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Curb my enthusiasm?

Including Financial Independence and Retiring Early (FIRE)
bucklb
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Curb my enthusiasm?

#388314

Postby bucklb » February 20th, 2021, 11:53 pm

Hello. Been around a while, but contributed even more rarely here than in the Foolish place.

I think my wife and I can cease working when we hit 60 (in 4 years time, when we'll each have sufficient NI for full SP) but I'd like to be sure I'm not making a major miscalculation. I'd be serioulsy grateful for feedback on whether it's meaningfully an option, please.


Basics : 2 of us, house with no mortgage and grown up kids (no uni expenses expected after hitting 60). We're both 56 and have (defined benefits) pensions that are estimated to pay total £32.5k gross @ 60 and when SP kicks in will jump to £50k gross in total (£45k nett).

Info on what is needed in retirement is pretty scant, but £45k seems to offer a decent retirement (we spent £35k last year, but obviously not exactly a typical year). Is £45k cash a sensible target income?

Assuming £45k is actually a meaninful target we'll be looking at boosting income while we await the state pension, by roughly £15k nett pa for 7 years (£105k). I have a SIPP at £80k that I'm putting £7k pa in to (so expect to be c£120k at retirement), stocks at £130k (in ISA's natch, hopefully £145k in 4 years) and cash at £170k (which I realise is far too much, but ought to see us through most market shrinkages).


Is retiring at 60 a realistic option? It makes sense using my Excel model, but reality tends to not co-operate. I really don't want to raise my wife's expectations unduly

Ta
Bob

xxd09
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Re: Curb my enthusiasm?

#388315

Postby xxd09 » February 21st, 2021, 12:33 am

You have to know your expenditure - I use Quicken 2004-my wife and I enter every thing and you will have a good handle on things before you stop work
We seemed to spend as much in retirement as when we worked-more time off and so traveled a lot-budget for this
£100000 of a 60/40 stocks and bonds portfolio buys you £3000+ pa of income-good guide
I am now 74-17 years retd -so walked the walk-so far so good
Hope this info is of some help
xxd09

1nvest
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Re: Curb my enthusiasm?

#388316

Postby 1nvest » February 21st, 2021, 12:48 am

Why wait :)

Now 56
50K combined state + occupational pensions at age 67.
So if you retired now, 50K self funding for four years = 200K, then 32.5K occupational pensions starts at 60, so need 17.5K to top that up to 50K/year for 7 years = 122K. Combined 322K and you have enough for 50K/year lifestyle henceforth (less is required if you also 'discount' the 50K down by the taxes that will fall due on state+occupational pensions).

You have 80K SIPP, 130K stocks, 170K cash = 380K ... so enough already.

You may very well find that 50K/year isn't anywhere near required. Less working life costs such as travel expenses, lunches, suits, whatever. I dropped out of the rat-race in my mid 40's with a modest amount, that is now quite a large amount as I lead a modest lifestyle. Now 60 and my occupational pension will soon start being paid, and have more than enough to cover the 'gap' before the state pension is also received in 7 years time.

A main risk factor is that one of you may fall ill/incapable in later life, or worse and you may regret not having had the time together having fun when you were younger/able to do so.

I'm fortunate that my occupational pension will be inflation linked. You would need more if that isn't the case for your pensions.

Morbid hat on and typically in twilight years the first to fade will tend to be cared for at home by the other. Home value tends to be used to fund care home costs for the longest survivor. But hey, forget all of that and enjoy life to the fullest whilst you can.

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Re: Curb my enthusiasm?

#388321

Postby JohnB » February 21st, 2021, 5:00 am

So much depends on your lifestyle. You will lose commuting costs and lunchtime sandwiches, but might have exotic holidays or take up golf. Do you plan to give up the gardener and do it yourself. Home cooked food rather than takeaways, or becoming People who Lunch.

You will lose NI costs and the 25% tax free on a pension means you can get 17k each before paying any tax, so the difference between income and expenditure will be much smaller than now.

Use a spreadsheet to record spending and and note what might change in retirement.

Most people have u shaped spending profiles. Starting high with exotic holidays, falling as they become homebodies, then hitting care costs. How healthy are you?

My problem will be spending the 45k I've allowed, as I"m thrifty bordering on mean!

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Re: Curb my enthusiasm?

