I think i can retire early?

[ffacoffipawb64]

I took very early retirement 16 years ago and have never regretted it. Whilst I liked my work (Actuary) the problem was the weekly commute to work (and living) in Central London. Fun when it started, at the end it was making me ill.

I second OLTB’s comments about modelling a fall in assets (nothing fancy is needed, try a 25% fall in year one and see what happens). Also Dod101’s suggestion of using investment trusts (ISA wrapper where possible) rather than just drawing down on capital. When I retired one of the first things I did was to top up my investment trust holdings to ensure that their dividends were sufficient to cover my basic living costs (I can live very cheaply – my supermarkets of choice are Aldi and Lidl).

Look closely at your current spending – itemise it for a couple of months and come up with an approximate post-retirement budget. It can be surprising to find out how much it costs to be in work. Whilst commuting is one of the biggest costs for most people, especially those who work in London, quite a bit of spending is much higher than it ought to be simply because you are working.

I remember junior colleagues spending up to £10 a day on coffees, sandwiches and cakes; so allowing for days off and cheaper days that was over £2,000 a year (out of after-tax income). If they were retired and kept the same pattern of consumption they wouldn't be need to spend so much; much of what they were paying for was the convenience.

Remember that you won’t be paying National Insurance and you won’t be paying the mortgage. In my career I was occasionally involved with retirement planning and many people I saw wanted 100% replacement income in retirement. But in retirement they are unlikely to be paying pension contributions, the mortgage, National Insurance and the costs of being in work, so they could manage perfectly well with less.

What to do with yourself? A lot of people identify so closely with their occupation that they go rapidly downhill after they retire, especially if a major part of their social life revolves around work. Amongst other things I’ve kept busy by doing four degrees since I retired (mostly Open University). As a fan of televised sport quite a bit of my year revolves around major sporting events (April = Indian Premier League Cricket, July = Tour de France, etc.). You may find that there's some part-time work which you really like doing (I know several retirees who work at the local county cricket ground on matchdays and local racecourses on racedays). Otherwise there's the joy every weekday morning of not having to go to work.

Exotic holidays and travelling. Get it done earlier rather than later – lack of energy and health issues are more likely you as you get older.

To quote Rabbi Harold Kushner; “Nobody on their deathbed has ever said “I wish I had spent more time at the office"”

You are one of the few qualified actuaries. I started as a trainee actuary in 1988 after doing an MSc in Pure Mathematics but sadly was not able to qualify.

[Mike88]

The OP should take account of the fact you spend less money when you retire - no suits, lunches, commuting costs etc. And, unlike many his house is paid for.

For the first 5 years the OP intends to draw down £175000 leaving capital of £375000 but has not accounted for any interest he will receive during that period. That aside, it seems to me, as someone who retired at 50 and bought a campervan to go travelling around Europe, that the OP has plenty of money to retire now; in fact at the age of 70 I now find my wife is too ill to travel and that I have money I hardly know what to do with it.

My advice is to retire now; you only have one shot at this and you don't want to be in a position where you have plenty of cash and illness gets in the way of pursuing the things you enjoy.

[PhaseThree]

Amongst other things I’ve kept busy by doing four degrees since I retired (mostly Open University).

That sounds like an expensive hobby to take on in retirement, the ones i've looked at seem around £6K a pop. I've had a look at degrees but MOOC courses seem more affordable/free.

[SalvorHardin]

You are one of the few qualified actuaries. I started as a trainee actuary in 1988 after doing an MSc in Pure Mathematics but sadly was not able to qualify.

I'll let you into a secret. I never qualified

I was "mostly qualified", but when the pension mis-selling review started in the late 1990s I put my studies on hold. That's because the money for pension mis-selling work was too good for me to ignore. By the end of the review I was earning three times what the typical qualified Actuary with five years experience would get in non-review work, and without having to work 60+ hour weeks whilst only getting paid for 40 hours.

My plan was to qualify after finishing the pension mis-selling work, but with about a year to go I decided to look at retiring instead. My earnings would have fallen off the proverbial cliff for a few years if I had returned to conventional actuarial work (pension review was a big negative on your C.V.) and I wanted a break from central London. I started planning for a possible retirement, working out my budget, even looking at a possible career change (that's why I started a law degree as soon as I finished working).

When the review ended one of the partners of my biggest client remarked that I was their only pension review contractor who hadn't asked them for a job. He was surprised when I told him that I was retiring (at 39). Realistically I wouldn't have been employable with his firm anyway - I was up against qualifieds who were 10 to 15 years younger and more eager.

