Please evaluate my investent/early retirement plans

Bostonerimus1

If you want 2k/moth to live on that will be 24k/year after taxes….so maybe you actually need $27k. of that 6k comes from the DB pension leaving you to generate 21k from your 260k capital. With 3% inflation and 6% return you'll have about 200k left of your capital after 7 years. You'll need to work out how you access your "accounts" until SP starts. When your SP starts you will be able to reduce the drawdown to maybe 6k/year and your pot should start to grow again. However, as with all these plans they can be messed up by poor initial assumptions about spending levels, inflation, returns and emergency spending requirements. I would question whether 2k/month is a realistic estimate of your spending and suggest that if you are using lowest possible numbers apply a factor to give you some margin of safety. Worst case and stress testing is important and you might also want to consider using some money to buy an annuity if you are not experienced in investing for drawdown.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/81877696#Comment_81877696

Thank you for your helpful advice. I had thought that investing at 60 might have to be on a short term basis but of course I could live for another twenty years so I will look into something more long term. Lots to learn. I appreciate your responses.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/81877772#Comment_81877772

Thank you for your response. I will definitely look into my expenditure in more detail to make sure it is accurate.

Storcko14

As well as a detailed look at your current expenditure it's worth thinking how your spending will change in retirement. E.g., heating bills could rise but commuting costs might go. As others have said also add a sum for contingencies.

As for investing have a think about your attitude to risk. E.g., how would you react if you put £200k in the stock market tomorrow and it fell 25%? That will help you to decide what asset allocation (proportion in equities, bonds and cash) will be best suited to you. There are lots of good books and online resources available (I recommend Monevator.com) and it's well worth investing some time in building your knowledge away from forum noise then coming back with some more specific questions.

Good luck.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/81877827#Comment_81877827

Thank you; I am definitely risk averse. All my money has always been locked away in bricks and mortar so this is why I’ve been looking into continuing down that route or venturing into the world of investing.

Any savings I’ve had in the past were held in ISAs so I do have some reading/learning to do if I’m going to place it elsewhere. I would be mortified if I lost 25% of my investment of course.

Bostonerimus1

https://forums.moneysavingexpert.com/discussion/comment/81877855#Comment_81877855

You will need to understand the basics of investing for income and hopefully how to beat inflation over the long term. That probably means educating yourself about investment funds and wrappers like the S&S ISA. Do you have any defined contribution pensions? Right now you probably have the capital to successfully retire if your income needs are accurate, but I fear that you don't have the financial knowledge to optimize your chances of success.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/81877968#Comment_81877968

You’re right - I don’t have the knowledge but I am learning.

Yes I have three pensions - two are Defined Benefit and the other is Defined Contribution. There isn’t much in the DC one - £54000 at the moment.

My thoughts are to leave the DB pensions alone for as long as I can as I realise they’re in the best place. So initially I need to invest the £200k equity from the house in the best way possible.

I’m reading up as we speak. A friend mentioned S&S ISA and Premium Bonds to me so will look into those as well.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81877855#Comment_81877855

Any savings I’ve had in the past were held in ISAs so I do have some reading/learning to do if I’m going to place it elsewhere. I would be mortified if I lost 25% of my investment of course.

A popular way of investing is to use low cost multi asset funds. In simple terms, one part of the fund is equity ( shares) spread across thousands of company shares across the world. This part brings the long term growth and the volatility ( the ups and downs). The other part of the multi asset fund is a mixture of Government and corporate bonds. These normally are low growth but also low volatility.

So an 'Adventurous' multi asset fund could contain around 80% equities, whilst a 'Cautious ' one would only have around 20%.. The classic mix is 60% equities and 40% bonds, classed as medium risk.

I would be mortified if I lost 25% of my investment of course.

It is only really a problem if you cash the investment in after a loss. The key is to hang on long term and maybe reduce any withdrawals for a while. However there will always be some risk with investing, which is what it normally pays a better return than cash savings, although good to have some of these as well. The more cash savings you have the more you can invest at a higher risk level.

 I had thought that investing at 60 might have to be on a short term basis but of course I could live for another twenty years so I will look into something more long term

You could also easily live for another 30 years, so you still should be thinking long term for your finances.

Storcko14

Another worthwhile exercise is to prepare a cashflow. In a spreadsheet have a column per year (I would model for 30 years) and add your DB and State Pension income sources in the year they arrive. Then add your forecast annual expenditure once you've done your more detailed analysis. It's easiest to ignore inflation (sounds counter-intuitive but what I mean is to cashflow everything - ins and outs - in today's money).

Then you need to work out what you could safely withdraw from your other funds (the £54k DC and the £200k house equity) without running out of money. That will depend on the asset allocation but 3-4% is often used. Assuming 3.5% of £254k would give you about £8900 p.a. But you will `need to drawdown more before your DBs and SP kick in so that needs to be factored in as well.

Once you get your spreadsheet set up you can play about with the numbers and run some scenarios, e.g., what happens if expenses are higher.

FWIW I think you're in decent shape. In 7 years your guaranteed income (DB and full SP) should come to about 3/4 of your required £24k a year. Getting to there and generating the additional £6k needed thereafter should be do-able. Longer term I would be slightly concerned that without a house to sell, potential care costs and also healthcare (assuming there's no miraculous and sustained funding increases for state provision) may be an issue.

Whiterose23

https://forums.moneysavingexpert.com/discussion/comment/81878870#Comment_81878870

Thank you - some great advice here. I watched the Martin Lewis episode covering Investing for Beginners today so am starting to understand the different options and, importantly, what to avoid.