#388326

Postby nmdhqbc » February 21st, 2021, 7:29 am

i think it's looking Prett-ay, prett-ay, prett-ay good for you with those numbers.
could not resist

Urbandreamer
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Re: Curb my enthusiasm?

#388329

Postby Urbandreamer » February 21st, 2021, 8:20 am

As xxd09 say "You have to know your expenditure".

I think that it's worth saying again. You have to know your expenditure.

Look you wouldn't ask can I afford "a car". What type of car? Do you want a run about or a Rolls? How important is MPG (how many miles per year). Is the cost of insurance going to be an issue (it is for young people).

In this case you want to know what YOU are likely to spend once you retire. I very much doubt that it will be anything like what I will spend.

Many banks allow you to download your outgoings as a spreadsheet. This will quickly establish what your current outgoings are. However in my case that isn't what I'm spending. I have to sort the spreadsheet by who I'm paying and remove my pension and ISA contributions, but that's easy to do.
I could go further (and have), checking how much my book and audio-book addiction costs.

Now if you want to guess, based upon the presumption that everyone is average, then there are some "estimates".

https://www.retirementlivingstandards.org.uk/

It would imply that you would start with a modest retirement rising to a comfortable retirement when the state pension kicks in.

Leif
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Re: Curb my enthusiasm?

#388339

Postby Leif » February 21st, 2021, 10:12 am

What do you intend to do on retiring? One person I know goes on nature treks in exotic countries. You’ll need something to do. I take weekly skating lessons, or at least I did, £25 per half hour. Language classes? Yoga classes? Weekends in Devon? Trips to Paris? Posh meals?

You sound wealthy to me, but it depends on outgoings.

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Re: Curb my enthusiasm?

#388344

Postby Steveam » February 21st, 2021, 10:28 am

Broad brush estimates of expenditure are fine.

I did this years ago and the retirement numbers looked fine ... 20 years later they were more than fine and I’ve loosened the purse strings year by year. For the first year of retirement I allowed an extra £10k for exceptional fun.

As others have said, lifestyle choices and satisfactions are going to be key. Your numbers look fine to me for a comfortable but not generous retirement. Do consider how much of your income is index linked - high inflation could be a killer.

Best wishes,

Steve

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Re: Curb my enthusiasm?

#388357

Postby monabri » February 21st, 2021, 11:08 am

Urbandreamer wrote:Now if you want to guess, based upon the presumption that everyone is average, then there are some "estimates".
https://www.retirementlivingstandards.org.uk/
It would imply that you would start with a modest retirement rising to a comfortable retirement when the state pension kicks in.



I'd suggest using that as a starting point /reference but I think one would need to sit down and question some of the data.

For example, a quick look at the "Transport" section and in particular the cost of running a car. Where are the costs of things like road tax, insurance, repair bills, parking, fuel, and the vehicle cost in the calcs?

A 5 year old car (see below) with say 50k mileage is going to likely need some remedial work in the next 5 years of ownership. The spreadsheet indicates a 5 year old Nissan Quashqai, run for a further 5 years.


"Couples - 5 year old mid-range SUV or estate e.g. Kia, Quashkai, Kuga, replace very 5 years. (singles equivalent car but only 2 years old as need greater reliability as only have one car) Nissan Quashqai 1.2, 2014, based on annual mileage of 5000"

The cost of a Nissan 1.2 from 2016/17 is ~£10k or £2k per year over 5 years "life".

https://www.cargurus.co.uk/Cars/l-Used- ... qai-c38819

By the way - that was the "comfortable lifestyle", driving a 5 year to 10 year old 1.2 Nissan!

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Re: Curb my enthusiasm?

#388358

Postby swill453 » February 21st, 2021, 11:12 am

Yes some of the detail seems a bit off. The high end couple on £45K get a 3 week European holiday? We spend far less than that, and (pre Covid of course) spend 100+ days on holiday each year.

Scott.

bucklb
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Re: Curb my enthusiasm?

#388384

Postby bucklb » February 21st, 2021, 12:19 pm

Thanks all for your responses. Defintely food for thought.

I need to get a better handle on what we spend. Figures for 2018 were closer to £45k, but that included school trips and holidays for 4. There should be just the two of us at home soon, so household bills and life assurance/income protection costs will drop considerably. In the meantime I'll start recording spend better.

Like most, I suspect we'll spend some time travelling around (assuming travel ever becomes an option again) before settling down to a more realistic routine.

1nvest
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Re: Curb my enthusiasm?

