Early-retirement wannabe

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  • GazHol wrote: »
    My OH took redundancy from the same company after 33 years, is now working in a completely different job two days per week and enjoying the 5 day "weekend". My dilemma with taking a similar part time job would be: do I work the same days of the week as my OH, or not?:think::think::)

    Three leisure days a week together, two leisure days a week alone, and two days a week working a low stress job. Now if that doesn't sound like the perfect early semi retired setup, I don't know what would! :D
  • JasonPr
    JasonPr Posts: 127 Forumite
    gadgetmind wrote: »
    I showed the guy my spreadsheets and models

    gadgetmind, I'd love to hear more details about what you track and model exactly.
  • gadgetmind
    gadgetmind Posts: 11,130
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    JasonPr wrote: »
    gadgetmind, I'd love to hear more details about what you track and model exactly.

    Nothing massively fancy.

    For portfolios where I'm hands on, I have a spreadsheet with a worksheet per pot (so 2xSIPPs and 2xISAs) and another where I import data from the BestInvest web site. This means that it's about 5 minutes of work to see how my portfolios are versus target asset allocations, and what I need to buy/sell to rebalance it. The whole job takes about an hour per year.

    I then have a few other spreadsheets that let me understand how my salary, benefits and deductions affect my salary sacrifice, where I am with carry forwards (all gone now!), and a few other housekeeping tasks.

    My main spreadsheet then tracks all pensions, ISAs and unwrapped pots. I have one summary sheet showing what's in each "pot" and then another sheet with a column per year taking me up to retirement. I model moving unwrapped into ISAs, pension contributions, pot growth (guess!), and what I'd need to draw from each pot to achieve our goals. This used to be limited by drawdown/GAD caps, but with the freedoms I am far more flexible. I also model income tax on pension drawdown, particularly mine as the 40% bracket is the important cap for me.

    Note that using full 20% bracket will give me pension a big hammer between retirement and state pension age, a hammering that's well above sustainable, but pensions are a tax play. I want to hammer it so that I remain within 20% even after state pension kicks in.

    Every year (and I choose to sync up with tax year) I copy this sheet to a new one (with the old one being "archived") update the new year with real figures, and delete the old year column.

    I've got sheets going back over 10 years (mostly hidden to remove clutter), and I've been refining the format heavily year-to-year, but it's interesting to look at old ones. When I started, my target retirement column was way off to the right, and I had to scroll across to see it so hid some columns. Now it's less than two years away!

    My assumption for pot growth is 5% inc fees but I have a pull-down to let me drop in other figures, including negative ones! I also have crude CPI/RPI models to let me see things in "today's money", which was very relevant with decades to retirement, but now not so much.

    I'm pleased to say that despite the credit crunch (or perhaps because of it!) we're well ahead of our targets. Markets have been good to us, I've been able to keep making best use of pension and ISA allowances, we got a large payout from some critical illness insurance (just got 5 year all clear, whew!), and the pension freedoms have *really* helped bridge to state pension age.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • AnotherJoe
    AnotherJoe Posts: 19,622
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    GazHol wrote: »

    My OH took redundancy from the same company after 33 years, is now working in a completely different job two days per week and enjoying the 5 day "weekend". My dilemma with taking a similar part time job would be: do I work the same days of the week as my OH, or not?:think::think::)

    The same. It keeps your diary simpler, makes it more flexible for things like meet ups with friends, and also means you have much more flexibility with impromptu short breaks, otherwise you are quite restricted in terms of anything more than single days out. It doesn't mean you have to do the same thing together on the other five days, but it gives you Flexibility

    You seem also have the great opportunity of going back as a very well paid consultant to your company for a couple of days a week, who seems pretty inept at managing their legacy IT so will need that when time comes.
  • Hi all, I found these posts some time ago, and after a rainy afternoon reading it from the beginning I have really enjoyed catching up every now and then.

    Please can you give me your opinions on my "plan" for early retirement - no fancy spreadsheets though, it's all in my head.

    Myself and OH are both 46 & plan to retire at 55. Our "number" is £55k pa income (joint), to give approx. £4K pm after tax. Anything on top is a bonus.

    We have one child at private school who would just be leaving Uni when we retire (if he goes, but would like him to have the choice).

