Talk to me about early retirement

Now I enjoy working, have a rewarding moderately paid job and am only in my mid thirties. However I have little desire to still be working at aged 68.

If we set an arbitrary date for retirement  @ age 55 / 20 years from now, what are the financial steps we could take to best achieve the aim of drifting around the West Coast on wur yacht for the long hot summers of 2038 onward?

Clearly the obvious one is to pay off all debt – worked hard at this the last few years and now all gone bar mortgage and student loan and now have a moderate amount of savings.

Where next?

Depends on how much your debt is costing you. I still have a mortgage but invest each month in pensions and an ISA. I also have a couple of debts at interest free. I work my investments harder so its not worth paying them off at the moment.

Where next?

Pension. There are loads of online calculators that will give you a rough idea of how much you need to save to acheiev an income of £x at age nn. 

Someone will be along in a minute to say something like “pensions are a con”. Ignore them.

Are you serious?

Let’s say you want an income in perpetuity of £30k a year from the age of 55.

You will need a pension savings pot of about £1m!

https://www.telegraph.co.uk/pensions-retirement/annuities/best-annuity-rates-available-today/

Am I serious about what?

Not necessarily. Using drawdown and leaving your money invested could easily provide around £30k pa on about 1/3rd of that.

Yes, I am serious and hopefully achievable.

I (currently) have a defined benefits pension scheme which should return enough to live on from the age of 68, not counting the state pension. Now assuming this rug is not pulled from under me at some point then I should only have to self fund for 13 years. On that basis, things start to feel a bit more plausible…

You have hit the nail on the head Scruff. Think from when you want to retire until when you receive your state pension (or soon after)

“Not necessarily. Using drawdown and leaving your money invested could easily provide around £30k pa on about 1/3rd of that.”

30k PA yield from a pot of ~£330k?

I take it this involves drawing down capital & income? Cos I don’t know how you yield 10% without a) a lot of risk or b) withdrawing capital.

Don’t have children and never move house (or re-mortgage).

Don’t split up with the wife (if you have one).

All perfectly achievable then :-)

Bear in mind that you are unlikely to be able to call on pensions savings at 55. It’s not legislation yet, but there’s a lot of talk about it and it will likely happen.

In a consultation document from 2014, the government proposed that the normal minimum pension age (the earliest age you may be able to take your pension benefits) should increase from age 55 to age 57 in 2028. It would increase at the same rate as the increase in the State Pension age from then on. This means that the minimum pension age would remain ten years below State Pension age.

However, there is currently nothing in the legislation to state that the normal minimum pension age will increase in 2028.

From https://www.pensionsadvisoryservice.org.uk/about-pensions/pension-reform/freedom-and-choice

So, you’ll probably need other forms of savings (probably ISAs) to use for the period between when you retire and when you can start to draw on your pension.

Using drawdown and leaving your money invested could easily provide around £30k pa on about 1/3rd of that.

Really? If you are in your 30s now you can expect to live to 90. So that 30k would require a 10% return for 35 years? That seems optimistic, particularly if you take inflation into account, which if it is the same as the last 35 years would require your income to be £96k by the time you are 90.

Also, the lifetime allowance is £1,030,000, so if you are looking that £1m pot you will have to think about that.

That’s useful IHN – When you say ISA’s I presume you mean more stocks and shares investment ISA’s as against cash ISA’s? Interest rates on cash savings accounts are pitiful at the moment.

I take it this involves drawing down capital & income? Cos I don’t know how you yield 10% without a) a lot of risk or b) withdrawing capital.

The way you do it is by gaining >10% pa on your investments. Over the last 6 years I have annualised gains of >19% invested in “lowish” risk funds.

if you take inflation into account, which if it is the same as the last 35 years would require your income to be £96k by the time you are 90.

Read the above. I am sure I would be happy on the state pension at 96. Also what makes up inflation. Depending on your circumstances inflation may not be that important to you later in life so that is meaningless.

Yep, investment ISAs, not cash ISAs.

Over the last 6 years I have annualised gains of >19% invested in “lowish” risk funds.

Were they trackers? ;-)

1. Don’t have kids.

2. See above.

3. Don’t put all your hopes on a time you may never reach or have the health to enjoy. Sorry to be pessimistic, I have seen too many friends drop dead or have serious health problems. Enjoy today and now.

Easier to win the lottery than achieve reliable gains of >10%.

Easier to win the lottery than achieve reliable gains of >10%.

Define “reliable”

Were they trackers?

You tell me

Not necessarily. Using drawdown and leaving your money invested could easily provide around £30k pa on about 1/3rd of that.

Current guidance is that 4% is the max you can take indefinitely using drawdown without eroding the capital. Even that is pushing it, most dividend centric funds max out at 3-3.5% pa.

Unless you are real savvy on financial matters then I would recommend you get a financial advisor and he can ‘steer’ you to your objective.  Yes they cost, but if he’s making good returns for you, then I have no objection to him making money from it.

In my 20’s I set myself a desire to be retired by 60, I am now on target to achieve my retirement at 58 in 2020.