[dealtn]

I echo much of what has already been said and say "go for it". Especially so given you aren't enjoying work. I don't regret it at all.

All I would say, that I think hasn't already ben said, and I am sure you are clever enough to already be doing this, but investigate the chances of either being made redundant, or taking "early retirement", rather than just quitting. It is preferable to be leaving with a cheque in your pocket, even if it means putting up with what you dislike for a few more months.

[PinkDalek]

The OP should take account of the fact you spend less money when you retire - no suits, lunches, commuting costs etc.

I realise that's the idea but our expenditure is double what it was. There's plenty of other places one can enjoy one's money.

[SalvorHardin]

That sounds like an expensive hobby to take on in retirement, the ones i've looked at seem around £6K a pop. I've had a look at degrees but MOOC courses seem more affordable/free.

Two of my degrees cost a fair bit less than that as the fees were still at the old (subsidised) rate.

The Law degree cost about £9,000 - the OU has always charged the full rate for Law degrees.

Fortunately I've got a fair bit of spare income so £2,000 a year on courses is well within my budget.

If you're not bothered about getting the qualification you can get a lot from an OU course bought off eBay.

For a few courses the teaching materials focus very closely on textbooks which were written for that course. The two for the Astronomy and Planetary Science course were about £30 each the last time I looked (the astrobiology and vulcanology sections stood out for me when I did the course).

[AsleepInYorkshire]

Well bu99er

I'm ever so cross with you all now I've now got to sit down and do yet another spreadsheet to determine how I too can retire earlier than I was planning. And you lot can carry the can for that one. All this sensible talk has really set me too thinking.

Anyways, having alienated all of you with my appalling sense of humour can I now ask a few questions please? I have been doing a lot of reading lately trying to "catch up" with pensions and the like.

I have been quite ill for some considerable amount of time. I won't bore you with the detail. I've not been in a position to contribute to my personal pension for a long time now.

So I am preparing a recovery plan. I've mentioned it before on the Investment Strategies board. Pasted below.

WHAT RETURN ARE YOU TARGETING
Want/prefer
- 20% over 15 years (compounded)

Need
- 0% (could even cope with small loss over that period)

Strategy
- Add 20K pa to pension (company scheme - I'm 40% tax). Best guess 10% return. Over 15 years. Self chosen investments
- Consider redistribution of current pension pot to improve annual growth. Target 6.6% growth over 15 years.
- End out of improved pension pot after 15 years = £280K
- Do not exceed 4% draw down on current pension (outwith additional £20K pa)
- Monthly shortfall upon retirement = Nil (noting income from state pension)
- Additional £300K "swamps" my "need" and moves me closer to "want/prefer"

Risk
- My health
- "Overthinking/overestimating" my ability to self invest/help

Plan
- Buy a farm (A Warren Buffett Farm)

I have a very simple spreadsheet . I hasten to add I'm happy to change it if it helps. I've projected straight line growth year on year and can change that growth rate to see what the impact is. Each year it shows what I can draw down tax free, what I need to live on after adjustments for inflation and also what I can draw down before I am liable for tax. I may be over-thinking it all but I will only know that when I have managed to absorb it all myself. Alternatively I could just wait 15 years and see if it works

• When I ultimately go into draw down on my pension fund does it continue to fluctuate with the market?
• What happens to that pension fund on my death?
• We are tenants in common (we've never married - the downside to my illness]. Would it help if we did marry but also noting that keeping the house as tenants in common may keep 50% for our daughter

I should add my good lady will get slightly more than her current income when she retires as she will get her workplace pension (protected) and her state pension. I've projected inflationary increases at 1% on the state pension. We will have no mortgage. I am projecting 15 years as that is when my good lady will be 67. I suspect she may be able to retire a little earlier without huge negative impacts on her monthly income - but that's detail for nearer the date.

I am a tough old fart. Very independent. It's been a tough old journey to get this far. I've no gripes with that. And I'm content I will do whatever it takes to "recover" my pension position. We have one daughter. She's 12. I want to ensure that I maximise what she receives upon our deaths and feel that I should understand that now to ensure I proceed correctly.

In a way what I am saying is "I'd like to retire late" - I have no other option. The emphasis is on "retire" and not sit down and wait for God.

AiY

[pds2008]

I retired last year at the age of 55 - could have carried on but I lost my dad and my sister at the same time and realised life is too short to eke out another year of work for a bit more "peace of mind". Most of last year was taken up with buying/selling property and moving from Scotland back to the South of England. I have just started volunteering for Citizens Advice working 10 hours over one and a half days and I find it eating in to my retirement time!

