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Thinking of retiring early @55

Including Financial Independence and Retiring Early (FIRE)
SoBo65
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Thinking of retiring early @55

#252080

Postby SoBo65 » September 15th, 2019, 10:05 pm

I am increasingly getting fedup with work (so is Mrs SoBo) and we are thinking through the feasibility of packing up in early 2020 once we both turn 55 (I need to give 6 months notice, Mrs S is 3). We have SIPP's worth £1.5m (Mine £1.2m with Fixed Protection @ £1.25m and Mrs S £300k) we plan on adding £20k this tax year to Mrs S's). We also have ISA's valued at £600k split equally between the two of us.

Our house is probably worth about £1m with a £270k interest only tracker mortgage due to be repaid in 2026 (interest is 0.25% above bank base rate, so not worth paying off early). We plan on taking our tax free cash from the SIPPS to ultimately repay the mortgage then put the rest into ISA's. We have no plans to downsize for the foreseeable future, but that might be an option.

We have no children so not a priority in leaving a sizeable legacy, but equally don't want to run out of money. I figured we could sell the house when we were 90 and rent using the proceeds.

My question really is from the net funds we have £2.1m less £270k (£1.83m) what level of income could we reasonably expect to draw from a conservatively invested portfolio all in equities, save for say £200k? We would probably take more in years 55 - 75 to travel etc then reduce thereafter.

Any comments would be appreciated.

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Re: Thinking of retiring early @55

#252083

Postby Lootman » September 15th, 2019, 10:16 pm

SoBo65 wrote:We have no children so not interested in leaving a legacy, but equally don't want to run out of money. I figured we could sell the house when we were 90 and rent using the proceeds.

I think the idea of giving up owning your home and renting at a certain age can make a lot of sense. Not only does that free up a lot more capital, but it means you no longer have to worry about maintaining a property and the costs and effort associated with that. The one downside might be that it reduces the effective nil rate band of IHT, but you don't sound concerned about that.

SoBo65 wrote:My question really is from the net funds we have £2.1m less £270k (£1.83m) what level of income could we reasonably expect to draw from a conservatively invested portfolio all in equities, save for say £200k? We would probably take more in years 55 - 75 to travel etc then reduce thereafter. Any comments would be appreciated.

There is a "4% rule" that you often see quoted as a "safe withdrawal rate". Given that it sounds like you will have £1.83m invested of which £200k is liquid, that would allow you to withdraw about £70K a year. Note that that isn't necessarily "income" as such, meaning dividends and interest. It could include a component of sales proceeds and capital gains as well, meaning that the average yield of your holdings need not necessarily be 4%.

It is generally reckoned that a 4% drawdown rate carries a minimal risk of running out of money, and of course you always have the house to sell in that unlikely event.

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Re: Thinking of retiring early @55

#252109

Postby TUK020 » September 16th, 2019, 7:53 am

SoBo65 wrote: I figured we could sell the house when we were 90 and rent using the proceeds.


One observation I have made from my own late father and others is that old age carries a certain inertia. If you haven't downsized by 65, you probably never will. Selling and moving into rented accommodation at 90 will be a traumatic change (and in the process, trying to get rid of a lot of accumulated sentimental junk). I suspect you will only do it under extreme duress.

The other point is that after retirement, the running costs of your house may become a significant % of your fixed outgoings. Probably worth taking a close look at your house running costs, and deciding whether it is the right place for the next 40 years.

I think I am ready to downsize - it becomes the point at which we no longer need to work, but we have a bevy of kids that we need to persuade to fledge off first.

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Re: Thinking of retiring early @55

#252127

Postby xxd09 » September 16th, 2019, 9:27 am

A 3% Withdrawal rate would be a safer bet-2.5% would be belt and braces
Work out your current expenditure-it won’t be less once you retire -travelling etc especially if you are young and fit
Take your time and do some reading-managing a Portfolio for income is a steep learning curve
This board has lots of advice,Monevator has a good board,book by Lars Kroijer +videos and books by John Bogle-zindex Funds
Good luck
xxd09(retired @ 57-now 73)

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Re: Thinking of retiring early @55

#252133

Postby tikunetih » September 16th, 2019, 9:41 am

SoBo65 wrote:a conservatively invested portfolio all in equities



Just checking on the terminology here: few people in the mainstream investing world would describe any 100% equity portfolio as a "conservatively invested portfolio", bearing in mind the potential for >50% drawdowns. If we include your 200k then you are still looking at >=90% equites and thus very large drawdown potential in a deep bear market.

