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  • FIRST POST
    • Marine_life
    • By Marine_life 5th Nov 10, 10:46 AM
    • 848Posts
    • 1,533Thanks
    Marine_life
    Early-retirement wannabe
    • #1
    • 5th Nov 10, 10:46 AM
    Early-retirement wannabe 5th Nov 10 at 10:46 AM
    I would like to create a topic (don't see it at the moment - other than the NUMBER thread).

    Who is aiming for early retirement (or who has retired early already)?
    When did you begin planning and what drove the decision?
    What is the strategy for getting there?
    How much of a relative decline in income are you prepared to take / did you take?
    What are your main concerns?
    For those already in early retirement - how is it progressing? What have been the good and bad surprises (financial and otherwise)?

    I will post my strategy but wanted to get some thoughts
Page 187
    • bluenose1
    • By bluenose1 6th Jan 18, 9:36 PM
    • 1,976 Posts
    • 3,192 Thanks
    bluenose1
    When my husband retired earlier this year he went from approx 37k to 19.5k per annum, which appears a massive drop.
    However when we factored in him no longer paying NI Contributions and his 18% pension contributions he was only 600 per month worse off.
    Plus there was a lot of savings in our outgoings on petrol and car parking for work and the usual incidental expenses such as work collections.

    Rather than looking annual gross income it is more helpful to look at what the actual difference in net income will be.

    Our plan for me to retire has been to massively increase my pension contributions so that I can consider retiring in 3.5 years at 55 years of age. I will drawdown my Defined Contribution pot to the personal allowance rate until my defined benefit pensions start at 60.
    My only regret is it has took me to be 51 before I have even considered doing this.
    Oh well better late than never.
    Money SPENDING Expert

    • michaels
    • By michaels 6th Jan 18, 10:35 PM
    • 20,814 Posts
    • 96,384 Thanks
    michaels
    Indeed, but the question what is what amount will be equivalent to 28K now, it isn't as simple as it seems.

    The difference is between today's money terms and today's earnings terms - there is a significant difference between the measures over extended time periods. Planning for a number in today's money terms over a long period will mean a significant deterioration in the purchasing power of that amount relative to average earnings over time.

    Traditionally planning was simple due to final salary schemes - you automatically ended up with half or two thirds of whatever your earnings at retirement may be. Taking the example here, 28K in today's price terms is pretty much 100% of average earnings currently, but will only be about 57% of average earnings in 25 years time. In constant earnings terms, that 28K in today's price terms will have the purchasing power of about 16,000 at age 68 (in constant earnings terms).

    Or to put it another way, that 28K in today's terms will roughly be what you would expect a full-time minimum wage earner to receive when the OP is aged 68. The question is whether someone planning a lifestyle based on current average earnings now will be happy to live on an a minimum-wage level lifestyle in the future.

    Constant price terms and constant earnings terms both have their place, it is important to appreciate which is appropriate to use for different planning assumptions. Personally my household after-tax number based on current expenditure is slightly under 28K (aged 40). I plan to have a household income of 52,000 (in today's price terms) at age 68, which is 28K today in constant earnings terms at age 68.
    Originally posted by hugheskevi
    Good to see that someone is optimistic that real wages will start growing again - if you just look at the last 10 years then that seems a pretty optimistic assumption.
    Cool heads and compromise
    • hugheskevi
    • By hugheskevi 6th Jan 18, 10:53 PM
    • 1,989 Posts
    • 2,481 Thanks
    hugheskevi
    Good to see that someone is optimistic that real wages will start growing again - if you just look at the last 10 years then that seems a pretty optimistic assumption.
    A bit over a 4% decline in real terms over last 10 years (to Oct 2017, last published data), but in the context of the last 200 years, it is a pretty normal assumption.

