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Considering Early Retirement - What am I missing ?

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Considering Early Retirement - What am I missing ?

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SB1961SB1961 Forumite
6 posts
I am approaching 58 and have been working in the finance sector for 40 years next month. I am working far longer hours that I should be and am finding my job stressful with the likes of the hours I work, the workload, anti money laundering, regulation, compliance, procedures, bureaucracy, politics, the lack of communication from management, etc.


The company I work for has recently been taken over after a far too long a period of negotiations and I see the bureaucracy and politics becoming even greater from what I have seen so far.


To add to this further, my new employer has reduced my salary by 30%+ and my pension contributions by 50%, so this does little to incentivise me.


I am seriously considering taking early retirement but the age old questions keep popping up in my mind giving me cause for concern, i.e. how long will I live and will I have enough savings/pension in my retirement.


I have been saving for many years and have also been fortunate in inheriting some money in the last couple of years. Whilst I still have a large mortgage, which I can afford to carry on paying, I have been rearranging my savings and pension over the last six to twelve months, from a growth perspective to a predominantly income perspective. My savings/pension pot is now equivalent to savings of approximately 40 years salary based upon my reduced salary. The income from my pot by coincidence also produces income roughly the same as my reduced salary. So effectively I will be earning the same from my investments as I would working, without having to draw down from my "pot" and without the stress.


So early retirement seems to be a no brainer but I still find myself asking questions and am wondering what I am missing; "Is there any reason I shouldn't take early retirement, if my investment income is the same as my salary and I don't need to touch my pot, as on paper it appears that I can afford to ?"

I haven't been to see an IFA, as that would only be one opinion, whereas hopefully I will receive a few opinions from this forum from people that have retired or are about to retire, giving me a wider overview.


Any thoughts would be most welcome please.

Thank you
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Replies

  • LintonLinton Forumite
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    2.5% (pot size of 40X desired income) is significantly below the maximum % considered reasonable for sustainable drawdown. So you should be fine if you manage you wealth sensibly.


    So the question is how do you manage your wealth. The problem with a mainly income focussed portfolio could be inflation. Are you confident that the capital value will increase over time to generate a steadily increasing income - 2.5% inflation over 40 years gives a factor of about 2.7? I think you need a balance between income and growth investments, where you use the natural income of the portfolio as a whole supplemented by drawdown of the excess growth in capital. You dont need a strongly income focussed portfolio to generate 2.5% in natural income.



    Also, you need to be able to manage large falls in capital value during stock market crashes. It makes sense to hold a significant cash buffer of a few years income so you can avoid removing money from your portfolio if and when prices are low.


    If you have a spouse and/or dependents have you considered their income as part of your plan and their needs should you die early?



    On the plus side there is State Pension which will reduce your income needs once you reach 67. Have you checked that you have accrued the maximum?
  • Anonymous101Anonymous101 Forumite
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    A lot has been written about safe withdrawal rates. Some people use the rule of thumb a 4% drawdown which would lead to a pot size requirement of x25. Personally I think that's a little bit too racey but certainly anything 3%+ would not be IMO.

    You're sitting well below those drawdown rate therefore my instinct would be that you have more than enough to retire right now. Especially when you consider your 40x is based on income not expenditure which is presumably lower.


    I would suggest at the very least doing a lot of reading up on Safe withdrawal rates and how market movements might affect you and also going to see an IFA.
  • MK62MK62 Forumite
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    You are probably already on this, but don't forget to take income tax and NI into account - you didn't mention whether the income from your investments was equivalent to gross or net reduced salary, but you pay no NI on pension withdrawals and you can have 25% of each withdrawal tax free too.

    If your company has just been taken over, is there no chance to request (or engineer :wink: ) a redundancy package, or does your company's "early retirement" include a payoff?

    As the previous posters have said, on the face of it, it doesn't look to be a bad position to be in tbh......you could even take a 25% hit on the capital value and still be no higher than 4% on withdrawals.....

