My FIRE plan, please critique

[bownyboy]

Evening everyone.

Just recently joined, although have spent the last 3 years getting up to speed with finances, I now feel I (belatedly) have a plan and would like peoples thoughts. I am UK based and here the basics:

• I'm 44 years old
• Partner is 51
• Based in UK
• No kids
• Current networth is approx £1,165,000 (approx £815k is our property)
• Mortgage is just £85k
• Current FIRE assets (pensions, investments) are £340k
• Our 'number' is £24k a year (net) to live off
• To do that we need £600k (which is 4% withdrawal rate)

Plan is to:

• Save approx £30k per year for next 5 years (mixture of pensions and ISA's)
• Assuming modest growth of 7% per year, then in 5 years we should reach £600k
• Then we drawn down mixture of pension and ISAs (to minimise tax)
• When we each reach 67 then we will be able to draw another £8k each of state pension
• We then have option to either downsize and release equity if required and/or reverse mortgage to pay for any care home / medical costs in later life

It sounds quite simple and I'm sure there will be bumps on the way, but hoping that we haven't overlooked anything major!

Any feedback appreciated.

 

[rodi]

Welcome to the forum bownyboy.

The biggest issues I see with your plan are
- inflation... the £24k you need to live will be a bigger number when you get to retirement.
- 7% returns. Like all things - there are no guarantees... 7% return or better is easy in some years... and it might be -7% in another year... Personally, I use a lower return percentage in my calculations.
- age of retirement vs 4% rule. The 4% rule is based on a 30 year retirement. If you retire at 49 (and partner is 56) you are looking at a longer than 30 year retirement. I retired at 52 - and am trying to keep my withdrawals under 3% until I've had enough years under my belt to allow for sequence of returns risk. (Failure cases often occur because the market crashes early in your retirement - so your early withdrawals are eating into your principal and increasing your risk.)

Hopefully your aggressive saving and *good* market returns will make your plan work.

 

[Ready]

Welcome.

A 4% withdrawal rate works OK when you are 65 years old, but if you are still in your 40's or early 50's, some would consider 4% to be aggressive.

 

[pb4uski]

+1 with all of the above. 7% may not be modest in this low interest rate environment and a 4% WR is not conservative for early retirees.

 

[LiveBelowMeans]

Way too much net worth tied up in property. Consider downsizing to smaller home and retiring earlier. JMHO

 

[DrRoy]

Way too much net worth tied up in property. Consider downsizing to smaller home.

I would say you should consider this strongly. For a 3% WR you would need £800k, and then you would have more protection against inflation.

 

[pb4uski]

Way too much net worth tied up in property. ...

Not uncommon in the UK methinks.

 

[exnavynuke]

Not uncommon in the UK methinks.

Not to mention most of the US.. in 2011 the Census Bureau reported that median net worth in the US excluding primary residence was just under $17k, while the median net worth just under $69k. ~75% of the median household's net worth was their home equity at that time.

 

[LiveBelowMeans]

Just because it is not uncommon doesn't make it smart. JMHO

 

[W2R]

Not to mention most of the US.. in 2011 the Census Bureau reported that median net worth in the US excluding primary residence was just under $17k, while the median net worth just under $69k. ~75% of the median household's net worth was their home equity at that time.

How awful!

Here is a poll of our members showing what percentage of their net worth their home represents. The most popular category seems to be 10%-20%.

 

[bownyboy]

Thanks everyone for your input. To answer some of the questions:

1 - Yes our house is a massive part of our networth. Thats because we're a) in the UK and b) in the south east where house prices are crazy prices. We live in a 3 bedroom semi-detatched cottage which is 1050 sqft, so not huge! We only have a small mortgage so it gives us options to either sell up in 5 years or rent out and live elsewhere. Also means we can reverse mortgage when we're old and frail to pay for care home fees if needed.

2 - Re: 4% withdrawal rate. The plan is that we withdraw 4% for the first 11 years, then my partner gets her state pension £8k per year, then 7 years later I get mine. So we will be either a) taking out less each year after that, or about the same to allow for inflation.