Thinking of retiring early @55

[vrdiver]

The biggest 'problem' you face is being the richest people in the graveyard!

Seriously, what on earth are you going to be spending £70k per year on??

Genuine question. We are retired in our late 50's on half that income and consider ourselves well off, able to travel etc.

How much consumption can two people want? Whatever the answer, don't tell the extinction rebellion!

BoE

One person's "luxury" is another's "normal". It really depends on the individual. If you enjoy a glass of wine or a meal out, do you want a £5 bottle and a burger, or a 2* Michelin restaurant? Do you want to fly at the back of the plane, or on the upper deck? Does your weekend include opera tickets or Netflix? Want to drive a nice car, perhaps a couple for different situations, or is it just a method of transport where "what" doesn't matter provided it's reliable?

All the above can be fun, but some cost more than others, and if somebody has the money and interest, then it's perfectly possible to plough through a lot more than £70k!

So when a poster comes along and says something like "I want an annual income of £xxx" I tend not to worry about whether £xxx is too high or too low versus my own situation, as I assume they are here to discuss securing the budget, not to discuss or defend their lifestyle choices.

VRD

[SoBo65]

The biggest 'problem' you face is being the richest people in the graveyard!

Seriously, what on earth are you going to be spending £70k per year on??

Genuine question. We are retired in our late 50's on half that income and consider ourselves well off, able to travel etc.

How much consumption can two people want? Whatever the answer, don't tell the extinction rebellion!

BoE

Thanks, that's reassuring, maybe I am being a tadge too conservative.

[SoBo65]

The biggest 'problem' you face is being the richest people in the graveyard!

Seriously, what on earth are you going to be spending £70k per year on??

Genuine question. We are retired in our late 50's on half that income and consider ourselves well off, able to travel etc.

How much consumption can two people want? Whatever the answer, don't tell the extinction rebellion!

BoE

One person's "luxury" is another's "normal". It really depends on the individual. If you enjoy a glass of wine or a meal out, do you want a £5 bottle and a burger, or a 2* Michelin restaurant? Do you want to fly at the back of the plane, or on the upper deck? Does your weekend include opera tickets or Netflix? Want to drive a nice car, perhaps a couple for different situations, or is it just a method of transport where "what" doesn't matter provided it's reliable?

All the above can be fun, but some cost more than others, and if somebody has the money and interest, then it's perfectly possible to plough through a lot more than £70k!

So when a poster comes along and says something like "I want an annual income of £xxx" I tend not to worry about whether £xxx is too high or too low versus my own situation, as I assume they are here to discuss securing the budget, not to discuss or defend their lifestyle choices.

VRD

I agree with this, in conversation with people I know who have been retired some years I have found a big range of annual expenditure and it does not correlate with my perception of their life style, maybe I am missing something along the lines of with a lot more time I can get better deals on holidays etc than I do now or we go for convenience over cost.

[SoBo65]

I just came across this thread I started in 2019 when I was approaching 55, I did not retire partly because Covid came along and quite enjoyed the working from home lifestyle. My wife has now retired end 2021. Anyway have decided I will now retire around my 58th birthday, early next year. The only thing that has really changed in my assumptions is the high level of inflation we are seeing right now. My reckoning is that double digit inflation will not last long, but we will not see a return to the levels of around 2% that we are use to, more likely 4-5% going forward. My portfolio has done quite well over the period since 2019 and our mortgage has been fully repaid. I think we are too conservatively invested particularly for the 10-20 years segment and will look to change this over time, shifting the more conservative funds to the 3-10 years segment and switching some. I do of course assume the headwinds we face will be resolved one way or another and the returns graph eventually continues its long term trend going up and to the right....

[xxd09]

I think you are right to be slightly nervous
I am 76-18 years retd
Retiring into a downturn plus high inflation is not an ideal scenario for a retiree
I think you are right to be cautious
I think in your position I would make sure you have 4-5 years living expenses in cash or work a little longer
Good luck with your decision
xxd09

[1nvest]

I have never calculated the yield, but had assumed a lower amount nearer to 2%.

The 4% SWR figure assumes 30 years and draw-down to 0% remaining. Arose out of the US and where it is suggested the figure is lower in other countries (US has been a relatively right-tail good case historic situation).

From historic highs there have been cases of prolonged dividends and prices collapsing more than 75% in real terms, and recent interest rates of near 0% is suggestive of potentially high prices. The next 30+ years may be nowhere near as generous as they have been since the 1980's (starting from above average interest rates/yields).

