Early-retirement wannabe

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  • AnotherJoe
    AnotherJoe Posts: 19,622
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    Similarly if you're a carer then that's your main responsibility. Personally I'd class retired as not having to work - whether that's in a job or otherwise.

    If you follow the FIRE community, surely that is is Financial Independence not Retire Early ?
    Put it this way, suppose you don't "need" to work but like it (or just decide to do OMY) and commute each day Mon-Fri for your 9-5 city job. And you tell your boss you have "retired ". :D
  • Techno
    Techno Posts: 1,169
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    Part time is (we have found) a very pleasing alternative with the option to say we no longer want to work if things aren't going the way we want them to :D
    ;) If you think you are too small to make a difference, try getting in bed with a mosquito!
  • hugheskevi
    hugheskevi Posts: 3,784
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    As I approach retirement, I've started to work out a few different 'buckets' I need to fill. How full I make them will determine my optimal balance between working longer and having less but retiring early. The buckets are (in chronological order):

    (1) A few years of world travel after leaving work (0% complete - could be cancelled to bring forward retirement. This will be the last 'bucket' to be filled.)

    (2) Purchase of retirement house (100% complete, on basis that current assets would fund purchase - spend would be between £300,000 to £500,000 to range between something with compromises and something perfect)

    (3) Period between traveling and age 50. Desired income would be between £30,000 and £45,000 (increasing by prices). This is closely linked to purchase of retirement house, as it draws on the same capital resource. If I purchased a £300,000 house I'd be 52-78% complete at current time. A £500,000 house would see close to 0% completion.

    (4) Age 50-54. Using same income target, 52% to 80% complete. This is invariant to house purchase as this is sourced from pension income. However, addition capital will be needed for this period and that additional amount would be connected to house purchase price.

    (5) Age 55-65. Income will be sourced from DB and DC pensions. Pretty much 100% complete. If DC returns don't fulfill expectations it would be necessary to add more or commence a DB pension early.

    (6) Age 65-68. Other DB pensions come into payment but still would expect to use some DC. Pretty much 100% complete. If DC returns don't fulfill expectations it would be necessary to add more or commence a DB pension early.

    (7) Age 68 - State Pensions come into payment. 100% complete from DB and State Pension alone. Should be very comfortable as still accruing both DB and State Pension despite already meeting £45,000 income target.

    My wife and I are close to age 41 now. I've pretty much decided to take a quite cautious approach, not playing games such as using mortgages to effectively borrow from retirement income (although this would be very desirable) or become a landlord when traveling (highest expected value, but hassle).

    I don't want to sacrifice world travel - it would help the plans a lot, but it would be too much of a sacrifice. I'm very unwilling to compromise too much on income between age 41-54 as I have no other sources of income to draw on if required so don't want to sail too close to the wind - after age 55 I could draw on DC funds and if required draw a DB pension early (subject to legislative change around minimum pension age).

    The main area I am willing to compromise is around house value in retirement. For the area I want to live £500,000 would be sufficient to live somewhere with few, if any, compromises. £300,000 would be the minimum I would want to spend, anything less than that would have too many compromises. I may well go with something around £400,000 which would involve some acceptable compromises.

    I found the exercise of considering each 'bucket' quite useful in determining what my balance between working longer and retiring earlier with less actually is. Admittedly in my case it is a lot easier as I will be retiring in mid-40s, so a couple of extra years of work isn't a big deal. Also, having DB pensions is great, as it has enabled me to work backwards, sorting out later retirement first and then progressively working on earlier stages of retirement.
  • michaels
    michaels Posts: 27,949
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    hugheskevi wrote: »
    As I approach retirement, I've started to work out a few different 'buckets' I need to fill. How full I make them will determine my optimal balance between working longer and having less but retiring early. The buckets are (in chronological order):

    (1) A few years of world travel after leaving work (0% complete - could be cancelled to bring forward retirement. This will be the last 'bucket' to be filled.)

    (2) Purchase of retirement house (100% complete, on basis that current assets would fund purchase - spend would be between £300,000 to £500,000 to range between something with compromises and something perfect)

    (3) Period between traveling and age 50. Desired income would be between £30,000 and £45,000 (increasing by prices). This is closely linked to purchase of retirement house, as it draws on the same capital resource. If I purchased a £300,000 house I'd be 52-78% complete at current time. A £500,000 house would see close to 0% completion.

    (4) Age 50-54. Using same income target, 52% to 80% complete. This is invariant to house purchase as this is sourced from pension income. However, addition capital will be needed for this period and that additional amount would be connected to house purchase price.

    (5) Age 55-65. Income will be sourced from DB and DC pensions. Pretty much 100% complete. If DC returns don't fulfill expectations it would be necessary to add more or commence a DB pension early.

    (6) Age 65-68. Other DB pensions come into payment but still would expect to use some DC. Pretty much 100% complete. If DC returns don't fulfill expectations it would be necessary to add more or commence a DB pension early.

    (7) Age 68 - State Pensions come into payment. 100% complete from DB and State Pension alone. Should be very comfortable as still accruing both DB and State Pension despite already meeting £45,000 income target.

    My wife and I are close to age 41 now. I've pretty much decided to take a quite cautious approach, not playing games such as using mortgages to effectively borrow from retirement income (although this would be very desirable) or become a landlord when traveling (highest expected value, but hassle).

    I don't want to sacrifice world travel - it would help the plans a lot, but it would be too much of a sacrifice. I'm very unwilling to compromise too much on income between age 41-54 as I have no other sources of income to draw on if required so don't want to sail too close to the wind - after age 55 I could draw on DC funds and if required draw a DB pension early (subject to legislative change around minimum pension age).