#388396

Postby 1nvest » February 21st, 2021, 12:54 pm

In my first year or so as 'retired' I did the usual of travelling around using 'surplus' £ amounts. Travel much less now. Also in the first year or two it was very much of thumb twiddling - what to do with all the spare time. Relatively quickly however your time schedule tends to fill up, especially when others know you have 'so much free time on your hands', where that can become 'doing things' to levels where your days are 'very busy'. i.e. prepare yourself to becoming a taxi-driver, handyman, child carer ...etc. rather than being leisurely 'retired'. If you enjoy your current job/work and there's a option to reduce to part-time working, having that 'time out' from retirement may be appropriate, and the extra income is also nice.

Hariseldon58
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Re: Curb my enthusiasm?

#388481

Postby Hariseldon58 » February 21st, 2021, 5:14 pm

62 and 14 years retired, I don't worry too much what I spend but do monitor expenditure .
Over the last five years it's averaged a shade over £46k a year ( low of £31k and a high of £61k) it's included a couple of major 3 month trips, each costing about £25k/30k

You should be fine. I don't have any pensions ( state pensions to arrive in 4 & 11 years for us) and allowance myself around 3 ½ % drawdown and the actual amount averages a little over 2% ie we could spend more but haven't felt the need and suggests that 45/50k pa is a pretty satisfactory income. The amounts are gross but our effective tax rate is close to zero. ( Majority of funds in SIPP and ISA)

The drawdown % is of a variable portfolio value and the highest expenditure year was around 3% of the portfolio value that year, medical events and of course Covid, mean that some years you don't spend very much...

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Re: Curb my enthusiasm?

#388584

Postby JohnW » February 22nd, 2021, 12:24 am

bucklb wrote:Info on what is needed in retirement is pretty scant, but £45k seems to offer a decent retirement (we spent £35k last year, but obviously not exactly a typical year). Is £45k cash a sensible target income?

Perfect timing, I'd say, to be looking at it now. I think you need two things straight up, and maybe one or two more afterwards: how much annual income you need to live on (at 'just getting by' and 'as good as I want it'); and how much in retirement savings/investments is needed to provide that income.
First one: you really need to keep some good records of your living expenses for the next several 6 month periods if you can't easily obtain them for recent times. I don't think you need bespoke software for that, bank statements will do it if you can separate the outgoings into 'money to live on' and 'money I took out to put into a different higher interest account, etc'. Your retirement assets only need to supply the money your guaranteed income (state pensions etc) don't supply.
Second one: read up on the 4% rule if you're unfamiliar with it; it's something like 'if you can get by on only 4% of your retirement savings in the first year, you won't run out until 30 years'. There's fine print, but roughly it. Similarly, if you get by with spending about 1.8% each year you've got a perpetual endowment. Familiarising yourself with figures like that will give the confidence you need. Try https://earlyretirementnow.com/safe-wit ... te-series/

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Re: Curb my enthusiasm?

#388604

Postby Urbandreamer » February 22nd, 2021, 8:11 am

JohnW wrote:I don't think you need bespoke software for that, bank statements will do it if you can separate the outgoings into 'money to live on' and 'money I took out to put into a different higher interest account, etc'. Your retirement assets only need to supply the money your guaranteed income (state pensions etc) don't supply.


Just a quick aside. I pointed out that you could probably download a spreadsheet from the bank... without considering that you might not have any spreadsheet software.

Spreadsheet software is available for free and freely available.
For this sort of stuff I would use LibreOffice.
https://www.libreoffice.org/

Though you could probably use Google Sheets.
https://support.google.com/docs/answer/ ... ktop&hl=en

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Re: Curb my enthusiasm?

#388731

Postby 1nvest » February 22nd, 2021, 1:53 pm

JohnW wrote:Second one: read up on the 4% rule if you're unfamiliar with it; it's something like 'if you can get by on only 4% of your retirement savings in the first year, you won't run out until 30 years'. There's fine print, but roughly it. Similarly, if you get by with spending about 1.8% each year you've got a perpetual endowment. Familiarising yourself with figures like that will give the confidence you need.

Many hate what asset allocation I do due to holding substantial amounts of gold, however for my own figures when I went through all of that I came out with a 4% lower, 6% average SWR for a perpetual (generational) style. Founded on the Talmud style, as they advocated millennia ago, of a third each in land (home(s)), commerce (stocks) and reserves (gold). i.e. that 4% minimum includes home value as well, not just liquid assets wealth, but also includes the 'imputed rent' benefit element - as though I were both landlord and tenant (liability matched rent is safer than having to find/pay rent (or be collecting rent with all of the risks that involves)).

