robust challenge from me.  

My actual model is vastly more sophisticated.

jimi_man

hugheskevi said:

jimi_man said:

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?

The scenario here is having enough money to buy the more expensive house outright.

Instead of buying the house outright, you buy the house whilst still in employment and take out the offset mortgage as part of the purchase. 

The sequence in practical terms is:

• You apply for offset mortgage as part of the purchase of new property - this is probably going to be for about 60% of purchase price to provide maximum flexibility, but might be less.
• You sell your house and buy new house
• Your conveyancer has funds from sale of your house plus mortgage funds from provider. 
• The funds the conveyancer has far exceed the funds needed for the new property 
• Once all costs are settled, the conveyance sends the surplus funds to you 
• You fully offset the mortgage so there is no interest payable
• You quit work
• If your pre-pension funds run out, you have a big pool of liquidity available at reasonable interest rates (especially as you are only paying interest on what you draw out of the offset account, which is likely to be not very much, and only for a short time before age 57 and pensions being available).
• When pensions are available, either repay mortgage or return to being fully offset, quite likely using tax free lump sum.

So there is no need for mortgage provider to consider savings or pension (my research suggested they would not), and you do delay repayment of interest due to being fully offset. You only pay interest if you decide to access the offset funds in the future. 

A mortgage provider may well ask whether you anticipate income falling in the future, but the future is very uncertain, so it might be hard to be sure whether it will or not.

Sure, but that's not what the OP has posited. They stated that they'd retire now (aged 40) buy the new house using the proceeds of the old house plus £200k (of the £500k). Then aged 53 possibly - so in 13 years time - they might need a mortgage for around £200k and would take one out then.

I mean what you suggest is presumably possible, but is it really desirable to take out a mortgage of £420k and then go straight into early retirement? Seems an odd way to fund retirement. 

ent_moot

ljayljay said:

Just trying to understand the statement you made in an earlier post..

'I'm super-lucky in that my hobby is what makes me employable, so, whilst I certainly don't expect to go straight back into a £200k+ salary, I can be fairly confident of 50k (adjusted upwards for inflation), regardless of how long the break is.'

Unless I've missed it you haven't stated what your current employment is or if it is in any way related to your hobby. However, presumably you enjoy your hobby so what is stopping you from earning? 

Very good question. 

The answer is nothing, except that I don't want my hobby to be polluted by a pressure/need to actually make money out of it. 

90% of start-ups fail, and this is despite most start-ups having a strong focus on commercial success.

I would like to pursue things for their beauty and merit, without feeling like I need to compromise my work in order to achieve commercial success.

Another analogy that might help: suppose someone wants to quit their day-job to become an author. One year in, they realise their literary masterpiece is years away from completion and, if they're honest with themselves, unlikely to be a commercial success even when complete. Low on cash, the author is forced by necessity to try something safer: genre fiction.  However, 1 year later, this fails too, and so they're forced to go back to their day-job as a copy-writer (which, twist, no longer exists because LLMs now write all the copy).

I think this story is almost inevitable.  For every Rowling, there are probably a million total failures, and a thousand "success" stories where people just barely make enough to survive. 

ent_moot

I mean what you suggest is presumably possible, but is it really desirable to take out a mortgage of £420k and then go straight into early retirement? Seems an odd way to fund retirement. 

Agreed, and I've modelled this and it's much less favourable. The longer I'm lending money, the more I'm wasting on paying interest. 

This is why I think it makes most sense to "bridge the gap"  from 53 to 57 (until I get private pension) as late as possible. I think the very worst case (for some illogical reason, banks choose not to grant a mortgage) is that I'd have to bridge the gap with 2-3 years of work. I think the most likely scenario is that I would be able to demonstrate the affordability (and guaranteed future affordability) of the mortgage purely based upon my private pension, and failing this, I would find some short-term way to increase income in order to get the mortgage. 

jimi_man

ent_moot said:

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.

While this is generally true, it doesn't apply in my case.

I'll give you a fantastical analogy: suppose a distinguished carpenter is hired by the king because of his craftsmanship, and works for 10 years producing beautiful work. The carpenter decides to retire because his dream is to pursue his own works, with total freedom to experiment.  For his years of service, the king grants the carpenter a near-infinite supply of wood. 

10-15 years later, the carpenter decides he'd like to work for the king again. Unfortunately, the king is no longer alive, and so the administration of the new king says "you've not worked for 10-15 years, how do we know you have any skill?".  The carpenter invites inspection of his person workshop and gallery, and is able to demonstrate that, if anything, he's a better craftsman than he was 10-15 years ago.

I'm a Software Engineer, and a big part of why I'm valued as an employee is because it's also my passion: outside of work, I'm continually learning and experimenting, which means I can be ahead of my peers. The Software Engineering industry is incredibly open, with the majority of the best tools, documentation, papers, training, communities, etc. freely available to anyone. My desire to retire early is so that I can do more of what makes me a valued employee, not less. 

Also, in my career, I've lead organisation of 400+ software engineers, personally hired hundreds (i.e. interviewed and made the final decision), and reviewed probably thousands of CVs. The really good tech companies are pretty good at distinguishing genuine merit - sure , a gap in a CV needs an explanation, but it certainly does not automatically exclude a candidate, at least at any company worth working for. 

You know your field better than me so I'll bow to your knowledge. A little part of me thinks it just might not be as easy as that, but who knows.

Another thought occurred to me. I'm not dismissing your plan out of hand (because it's an interesting plan even if I wouldn't do it!), just pointing out some of the things I'd consider if it were me. As a software engineer I'm guessing you're on a good salary, and I imagine a lot more than £32k. So, notwithstanding that you lead frugal lives, a drop from £xxxx per year to £32k a year is likely to be a substantial drop, which may take some getting used to. With a good salary, if things go wrong (say in the house) then you can save for a few months and get back to where you were fairly quickly, however with a much more meagre income and limited savings behind you then it all becomes a little more stressful.

Is that something you have considered?