    For long term planning, ie at least 5+ years, I'd consider any assumption other than real earnings growth as unusual.
    • stoozie1
    • By stoozie1 7th Jan 18, 12:27 PM
    • 555 Posts
    • 497 Thanks
    stoozie1
    Planning for a number in today's money terms over a long period will mean a significant deterioration in the purchasing power of that amount relative to average earnings over time.
    Originally posted by hugheskevi
    Your point is well argued, I'm just missing something.

    If my annual costs over the last 5 years are not rising above inflation, and the DB pensions are index-linked, and my DC contributions contain an inflation-linking allowance, why would I not be right to assume this is safe?
    Save 12 k in 2018 challenge member #79
    Target 2018: 24k Jan 2018- 560 April 2670
    • IanSt
    • By IanSt 7th Jan 18, 7:24 PM
    • 260 Posts
    • 194 Thanks
    IanSt
    Your point is well argued, I'm just missing something.

    If my annual costs over the last 5 years are not rising above inflation, and the DB pensions are index-linked, and my DC contributions contain an inflation-linking allowance, why would I not be right to assume this is safe?
    Originally posted by stoozie1
    I think they may have been worried that 'lifestyle creep' could have an impact.

    'Lifestyle creep' the ability to continuously find new ways to spend the additional money that a pay increase bring in. E.g. do you find that you're buying new cars every few years instead of running them into the ground as you used to, or taking multiple holidays abroad instead of just the one, etc, etc?

    In your case the final salary pensions will certainly mitigate this, but you may want to up the final DC target if you feel that you could be prone to this as otherwise you may find that you have to give up some of the new ways you've found to spend your money over the next 15 years.
    • hugheskevi
    • By hugheskevi 7th Jan 18, 8:12 PM
    • 1,989 Posts
    • 2,481 Thanks
    hugheskevi
    If my annual costs over the last 5 years are not rising above inflation, and the DB pensions are index-linked, and my DC contributions contain an inflation-linking allowance, why would I not be right to assume this is safe?
    Over the last 5 years earnings have increased by 10.7% whilst prices have increased by 7.4%, so there hasn't been much difference between them. This has been an exceptional period, and in more normal times you would expect the gap between the two to be more like 13 percentage points than 3 percentage points.

    Some products will be more inclined to increase in line with earnings. These would be where labour is a large part of the product, for example restaurant prices. The more of those products you plan to consume, the more concerned you would be about planning an income in constant earnings terms. Also, your 'basket of goods' will change over time. You probably have zero demand for caring services now, but late in life that may change, and that is a product where labour is a significant input. Although by the time you need non-trivial amounts of care, a lot of other expenses will have dropped away.

    A constant price terms plan will enable you to live on the same quality basket of goods as today, but in the long-term you may want more than that. For example, someone planning in the 1980s would have little thought of computers, internet costs, television subscriptions and such-like in their basket of goods. A plan to keep purchasing power in line with change in average earnings ensures that quality of life will be preserved in terms of lifestyle to those with comparable income levels so protects against that, at least to an extent.

    It is perhaps most important for those planning very early retirement. To take an extreme example, assume someone is planning to retire at age 45 and undertakes detailed spending analysis in the 5 years prior to age 45 and concludes they can retire, based on constant price terms. Their friends, who are likely to be of a similar age, will continue to work until about 60-65 or so, and so their incomes rise in line with earnings (probably slightly higher than average earnings, as average earnings is affected by the compositional effect of high earners dropping out of the labour market and being replaced by lower waged younger cohorts, which doesn't happen at individual level). If the person who retired at age 45 is happy with their lifestyle in constant price terms, then all is fine. That might be someone who wants a quiet retirement, lots of walks in the countryside, etc. If however they aspire to the lifestyle of their friends, they will be increasingly disappointed. And if they see their retirement as being full of meals out with friends, they might end up being disappointed. Their friends are more likely to be able to afford more holidays, access to better and new technology and so on. So for some, this would not be an issue, for others it would.