In the jargon, "conservative" is not used in the way you are using it here. But it is just a word: as long as you understand the volatility potential of your proposed course of action, then no problem. Presumably you do, as you've accumulated substantial investments, so you're clearly no beginner, but some others reading this could well be and thus there's potential for confusion over the jargon.

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Re: Thinking of retiring early @55

#252144

Postby tjh290633 » September 16th, 2019, 10:08 am

xxd09 wrote:A 3% Withdrawal rate would be a safer bet-2.5% would be belt and braces

Since dividends could easily provide 4% at the moment, 3% would leave 25% of the income to be reinvested. That would boost the income, and hopefully would be placed in a tax shelter, like ISAs.

There should be no need to delve into capital, and the thought of selling the property to move into rented accommodation at some time could equally apply for the need for residential care in the distant future. At the probable level of income, this would more than cover the cost for one person at current care home rates, but for a couple, the sale of the property might be needed.

TJH

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Re: Thinking of retiring early @55

#252193

Postby Chrysalis » September 16th, 2019, 12:20 pm

Agree with all the points so far. A few further questions/observations:
How are your SIPPs/ISAs currently invested? What asset allocation and investment strategy? How would you want to change that once you switch from saving to spending down - its quite a psychological change. As well as determining how much you feel is 'safe' to withdraw - and one can debate endlessly, but 3-4% is a reasonable rule of thumb, as long as you understand the need to be adaptable - you should give some thought to how much risk you want to take (which determines the % equity exposure), as well as the order with which you will withdraw from accounts in order to maximise tax efficiency.

Then you need to think about your essential level of spending (heat and eat, shelter) vs your desired level. how much do you spend at the moment?
Do you have any secured pensions apart from state pension (have you checked your SP forecasts?)?

I agree you should not make a plan that involves selling up at 90! (I suspect that was tongue in cheek, but the point is a serious one - I agree that most older people fail to plan changes in living arrangements until it is too late and they can't or don't want to any more). If you don't have kids, you should also give some thought to who you will trust to look out for you when you become older and more frail, and what arrangements you want to put into place to anticipate that stage.

Other than that, well done, you look good to go!

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Re: Thinking of retiring early @55

#252223

Postby JohnB » September 16th, 2019, 2:49 pm

The OP has vastly more than is needed for basics, it should be very easy to rein in spending without kids, so I reckon you could spend all gains, so 4%. 3.5% would be safe

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Re: Thinking of retiring early @55

#252287

Postby SoBo65 » September 16th, 2019, 7:43 pm

Thank you all for the interesting points.

My further thoughts are as follows:-

1. Agree a 3.5 % drawdown should probably be targeted as a base with more in good years and I guess a cash reserve can be used when required.

2. Have long thought that chasing yield is a bit of a fallacy and total return is the key with investments being sold to fund drawdowns if required.

3. Agree probably wise to build in a downsize strategy, maybe a two stage approach starting in the next few years.

4. I consider that I am conservatively invested as present (maybe too conservatively....) with breakdown being:

Personal Assets Trust 30%
Baillie Gifford managed Fund 10%
Finsbury Growth & Income. 7%
Capital Gearing Trust 5%
Scottish Mortgage Trust 5%
RIT Capital Partners 4%
Caledonia Investments 4%
Ruffer Investment Company 4%
Apple Inc 3%
Baillie Gifford Japan 3%
Manchester & London Investment Trust 3%
Tritax Big Box REIT plc 2%
Amazon.com Inc 2%
Fundsmith Equity T Acc 2%
Independent Investment Trust 2%
DS Smith plc 1%
Unilver 1%
Associated British Foods 1%
Greggs plc 1%
Treatt plc 1%
Rights & Issues Investment Trust 1%
Fevertree Drinks plc 1%
Troy Income & Growth Trust 1%
Mid Wind International Investment Trust 1%
IShares FtSE 100 1%
Cash 4%

Dod101
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Re: Thinking of retiring early @55

#252292

Postby Dod101 » September 16th, 2019, 8:13 pm

Given your total assets I think your investment portfolio is a great choice. You are certainly not chasing yield which is surely a good thing these days and at the same time you will have a decent investment income from dividends plus the reasonable expectation of capital appreciation. I hold quite a number of your investments and know of quite a few others. I cannot imagine that you need to have additional capital bearing in mind that there are only the two of you and there will be no requirement for supporting children as they go through university or house purchase.

