Hi I am a 46 year old Brit convincing himself that he's ready to FIRE

[daveneedstoknow]

I began my Early retirement plans back in 2000 reading "Your money or your life" whilst backpacking in India, and only recently found this forum.

Since then I've saved ~55% of my income, paid off my Mortgage and am planning to retire next March.

Temptations of new job offers are threatening but experiences of my elder sister dying of cancer when she was my age and two of my closest friends having had cancer make me think life is just too short to work for "the man"

My numbers add up though support for ERE calcs with the differences we have in the UK make for some head scratching sometimes (No 401K's here but we do have ISA's and Pensions with tax relief on contributions)

So I'm ready to go all be it with the last minute nerves kicking in

 

[omni550]

Welcome aboard, Dave! Sounds like you'll fit right in here.

omni

 

[nun]

Ok the question is how are you going to handle Osborne's pension reforms. Are you ok with drawdown and where is your ISA and pensions. How much are you paying in fees. Are you with someone like Lansdown and Hargreaves? The UK retirement environment is becoming more like that in the US, but it's still prone to the BS of active managers and high fees. Do you have SIPPs, DB pension plans and what effect did the state pension reforms have on you?

 

[daveneedstoknow]

Live in own mortgage free house and have an additional mortgage free rental property.
My funds are split in the following proportions.

44% - Mortgage free rental property
24% - ISA (16% fixed income, rest fuse tracker both fees <0.5%)
28% - Pension (all tracker < 1% fees)
3% - p2p loans
1% - cash

Rental income after average costs covers 55% of living expenses.
Remaining 45% of living expenses equivalent to 2.1% of other assets.

I have been living on this budget for six months.

My plan is to drawdown from p2p, then ISA before drawing down from pension after age 55.
Though I plan to keep 1 years living expenses in cash/p2p

I also have a small final salary pension which kicks in at 65.
Then state pension calculator tells me I will have get ~5700 from 67.

Also the other half is not retiring for at least another year so some level of backup of the market dives early in the sequence.

 

[Nodak]

Welcome aboard Dave

 

[nun]

Live in own mortgage free house and have an additional mortgage free rental property.
My funds are split in the following proportions.

44% - Mortgage free rental property
24% - ISA (16% fixed income, rest fuse tracker both fees <0.5%)
28% - Pension (all tracker < 1% fees)
3% - p2p loans
1% - cash

Rental income after average costs covers 55% of living expenses.
Remaining 45% of living expenses equivalent to 2.1% of other assets.

I have been living on this budget for six months.

My plan is to drawdown from p2p, then ISA before drawing down from pension after age 55.
Though I plan to keep 1 years living expenses in cash/p2p

I also have a small final salary pension which kicks in at 65.
Then state pension calculator tells me I will have get ~5700 from 67.

Also the other half is not retiring for at least another year so some level of backup of the market dives early in the sequence.

What is your asset allocation? Have you done the usual safe withdrawal rate calculations and do you have margin for error and a plan to weather significant down turns?

I like the rental income part of your portfolio as I also have a rental property that covers almost half of my expenses. It's nice to get that cheque at the beginning of the month.

Is your pension a SIPP and could you get a better deal than having fees around 1%? Do you have plans for your 25% tax free lump sum? How much are you paying in fees on the P2P lending? I'm still not convinced about P2P companies like Zopa etc. I'd like to see how they perform through a couple of market cycles.

 

[rodi]

Welcome.

I can't comment or offer advise on the British pension/investing environment... no experience or knowledge.

I *can* comment on seeing a sibling die at a similar age. My brother died at age 48 of cancer, the same year my dad died, and a few years after my mom died... That convinced me to look hard at retiring earlier rather than later. My mom's cancer dx was less than a year after she retired... I don't want to repeat that.

If your numbers work out, I'd vote for doing it! Rental income is a nice COLA stream if you have good tenants and can handle the work associated with it. We have a rental unit that gives us about 20% of our spending needs... and it was a big factor in my being able to retire.