I set up investments and recently ISA’s every year and put regular savings away every month, the big one though was cashing in an old works pension for the lump sum value and re-investing in a private pension which you can draw down from the age of 55, whereas keeping in a works scheme will usually be penalised for early drawdown.  You are then in total control of that lump of money and can draw down a monthly salary to your requirements.  The money is then 100% within your estate too, so any surplus after you die all goes to beneficiaries.

After you retire you will probably require a larger salary for the first 20 years to pay for all your adventures, the last 20 years is just to pay someone to feed you and wipe your ass! ;)

The lottery doesnt work the way you think it does. I have roughly a 1 in 14,000,000 chance of winning the lottery in the UK.

There are a large number of funds that have provided >12% pa for over a qtr of a century.

Maybe your maths is affecting your investment strategy?

“reliable” meaning a viable retirement strategy. If it was easy and safe then annuity rates would be higher.

Current guidance is that 4% is the max you can take indefinitely using drawdown without eroding the capital. Even that is pushing it, most dividend centric funds max out at 3-3.5% pa.

Great. Follow that advice then. I am confident (as are many others) that growth of circa 10% is possible, particularly when you use a low cost platform and reinvest dividends. Compound interest is a wonderful thing.

As above, considering that we are supposed to be up shit creek atm, we have been seeing 20%+ return in the past 3 years!!

I played safe with my big pension pot, and put it in a scheme that smooths and guarantees 8%/yr whatever the market.

If it was easy and safe then annuity rates would be higher.

Well you are comparing very different things. An annuity is not the same as drawdown and remaining invested is the key to larger annual amounts.

I played safe with my big pension pot, and put it in a scheme that smooths and guarantees 8%/yr whatever the market.

“guarantees” …. Really?

Easier to win the lottery than achieve reliable gains of >10%.

I doubt it is reliable, but this smug git made 27% on a pension the year before last….

I doubt it is reliable, but this smug git made 27% on a pension the year before last….

But its in the bank and compound interest will help. 2% for the next 2 years will see annualised >10%

One way would have to be born in the 50s not the 80s but there you go.

Retiring at 55 for a non-boomer is going to be hard work, in short you’ve got 20 years to earn and save enough to live off for 13 years without any other income and another 17 topped up with a state pension (give or take) – providing you’ve already done a 10 stretch as you need 30 years NI contributions to qualify for one (with the obvious caveat around the moving goal posts of state pension).

It’s by no means impossible though, it depends on how much lifestyle you’re prepared to give up now to have later. Not having kids would certainly help. Cost us £10k a year in childcare for our Daughter until she started school-full time, save £10k a year for 20 years should get you £250k with compounded interest.

but this smug git made 27% on a pension the year before last….

Not really that difficult in a single year*, but if you’re retiring at 55 and possibly living to 100, you have to consider what you expect to average over nearly 45 years. At some point, there will be a correction and some funds will take a bit hit (40% +), you’d expect to see a few of these over 45 years….

* if you look at the returns for most funds over the last 10 years, they have great years and then fallow years, so 20% in a single year isn’t that remarkable. Maddoff’s great appeal was he delivered 10% pa every year on year no matter what the markets did….

I played safe with my big pension pot, and put it in a scheme that smooths and guarantees 8%/yr whatever the market.

“guarantees” …. Really?

One of my father’s work pensions (which he set up decades ago) guaranteed 8% pa growth. He didn’t expect them to honour it and pay out (see Equitable Life), but they did. Won’t be seeing those types of pensions again in our lifetimes….

save £10k a year for 20 years should get you £250k with compounded interest.

Your not even beating inflation…

The lottery doesnt work the way you think it does. I have roughly a 1 in 14,000,000 chance of winning the lottery in the UK.

There are a large number of funds that have provided >12% pa for over a qtr of a century.

Used to be 14 million – it’s even less now with more numbers.

Maybe your maths is affecting your investment strategy?

It’s not just their maths that’s off! 😉

Simple answer is to pump as much as possible into your pension. Basically it’s 40% free money so is a no brainer. Get a decent IFA you can trust (not easy I admit but they are out there).

Cash might be a bit tight for a wee while but you’ll soon get used to things. We came up with more or less the same ideas you did and at the same age. Planned to retire at 55 but was actually able to go at 52. It is totally the best thing I’ve ever done. You may read stories about people being bored in retirement. Anyone who is must have absolutely no imagination.

Okay we don’t drive around in Ferraris or eat out at five star restaurants every night but we manage a pretty comfortable life. Well worth making a few sacrifices early on to reap the rewards later. Go for it.

30k PA yield from a pot of ~£330k?

I take it this involves drawing down capital & income? Cos I don’t know how you yield 10% without a) a lot of risk or b) withdrawing capital.

Quick Excel work suggests that at 4% interest you have spent up your pot after about 15 years,

OP – read this  https://simplelivingsomerset.wordpress.com/2018/09/27/fire-in-the-news-liar-liar-pants-on-fire/ for a dose of reality on achieving what you want (earn at least double the average, don’t have kids, save and invest a big chunk of income 25-50%? or inherit)

Then have a read around http://monevator.com/ for the nuts and bolts of how to invest

OP – read this

Good luck, it’s near unreadable. I’m sure he’s making a reasonable point, but I’m not sure what it is.

Good luck, it’s near unreadable.

Does read like a drunk rambling on way past last orders…..