    Current mortgage is £140k (no other debts). House worth approx £450k. Plan is to clear this in 3.5 years. To achieve this we are living on one salary (both work full time in 40% tax bracket), and have shortened the term, fixed at very low rate. We fully understand that it is probably better to max out pensions and ISAs instead of clear mortgage, but it is our personal choice - we want the security of owning our home as our jobs are not that secure and we don't have savings or family support, although very good redundancy terms that would give either of us a year's take home salary if necessary.

    Once the mortgage is clear we will have circa £40k a year to save - so hope to build up a pot of £200k for retirement.

    OH still has final salary pension. If he stays to 55 it will be worth £25k @ 63. But if he is made redundant he has historical protection that it will be paid from 50 with no reduction. So could be a good thing (currently worth about 20k).

    I have deferred final salary @ 60 of £20k, plus £140k in company pension, contributing 13% salary sacrifice and 15% from company - approx £25k pa going in. Plan to live off this until our DBs kick in. Weakness is it is all my pension and I need to make sure I don't pay 40% tax on it while OH isn't using his personal allowance. At the moment the early redundancy likelihood would take care of this, and hopefully the redundancy lump sum would help compensate for not being able to build up the planned savings.

    We would both have full years NI contribution for the state pension. I got a forecast that suggested I would get full pension @ 67, OH will be reduced as he has always been contracted out.

    When we do finally retire we have no concerns about how to spend our time. We're off sailing wherever the winds take us and already have the boat. But don't want to have to rent out the house and still want to be able to afford holidays to other parts of the world.

    Any thoughts or advice?
  • gadgetmind
    gadgetmind Posts: 11,130
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    Our "number" is £55k pa income (joint), to give approx. £4K pm after tax. Anything on top is a bonus.

    Similar to our target TBH but we have zero DB pensions, hence higher risk.
    both work full time in 40% tax bracket
    Even after sal sac into pensions?
    We fully understand that it is probably better to max out pensions and ISAs instead of clear mortgage, but it is our personal choice
    Understood. The tax efficiency of putting more into pensions is something I've always understood, but we paid off mortgage ASAP. Of course, we then took out another so we could loan daughter money for a house, but she's paying the interest.
    very good redundancy terms that would give either of us a year's take home salary if necessary.
    Given that you've both clearly got valuable skills, I;d hope you could find more work quickly. However, there are worse things than redundancy, and I hope you have critical illness and life insurance in place.
    hope to build up a pot of £200k for retirement.
    In pensions, ISAs, or both?
    Weakness is it is all my pension and I need to make sure I don't pay 40% tax on it while OH isn't using his personal allowance.
    My wife and myself have the same issue. I have large amount of DC pension whereas she is sub £60k. Fortunately, the new freedoms allow her to access all of hers tax free between retirement and state pension.
    OH will be reduced as he has always been contracted out.
    Perhaps not. Assuming full basic now, working for another decade should let him get close to the full single tier.
    Any thoughts or advice?
    It sounds like the difficult phase is the 5 years until your DB and the 8 years until his.

    So, create a spreadsheet showing what you need in each year between ages 55 and (say) 70, and then show income from DB (defined benefit) and income from SP (state pension).

    You'll have a gap of £48kpa for 5 years, so £240k, and £28kpa for another 3 years, so another £84k. After both DBs kick in, you have another 4 years with a gap of £3k, so another £12k. (Check my numbers!)

    I make that £240k+£84k+£12k=£336k. You already have £140k in your DC pension, so you need another £196k. You're aiming at a retirement pot of £200k, which is uncanny if you haven't run the numbers!

    For the first 5 years, you can take £43kpa out of your pension without paying tax at 40% and you should max this out IMO and back off later. Getting some pension in your OH's name makes a lot of sense. You will save 40% on the way in and pay 0% on the way out. This is too good to ignore.

    Your non-pension savings need to be in ISAs, ideally stocks and shares, but you need to do more work to understand your asset allocation. However, it might be that it's better from a tax POV to work hard on the pensions instead. Spreadsheet time!