The OP is absolutely right in his views on what you actually spend in retirement. My living expenses so far are down by 40% (I never had a London commute) and would be more if I did not enjoy my holidays so much. It is amazing how much is spent on basic travelling for work, breakfast, coffee, lunch, the odd drink or snack on the go, taxis in town, nights out, and clothing. Never have the TV on during the day, often realise it is 8pm and the whole day has gone, and the simple pleasures of gardening, walking and watching the world go by are a joy. Zero stress as well..

My advice to anyone contemplating the switch is - do it

Yell

[Urbandreamer]

I have a very simple spreadsheet . I hasten to add I'm happy to change it if it helps. I've projected straight line growth year on year and can change that growth rate to see what the impact is. Each year it shows what I can draw down tax free, what I need to live on after adjustments for inflation and also what I can draw down before I am liable for tax. I may be over-thinking it all but I will only know that when I have managed to absorb it all myself. Alternatively I could just wait 15 years and see if it works

• When I ultimately go into draw down on my pension fund does it continue to fluctuate with the market?
• What happens to that pension fund on my death?
• We are tenants in common (we've never married - the downside to my illness]. Would it help if we did marry but also noting that keeping the house as tenants in common may keep 50% for our daughter

I may have a couple of answers, or not, depending upon how you do things and what you want to consider.

Having a forcasting spreadsheet is a really good idea. I too have one that projects using the fv function. However I start with an estimate based upon previous growth, updated with my views on the future. I also calculate a projected crystalized life time allowence figure at my retirement date. I should be quite safe, but the formular is simple so why not do so? I also calculate a natural yeild (allowing for tax) on both my current assets and predicted future assets (my ISA is currently bigger than my DC pension). Every year I download my bank transactions and calculate what I spend rather than save. That gives me some idea of what I might need in retirement.

What happens to your pension on death? Well you can pass DC pots to whoever you want. Tax free if you die young (under 75), taxed at their income tax rate if you don't.
If you are concerned about what happens when you die then you really should consider getting married. The tax benefits are fantastic.
If you were to have a significant amount in an ISA, a spouse could get it as an ISA, but not anyone else. It would lose the tax free ISA status if passed to an unmarried other half for example and could be subject to IHT.
Then there is IHT on property, and unused IHT allowance can be used on the death of the surviving spouse.

Will your pension fluctuate with the market? Well it depends what you do. If you use the money to buy an annuety, then no. If you keep it invested then you can choose to either draw the natural yield or draw what you want, in which case the capital may erode and badly when the market is against you.

Like many have done or intend to do here, I intend to remain invested in the market and live off the natural yeild. Will it be possible? Fortunately there are online guessing machines that can give you some idea.
I use this one but imagine that $'s and £'s are the same.
https://www.firecalc.com/
A word of warning, garbage in, garbage out. Make sure that you take things like the state pension into account.

According to the spreadsheet and firecalc I could retire, but have decided to wait four years. I'll be 60 and my youngest 19 then. I should also be significantly more comfortably off given my current saveing/investing rate.

[genou]

When I ultimately go into draw down on my pension fund does it continue to fluctuate with the market?

Yes. It is the same pot of investments, you are just realising it. Or you could buy an annuity - but assuming that you won't do that :

What happens to that pension fund on my death?

You nominate one or more beneficiaries with shares of the capital. They get the funds outside your estate with no IHT. If you are under 75 they get the fund free of all tax, over that they have to pay income tax as they draw it down - https://www.gov.uk/tax-on-pension-death-benefits

We are tenants in common (we've never married - the downside to my illness]. Would it help if we did marry but also noting that keeping the house as tenants in common may keep 50% for our daughter

I don't follow this. I'm not sure what you are trying to achieve with the severed tenancy. Marry your partner is the standard tax advice. Normally you would then leave your entire estate to your spouse and she would benefit from complete IHT exemption, then your IHT exempt amounts reappear on her death and your daughter gets the estate then. https://www.gov.uk/guidance/inheritance ... -threshold

[Urbandreamer]

We are tenants in common (we've never married - the downside to my illness]. Would it help if we did marry but also noting that keeping the house as tenants in common may keep 50% for our daughter

I don't follow this. I'm not sure what you are trying to achieve with the severed tenancy. Marry your partner is the standard tax advice. Normally you would then leave your entire estate to your spouse and she would benefit from complete IHT exemption, then your IHT exempt amounts reappear on her death and your daughter gets the estate then. https://www.gov.uk/guidance/inheritance ... -threshold

Without commenting upon AIY's intent or desires, if you are not married then IHT implications can mean some strange tax planning. It can also lead to some strange pension planning if your only pension is a DB scheme.

