Retirement in my 40s - Does the plan work

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/82154222#Comment_82154222

Although many market drops recover quite quickly, occasionally they do not. After the Dot.com crash of 2000, the S&P 500 took 15 years to get back to its pre crash level.

Otherwise I do not think you have said why you want to retire at 45? It is pretty unusual to retire at such a relatively young age.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/82154222#Comment_82154222

I could live off those cash savings for a couple of years and allow time for the market to recover

Yes that is a perfectly sensible approach. @Albermarle has already made the point that a couple of years may not be enough but you would be young enough to go back to work if something drastic happened early on in your retirement.

I was reminded of my own naive thought process when I retired that I would have enough money to live off the income from my cash savings (without eating into the capital) based on the interest rates being paid at the time. As I have said that notion had come a cropper within a year or two.

One thing you could think about is making the switch to retirement a gradual process. Dropping days at work slowly over a number of years. That would get you used to your new lifestyle as a retired person while still earning something to boost your ISA and pension in case they are not quite enough. I know I said that if something drastic happened early on you could go back to work but sometimes it is not so easy to find work in your 40s and 50s as you might like - especially if you are sick of what you currently do and don't want to go back to it. Slowly easing yourself away from the job might be an easier option (unless you really are sick of it).

hara____

https://forums.moneysavingexpert.com/discussion/comment/82154780#Comment_82154780

And is it possible to claim the DB at an earlier age, accepting any actuarial reduction?

It may not help, but it's worth assessing as an option if the scheme allows it.

Money_Mad

The DB pension is index linked but it is capped at from memory 2.5% so there is some risk the DB pension loses value (buying power) over time

the £15k is based on what it would be at the time I plan to retirement

I can claim the DB pension earlier. I believe the reduction is 4% per year, which when I run the maths appears cost neutral assuming an average life expectancy and is something I may consider taking early at say age 60 and preserve the SIPP

LHW99

The DB pension is index linked but it is capped at from memory 2.5% so
there is some risk the DB pension loses value (buying power) over time

More like a certainty IMO

OldScientist

https://forums.moneysavingexpert.com/discussion/comment/82155568#Comment_82155568

Assuming the average UK inflation of 4.5% (from 1932 onwards), your DB pension would, in real terms, be worth approximately £10k once you are 65yo (i.e., 15k*0.98^20). Obviously, future inflation is unknown, but this does represent a degree of uncertainty to your plan since it might mean you have to find (at 65yo) an additional £5k from your SIPP.

I've found the tool at https://levelspend.github.io a reasonable one since it is fairly flexible and relatively straightforward to configure (there's a thread from the author on bogleheads, https://www.bogleheads.org/forum/viewtopic.php?t=473403 ). Although it is US focussed, it can be configured to work for the UK case - it does not include tax though.

mrklaw

Elephant in the room - why are you asking about retiring at 45 (early) on 32k a year and the first question is ‘is 32k enough?’ - you are the only person can answer that.

anyway

bit of back of the napkin math

32k no problem - barely touches the sides. you have over 200k left in the ISA when pensions are accessible, you have around 750k in pension by then. the bridge to state pension and DB you drop to a measly 620k or so, and when both DB and state pension kick in your pension starts to grow.

I can push the draw to 40k net and it still looks solid - the ISA is the limiting factor here. at 40k net and assuming 4% return on the ISA, you still have around 55k left. so can’t go much more than that safely and might still need flexibility at that level as its a long period to bridge.

but the pensions likely would sustain higher. at 40k net it still drops to just under 600k before state pension, then still grows after but slower.

you could probably do 50k in pension phase - haven’t done the maths

edit: ooh gilt ladders : ) yep you could roll a nominal (flat) 32k for £300k today covering the entire 13 year period. or index linked to 13k ‘buying power’ for £374k.

horsewithnoname

depends on whether you are in a job that allows it, but have you considered working part time for a few years to see if more leisure time suits you?

If it were me, I’d say retire asap, but we’re all different

Good luck with whatever you decide