    You can see the effect in pensioner poverty rates. Historically pensioner incomes have tended to increase in line with prices once in payment. For most of the period between 1979 and 1997 State Pension increased in line with prices once in payment, as did DB pension income (or even by less than inflation, depending on scheme rules). Poverty levels are measured by whether a pensioner's income is less than 60% of median household income. As household incomes increased by more than prices, pensioner household incomes were eroded relative to all household incomes even if they were increasing in line with prices, so that someone who may have retired on a reasonable income at age 60 was below the poverty line (or relative low income as it is more technically described) by the time they were in their 80s, and so pensioner poverty is highly correlated with age.

    The answer is likely to be different for every individual, based on their personal preferences so I don't think there is a 'right' answer about the best approach to use. I think it is dangerous to plan in constant price terms over a long period as a default approach, rather than as a conscious decision based on careful thought about their individual circumstances. Personally, I plan on my number (based on my current expenditure patterns, excluding things like mortgage, pension savings, etc which I won't have after retirement) increasing in line with forecast average earnings growth to age 70, and then by CPI. I considered lot of variants, and I think this is a reasonable and cautious approach which is unlikely to leave me disappointed. Having said that, I do expect to probably have too much in retirement, which is inefficient, but not a bad problem to have.
    Last edited by hugheskevi; 07-01-2018 at 8:16 PM.
    • westv
    • By westv 10th Jan 18, 11:37 PM
    • 4,542 Posts
    • 2,138 Thanks
    westv
    More rumours of changes at work this year which might, or might not, lead to redundancy.
    If I were to be released I'd end up with total cash (including what I already have) of 110,000. A large portion (79k) of that is due to pay off mortgage balance in 2020 when fix ends. As my wife is going to carry on working for the next several years I believe I'd need around 18k a year until 2020.
    If it comes to it I can't decide whether I should:-

    Take the 18k purely from the cash until 2020 and let the pension pot (currently around 310k) grow. Come 2020 reappraise.

    Take 18k income straight away from pension pot and cash

    I'd need to take some from the pot anyway in 2020 to fully cover mortgage lump sum.
    • gadgetmind
    • By gadgetmind 11th Jan 18, 12:19 PM
    • 10,795 Posts
    • 8,668 Thanks
    gadgetmind
    Whether you draw on the pension might be a tax-based decision as it makes sense to use your personal allowance whenever you can.
    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.
    • Terron
    • By Terron 11th Jan 18, 1:02 PM
    • 235 Posts
    • 208 Thanks
    Terron
    someone planning in the 1980s would have little thought of computers
    Originally posted by hugheskevi
    Some of us might have I bought my first in 1980 (a TRS-80) and was on my third by the end of the decafe.
    • gadgetmind
    • By gadgetmind 11th Jan 18, 1:07 PM
    • 10,795 Posts
    • 8,668 Thanks
    gadgetmind
    Some of us might have I bought my first in 1980 (a TRS-80) and was on my third by the end of the decafe.
    Originally posted by Terron
    I bought my 1st home computer in 1978 at age 15 and GOK how many others by the end of the 80s as I did a degree in Computer Science a few years later and then started my own software company while at university.

    Of course, nowadays, computers are so cheap that they are effectively free.
    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.
    • k6chris
    • By k6chris 11th Jan 18, 6:37 PM
    • 221 Posts
    • 380 Thanks
    k6chris
    I bought my 1st home computer in 1978.
    Originally posted by gadgetmind
    Science Of Cambridge MK14, with 256 bytes of memory - I win

