When to retire?

[BlackBeard]

As to spending your capital before you pop off, I think you need Mystic Meg to help with that.

V8

As in a lot of things moderation is the key. You don't want to be the "richest person in the graveyard" ,ie have missed out on doing things by not spending enough, however being "the richest person in the graveyard" is far better than spending your final years in destitution.

Exactly my point, when to retire? I have friends who have said don’t leave it to late to retire, and having done the maths it looks like I’m not that far off, my current outgoings have been minimal in the last 12 months as had large tax bills to pay and I have still managed to live comfortably, but I don’t want to leave it to late and then end up having to leave a large pot to the cats home, so tying to find that balance! Wish I had Mystic Megs direct phone number.

[xxd09]

I would be bit more conservative in the current conditions in my projections
A 60/40 portfolio of £100000 portfolio would safely generate £3000 pa
You would therefore need a portfolio of £2000000 or it’s equivalent to generate your £60000 pa
xxd09

[JohnB]

One thing to remember is the OP talked about £60k spending. If they'd said £30k, that might be satisfied by £32k income, give all the possible tax breaks, but the extra £30k is likely to be after both basic and higher rate tax, so could need £40k more income. But they've still got enough

[BlackBeard]

This is my thinking, carry on working for the next three years, income around 50k a year just from business income, leaving the rest of my income from investments left around 140k a year to be invested, then retire, ie no income from business, just invested investments and business assets sold etc, draw down on investments and Pensions at 60k ish per year, then in 20 years sell the properties and down size leaving another pot of money to draw down on, and then draw down the capital over 20 years, does that sound feasible? Providing that the world doesn’t go belly up!?!?!?!

[hiriskpaul]

My concern is all about having enough money to last and not leaving too much behind. You quote draw down at 3.5 to 4% of invested assets, may I ask why when those Said investments are currently earning 6% with capital growth of 8% why only draw a smaller percentage and not the full 6%, with current capital growth at 8%? (It was much higher, but I have one share just taken a down turn because of Russia’s current activities, it will rebound) so if I was to take the income at 6% on the 1.2m that’s currently invested and in pensions that wails give me 72k PA less taxes of course, or am I missing something? By the way I’m not saying that I would take the full amount each year, but could if I wanted.

With capital growth at 8% I’m ahead of inflation, so in theory I could take the earnings for say 20 years and then Draw down on the capital? Providing nothing changes in that time!

3.5% to 4% might be fine, but we have had a prolonged period of rising asset prices and historically that has often lead to periods of poor investment returns, which is why I suggest 3%. Each year increase your budgeted withdrawal amount with inflation or 3% of the asset values if higher. If the nature of your investments, BTL, etc. is such that it generates income above 3%, invest the surplus cash flows. If you find you don't spend 3% one year, reinvest what you dont spend. In other words, treat 3% as a budget, not a spending target!

You should easily be able to draw 60k per year, rising with inflation from your assets almost regardless of future gains and income and are in the fortunate position of not needing to overthink this. However, assuming your investments will continue to generate 6% income and 8% capital gain each year of your retirement is wishful thinking.

[BullDog]

My concern is all about having enough money to last and not leaving too much behind. You quote draw down at 3.5 to 4% of invested assets, may I ask why when those Said investments are currently earning 6% with capital growth of 8% why only draw a smaller percentage and not the full 6%, with current capital growth at 8%? (It was much higher, but I have one share just taken a down turn because of Russia’s current activities, it will rebound) so if I was to take the income at 6% on the 1.2m that’s currently invested and in pensions that wails give me 72k PA less taxes of course, or am I missing something? By the way I’m not saying that I would take the full amount each year, but could if I wanted.

With capital growth at 8% I’m ahead of inflation, so in theory I could take the earnings for say 20 years and then Draw down on the capital? Providing nothing changes in that time!

3.5% to 4% might be fine, but we have had a prolonged period of rising asset prices and historically that has often lead to periods of poor investment returns, which is why I suggest 3%. Each year increase your budgeted withdrawal amount with inflation or 3% of the asset values if higher. If the nature of your investments, BTL, etc. is such that it generates income above 3%, invest the surplus cash flows. If you find you don't spend 3% one year, reinvest what you dont spend. In other words, treat 3% as a budget, not a spending target!

You should easily be able to draw 60k per year, rising with inflation from your assets almost regardless of future gains and income and are in the fortunate position of not needing to overthink this. However, assuming your investments will continue to generate 6% income and 8% capital gain each year of your retirement is wishful thinking.