 

[daveneedstoknow]

Thanks for everyone's comments to date. I've realised I could get more out of you folks with some actual numbers but us Brits are shy about that for some reason

So here goes ;

Debt free.
Desired income 19200 p.a net of taxes.

Income from rental property: 8900 p.a. (average return over the last five years after costs)
ISA: 142600 (0.5% charges p.a )
Pension: 169000 (0.6% charges p.a)
P2P loans: 27000
Cash: 11000
Additional income:
From 65: Final salary pension 1500 p.a.
From 67: state pension 5700 p.a.

Overall asset split (excluding property and cash) is:

78% equity (tracker funds)
14% fixed income funds
8% p2p

Although I didn't plan it that carefully I am happy with this split and intend rebalance to this regularly in the de-accumulation phase.

Taxes in uk are complicated but summary ;
Normal tax rate is
First 10k tax free
Basic rate 20% there are higher rates but I come in well below the next band.

ISA: no tax is payable on profits or drawdown.
Pension: Can only be drawn from 55, 25% of total fund can be taken as tax free lump sum. Remaining income is taxed at normal rate.

Final salary and state pension taxed at normal rate.
Other savings taxed at normal rate although there is talk of including p2p in ISA allowance.

I have lived at the desired income level for 6 months without adjusting my lifestyle ie. Have met all major bills and spent what I want when I want. This has still left me with average of 300 per month underspend so actual cost of living ~15600 p.a. Leaving useful emergency money of 3600 p.a. (I could replace the car twice over with that)

I've run this through FRP and fireCalc and both tell me 100% sucess rate.

If I exclude the final salary and state pension (since they don't kick in for 20 years) my withdrawal rate is 3.1% which also seems at the SWR end.

My planned FIRE is next March and with bonuses this should see another 23750 going into investments.

I keep going over the numbers but they seem good. Does this seem sane to others or did I miss something?

 

[Senator]

When you retire, you are locking in your lifestyle, probably for the rest of your life. Can you really live on 19,200, forever? That is only ~$24K USD. (Is p.a. equivalent to Euros?) What if taxes go up, or the market has several bad years?

The P2P loans could go south in a hurry. That's why people go to a P2P company for money, because they are too high risk for a market based loan.

Do you have enough cash to live on for at least 6+ months, even without rent? Do you count at least 10% for maintenance and 5% for vacancy? Are you accounting for 7% - 10% management fee if you actually had to pay it?

I think you are stretching the early retirement, but maybe in the UK the social safety net is pretty good.

No one here in the USA ever has to work, and we can all 'retire' at age 18, but most people desire a better lifestyle. Probably the lifestyle without any assets at all would be better than the lifestyle having the assets you already have.

 

[nun]

When you retire, you are locking in your lifestyle, probably for the rest of your life. Can you really live on 19,200, forever? That is only ~$24K USD. (Is p.a. equivalent to Euros?) What if taxes go up, or the market has several bad years?

$24k a year in the UK isn't bad, outside the South East anyway, remember the OP has paid off the mortgage and doesn't have to pay for health care....other than through taxation.
The OP looks set in terms of finances, but retiring in your late 40s locks in a certain lifestyle (as mentioned above) and the bigger issue might be what the OP intends to do with his/her time. The emotional factor is huge.

Also OP I think your state pension estimate is a bit low, unless you have a less than complete NI record....I'm 53 and at 67 I will qualify for the new state pension that is currently £7800 pa and it will go up with inflation. If your NI record is less than 35 years you should consider voluntary payments after you retire.

 

[Lagniappe]

When you retire, you are locking in your lifestyle, probably for the rest of your life. Can you really live on 19,200, forever? That is only ~$24K USD. (Is p.a. equivalent to Euros?) What if taxes go up, or the market has several bad years?

Thats about $30K US at today's change rates, and right about the average individuals earnings in the UK. In most parts of the UK (outside the southeast) that should be a pretty decent life, with some room for a few extras every now and then.

 

[Jackanory]

but us Brits are shy about that for some reason

I wonder when Brits became 'shy' about such things? When I left, back in the 70's, I knew the salaries of all my peers; part of my culture shock was that everyone was mute on such topics over here!