    You should then touch ISAs as late as you can as you want to use that DC pension before SP kicks in as it's taxable.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • gadgetmind
    gadgetmind Posts: 11,130
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    Drat, I wasn't allowing for tax, silly me. My spreadsheet definitely does, which is why they are good. You'll have about £6k tax at 20%, which leaves a gap unless you go up to 40%, which is nasty. You either need ISAs to help bridge this, or even better enough pension for your OH to plug the gap.

    Of course, there is also the tax free lump sum (PCLS) from your DC pension. I model this by having a row for what percentage of PCLS is taken out each year. I've currently got all 25% in year one as I don't trust HMG, but you can stage taking this in various ways.

    If you're not minded to play with some spreadsheets of your own, then you might want to speak to an IFA.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • Workerbee999
    Workerbee999 Posts: 111
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    Thanks Gadgetmind!

    In answer to some of your questions:

    Yes, still at 40% even after the salary sacrifice. Any pay rises I will increase the contribution as I haven't reached annual limit yet.

    We have life cover from work (8x and 4x for OH) plus a policy covering the mortgage we took out at the beginning, so covered there. No separate critical illness but both of us get something like 6 months full pay and 6months 50% pay from work - I would not like to plan for the very worst case of both falling ill at the same time.

    The 200k pot would likely be ISAs, if that much can be invested between us in 5 years.

    I should probably get to the DC pot you suggest without this from the £25k combined annual pension contributions that will go in over the next 8 years. So the 200k would be the safety net, big investment like holiday home or boat, or helping our son on the property ladder with deposit etc. Or perhaps we could retire at 53... although in reality I don't think both our current jobs will last as they are at the moment until we are 55...

    Looks like we should take out a SIPP in OHs name - perhaps when the mortgage is finished, or starting with a small monthly contribution now. Can anyone recommend one? We are not very familiar with investments to actively manage ourselves unless it is relatively easy to do.

    I will start working on the spreadsheet.....

    On another note, to put it into perspective between money v time, I have just received news of a couple I know just recently retired and set off on their life's dream to sail round the UK and then the world. I remember the glow on their faces as they talked of their plans. 2 weeks later they were back. The wife started feeling unwell and yesterday she died of cancer.

    Something to think about when tempted with "just one more year" isn't it ???
  • gadgetmind
    gadgetmind Posts: 11,130
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    Looks like we should take out a SIPP in OHs name - perhaps when the mortgage is finished, or starting with a small monthly contribution now.

    The sooner the better IMO. You obviously want rid of the mortgage ASAP, but maybe taking a little longer and building up the pension alongside is worth considering.

    For every 60p less he takes out as income now, you'll have an extra £1 towards plugging that retirement gap.

    See what the spreadsheet says!
    Can anyone recommend one? We are not very familiar with investments to actively manage ourselves unless it is relatively easy to do.

    It can be as easy or as complicated as you want it to be. Unless you do want to learn about these things, a SIPP is over the top in my opinion. A simple personal pension will probably offer everything you need in just one "balanced managed" or "cautious" fund.

    You can start one directly with any of the big names and should be able to get fees down well below 1% pa, even lower if you use trackers.

    Maybe start on the Cavendish Online site. They steer you towards their fundssupermarket offering, but there is a page for stakeholder and personal pensions. I've gone via them for Aviva Pensions in the past. They also offer Aegon (seem more expensive) and Friends Life (now owned by Aviva!)
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
  • jamesd
    jamesd Posts: 26,103
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    gadgetmind wrote: »
    the pension freedoms have *really* helped bridge to state pension age.
    I'm partly to blame for that. :) When those changes were announced they referred to a survey about pension saving and why people didn't do it more. I was one of the survey respondents. My response was along these lines, with various irrelevancies removed:

    "
    • Between the possible need for care and early death, the GAD limit is only about 25%, stopping you drawing enough for an immediate needs annuity or drawing fast enough for your reduced estimated two to three year life expectancy.
    • Between state pension age and that, the plan needs to be long term sustainable.
    • Between start of a work pension and state pension age you need to draw faster to cover the missing state pension.
    • Between retirement and work pension you need to draw much faster to cover the absence of these pension.

    The GAD limit does exactly the opposite of what is needed for a person seeing a level income in retirement, being low when high is needed. If you want me to make more use of pensions, stop forcing me to use ISA and other non-pension investing just to get a level income in retirement."

    I can't fault the government for paying attention to the feedback and delivering on it!
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