Indeed. It's a massive bear trap thinking the last few years investment returns are going to be replicated for the next 35 or more years. Let's be honest, it hasn't been too difficult growing capital the last few years has it? Even I managed it, despite a few very real mistakes. The danger now is that going forward, in a much less benign environment, you believe you have an edge in investment that you actually don't have. A rising tide raises all ships etc..... Or it's only when the tide goes out you see who has been swimming naked. Etc.....

On the other hand, I am tempted to say "go right ahead, what could possibly go wrong?"

[BlackBeard]

Thank you, this is what I wanted, balance view point on my position, and it has help d me to think about the future! I will carry o working for a few more years, keep investing for the future!

[tjh290633]

The OP clearly has the money, but do they have the motivation? If they are the kind of person to build a business, they are much less likely to fall easily into a life of leisure. How do they feel about selling the business and passing on its employees to someone else? Would they be looking for a new project, whether that be a self-build house, charity or garden train set? Do they want to be a pillar of the community, or visit South American volcanoes. Or would a Kindle and an armchair suffice?

There is plenty of voluntary work available, with local and national charities, clubs and societies.

My experience, though not with early retirement, is that being retired is a full time job. Filling the time is not a problem, finding enough time often is.

TJH

[BullDog]

The OP clearly has the money, but do they have the motivation? If they are the kind of person to build a business, they are much less likely to fall easily into a life of leisure. How do they feel about selling the business and passing on its employees to someone else? Would they be looking for a new project, whether that be a self-build house, charity or garden train set? Do they want to be a pillar of the community, or visit South American volcanoes. Or would a Kindle and an armchair suffice?

There is plenty of voluntary work available, with local and national charities, clubs and societies.

My experience, though not with early retirement, is that being retired is a full time job. Filling the time is not a problem, finding enough time often is.

TJH

Absolutely agree. Neither me nor Mrs BD have the time to work. I don't know how we fitted in jobs, we're so busy.

[scotview]

Absolutely agree. Neither me nor Mrs BD have the time to work. I don't know how we fitted in jobs, we're so busy.

Agree with the above for me and Mrs S also. One point of note was that during the worst of the pandemic lockdowns, our daily exercise walk outside on our regular circuit was essential, if not vital for our wellbeing. Sites like TLF were a godsend too.

[Adamski]

My two cents, is retire early to make the most of the quality years in retirement whilst you have your health in your 50s/60s.

A lot of people don't have enough healthy years left to enjoy it.

I've early retired and so far been lucky I suppose but if things turn out bad can always go back to work.

My father and grandfather built up nice investment portfolios in their lifetimes but sadly didn't live long enough to enjoy them, so whilst admire saving, .. what's the point if you never get to spend it.

[kempiejon]

If you probably have the cash and can find the interests I think taking the plunge is the difficult bit. I think I'm ready but I've been holding on for a few more years topping up the pot since about 2019.
I'm looking to jack in full time employment in the next few years, but I have plans for occasional part time/short term work. I already have a couple of roles lined up. Not just for the extra income but the distractions.
I was unexpectedly made redundant 10 years back and I found after a little me time I was looking for things to fill my days. I became involved in a local national trust property, took up water-sports, volunteered for conservation work and did some odd jobs in the locale for pin money. When I finally found full time employment 6 months later I hated giving up all my new activities.
I'm confident I'll fill my time without regular full time work but I'm not going rule out any work ever again.

Keeping the mind and body active and having varied social interaction are the things that keep us healthier and active into the latter decades. Which is shame as grumpy old curmudgeon was an aspiration in my 30s, 40s and 50s.

[BlackBeard]

I’m not to worried about finding things to do, I live in and area that offers LOTS to do and get involved in, my biggest consideration is the financials!

[roger4]

Blackbeard, why are you worried about your financial situation? From my perspective you have ample resources and the financial nous to keep ahead of the game.
You say you will have no difficulty finding things to do in your area which is the main problem on retiring that people do not give enough consideration to.
As the young people have it: "Just Do It"!

Oh, and good luck in your enjoyment of life.

Roger

[DrFfybes]

Exactly my point, when to retire? I have friends who have said don’t leave it to late to retire, and having done the maths it looks like I’m not that far off, my current outgoings have been minimal in the last 12 months as had large tax bills to pay and I have still managed to live comfortably, but I don’t want to leave it to late and then end up having to leave a large pot to the cats home, so tying to find that balance! Wish I had Mystic Megs direct phone number.

You used to be able to phone her, but it was 150p/minute. It's all Email and Facebook these days.

https://www.mysticmeg.com/contact

As for "can you afford it"?.. you say you spend £60k. Our spend has gone up post retirement as we're out and about more - lunches out, entrance to attractions, cakes and coffee, more fuel, eating out, weightwatchers subscriptions, etc. Given your asset base assuming business valuations are correct then it really shouldn't be an issue, you could put it under the mattress as cash and last 30 years (excluding inflation) so you need growth to cover inflation.