    The main area I am willing to compromise is around house value in retirement. For the area I want to live £500,000 would be sufficient to live somewhere with few, if any, compromises. £300,000 would be the minimum I would want to spend, anything less than that would have too many compromises. I may well go with something around £400,000 which would involve some acceptable compromises.

    I found the exercise of considering each 'bucket' quite useful in determining what my balance between working longer and retiring earlier with less actually is. Admittedly in my case it is a lot easier as I will be retiring in mid-40s, so a couple of extra years of work isn't a big deal. Also, having DB pensions is great, as it has enabled me to work backwards, sorting out later retirement first and then progressively working on earlier stages of retirement.

    I wonder if there is a way to draw forward funds from your post sp period when it seems you think you will be overprovisioned to effectively fill some of your earlier period buckets?
    I think....
  • hugheskevi
    hugheskevi Posts: 3,784
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    I wonder if there is a way to draw forward funds from your post sp period when it seems you think you will be overprovisioned to effectively fill some of your earlier period buckets?
    There are, but they all involve hassle and loss of value in one form or another.

    If I didn't plan to go traveling for a long period, it would be easy, as I would simply use a mortgage to achieve this. The travel element doesn't entirely preclude this, but it does make it harder and introduce risk. I would need to re-mortgage before going traveling, rent out property and then port mortgage to new property.

    There would be no guarantee I could port the mortgage, especially as I would have no income. I could mitigate that risk by leaving work on unpaid leave rather than resignation, meaning I could if necessary return to work for a while which would mean there would no reason a porting request would be rejected.

    The above would of course be a reasonable amount of hassle. There would also be additional mortgage fees payable, and I would probably have to pay additional stamp duty on my next house purchase, as my wife has first-time buyer status still but if I have a mortgage to port I would need to be involved in the purchase. Although the rental income would probably more than offset this, as I would have a fully furnished house ready to let out which would yield a lot more than the money from a house sale held in savings (needs to be low/zero risk as would be using it within about 2-3 years).

    On balance, I'm inclined to think all the above is too much phaff. The simplest approach is to sell my current house, go travel and buy next house in wife's name, later changing ownership structure to whatever is most appropriate. It might be that I can raise money against the property, but as I don't intend to have any income I can't rely on that. And it would be likely to be at interest rates higher than conventional mortgages.

    The difference in retirement age would only be about 2 to 3 years anyway, so not really a big deal. Hence my conclusion that the simpler approach is better - less to go wrong, fewer risks and overall higher income and capital.

    One thing I am finding it hard not to do is make additional pension contributions despite not needing them. Leaving tax relief on the table is difficult. I am happy to contribute to a DB AVC that I can take (as income) from age 50 - at least I get some return in a period I need (age 50-54) and it is super-tax efficient as it is probably going to be tax free (accrued pension amount is around the level of the Personal Allowance). But I also contribute more to a different DB AVC that I probably won't access until age 65 so that in some ways could be regarded as dead money.

    At the moment both my wife and I are very close to Annual Allowance (I'm deliberately aiming off it). Some of the DB AVCs are coming to an end soon, opening up the possibility of DC contributions. I'm quite tempted to make a decent amount of contributions for my wife, as she has a lot less DC than I do.

    It may not be optimal in terms of maximising early retirement, but I still want to be efficient in capital and income accumulation. Having more will never be a bad thing. I think this is the right thing to do for now, whilst I am still 3-5 years off retirement, perhaps in a couple of years or so I'll change course.
  • michaels
    michaels Posts: 27,949
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    Someone on here talks about vct as being a tax efficient way of avoiding tax or be it with a 7(?) year lag.
    I think....
  • FIRSTTIMER
    FIRSTTIMER Posts: 637 Forumite
    I!!!8217;ve been fortunate to have paid into defined benefit pensions since I started working properly at 21, aged 35 now. I!!!8217;ve decided to really look at what I want and when. I do not want to be working past 60 at all. 65 at the very maximum.

    Have decided to pay the absolute maximum I can pay into my current government pension (TPS/USS) which is equating to around 17% of my pretax salary after buy outs and faster accruals/additional pension. I!!!8217;ll keep doing this until i have maxed out or change careers, who knows what the future holds.

    In addition I am paying £300 monthly into an S&S ISA which will hopefully bridge the gap between 60 and when I do take my pension benefits (albeit i will probably take my first pension I paid into then as well. It also means this is accessible in emergencies, but I have income protection too until 65.

    My mortgage is always due to finish at 65 depends where and when I move to. I have just ensured that i have fully planned future events now and live with it rather than wonder why I am working until 75!
  • gadgetmind
    gadgetmind Posts: 11,130
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    I regularly paid 40%-50% of my salary into my defined contribution pension so that I could retire at 55. I'm now semi-retired, haven't drawn anything other than PCLS from pension, and hope new business will let me leave it (mostly) alone this tax year.

    My long term (and tightly held!) plans have been replaced by a very relaxed "make it up as you go along"!
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  • FIRSTTIMER
    FIRSTTIMER Posts: 637 Forumite
    My only query is always whether to max a S&S ISA or pay into a LISA if I have maxed out the the work pension. I am toyed with S&S due to emergency access but toyed with LISA due to 25% uplift but not happy at access at 60.
  • MallyGirl
    MallyGirl Posts: 6,564
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    When you say you have maxed out the work pension can you actually contribute no more or are you just getting the most you can as a match from your employer?
    I use a S&S ISA as it will allow me to retire when I like (funds permitting) but I was already too old when they introduced the LISA so that was never an option
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