I'm inclined to agree with your 2% figure as a foundation planning figure. £36K/year type figure. Factor in state pensions after another 13 years or so of 15K/year. Life expectancy of 105. And that's £2.4M total to last 50 years, and £48K/year disposable would be my assumption. Potentially tax efficient, so £45K/year net type figure. A lower end figure, where in practice that would likely prove to be conservative and it being possible to be more thrift.

Diversification is important and I wouldn't bet on all one style either. Not all-in (HYP for instance), but a combination (HYP or all-stock; 30/70 Larry Portfolio (small-cap-value (FT250) and bonds); 50/50 global stock/gold ... equal combinations for instance). When one style falters, proves to be the worst, so the others do better.

Starting from that base and if that is 'enough' disposable you may find yourself initially being conservative/fearful/frugal, but after a handful of years have passed find yourself to be in a much more care-free position. I retired in my mid 40's back in 2005, nowadays I have way more than enough (but am relatively frugal by nature and have heirs/legacies in mind).

2% SWR is a nice choice in that inflation concerns get thrown out, 2% of the initial capital value, uplift that amount by inflation each year as the amount drawn in subsequent years, so doesn't matter if inflation is 2% or 20%, your income matches that.

[1nvest]

You may find this link to be of some interest. US based data, and neutral (negative real biased) as its just a example. Might have the weightings adjusted to be more positively biased such as this.

Once/year rebalancing, and counted as part of your 'cash' allocation (or alternatively biased even more to be more stock like holdings)

[dingdong]

I would recommend reading the book 'Die with Zero'. People generally over-save and under-live.... and neglect to take into account the older you get the less you want to do so the amount of money you need each year diminishes.

People in their late 80s want to potter about at home and watch TV - so you should be maximising holidays and life experiences whilst you have the health and energy, and planning to spend less in later life, rather than a straight line withdrawal rate.

[vrdiver]

I would recommend reading the book 'Die with Zero'. People generally over-save and under-live.... and neglect to take into account the older you get the less you want to do so the amount of money you need each year diminishes.

People in their late 80s want to potter about at home and watch TV - so you should be maximising holidays and life experiences whilst you have the health and energy, and planning to spend less in later life, rather than a straight line withdrawal rate.

I'd agree with the above for "fun" expenditure, but there are other costs as you get older. If you want to stay in your own home then it's likely you'll need to buy in various services, from cleaning to full-on support. If you want to go to a care home of your choice, then that's going to cost. If your partner needs medical care or support, that'll cost.

Dying with money to give away seems less of an issue than running out of the stuff too early. If I end up with a few quid left over at least I can have some fun with what I put on my will!

VRD

[tjh290633]

People in their late 80s want to potter about at home and watch TV - so you should be maximising holidays and life experiences whilst you have the health and energy, and planning to spend less in later life, rather than a straight line withdrawal rate.

Speak for youself, matey. Some of us in our 90th year are still pretty active, even if we do fall asleep watching cricket in the afternoon on TV. We have probably had more and better holidays in our 80s than ever before, barring the effects of COVID on our activities.

Yes, the prospect of needing more help, be it with gardening, cleaning or personal care, does loom large, and the prospect of having to move into care at some stage has to be taken into account. The answer is to have enough resources to take care of this. That means sufficient income, and to have a large enough fund of capital for the possible eventual move. Most of that would, of course, come from the sale of the family home. What you have to bear in mind is that the expenditure incurred in this is going to come from capital which would otherwise be attracting 40% IHT, so there is efectively a large subsidy. Likewise money spent on keeping the house and garden in good order falls into this category. Going on one or more long cruises each year does the same. There is no law that says you must not enjoy yourself if by so doing you avoid paying some IHT.

Expenditure is more likely to increase later in life, not decrease.

TJH

[kempiejon]

People in their late 80s want to potter about at home and watch TV - so you should be maximising holidays and life experiences whilst you have the health and energy, and planning to spend less in later life, rather than a straight line withdrawal rate.

Speak for youself, matey. Some of us in our 90th year are still pretty active, even if we do fall asleep watching cricket in the afternoon on TV. We have probably had more and better holidays in our 80s than ever before, barring the effects of COVID on our activities.
snip
Expenditure is more likely to increase later in life, not decrease.

TJH

Most readers will have about evens chance of getting to their 80s so around half of them won't be pottering or nodding off in front of the cricket; only a 20% chance of their 90s so Terry it's nice to have you as an outlier.

I have sort of considered an optimistic life expectancy of 100 for my FI planning, Should I get to 80 or so I've beaten the odds and could start to spend capital in my twilight years and hopefully I'll run out of life before I run out of money. We will all shuffle off but as I don't know when yet I'd rather have not spent it all than run out early