I have global funds and sell down for income, I got another chunk to invest last week when I settled mum's estate, but when markets are moving 3% in days, that's 6 months' of living expenses wiped out, or regained in no time. With such uncertainty that is why you get the 3.5-4% suggestions.

Paul

[monabri]

In Excel, I calculated the number of days my father lived. Then, I did the same. I've now lived +40 days more.

Carpe Diem...seize the fish!

[1nvest]

*** A good place to start is to work out required annual income and multiply that by 25 to get a feel for the lump sum required to generate that income. (That's the 4% rule, which is arguably too optimistic these days).

That’s really helpful indeed.

Rough figures below.

Currently making around 5% on invested money, and 8% capital growth.

So question is when do I make the jump to full retirement?

Financials are.

600k in joint pensions
660k in UK shares
1.2 business assets
1.4 property, that includes BTL

I reckon around 60K year spending

Roughly then ~£1.5 million in income generating assets required to generate £60K per year. Obviously, there's tax to consider on that and I do think a 4% annual drawdown is perhaps a bit ambitious at your age. Good luck.

Of the order 60K/year for the first 10 years, until mid/later 60's age, thereafter a state pension might reduce that down to 40K/year (inflation adjusted equivalent). Maybe 60K for 10 years, 600K, and then 40K for another 25 years to see through to age 90 (beyond that even if no liquid wealth was left the sale of property might fund all-inclusive care home costs for the remainder years). £1.6M liquid assets required assuming a 0% after inflation return.

They have way more than enough (more so given no dependants) and should already have retired but perhaps enjoy spending their available life-time time on 'work' activities.

5% income, 8% growth is a red-flag waving, indicative of taking on risk when there's no need for such, rather the 'portfolio' should be revised towards being more wealth preservation based. Around 3.9M split thirds property, stock, gold ... land, stock, commodity assets, a mixture of fiat/non-fiat and other forms of currency diversification ... type asset allocation, with a 1.5% SWR (60K relative to 3.9M) in the first 10 or so years before that declines to 1% SWR (40K) once state pension kicks in.

Don't like gold then 1.3M in property (pretty much keeping properties as-is), 1.3M in a global stock index fund, 1.3M in cash deposits, spend cash first, leave stocks to accumulate, and that cash supplemented with state pension might see it last 25+ years. Yes cash deposits are earning negative real yields at present, but at other times it might be earning positive real yields, broadly washes. However given cash deposits only cover around 190K (for a couple) of protection under a single tree/bank, shorter dated gilts provide full cover protection (state can always raise taxes, print money rather than default).

[1nvest]

A method to measure how long 'cash' might last is to adjust the values/withdrawals for inflation.

60K relative to 1300K = 4.6% so start a series with 1.0 and deduct that 0.046 amount, and scale the rest by inflation. As we're using real (after inflation) figures that 0.046 remains the same. Let's assume cash earns a -5% real return for a number of years, say 10 years, after which either inflation might have declined or the markets would have demanded far higher interest rate payments to negate that.

1.0
(1.0 - 0.046) * 0.95 = 0.906
(0.906 - 0.46) * 0.95 = 0.8173
(0.8173 - 0.46) * 0.95 .... etc.

and after 10 years assume the withdrawal rate reduces to account for state pensions and also assume cash starts earning 0% real ... and that sees cash last around 17 years in total

If in addition to that you also started with the same amount in stocks/accumulation (another 1300K initial amount), then even at a relatively low 2% real reward from that after 17 years the 1300K amount would have grown in real terms to 1800K. Combined started with 2600K and ended with 1800K, so 70% of the inflation adjusted start date amount at the end of 17 years.

In practice that is pretty dire, cash earning 5% less than inflation for a decade just isn't a likely situation. 5 years at most maybe and then seeing a reversal, cash moving to paying positive real yields. A more likely outcome is to see the cash last 21+ years, giving stocks more time to accumulate. Such low real yields on cash would also be inclined to help business, borrow to invest, maybe yielding 3.5% real rewards for 21 years at which point its pretty much break-even, 1300K invested in stocks having doubled in real terms whilst 1300K in cash was all-spent to end up at break-even, and having started with 50/50 stock/cash and ended with 100/0, time-averaged 75/25 stock/cash. Retired aged 56, and by age 86 still having much the same inflation adjusted liquid wealth as at the start.

[tjh290633]

I do not see any point in having a lot of cash lying around. A couple of years living expenses should be more than enough, to cover any lean year from investment income. Why have a large amount (say £1Million) in cash doing nothing, when you can easily get £40k dividend income from that? Dividend income is a lot less variable than even deposit income, when interest rates are at more sensible levels.