    Also, don't forget to check your position re Lifetime Allowance.......I know you haven't mentioned any specific numbers, but a pot value of 40x salary could put you into the ballpark for having to consider that.
  • AnotherJoeAnotherJoe Forumite
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    I think you are missing that you are over cautious by a long way, possibly due to spending all that time in finance, and could pack it in tomorrow.
    Also you are missing that you potentially have an opportunity, given a new employer, to be made redundant and come away with a nice package.
    In your position I'd be shovelling as much into a pension as possible because you can access it any time, and being a pain at work to get yourself on a redundancy list.
    You can also wind down and stop caring about what happens at work which should reduce the stress. Don't tell them you are thinking of quitting you owe them nothing.
  • JGB1955JGB1955 Forumite
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    On a hugely lower salary than you, I decided to leave at 59 with enough money saved to carry me forward the one year until I could claim my LGPS and Civil Service Pensions. Still topping them up (very slightly) until I get my State Pension at 66 years old. Do I regret it?....NO! My life is so much better now. Having said that, we are mortgage free and have assets and cash that mean we need to spend to avoid our children paying IHT. Spending is harder than saving!
    #36 Saving for Christmas 2020 - £1 a day challenge.... £379/366
  • vulcanrtbvulcanrtb Forumite
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    With 40 years of service, how about chatting confidentially (protected conversation) with your manager to see if there are any redundancy opportunities?
  • BLB53BLB53 Forumite
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    You are correct, it's a no brainer and also your health and well-being are more important than money so why delay.

    If it's any help, here's an article from the DIY Investor site relating to an assessment of the sums needed to provide x amount to live on
    http://diyinvestoruk.blogspot.com/2017/02/work-out-your-retirement-figure.html

    Bear in mind there will be your works pension to draw at some point and also your state pension from age 66 yrs.
    We have a climate emergency and need to re-think investing strategies to avoid sectors that are part of the problem such as oil & gas and embrace climate-friendly options such as renewable energy.
  • Kentish_DaveKentish_Dave
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    It sounds like it’s the specific job not the industry that is bringing you down. After forty years you must have some valuable skills, is it maybe worth your while rolling the dice one more time, trying the next job, and seeing if it’s actually enjoyable?

    If it’s not there’s nothing lost, but if it is you can have another two or three years adding to the pot before giving it up.
  • cfw1994cfw1994 Forumite
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    Your new employer has reduced your salary by 30%+ and your pension contributions by 50%....& you have 40x salary savings/pension pot?

    Jeez, my notice would be in faster than you could say “please don’t leave, we want to take advantage of all your knowledge some more”!!

    Seriously: stuff that, leave, relax, take at least 3 months (summer!) off to decompress, look into tax-efficient ways to live off your pots and find what you want to do moving ahead.
    If you do then decide you want to “roll the dice” and continue a bit longer, find a company who values your experience, not treats you like something the dog brought in! Their behaviour is shocking!

    Good luck!!
    Plan for tomorrow, enjoy today!
  • edited 18 June 2019 at 4:47AM
    marlotmarlot Forumite
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    edited 18 June 2019 at 4:47AM
    SB1961 wrote: »
    ...My savings/pension pot is now equivalent to savings of approximately 40 years salary based upon my reduced salary....
    I retired on a lot less, and find myself doing fine.

    I was in a similar position in that I was made redundant, and the next job paid rather less. THat was fine, until there was a change in management and it wasn't fun any more.

    I worked through my financial concerns by doing a cash flow based on my actual spending for the last 4-5 years. I then added in new hobbies and subtracted commuting. I modelled different rates of inflation and investment returns.

    My concern wouldn't be the financial aspects, but more whether you're emotionally ready to retire. What do you plan to do? hobbies? volunteering? We get what you're running from, but what are you running to?

    If you're on three months notice, you'd be leaving in October, just as many activities start to wind down, the wet weather is here and the nights drawing in. A friend strongly advised me to delay my retirement to Feb/March. He'd met too many men who got stuck in a negative loop from their first few months of retirement.

    Are there other things you could do to ease the transition to retirement? Change to part-time?
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