Early retirement is a big deal. For most people it is not going to happen by accident and needs to be based on a solid financial plan.
I’ve talked about how I got to this point in my journey here. What about moving forwards? Where is the money going to come from to live? What will I draw down from and when? What other income streams will be coming in and what back-up plans do I have?
My Plan Set-Up
This is what I have in place for income streams:
- Savings outside of pension to get from FIRE date at age 49-50 to age 55
- Rental income from 3 properties to supplement these savings to age 55
- Personal pension, SIPP and stakeholder pension from age 55+
- Mortgage paid down to £150k by FIRE date (around 70% equity)
- Long term plan to sell 1 rental to pay off home mortgage (2 of the rentals are owned outright).
- Rental income from remaining 2 properties to supplement income from pensions from 55+
- Bank interest on cash funds at all stages.
The 4% Rule – Safe Withdrawal Rate
I am using the principle of the 4% rule as my guardrail (see here for explanation). So even though much of my money is locked away until age 55, as soon as I have enough in the overall pot so that I can theoretically withdraw 4% a year to live on, I will consider myself financially independent.
The challenge then is to be sure that there is enough accessible funds to bridge the time from leaving work until I can draw down on my pensions. And unfortunately, I am on track to hit my FI number before I have enough of those bridge funds.
I was quite late joining the FIRE party so to speak, in that I only discovered it a year or two ago. Up until then, I had been saving as much as I could into my retirement accounts, thinking I would get myself in shape to hopefully retire at age 55. I didn’t even know that super-early retirement was a “thing” never mind figure out how to achieve it.
Don’t ask me why I hadn’t thought about it before; I kick myself about this regularly. But the fact is, I didn’t and so I followed the traditional advice, paying as much as I possibly could into my retirement accounts. That’s not wasted, in that I benefited from a good rate of tax relief and my retirement account is now quite well funded. The downside is that I can’t access this any earlier than age 55.
Once I realised I could get out even earlier, I wished I had not locked away so much into pension accounts. But at least it provides some comfort that even if all else fails, once I hit that age milestone I will have a new source of funds to access.
I’m continuing to pay enough into this account to benefit from my employer contribution (if I pay 7%, they pay 10%) but any further savings are now being diverted elsewhere – maxing my ISA contributions and paying down my mortgage.
I’m a simple soul with very simple taste. As long as I have a comfortable home that is warm and cosy, I am happy. So the living costs I am projecting are really not that high. And since I have been tracking my expenses in detail for a few years now, I am comfortable that I have a good understanding of what I spend now – and what I will spend in the future.
In order to accumulate enough outside my pensions to bridge the gap years, I need to work and save for another 3 years or so. This also feels more comfortable from the point of view of my children. However well planned, early retirement is always a risk. Stepping into that abyss is something I am very willing to do, but not while I have the boys depending on me for years to come.
What If Things Don’t Go To Plan?
I have several things built into the safety net once I hit the early retirement button:
- 10% expenses contingency – even though I have padded my expenses a bit to be on the safe side, it feels more comfortable having an extra layer on top.
- The retirement budget includes about 30% discretionary spending – something that could easily be scrapped if need be.
- Assumes no slow down in spending in later life (most studies show decreased spending as people age).
- Assumes no equity release or downsizing from current family home – this is probably unrealistic as I won’t need such a large house when the children have left.
- Assumes no state pension – while it’s entirely possible future governments will reduce my entitlement, I think it is highly unlikely I won’t receive anything and I’m currently projected to receive the full circa £8k / year from age 67.
- Assumes no future part-time work or other income ever. Since I will have many years in front of me, I think this is unlikely. Matched betting / writing / dog walking / tutoring – I could write pages on all the things I would like to do if I had time and many of those could provide a small income.
- Assumes no inheritance – I am not from a wealthy family and don’t even want to think about this, but my parents own their home and it is unlikely there will be nothing at all passed on, albeit shared amongst my siblings.
The Fine Print
- In my calculations, I assume 5% net growth (after inflation) and this is what I base my decisions on.