Looking at Total Return from my portfolio since 1987, the average is 9.2% pa, with the lowest figure being 5.5% in 2017. I also have figure for some ITs over different periods:

Start Date   21-Dec-01   27-Jun-03   05-Mar-10   15-Apr-04
IRR          Witan       FCIT        BCI         ATST     
IT               9.79%      13.87%       7.81%      10.18% TR
FTSE             1.82%       3.22%       2.01%       2.93%
IT on SP         5.73%       8.80%       7.75%       7.56%
Period           20.18       18.66        9.05       17.86 years

BCI is only for a period up to 2019, and is more income oriented than the others. The figures for the FTSE100 and the IT's SPs are excluding income. The TR figure for the FTSE100 over the longest period is 5.7%, which is what might have been expected from a tracker fund.

TJH

[1nvest]

I do not see any point in having a lot of cash lying around. A couple of years living expenses should be more than enough, to cover any lean year from investment income. Why have a large amount (say £1Million) in cash doing nothing, when you can easily get £40k dividend income from that? Dividend income is a lot less variable than even deposit income, when interest rates are at more sensible levels.

Looking at Total Return from my portfolio since 1987, the average is 9.2% pa, with the lowest figure being 5.5% in 2017. I also have figure for some ITs over different periods:

Start Date   21-Dec-01   27-Jun-03   05-Mar-10   15-Apr-04
IRR          Witan       FCIT        BCI         ATST     
IT               9.79%      13.87%       7.81%      10.18% TR
FTSE             1.82%       3.22%       2.01%       2.93%
IT on SP         5.73%       8.80%       7.75%       7.56%
Period           20.18       18.66        9.05       17.86 years

BCI is only for a period up to 2019, and is more income oriented than the others. The figures for the FTSE100 and the IT's SPs are excluding income. The TR figure for the FTSE100 over the longest period is 5.7%, which is what might have been expected from a tracker fund.

TJH

Because if someone has enough, why take the risk of accumulating more that they might never spend themselves anyway. Historically both stock prices and dividends have collapsed more than 75%, potentially leaving a former 'enough' having become 'insufficient'.

A primary risk is inflation, historic cases where in real terms stock prices declined -71% (income declined -86%) i.e. first two decades of the 20th century according to Barclays Equity Gilt Study data, also saw cash heavily losing out in real terms. Inflation bonds (Index Linked Gilts) potentially reduce that risk. Recently priced to a relatively small regular real loss is in part a reflection of perceived increased risk of a otherwise large loss.

If it costs 2%/year real to buy a assured £10K of inflation adjusted disposable cash in 5 years time, £11K of present day money to secure £10K of inflation adjusted disposable money in 5 years time, then for those with enough that can be acceptable. At other times it swings the other way around, might cost only £9K of present day money to buy £10K of purchase power in 5 years time. The factors driving that change to negative real yields however are former good/great gains. Costs more to secure a guaranteed future date disposable amount but out of a higher base than if it cost less but you hadn't seen such greater former gains.

1980's to recent have been very good for stocks, as interest rates have transitioned from very high to very low levels. Most investors accumulating over those years will tend to have far greater portfolio values than had that not been the case and as such can afford to spend more to secure their future. If forward time a reversal occurs, low to high interest rates, then that could massively cut portfolio values along with dividend incomes being produced. IMO that is not a small/unlikely risk, quite the opposite.

Why take on unnecessary risk for no benefit i.e. potential additional accumulated capital that they wont spend or pass on to siblings.

You shouldn't confuse rear view mirror great outcome with the projection that will continue into the future. US data but compare all-stock with 4% SWR and a bad earlier years sequence of returns risk situation to that of a less aggressive alternative. Yes the all stock in the best 10% of cases (90th percentile) left massively more, but ran the risk (50th percentile of not having enough to sustain the individuals retirement plans whereas the conservative asset allocation pretty much might have covered retirement plans (96.88% vs 25.17% indicated success rates in those links).

Since the 1980's many investors proclaim how great/clever investors they've been, but the rising tide (high to low interest rates) was a pretty much dead-cert. 1960/1970 retiree investors saw a totally different situation (rising interest rates), with many ending up eating dog-food, entire life saving lost in relatively few years. Perhaps we're more inclined to see newly retirees of present seeing more a case of the 1960's/70's retirement type situation and should look to what served better under such situation i.e. defensive, avoiding all in stock. That cycles over time, Groucho Marx lost a massive fortune in the 1930's and ended up moving over to being all in treasury bills/bonds. When asked why as they didn't pay much he responded that they do if you have enough of them i.e. he still had enough to see him out.