    https://en.wikipedia.org/wiki/MK14
    EatingSoup
    • gadgetmind
    • By gadgetmind 11th Jan 18, 8:09 PM
    • 10,795 Posts
    • 8,668 Thanks
    gadgetmind
    I wanted an MK14, and the guy the same age as me at university I went into business with did buy one, but my parents couldn't afford to put anything towards my first computer (or even my first pocket calculator or bicycle) and I had to do it all via men
    ial jobs after school and at weekends. By the time I had enough, the Superboard II was the best choice.
    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.
    • k6chris
    • By k6chris 11th Jan 18, 10:27 PM
    • 221 Posts
    • 380 Thanks
    k6chris
    Superboard II.
    Originally posted by gadgetmind
    I doff my cap. 6502 processor, a real keyboard and BASIC. Did you build it yourself or (cheat and) buy the ready built one ?!
    EatingSoup
    • badmemory
    • By badmemory 12th Jan 18, 4:56 AM
    • 1,710 Posts
    • 2,308 Thanks
    badmemory
    Science Of Cambridge MK14, with 256 bytes of memory - I win

    https://en.wikipedia.org/wiki/MK14
    Originally posted by k6chris
    Really that much memory? You must have been rich! Our first computer (in I'm sure early 1978) cost way more than a stair carpet did. My mother in law was convinced that her son had forced me to buy that computer rather than the carpet (he didn't I was never that domesticated)! It was an amazing time when even I could write a computer program & actually see the outcome. I am obviously older as I was over 30 then (which was really over the hill by then in computer terms).

    I had had my first introduction to computers back in 1965 when I worked at m/c Uni and we were looking at the 1961 census. The space that computer took up was larger than the average house & now it would only use a fraction of a modern computer's memory. It also used punched cards - do those even exist anymore?

    Well that was a nice trip down memory lane!
    • gadgetmind
    • By gadgetmind 12th Jan 18, 11:08 AM
    • 10,795 Posts
    • 8,668 Thanks
    gadgetmind
    I doff my cap. 6502 processor, a real keyboard and BASIC. Did you build it yourself or (cheat and) buy the ready built one ?!
    Originally posted by k6chris
    I bought mine before the UK101 kit came out. I did however plug in the extra RAM myself and built a lot of veroboard addons.
    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.
    • Linton
    • By Linton 12th Jan 18, 11:20 AM
    • 9,395 Posts
    • 9,529 Thanks
    Linton
    I wrote my first computer program in around 1965 on a school visit to the computer at Woolwich Poly. You could enter data online directly into your program using a telephone dial. Then a couple of years later the first 2 weeks of the first term of the first year at University was mainly spent on a crash course in Fortran.
    • westv
    • By westv 12th Jan 18, 11:37 AM
    • 4,542 Posts
    • 2,138 Thanks
    westv
    The computer geeks have taken over!
    • gadgetmind
    • By gadgetmind 12th Jan 18, 12:05 PM
    • 10,795 Posts
    • 8,668 Thanks
    gadgetmind
    It was bound to happen sooner or later.
    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
    I was a latecomer but my chemistry department final year project was to replace Microsoft's Z-80 Cromemco Z2 FORTRAN library with one using an AM9511 floating point coprocessor.

    One of the more interesting phrases I encountered on the university Honeywell mainframe was "archive restore job, please run". That was printed on the operator's terminal just after a request to mount a tape and just before a request for system manager privileges. The system was short of disk space so they had set up a feature to save to and restore from tape, which needed high permissions to work. One day the person responsible for the security of the system asked me to try to run a job with higher priority than I should have been allowed. I asked for a different "higher" priority instead: the next day I handed him the output of a batch job that had been granted permission to run with a request for the password of the system manager account. But with an error in the JCL so it didn't actually make the request. He literally ran from his office after reading the output...

    The system operators seemed amused by this: instead of granting a higher priority they weren't supposed to grant they had legitimately followed instructions which granted me far greater access.
    • MallyGirl
    • By MallyGirl 12th Jan 18, 12:41 PM
    • 2,740 Posts
    • 7,746 Thanks
    MallyGirl
    I am obviously a mere whippersnapper in present company - my first job was with Research Machines and I remember being gobsmacked by the new RM Nimbus which had 4 colours as compared to the BBC B which was just green and black. I also had no idea what to do with a mouse (Windows 1) and had to be shown
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