- I also model 7% to give me an idea of how good things could maybe be.
- Every now and again I indulge myself with a view on 9% just because 🙂
- I will have 2-3 years of net living expenses in cash in addition to the above funds, with the intention of using these instead of drawing down stocks should the market drop for a while. (Net living expenses means expenses not covered by rental income).
- I really love the idea of working in a bookshop and I may do this just for fun for a while. The retirement police can arrest me for that.
Join the Discussion
How does this compare to your plan? What do you model in if anything for social security / state pension? Are you using the 4% rule? Let’s discuss in the comments.
FIREthe9to5 
Terrific plan in my opinion. For a young person on their way to FIRE, you really have it together financially. Kudos to you. I’m along the same path as you and my financial plan coincides with yours except for two things; I don’t currently follow a spending budget and most of my liquid assets are outside of a qualified retirement plan. Otherwise, we have much in common. Sound minds thinks alike!
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Thanks! Good to know other people have a similar plan, gives me more confidence I’m on the right track. Although definitely don’t feel young!
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We will be FIREing in a couple of years when we are early 50’s. Ours will be a lean FIRE as we don’t earn enough to allow for a 30-40% discretionary spend. We also aren’t using property or the 4% rule. We will be spending our savings to get us through the years until we can tap into our SIPP and final salary pension. SRP will make us very comfortable indeed but we can survive without it. Although we are spending our savings we will be leaving a reasonable cushion so are happy with our plans.
We also have some of our savings in P2P, am not as comfortable with P2P as I was so am starting to drawdown a bit to reduce our exposure.
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30% sounds like a lot for discretionary but really, it’s just that the rest of it is so lean. I don’t spend much at all and once the boys are grown it will be even less.
You are lucky to have the final salary pension – especially with so many years in one place. That must be good security for you.
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Awesome, very well thought out an detailed, with a lot of room for error baked in to make sure that more than likely, you will be i great shape. Definitely something most of us much further behind on the path, can take and put into place.
Great job, and awesome post!
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Thanks – I’m glad it’s useful
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Looks like a well thought out plan. I think its always hard to know when to pull the plug and alot of people probably work longer than they need to. I said in another post I’m aiming for a million outside of property but actually don’t think i need that much. I need to look at how much tax I’m likely to pay as if i take take 3k a month tbh i dont spend more than that now most months. Also interesting that you won’t have paid your mortgage off as this is my plan. Ive fixed my 280k mortgage for ten years at 2.59% and borrowed over 33 years. This means after ten years I’ll still have 230k, left to pay off but will have more than this in investments. I may continue to overpay a bit once ive built my non pension non property wealth as this is relatively low at the moment. I’m aiming to get to 100kisa savings in the next 3 years. Fingers crossed
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Your original numbers would give you quite a FatFI in the UK I think. You would be really comfortable, so depends how bad things get at work.
I’m not worried about paying the mortgage off before I quit partly because I could pay it off by selling other property or I could downsize and relocate somewhere cheaper.
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Thanks for sharing this detailed plan – it looks good, with plenty of contingency in there.
I had my own simplified version of how I was going to fund my early retirement/retirement in my original blog (it was on a page which wasn’t transferred over from Blogger to WordPress) but I haven’t resurrected it as it was based on quite a bit of guesswork, if I’m honest.
Unlike you however, when I ‘pull the FIRE trigger’, I should be at least 55 so will be able to tap into my SIPPs as well as my ISA. I will have a juggling act to keep my taxes as low as possible (or zero). My final salary pension won’t kick in til I’m 65 and then two years later, the state pension. I’ve only just recently realised that the combination of these two will actually be enough for ‘lean retirement’, with no other income. With no dependents, I don’t really need to preserve my capital at all costs, so won’t be using a safe withdrawal rate, I’m going for a semi-fixed income each year.
I will wait a couple more years before I sit down to really look at the numbers – think it’s too soon for me to have another go!
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Can you access your SIPPs at 55? I think you can only start withdrawing from your SIPPs 10 years before state retirement age.