Fundamentally stocks and home are similar in reward expectancy, both see share/house price increases, one pays dividends, the other avoids having to find/pay rent (imputed rent benefit). A third in each, along with a third in gold is a form of 67/33 equity/gold asset allocation. Equities tend to do well during periods of positive real yields, gold does well during periods of negative real yields such as if inflation spikes sharply. Around two thirds of time are spend in the former, one third of time in the latter. 50/50 stock/gold is a form of barbell of two extremes, that combined converge to be like a central bond bullet i.e. 67/33 equity/gold is somewhat like a 33/67 equity/bond blend but is more volatile over shorter periods of time.

Backtesting that for all start years since 1896 for me produced satisfactory results where primarily the focus was on security (safety) over that of maximising potential rewards. 2.6% worst case SWR excluding (1.4% average/proportioned) imputed rent (so 4% combined worst case), a additional 2% real gain in the average case on top of that.

For actual assets I prefer £ invested in land (home(s)), along with US$ (primary reserve currency) invested in stocks, and gold is a form of global currency. So asset diversification of land, stocks and commodity (gold).

2.6% SWR worst case, where home value is included as part of total wealth/investments is for me 'more than enough'.

Many say that a home is illiquid, shouldn't be included as can't easily be rebalanced etc. however I'm not inclined to rebalance. Jack (John) Bogle didn't rebalance either, observing that non-rebalanced tended to (on average) achieve the same/similar rewards as rebalancing, but that avoided the cost and taxable events that rebalancing induces. Just let the assets ride long term, but where you could always opt to rebalance at any time if you deemed that to be appropriate. Looking at just liquid assets, 50/50 stock/gold, with a 4% SWR applied and started January 2000 and by 2018 that was down to 18% in stock by 2018 (US data) i.e. click the 'Asset Drift' tab in this link https://tinyurl.com/yh5c5ppr If you add all-stock to that and compare then you'll see just how poorly a all stock asset allocation with a 4% SWR was by comparison. Over other periods it swings the other way around and stocks might rise to being 90% or more weightings. Likely you'd be more inclined to avoid such extremes by opting to rebalance prior to reaching such levels, subject to it being cost/tax efficient to do so whenever you deemed that one or the other was too excessively weighted.

Your 1.8% figure looks to me due to being a consequence of the wrong asset allocation, I suspect including just stocks and bonds, which in the very broad sense are somewhat similar and correlated (but yes over short periods can exhibit inverse correlations).

I also see the land/stock/gold as a form of old-money asset allocation (art, land, gold generational wealth), but where art is replaced by stocks. A study of Keynes art collection value was found to have yielded very similar total returns as stocks, but by contrast I have little knowledge of art or investing in art so for me stocks are more appropriate.

Others that include their home value as part of 'investments' and that prefer to rebalance, might include some UK stock as a proxy for part of 'land' value for liquidity. The additional capital from including home value can substantially reduce your SWR % figure and reducing that even a little can make a big difference to safety. I also run with the mindset that push come to shove and I could always downsize or move to a less expensive area. Indeed with the kids now pretty much flighted I have less need for a larger family home anyway and post Covid was hoping to 'diversify' the home value anyway. Perhaps two or three flats between which I migrate seasonally. Personally I fancy Portugal for one, which I'd be more inclined to winter in rather than hot summers. I can't see a need to rent that out during the summer months and likely would prefer not to, but if financial needs demanded that could be another source of some income, as might the otherwise unoccupied home in the UK. It's nice having a house/garden, but when only part time occupied apartments have the better quality of being able to be simply 'shutdown/left' for months at a time.

Wild guess, but say Bob's home value is 600K and there's the other 400K of present liquid wealth (rounding), 1M combined total. 2.6% lower end SWR = 26K, excluding imputed rent (in effect rent all found/paid on top of that). 32K pensions on top of that in a few years time and ... comfortable. And that's the lower end, on average the portfolio value might still grow 2% real on top of that (20K), some/all of which could be drawn in a piecemeal manner (if/when evident). With wealth preserved (in real terms), and where at 67 the state pension is also paid on top.