DB schemes were often written long ago. On death they may look after your current spouse, but a former spouse and the children that you had with them? Unmarried parteners can also be vulnerable and it took a change in the law (specific to pensions) for DB schemes to treat civil partnerships the same as marrage.

Strange arrangments for IHT reasons were common with married couples with children who thought about IHT twenty years ago. Houses were often held as tenants in common so that half could be passed down to a child avoiding paying IHT upon it twice. Often this was done as a discresionary trust to give the surviving spouse flexibility.

Twenty years ago my wife and my own wills set up to create discresionary trusts, and while we hadn't got arround to changing the ownership structure of our home, we knew others who had. Changes in IHT mean that those who are married no longer have to jump through those sort of loops and we have simplified our wills.

Twenty years ago you HAD to buy an annuety if you had a personal pension (DC pension). If you were in a company scheme then the employer could refuse to allow you to retire until the scheme date (this may still be the case). I knew someone who was very bitter about the fact. He left work to care for a dying wife but was refused access to his pension. On a personal note, that is why my ISA is bigger than my DC pot. Until recently the downsides of pension contributions far outweighed the upside in my opinion.

If you don't keep track of changes then you can may wake up one day to find yourself living in a strange world, but human nature often means that we don't pay attention to changes in things like IHT or pensions.

[DrBunsenHoneydew]

A recent poster tells us that a man of 55 has a life expectancy of 26 years. That may be so but 26 years is a long time and I know of a number of people who are still living a relatively independent life and driving in to their 90s so you need to plan for much longer than to age 81!

A man of 55 now has a life expectancy of 30 years. A 1 in 4 chance of reaching 93. And a 1 in 10 chance of reaching 98.
https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/pastandprojecteddatafromtheperiodandcohortlifetables/2016baseduk1981to2066#how-long-can-you-expect-to-live

[Dod101]

Dr BH. Thank you. I thought that 26 years did not seem long enough for someone of 55 but on the other hand one or two life companies have actually released some provisions because life expectancy had not increased as much as expected so maybe there is an actuarial slowdown.

I think the evidence is all round us that people are overall living longer. I certainly have two friends one a tiny bird of lady still living in her own and driving at the age of 93 I think she is and a man still living independently as well but no longer driving at the age of 95. I think therefore that it would be wise to plan/assume a life expectancy of at least to age 85, more or less whatever our age. Of course the longer you live, the age at death keeps being pushed forward so that if you survive to say 80, the table tells us that the life expectancy is a further 9 years, that is to 89.

Dod

[AsleepInYorkshire]

A recent poster tells us that a man of 55 has a life expectancy of 26 years. That may be so but 26 years is a long time and I know of a number of people who are still living a relatively independent life and driving in to their 90s so you need to plan for much longer than to age 81!

A man of 55 now has a life expectancy of 30 years. A 1 in 4 chance of reaching 93. And a 1 in 10 chance of reaching 98.
https://www.ons.gov.uk/peoplepopulationandcommunity/birthsdeathsandmarriages/lifeexpectancies/bulletins/pastandprojecteddatafromtheperiodandcohortlifetables/2016baseduk1981to2066#how-long-can-you-expect-to-live

Oh fannnntastic Just be my luck not too have a big pension pot and live to be a 100.

AiY

[DrBunsenHoneydew]

Dr BH. Thank you. I thought that 26 years did not seem long enough for someone of 55 but on the other hand one or two life companies have actually released some provisions because life expectancy had not increased as much as expected so maybe there is an actuarial slowdown.

I think the evidence is all round us that people are overall living longer. I certainly have two friends one a tiny bird of lady still living in her own and driving at the age of 93 I think she is and a man still living independently as well but no longer driving at the age of 95. I think therefore that it would be wise to plan/assume a life expectancy of at least to age 85, more or less whatever our age. Of course the longer you live, the age at death keeps being pushed forward so that if you survive to say 80, the table tells us that the life expectancy is a further 9 years, that is to 89.

Dod

There had been a definite slowdown in the rate of increase of life expectancy. But latest figures (not yet acted on by life companies or the official actuarial tables) are showing a quite remarkable rate of reversion to the usual improvement rate from the recent 'blip'.
Prudence says do not aim to spend pension fund before age 90 at least, especially for women.