I would be very very happy to be proved wrong on this though as I would love to access mine from 55!
You are very restrained, not calculating your numbers now – what if you could go much earlier than you think? You could end up working longer than you have to. I think I spend way too much time looking at the numbers – it borders on obsession! I need to find a happy medium somewhere if I can.
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Subject of course to any future legislation change, the current minimum age to access SIPPs doesn’t rise to 57 until 2028 and will then increase in line with the state pension age, remaining 10 years below. I will reach 55 before 2028 so should escape this rise! Will you?
I’m actually not in a rush to finish work any earlier than planned. Yes, I could end up working longer but it just means that I’m happy with my job and my work life. If this ever changes, or life throws a curveball at me, then I’ll be straight onto that spreadsheet to plot an earlier escape! Not looking too deeply at the numbers now means I don’t have to worry too much! However, you are a lot closer to your goal than I am, I could well be just as ‘obsessed’ when I’m at the same stage as you are now!
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Weenie – you might just have led me to another lightbulb moment!!! I will be 55 in 2027 so sounds like I can access my SIPPs then…
My biggest worry was running out of funds before I could get at my SIPPs.
How exciting – I can now go and spend hours playing with my numbers again 🙂 🙂 🙂
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Haha, glad I made your day! Hope you enjoyed playing with your numbers again!
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Very good plan. I hadn’t thought about the 4% rule. Will have to recalculate my finances and see who it differs. And yes, I do consider Social Security in my plan.
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Thanks Dan. How were you calculating your numbers?
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I didn’t have a specific plan. I took our income, expenses and tried to force myself to put more into savings and investments when I could. Not the best plan, but that’s why I start reading your blog and others like it. It helps me be more focused.
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Glad if I helped at all. I am so grateful to all the blogs I read too; I would be nowhere without them
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I think Big ERN has done some calculations showing that somewhere between the safe harbor rule and the trinity rule of 3.3% is the ideal amount. That’s what I’ve been shooting for but need to reread it as I get closer.
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I’ve heard Big ERN being interviewed – fascinating the depth he has gone into with his calculations! He is a clever guy for sure
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I always think the 4% rule is very Conservative if you have a decent amount saved
That effectively means you never spend the capital. In reality in early retirement you might spend 6% or 7% or if your investments go up. In later years it might only be 2% to 4% until you need care. In which case you’ll sell your house anyway generally. Provided you keep 3 to 5 years in cash you’ll generally ride out market volatility. And if you do eat into the capital at least in later years so what. You can’t take it with you
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I’m not sure I’d rely on it if it was everything I was counting – I mean, if I was right on the line I would probably go less than 4%. But if you have other things (like our state pension) then I agree it’s a bit conservative
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Hi
I also think 4% is pretty conservative (and I am about to find out as I am just going into drawdown at more than that). Mrs FIUK and I do have Final Salary pensions to look forward to, but these will not keep us in luxury, so we do not have to make the money last forever. If investment growth is above 4% per annum (which I believe it generally is over a 5 year plus timeframe), then as long as you have a cash buffer to prevent having to take out cash at a very low point you should never use any of your capital to stay within a 4% rate.
Aa I stated earlier I will find out over the next several years and document my progress as a real example for people to use in future (or if it does go horribly wrong to learn from)
Best Wishes
FIUK
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Hi FIUK – thanks for documenting your progress, it will be really useful for all those coming up behind. And hopefully, it will be a great success!
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Thank you for sharing your plan. I am intrigued. Have you run the numbers to see the difference if you were to overpay into your mortgage by diverting some money away from your ISA so that all your properties become mortgage free without the need to sale one? I am wondering if the rental income from all three properties and smaller ISA is better than two properties with a larger ISA?
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At the moment, my mortgage rate is ridiculously low at less than 1% so I think saving in an ISA is sensible and hopefully will benefit from greater returns. I’m not ruling it out as an option though when interest rates eventually rise – cashing in the ISA to pay off the mortgage. I’ll run the numbers every once in a while and see which makes more sense. Thanks for the comment!
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