Others of whom I know have managed to retire on far far less and live relatively frugal lifestyles such as on a barge where electricity and internet times are limited etc. Or that have a relatively low value home base from which they spend most of their time 'trecking' around in a low cost 'backpack' manner and are some of the most fun to be with (content) individuals that I know.

To me it looks like Bob/wife are very comfortably placed. Having 'won the game' primarily wealth preservation should be utmost in mind and stocks/land/commodity assets diversified across £/$/global-currency diversification is one way to elevate such wealth preservation (which can also be cost/tax efficient).

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Re: Curb my enthusiasm?

#388767

Postby paulnumbers » February 22nd, 2021, 3:35 pm

bucklb wrote:Hello. Been around a while, but contributed even more rarely here than in the Foolish place.

I think my wife and I can cease working when we hit 60 (in 4 years time, when we'll each have sufficient NI for full SP) but I'd like to be sure I'm not making a major miscalculation. I'd be serioulsy grateful for feedback on whether it's meaningfully an option, please.


Basics : 2 of us, house with no mortgage and grown up kids (no uni expenses expected after hitting 60). We're both 56 and have (defined benefits) pensions that are estimated to pay total £32.5k gross @ 60 and when SP kicks in will jump to £50k gross in total (£45k nett).

Info on what is needed in retirement is pretty scant, but £45k seems to offer a decent retirement (we spent £35k last year, but obviously not exactly a typical year). Is £45k cash a sensible target income?

Assuming £45k is actually a meaninful target we'll be looking at boosting income while we await the state pension, by roughly £15k nett pa for 7 years (£105k). I have a SIPP at £80k that I'm putting £7k pa in to (so expect to be c£120k at retirement), stocks at £130k (in ISA's natch, hopefully £145k in 4 years) and cash at £170k (which I realise is far too much, but ought to see us through most market shrinkages).


Is retiring at 60 a realistic option? It makes sense using my Excel model, but reality tends to not co-operate. I really don't want to raise my wife's expectations unduly

Ta
Bob


why £130k in ISA's rather than trying to stuff it all into SIPP's and gaining some tax benefit from doing so?

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Re: Curb my enthusiasm?

#388914

Postby bucklb » February 22nd, 2021, 9:16 pm

Thanks again for the replies

@1invest - never thought to include house as part of the assets to use with SWR. Interesting idea that I'll certainly think about

@JohnW - finally looked at the famous 3.5/4% withdrawal rate at the weekend. I'd always assumed that would leave the pot effectively untouched, rather than lasting 30 odd years (clearly wishful thinking :oops: ). Strangely 1.8% was the figure I'd started using to get a "last forever" rate. Once we get to SPA I think that rate will provide a nice "extra"; I'm keen to be sure we can live on SP & defined benefits pension, so any dipping in to SIPP / ISA is for luxuries once we hit SPA.

@paulnumbers - I started putting money in to ISAs while I was in my late 20's, when I don't think SIPPs existed. I only really registed SIPPs after I started paying higher rate tax (in the last 10 years or so) and only paid attention when the freedoms were introduced (2015?). To date have only put money that would be taxed at 40% in, as that's always seemed an absolute no-brainer. I have started looking at switching money from the ISA to SIPP on the basis that there are benefits (though not as significant as the 40% taxable money). Until lately I'd been assuming retiring was a distant dream, so wanted to maintain the flexibility of an ISA. The likelihood that much of a SIPP will escape IHT has also entered my thinking lately


I've always hoped to retire (long term) on the basis of defined benefit pension and SP, with the SIPP/ISA to get me though to SPA and thereafter for luxuries. On that basis I've tended to make my investments on the riskier side of things, assuming that the db pension takes the place of any need for bonds. I'll have a cash cushion to raid whilst riding out any serious stock market corrections. Am I tempting fate or is this a reasonable approach?

Cheers
Bob

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Re: Curb my enthusiasm?

#388950

Postby hiriskpaul » February 22nd, 2021, 10:50 pm

Its not just expenditure over the last few years that matter, you need to adjust for aspirational spending in retirement. How do you want to spend your time? If you want to take up flying spitfires then you don't have enough. Playing more tennis, you should be ok.

It really is a "How long is a piece of string?" type of question, but most of the retired members of my family get by quite happily spending less than you.

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Re: Curb my enthusiasm?

#389248

Postby syrio » February 23rd, 2021, 4:29 pm

Well it's up to you, but I say retire now or at least very soon, unless you'd rather be working.


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