[Mike88]

I wouldn't rely too much on life expectancy tables because it is other things that can inflict you in older age which can seriously affect the way you live your life and the consequent expense such as impaired eyesight, dimentia, inabilities to move etc. Sorry to be so maudlin but the reality is that you might live to 89 or 95 but the reality is you won't be able to do things you might think about doing when you are in your 50's when you hit 80 or even younger. These things all impact on the amount of money you need or can spend. Planning for your late 80's or even 90's is a pointless exercise as you simply do not know how your life will pan out.

[Walkeia]

I wouldn't rely too much on life expectancy tables because it is other things that can inflict you in older age which can seriously affect the way you live your life and the consequent expense such as impaired eyesight, dimentia, inabilities to move etc. Sorry to be so maudlin but the reality is that you might live to 89 or 95 but the reality is you won't be able to do things you might think about doing when you are in your 50's when you hit 80 or even younger. These things all impact on the amount of money you need or can spend. Planning for your late 80's or even 90's is a pointless exercise as you simply do not know how your life will pan out.

Hi hi, just catching up and didn't realise my quick google of life expectancy has caused some discussion. To clarify, Mike summarises the point I was trying to make much better than I did. I apologies for dodgy source or lazy reading of the chart on the website I got it from. How I think about retirement is below but certainly compared to my friends I'm an outlier in viewing it this way:

I think I read this some time ago so will not claim it as my own - in essence the time value of money goes into overdrive from 60+, and sadly so does the value of time.

So taking what Mike says one step further - the value of £1k to the average 60 year old is many times that of the value of £1k to the average 90 year old. Obviously not in pure monetary terms but with regards to the opportunity set available given health, mobility, cognitive functions etc. There are exceptions to the average as always and our lifestyle can also play a part in the odds we face as we age.

Consequently, if we were to model retirement income adjusted for assumed purchasing power of opportunity set; placing age 60 with a beta of 1.0; then our real retirement income is:

60: retirement income x 1
61: retirement income x 0.97
62: retirement income x 0.95

...... and so on and so forth. The 0.97 and 0.95 I just placed these numbers there to demonstrate trend - I have no idea what they should be but would be really interested if anyone has seen anything on this.

Thinking this way, I would conclude that we should retire as early as we possibly can. So why don't we? There's many flaws - to name two - it assumes retirement is the nirvana whereas I personally, and I am sure some others too, still enjoy work. Secondly, it assumes all an individual cares about is their personal beta factor x retirement income - however a younger spouse or children / grand children are likely to feature significantly in the equation.

All the best,

[Lootman]

I would conclude that we should retire as early as we possibly can. So why don't we? There's many flaws - to name two - it assumes retirement is the nirvana whereas I personally, and I am sure some others too, still enjoy work. Secondly, it assumes all an individual cares about is their personal beta factor x retirement income - however a younger spouse or children / grand children are likely to feature significantly in the equation.

I retired 18 years ago, whilst still in my forties, despite the fact that I had a younger wife (13 years younger than me) and young'ish children - the youngest was 12 at the time.

Nonetheless there were a couple of factors that drove that decision, apart from the fact that I had mostly stopped enjoying work. One was that the mortgage on our main home in North London was paid off. And partly because, after many years as a stay-at-home mother, my wife rejoined the workforce and she makes good money in the medical field (currently about £130,000 a year).

Another factor was that the daily fluctuation in my portfolio value exceeded what I got paid for a days work, nearly all of the time, which made me feel that working was becoming less and less material. When you make more money from sitting on your backside than working, it focuses the mind. Of course many who own houses in London have experienced this phenomenon well.

I stopped suddenly, going from 40 hours a week to none. In fact the only paid work I have done since 2001 was running my local pub quiz for a while (£30 a night plus all the beer I could drink). I was also a BTL landlord for the first few years of retirement but I gradually wound that up, as that too became more of a hassle.

Despite not working my net worth today is about double what it was in 2001, and in addition I have funded living for 18 years. So I like to think that I am living proof that your idea is sound - you can make money and save even in retirement. That said I don't worry too much about living too long. Rather I worry about not living long enough to enjoy the money.

[JohnB]

A 90yo might spend less on fun, but the value in having the cash to get someone to turn up at your house and cut your toenails, as Mum does, is huge. So many things we take for granted earlier become big issues later, and having a buffer to pay for taxis to hospital, rather than catching a bus is very important, as its all too easy to let yourself go.

I think of retirement spending as a U, high at first with the bucket list ticking, dropping down as you become a homebody, and then rising fast with care fees.