7d7
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Post by 7d7 on Apr 8, 2017 7:40:29 GMT
How much does one need to retire early these days? Is there a magic formula for figuring out at least the bare minimum?
A friend is retiring at 45. He's got no property, kids, debts and the like. Savings in GBP are his only source of income. With interest rates and the value of the pound plummeting, he's wondering if there's an absolute minimum figure required in order to leave the office for good.
Any ideas?
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SteveT
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Post by SteveT on Apr 8, 2017 8:38:11 GMT
How long is a piece of string? When does he plan on dying, and does he plan on needing expensive care in the years before doing so? In the meantime, does he want to live it up in central London or rent a bed-sit in the boonies? How about holidays? The only way is to project realistic living costs for a range of potential expenditure and survival scenarios and work back. That said, a couple of million (sensibly invested across a widely versified portfolio) should cover most eventualities.
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star dust
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Post by star dust on Apr 8, 2017 9:17:37 GMT
That said, a couple of million (sensibly invested across a widely versified portfolio) should cover most eventualities. Ah, but what about the helicopter, the yacht, and that Caribbean island ? Although the - if you have to ask you probably can't afford it might apply
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r00lish67
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Post by r00lish67 on Apr 8, 2017 10:12:25 GMT
Magic formula, as requested: www.firecalc.com/No-one said the magic formula wouldn't require a bit of reading to understand
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7d7
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Post by 7d7 on Apr 8, 2017 10:47:05 GMT
While the sky is the limit, he's looking at the bare minimum. He understands variables need to be factored in and is ready to make adjustments accordingly. Health expenditure is a tricky one. Although a variety of private medical insurance policies are available, the premiums hit the roof as soon as a claim is made. I mentioned the death date issue. He said he's working on it. As for example scenarios, he's considering starting out in an inexpensive London bed-sit and has planned two cheap holidays per year.
Oh dear, Firecalc.com is undoubtedly complicated. There must be something simpler out there.
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Post by mrclondon on Apr 8, 2017 11:20:03 GMT
Its worth a read of this thread p2pindependentforum.com/thread/8138/early-retirement for encouragement that (very) early retirement is indeed feasible ! As to how much money is required, as others have said it really is "how long is a piece of string". A well balanced diversified portfolio containing equity, bonds (or p2p), and property should as a long run average yield around 2.5% pa after allowing for inflation. If you take £15k-£20k as the income needed by a single person* that implies net wealth of between £600k and £800k is required to provide steady income without drawing down capital. Retiring at 45, and maintaining an active healthy lifestyle could mean 50+ years of retirement, so the aim should be to maintain capital in real terms for as long as possible. £600k-£800k is actually not an unachievable figure when you factor in the value of pensions (multiply final salary pa pension by 20 to get a capital value). However, this implies a degree of willingness and competence in managing an investment portfolio. * assuming living in a mortgage/rent free property. EDIT: I think the £2m suggested by SteveT is on the very high side of what is required by most people. Have a read of this article in yesterday's Telegraph, by the respected ex pensions minister Dr Ros Altmann, discussing the very real effect that reducing the pensions lifetime limit down to £1m has had on encouraging early retirement amongst those who are approaching that limit.
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Post by GSV3MIaC on Apr 8, 2017 12:43:47 GMT
You can also (or maybe not) factor in state pension from age 65 or 70 or 75, and 'leave the office for good' might indicate the existence of some sort of private/company/personal pension, payable from %age% .. in which case the income from investments really only needs to get you to the 'collect your pension(s)' age, and top up from then on. Finally 'live off your income, don't draw capital' is pretty conservative .. if you have nobody to leave it to you might as well aim to have eroded the capital by your planned exit date.
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JamesFrance
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Post by JamesFrance on Apr 8, 2017 12:49:08 GMT
he's considering starting out in an inexpensive London bed-sit and has planned two cheap holidays per year. There is a saying that I always disliked but it seems to fit that scenario perfectly and that would be that he should "Get a life". To spend all year in an inner city room interspersed with 2 weeks in a cheap hotel somewhere like Benidorm seems like a recipe for not living very long. Why retire if he doesn't have better more interesting things planned to do for the future?
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adrianc
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Post by adrianc on Apr 8, 2017 13:25:00 GMT
A friend is retiring at 45. He's got no property, kids, debts and the like. Savings in GBP are his only source of income. With interest rates and the value of the pound plummeting, he's wondering if there's an absolute minimum figure required in order to leave the office for good. Any ideas? No property? So he's going to be renting, or buying? Where in the world is he thinking of living? What order of magnitude are his savings? He's single and planning on staying that way? How expensive are his tastes in life? ...he's looking at the bare minimum... As for example scenarios, he's considering starting out in an inexpensive London bed-sit and has planned two cheap holidays per year. Sounds awful. Has he thought about getting a job he enjoys, if that's better than his current employment? Getting out of London is probably a VERY good start. I mean, it's not as if he's going to be taking much advantage of the benefits of bright lights, big city, is it?