Depending on your interest you could set aside a small pot of money as 'fun money' to invest in slightly more exotic ways and maybe add to your capital but that very much depends on your own mindset. I wonder what yield you get on that portfolio? 4% or thereabouts may be about it, maybe a bit less, I would have thought.

Much of your assets is in SIPPs and of course once you take the tax free element, you will need to pay tax on further withdrawals so taking 3.5% is not net of tax unlike withdrawals from ISAs, more's the pity.

BTW fear not re moving later in life. I have a 93 year old neighbour who has just sold a very large family house and bought a very much smaller place would you believe! So it can be done, later in life.

Dod

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Re: Thinking of retiring early @55

#252302

Postby Dod101 » September 16th, 2019, 9:17 pm

Incidentally just because I think your choice of investments is very good does not make them great! However I genuine think (as I am sure you do) that they are good conservative choices. Given your assets and circumstances I do not think you need be more adventurous.

Dod

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Re: Thinking of retiring early @55

#252307

Postby SoBo65 » September 16th, 2019, 9:25 pm

Thank you Dod, I have never calculated the yield, but had assumed a lower amount nearer to 2%. On drawdown, I think it would be possible to mitigate the tax position through using both our personal allowances on SIPP withdrawals, plus ISA’s and tax free cash, especially if we downsize before 2026 when mortgage is due to be repaid.

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Re: Thinking of retiring early @55

#252313

Postby Kantwebefriends » September 16th, 2019, 10:12 pm

SoBo65 wrote:I am increasingly getting fed up with work (so is Mrs SoBo) and we are thinking through the feasibility of packing up in early 2020 once we both turn 55 ...
My question really is from the net funds we have £2.1m less £270k (£1.83m) what level of income could we reasonably expect to draw from a conservatively invested portfolio all in equities, save for say £200k? We would probably take more in years 55 - 75 to travel etc then reduce thereafter.


I'd consider having you draw £50k p.a. taxable from your SIPP, and Mrs draw £12.5k from hers, so you avoid 40% income tax and she avoids all income tax. If £62.5k p.a. isn't enough for your prime jaunting years take money from your ISAs. After a dozen years or so you will presumably start to draw State Retirement Pension and you can re-arrange your budget then.

N.B. £62.5k p.a. is about 4% p.a. of your wealth, but the prospect of extra income at 67-68, and reduced expenditure at (say) 75 means that you might be happy to run down your capital a bit.

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Re: Thinking of retiring early @55

#252324

Postby xxd09 » September 16th, 2019, 11:42 pm

Just seems to be a very complicated Portfolio
Are you really following all these miniscule investments of 1,2 and 3%?
A bit of consolidation required in order that you can track what is going on
Perhaps this should be a long term aim
It would be cheaper-more money for you-simpler so that you knew what your Portfolio was actually doing -probably more money for you
2 or three reputable Index trackers from Vanguard would do the same job
Just my thoughts
xxd09

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Re: Thinking of retiring early @55

#252335

Postby SoBo65 » September 17th, 2019, 6:51 am

xxd09 wrote:Just seems to be a very complicated Portfolio
Are you really following all these miniscule investments of 1,2 and 3%?
A bit of consolidation required in order that you can track what is going on
Perhaps this should be a long term aim
It would be cheaper-more money for you-simpler so that you knew what your Portfolio was actually doing -probably more money for you
2 or three reputable Index trackers from Vanguard would do the same job
Just my thoughts
xxd09


Thank you for your comments.

