Retirement?

[IVFNewbie]

We have no mortgage left to pay, 100K in savings but only around 120K pensions. No kids. We're in our 50s. When could we retire? Not worried about being rich in retirement. Just want to DIY, hobbies like gardening, reading, making music and dog walking- all quite cheap to do.

So the plan was for DH to retire in a year but Universities are offering severance deals and he managed to get a good deal, equivalent of a years wages so has recently left.

Not all universities. Mine is actively recruiting so, sadly, no severance deal to be had.

you'll want a decent holiday, good quality food and drink, days out, visits here and there, signing up for say an art course, etc., and it all costs money.
I wouldn't need any of these. I don't do that now when working.

So, a year or so on, we now have £150,000 in pensions and £250,000 in savings. I am just 56. Wife is 51. Looking a bit better I think. I'm aiming for retirement at 57 if this year goes well. Wife will want to continue 3 days a week (£1000 a month). Yes, we are both on track for full state pension.

IVFNewbie, are you a high earner or have you had a windfall to increase savings?

The usual working assumption is 4% drawdown so would equate to approx 16k per year so approx £1260 per month, with £1000 from your wife.

I think that's more do'able although if you drawdown capital for holidays, house repairs etc then your income would drop. If you are a high earner the drop in lifestyle would be more noticeable.

When you say 'on track', do you already have enough qualifying years for full state pension? The figures will stack up better once you can start taking that, but there's a ten year gap to fund before then.

yes, I have already qualified for fulll state pension. Wife will have in a few years

I earned well last year. I'm in tech sales.

I’d be very careful. My second-hand experience of early retirement is that people with very definite active plans for filling their time (“I’m going to volunteer at the nature reserve Mondays and Thursdays and look after my grandchildren Tuesdays and Fridays, Wednesdays I have my French course, I meet up with my friends for a natter over coffee Saturday mornings and Sunday morning I go to church”) tend to do well. People who say “I’ll potter about and maybe do some DIY” seem to experience rapid mental and physical decline disproportionately often, and end up as the kind of people who say “Oh I’m far too busy next week, because I’m going to the doctor on Tuesday and Tesco on Friday.”

If you just want a change I would consider a different job, maybe part time. But early retirement with no plan and little money sounds like a bad idea.

You need to work it out compared to your likely spend - some people need 50k a year , others are happy on 20

spreadsheet of all current spend - don’t assume you will spend less but think where you might spend more - more trips out ? More hobbies ? That’s how much you need . Add inflation buffer

work out how much you could get each year - say 4% of the pension pot would be 5k

when you get to state pension age - would that be enough?

what is the gap between needed and how much you have ? Could you use some of the savings to cover the gap? I’d keep some savings back for major things like a new car or roof or boiler ? Say 5k a year for ten years from your savings …

if it’s not enough you need to work a few more years

may also be worth thinking what happens if one of you dies - would the other person have enough ?

So, 7 months on we are on a total of 228K in pensions and 282K in invested savings (ISAs, Premium Bonds, etc). I've been paying in to the pension a bit.

Make sure you use guardrails - reduce expenditure when the next stock market crash comes until the recovery happens and have at least 2 years income in cash (even better 3 years) so you don’t have to sell when it drops!

Make sure to equalise the pensions as far as possible so you can maximise tax free cash and use of personal allowance during the bridge to state pension years (around £16k each without paying tax).

You could also consider moving to a cheaper home in a different part of the country.

Well this popped up, good effort there.

We ended up buying a motorhome after loving the ones we hired. DH has been retired 18 months now and we have been away for about 4 months in it would have been more but eh had to care for his Mother. Our returns were stellar last year and performed far better than we could have hoped for.

We spent loads in that first year of us both being retired. there were general living expenses of about 26k and we spent 80k on the motorhome and all associated expenses.

you really need to decide how you re go8mg to live. My friend has just costed she can retire but it’s going to be very cheese paring till she qualifies for state pension in 2 years

This - see this as a time to set the plan to get to retiring, work out how much you'll need, with enough for hobbies, a car etc, then form a plan to get there, and work out how many years minimum you can achieve it in.

You earn money very quickly. I think it’s a bit shortsighted not to use that earning capability to up your savings and pension for a couple more years. I’m 57, single and have about the same as your amounts, and mortgage free. I don’t think it’s enough to retire on particularly comfortably (in the sense of paying bills, reasonable holidays etc) and I’m aiming to work to at least 60.

Do you have an IFA at all?

DH and I retired 5 years go, when we were 61 and 57. The first couple of years we lived off our ISA’s, but then decided to start drawing our personal pensions. We found the mechanics of doing that quite complicated, so approached an IFA.
I am really glad we did. Yes, it costs us money in fees etc, but the analysis and information she provides is extremely helpful.

At our annual review, she asks us how much income we want after tax, then runs an analysis showing what effect taking that would have on our assets going forward. It factors in things like “We want to spend £££ on a new car in 2 years” and “we will both be in full time care from the age of 95 until we die at 100”.

Then it comes out with a couple of figures. The first is how much we could afford to spend so that we don’t run out of cash before we die. As long as that number is above the income we’ve said we want, all is well. The second is, how much we could afford to lose (or spend) this year and still meet our expenditure goals for the rest of our lives.

Obviously the numbers are based on assumptions of future inflation, investment returns, the tax situation etc. But they are updated annually, so if your margin is being eroded, you can see it coming and adjust accordingly.

Having that information has reassured us, and in fact encouraged us to take more income from our pensions and enjoy ourselves more. The other side of the coin is that if it told us we would run out at 78, we would know we needed to adjust our plans.

We only did this after we had retired, but if you did it now, you would have a very clear view as to how far your current asset base would take you.

Any reason why you put into savings rather than pension?

A good idea is to try to live on the pension amount per month and see how you do.

...we MAY get an extension done on the house. If we don't do it, then I'll be whacking more into the pension.

The key question is how much do you expect to need to live off annually, taking into account inflation?

20K, 40K, 60K - net or gross?

General rule of thumb is 25x your annual expected expenses invested and living off 4% per year.

Tech sales, and you’ve (frankly) fuck all to show for it. You’re a spender. That ain’t enough by a long way.

We have 800k in pensions and still can’t get my husband to retire! That’s never going to last.

The research does not support the cash pot strategy. It acts as a cash ‘drag’. It’s a common myth, but quite a few years out of date now.

Prof Javier Estrader’s work on this is very interesting

With your current level of savings and pension pot you will be unlikely to be able to retire before state pension age unless you are able to increase them by a large amount.