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SteveT
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Post by SteveT on Apr 8, 2017 14:14:20 GMT
EDIT: I think the £2m suggested by SteveT is on the very high side of what is required by most people. Have a read of this article in yesterday's Telegraph, by the respected ex pensions minister Dr Ros Altmann, discussing the very real effect that reducing the pensions lifetime limit down to £1m has had on encouraging early retirement amongst those who are approaching that limit. My tongue was in cheek at the time, although 2.5% real return on £2m is only £50k pa. That doesn't buy you many round-the-world cruises and open-top Mercs these days...
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adrianc
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Post by adrianc on Apr 8, 2017 14:19:26 GMT
EDIT: I think the £2m suggested by SteveT is on the very high side of what is required by most people. Have a read of this article in yesterday's Telegraph, by the respected ex pensions minister Dr Ros Altmann, discussing the very real effect that reducing the pensions lifetime limit down to £1m has had on encouraging early retirement amongst those who are approaching that limit. My tongue was in cheek at the time, although 2.5% real return on £2m is only £50k pa. That doesn't buy you many round-the-world cruises and open-top Mercs these days... Twice national average household income, and that's without much having to be paid in housing costs - assuming that most people even contemplating early retirement would own their properties mortgage-free...
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skippyonspeed
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Post by skippyonspeed on Apr 8, 2017 15:22:40 GMT
It's called living within your means, which only he knows. but can be worked out. If interest from his savings only just cover basic requirements ie accommodation, food, clothing, utility bills, he's going to have a pretty miserable life. If he's covered the boring stuff, any personal extras can be prioritised, must haves, would likes and luxuries. If he can cover about say two thirds of his would likes, he could probably be happy, providing his savings at LEAST keep pace with inflation...........or else he could just find a rich widow(er) depending which side he bats for
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skippyonspeed
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Post by skippyonspeed on Apr 8, 2017 15:32:54 GMT
Its worth a read of this thread p2pindependentforum.com/thread/8138/early-retirement for encouragement that (very) early retirement is indeed feasible ! As to how much money is required, as others have said it really is "how long is a piece of string". A well balanced diversified portfolio containing equity, bonds (or p2p), and property should as a long run average yield around 2.5% pa after allowing for inflation. If you take £15k-£20k as the income needed by a single person* that implies net wealth of between £600k and £800k is required to provide steady income without drawing down capital. Retiring at 45, and maintaining an active healthy lifestyle could mean 50+ years of retirement, so the aim should be to maintain capital in real terms for as long as possible. £600k-£800k is actually not an unachievable figure when you factor in the value of pensions (multiply final salary pa pension by 20 to get a capital value). However, this implies a degree of willingness and competence in managing an investment portfolio. * assuming living in a mortgage/rent free property. EDIT: I think the £2m suggested by SteveT is on the very high side of what is required by most people. Have a read of this article in yesterday's Telegraph, by the respected ex pensions minister Dr Ros Altmann, discussing the very real effect that reducing the pensions lifetime limit down to £1m has had on encouraging early retirement amongst those who are approaching that limit. My piece of string is just over 20m, so how much is that?
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skippyonspeed
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Post by skippyonspeed on Apr 8, 2017 16:01:15 GMT
EDIT: I think the £2m suggested by SteveT is on the very high side of what is required by most people. Have a read of this article in yesterday's Telegraph, by the respected ex pensions minister Dr Ros Altmann, discussing the very real effect that reducing the pensions lifetime limit down to £1m has had on encouraging early retirement amongst those who are approaching that limit. My tongue was in cheek at the time, although 2.5% real return on £2m is only £50k pa. That doesn't buy you many round-the-world cruises and open-top Mercs these days... Yawn!!!!........... link or link
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adrianc
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Post by adrianc on Apr 8, 2017 16:04:23 GMT
Its worth a read of this thread p2pindependentforum.com/thread/8138/early-retirement for encouragement that (very) early retirement is indeed feasible ! As to how much money is required, as others have said it really is "how long is a piece of string". A well balanced diversified portfolio containing equity, bonds (or p2p), and property should as a long run average yield around 2.5% pa after allowing for inflation. If you take £15k-£20k as the income needed by a single person* that implies net wealth of between £600k and £800k is required to provide steady income without drawing down capital. Retiring at 45, and maintaining an active healthy lifestyle could mean 50+ years of retirement, so the aim should be to maintain capital in real terms for as long as possible. £600k-£800k is actually not an unachievable figure when you factor in the value of pensions (multiply final salary pa pension by 20 to get a capital value). However, this implies a degree of willingness and competence in managing an investment portfolio. * assuming living in a mortgage/rent free property. EDIT: I think the £2m suggested by SteveT is on the very high side of what is required by most people. Have a read of this article in yesterday's Telegraph, by the respected ex pensions minister Dr Ros Altmann, discussing the very real effect that reducing the pensions lifetime limit down to £1m has had on encouraging early retirement amongst those who are approaching that limit. My piece of string is just over 20m, so how much is that? metres or millions?
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