I agree the portfolio needs some slight changes, but not too much. All of the smaller holdings are either relatively new, Fevertree, Rights and Issues and Independent Investment Trust where pricing has provided an entry point as I tend to start with a 1% holding around £20 - 25k. Others such as Greggs, Treatt and S&U I have had for a long time and have been strong performers over the long term (capital and dividends). Please bear in mind that some of larger holdings have been built up over 10 - 15 years. I plan on using ETF’s more in the future and now generally use only a a FTSE ETF to buy when the market has suffered a big fall and then sell when recovered. At present I do not spend a lot of time on the portfolio, but that might change....

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Re: Thinking of retiring early @55

#252339

Postby Dod101 » September 17th, 2019, 7:12 am

Will not say much more but you should see what sort of yield you get from the portfoilio. You may well be nearer the mark at 2% or so but hopefully that is basically what you will be drawing on at least at first so it would be helpful for yourself. I take the values at a given date say 31 December and calculate the dividends received in the previous twelve months, That tends to be conservative because dividend have a tendency to rise over time.

As to how you run your portfolio, that is exactly what I do. If I buy into a new position it tends to be a relatively small amount at first, and I gradually increase it over time if it is looking good. There is very little in your portfolio that I would change and surely you do not want a boring tracker at your stage in life?

Dod

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Re: Thinking of retiring early @55

#254580

Postby SoBo65 » September 28th, 2019, 1:25 pm

Thank you for all of your comments which have helped enormously focus my thinking.

I have created a model based upon the following assumptions:

Combined SIPP values of £1.2m (after transfer on £400k to non SIPP investments/cash/NS etc).
Combined non SIPP investments of £900k (inc above)
Total return on both SIPP and Non SIPP of 5% PA
Base expenditure of £60k PA (expect to be lower) increasing by inflation at 3% PA
Increase in house price of 2.5% PA
Withdrawal from SIPP of £44k PA increasing by 3% pa plus allowance for 5K PA income tax after using both of our personal allowances.
Shortfall of costs over SIPP withdrawal to be funded from Non SIPP investments plus a notional annual sum varying between £30k and £40k for annum depending upon Lifestage (for extra holidays, house repairs, any health issues in lieu of company funded medical insurance, car replacement
etc) again hopefully on the conservative side.
State pension and small DB pension of CV £5k per annum for Mrs SoBo from aged 65.
Pay off mortgage on 2026 and no allowance for downsizing (which of course is likely and will provide a degree of flexibility)
The result is that at aged 100 we should have a SIPP balance of £53k; Non SIPP investments of £748k and an unencumbered house worth £3m.
In the event of a short term drop in the stock market it will be possible to reduce discretionary expenditure.
Of course £100 now will be equivalent of £378 in 2065....
I am penciling all this for end of 2020 and may defer further, but provides piece of mind as to what potentially can be possible.

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Re: Thinking of retiring early @55

#255314

Postby Hariseldon58 » October 2nd, 2019, 8:09 am

One minor point with modelling returns at say 5% pa, is that life and real returns are far less predictable than a spreadsheet.

A return of say, 5% pa over 20 years, is likely to contain many years when returns are double digit % , positive or negative.

Since retiring in late 2007 I have had returns of 10%pa. 4 down years and 8 up years AFTER deduction of living expenses and withdrawals.
Over 12 years it’s fine but it was less rosy after 2 years, over 40% down.....

SoBo65
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Re: Thinking of retiring early @55

#255453

Postby SoBo65 » October 2nd, 2019, 7:10 pm

Hariseldon58 wrote:One minor point with modelling returns at say 5% pa, is that life and real returns are far less predictable than a spreadsheet.

A return of say, 5% pa over 20 years, is likely to contain many years when returns are double digit % , positive or negative.

Since retiring in late 2007 I have had returns of 10%pa. 4 down years and 8 up years AFTER deduction of living expenses and withdrawals.
Over 12 years it’s fine but it was less rosy after 2 years, over 40% down.....


Thank you , good point although I take some comfort on a day the FTSE is down 3.23%, my portfolio is "only' down 1.2%.

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Re: Thinking of retiring early @55

#255723

Postby Bubblesofearth » October 3rd, 2019, 9:14 pm

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


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