Early-retirement wannabe

End of another financial year, so time for another update. Quick recap...household is myself and my wife, both aged 40 now, no children and no plans for any in future.

Back in early 2017/18, my wife and I spent a combined 4 months in Africa on holiday (me 3 months, her 1 month). Another good holiday opportunity there has come up, so next week we are off again, but only for 2.5 weeks. Still, that will all add up to a total of 5 months on holiday in Africa over the course of the year, an average of 2.5 months each. That has increased consumption quite significantly, from 21% of household income in 2016/17 to 25% in 2017/18. Household spend over time is now looking like this:



I still think I have about enough in pensions, as I did a year ago, although we are still both still contributing to some good DB AVC options and employer pension. This means the focus is increasingly on funding the period until age 58, when pensions can kick in (I'm assuming an increase in Minimum Pension age for caution).

Contributions to ISA are therefore much higher, and the amount of money borrowed on 0% credit cards increased quite a lot (currently at £68,000 down from £85,000 a few months ago), hence the sharp reduction in net debt repayment compared to 2016/17. But in a few weeks I'll be paying a third of the remaining mortgage off which will mean net debt repayment for 2018/19 should be quite high.

Future pension income looks like this:



We now have a total of £56,000 p/a of DB and State Pension accrued at Normal Pension ages (all in real CPI terms), or £42,500 if we both take a reduced DB pension with a protected minimum pension age of 50 at age 50. We are accruing pension (state plus employer DB, including some voluntary DB AVCs) at the rate of £4,300 p/a (based on the assumption we take the DB pension at age 50).

This assumes an earnings updated State Pension (no triple-lock) and that the increase to age 68 in State Pension age is brought-forward. It also assumes that 25% lump sum is taken from personal pensions, and that an income up to higher rate tax (current threshold assumed to increase in line with earnings) is drawn from remaining pot.

Using the formula:

'Consumption=Gross salary - own pension contributions - ISA contributions - income tax - National Insurance - Mortgage + Saving interest - change in net minor debts and saving

Shows a household consumption figure of £34,000 for 2017/18 (this figure is akin to 'The Number' discussed in other threads). However, this is inflated by the Africa holidays. Looking at previous years and re-valuing them in line with change in earnings, a figure of £28,500 is more normal. Even allowing for that number to increase in line with earnings in the longer-term (I allow for earnings increase to State Pension age, and CPI increases thereafter), we should comfortably have enough DB and State Pension.

Projections now suggest retirement in mid 2022 to mid 2023, so about 4-5 years from now, at age 44-45.

I'm toying with idea of reducing hours at work, moving to a 4 day week. All the lost income would be taxed at higher rate so it would be quite tax efficient. I think it is something I will not do immediately, but at some point in the years between now and retirement. It may well be when I pay mortgage off in a couple of years, as then I should be in a position where I have enough pension, paid off all interest-bearing debt and would still be able to max out myself and my wife's ISAs doing a 4 day week.

There is potential for a few positive shocks, namely inheritance from 3 remaining parents or redundancy payments. I don't factor any of these into planning though as they are uncertain. I have also just started my own small business, so there is potential for that to go well - again, I don't assume anything about that in planning as it is uncertain.

Random stat: I was a bit surprised to see the average gross income of recently retired pensioner couples is now £43,000 p/a. Struck me as quite high but broadly in line with what I am targeting, taking into account future increases in this figure. Should be noted that £10,000 of the £43,000 comes from earnings. Source: Pensioner Income Series.

I think the pensioner income report states that pensioner couples average income is £452/week

That is across all pensioner couples (ie not just recently retired pensioners), and is median net income after housing costs.