Anyway, welcome, from another Brit named Dave!

 

[Teacher Terry]

You can also decide to do consulting work p.t. in your field if you decide you need more $.

 

[haha]

Go for it man, you only live once!

 

[daveneedstoknow]

Senator thanks for your searching questions, you made me double check some things which is a lot of the reason for asking everyone's opinion in the first place!

When you retire, you are locking in your lifestyle, probably for the rest of your life. Can you really live on 19,200, forever? That is only ~$24K USD. (Is p.a. equivalent to Euros?) What if taxes go up, or the market has several bad years?

Good question, yes I think I can. As Laganiappe pointed out it's actually around 30k USD. My desired income was based looking back at the previous 12 months on actual spend, and I have lived on the monthly equivalent for a further 6 months. I don't think I am particularly frugal but this seems more than adequate for my needs, to be honest I sometimes wonder what on earth people spend all thier money on, I've never been a good consumer ;-). As Teacher Terry pointed out I could return to some consultancy work if more £ were needed, or even some part time casual work. Further if things go well the state and final salary pensions will be extra income when they kick in.

The P2P loans could go south in a hurry. That's why people go to a P2P company for money, because they are too high risk for a market based loan.

They could but I think the risk is actually similar to bonds. I've been lending on Zopa since 2008 and am very happy with the rate (5.9%) I've averaged after fees and bad debt. Zopa have actually made it more secure recently by establishing a fund to cover defaults. They have always used the same credit ratings services as the major banks and lend only to lower risk borrowers, your mileage may vary with other p2p establishments. The biggest risk I see is increasing interest rates devalue any outstanding loans but that is mainly a problem for liquidation.

Do you have enough cash to live on for at least 6+ months, even without rent? Do you count at least 10% for maintenance and 5% for vacancy? Are you accounting for 7% - 10% management fee if you actually had to pay it?
yes 11k is over 6 months expenses. Currently the rental is managed and income is the(inflation adjusted) average over the last 8 years after fees and vacancies between tennants and maintenance. Management fee is currently nearer 15%, which is expensive, when I have more free time I will look to do more of this myself and reduce the costs.

I think you are stretching the early retirement, but maybe in the UK the social safety net is pretty good.
Free at the point of need for all health care is probably the biggest difference, and any UK government that tries to get rid of it will be prising it from our cold dead hands.

 

[nun]

Both New Labour and the Tories have gone a long way to undermine the founding principles of the NHS......it's privatization by a thousand cuts. FYI US/UK dual citizens moving back to the UK are often choosing to keep private plans, buy BUPA and keep paying Medicare ( although they have to return to the US to get care) as they are worried about the direction of the NHS. Even so the NHS is still the best health service in the world in many international studies, so in the next General Election vote for someone who will protect and improve the NHS.

 

[Alan]

Also OP I think your state pension estimate is a bit low, unless you have a less than complete NI record....I'm 53 and at 67 I will qualify for the new state pension that is currently £7800 pa and it will go up with inflation. If your NI record is less than 35 years you should consider voluntary payments after you retire.

+1

I continue to make voluntary NI contributions to "juice up" the UK state pension, it is an investment with a great return. The new pension is a straight line calculation these days, 35 years of contributions = £7,800 /year, 20 years = £4,457 etc.

 

[daveneedstoknow]

+1

I continue to make voluntary NI contributions to "juice up" the UK state pension, it is an investment with a great return. The new pension is a straight line calculation these days, 35 years of contributions = £7,800 /year, 20 years = £4,457 etc.

Yes at current rates that's 722.89 for a COLA income of 222.85 a year for life from age 67. I would need ~7200 at a 3.1% drawdown rate to match that - shame I can't buy more ;-)

 

[nun]

Yes at current rates that's 722.89 for a COLA income of 222.85 a year for life from age 67. I would need ~7200 at a 3.1% drawdown rate to match that - shame I can't buy more ;-)

Not sure I understand this post. Are you saying that it's not really worth making voluntary NI contributions. I assume you'd have to pay Class 3.