As I get ever closer to my FIRE date and am facing the possibility of a much earlier exit from my current job than planned, the geek in me has gone into overdrive and I have been spending some time (…..ok, A LOT of time) reviewing and refining the numbers.
It is often said that there is safety in numbers but for an introverted self-professed spreadsheet addict like me, that phrase has a whole different meaning.
I love numbers, always have, always will. And at times like these when it feels like uncertainty about the future has never been greater, knowing the numbers and having faith in the maths makes me feel secure. If I could wrap myself up in a spreadsheet, I probably would 🙂
A Staged Approach
Until recently, I was aiming to retire at 55 and I built a financial plan around the guardrail of the 4% rule and having 25 x my projected expenses in investments. It’s a straightforward approach for a straightforward situation. That age coincides nicely when my youngest child should have flown the nest – or if not, at least be working and contributing (she says, optimistically).
Once I learned more about the very real possibility of an even earlier retirement, I realised I would need to find a way to bridge the gap between those “very early retirement” years and the years from age 55 onward, when I can access the bulk of my retirement savings. So the plan has two distinct phases – pre-55 and post-55.
Phase 2 – Age 55+
I’ll start with Phase 2 since this is the easiest one to model. I will have no dependants and only need to consider myself and I expect my spending to be stable over many years so I am comfortable with taking a 4% rule approach here, after deducting any other income streams.
Rental Income 10,200
Interest (P2P) 1,000
Projected Expenses 24,000 (including tax)
Net Draw-down 12,800
Pension Pot needed 320,000 (25 x Net Draw-down)
Current Pension Fund 247,804
Future Pension Fund 322,083
The future pension fund takes the current pot and compounds it over 8.75 years at a very conservative 3% (5% growth less 2% inflation). I sincerely hope that growth is much higher than this, but just in case it’s not – I want to see what the picture would look like.
The great news is that this stage of my retirement is now fully funded. If I don’t invest another penny, the magic of compounding should be left alone to do its thing and these later years are covered. I recently removed a couple of items from my FIRE budget because really they were leaning towards a more luxurious standard of living and with my current situation at work, I wanted to remove the pressure of funding these things now. If growth is higher than modelled or if I have any side-income between now and then, there will be plenty of scope to put those luxuries back in. And every month that I can survive in my job adds more to this pot with both mine and my employer’s contributions.
Phase 1 – Age 46-55
Ok, here’s where it gets more detailed. The period of time between now and 55 is not one long stretch where expenses and other income streams will be stable. At the moment I have two children at home. One will be off to university in the next couple of years; the other will likely follow a few years later. I’ve been feeling quite fragile lately too, so I wanted to explore the possibility of taking a year off – simply to rest, recover and regroup. Each of these phases brings different income and expenses and I was left scratching my head for a while of how best to calculate what was affordable.
In the end, I decided to lay out the stages separately, each with their own levels of income and expense.
It’s worth remembering that Phase 1 has a definite end date – at age 55. So every week / month / year (…..?) I can stick it out at work, means I will not only be accumulating more savings, but the period that I will need those savings to pay for gets shorter. Anything left over will pad out the pension income and allow me to be more tax efficient with draw-down.
This plan represents the position if I were to quit now. If that doesn’t happen, it will need to stay dynamic and be updated regularly (yay!!) even if only to account for the passing of time.
This is not set in stone – more a framework to give me something to play with over the coming weeks and months. Yellow boxes allow me to play scenarios to my heart’s content. This particular scenario shows just 3% net growth but a side income of 5k for a few years. If everything were to work out this way I would have 41k left before my pensions kick in – but there will have been no holidays in that time.
If I were to remove the side income modelled above, the ISAs would be reduced to 6.5k by the end of stage 4 – showing I’m at a Lean FIRE stage right now. There is not much padding in the expenses but there is a contingency line – so it looks like I would probably be ok with no additional income. I don’t know though – it feels far more comfortable to have something coming in, however small. I make this much at the moment from Matched Betting alone and there are lots of other things I want to explore once I quit work, some of which may well generate some income.
Analysis Paralysis
I’m not joking when I say I spend hours playing with the numbers. I know I’m a bit weird, but I enjoy it – working out “what if this happens” or “what if that happens”. The reality will be none of the above, I know that. But it comforts me to think whatever happens, I won’t be too far out – I won’t have got it catastrophically wrong.
It does show that I am working now for the “nice to haves” not the necessities and if push came to shove – I could quit 🙂
Leave a Comment
I love hearing your thoughts and opinions – please jump in and let me know how you plan for different stages of life.
FIREthe9to5 
Thank you so much for sharing! I love the detailed look into how you’re planning for retirement. It’s funny because before I read this I was working on a similar (though less awesome-ly detailed) post about my retirement strategy for next week. I’m not copying you I promise! 🙂
And as a response to this line: “I’m not joking when I say I spend hours playing with the numbers. I know I’m a bit weird, but I enjoy it – working out “what if this happens” or “what if that happens””
Well if you’re weird I’m right alongside you. My partner always asks “why are you running all those possible scenarios when you don’t know which (if any) will be the real one?! My answer: Because it’s fun! Glad to have found a kindred spirit. Thank you again for sharing.
LikeLiked by 2 people
I’m always interested in seeing people’s strategies so I look forward to your post.
And thanks – I knew some people would understand 😊
LikeLike
Looks like a good plan to me – the only thing I’d say is are you at risk if the pension access age changes? I’m modelling on it being 58 for me.
LikeLiked by 1 person
Yes – I am at risk. I’m hoping that less than 9 years away is too close for the government to fiddle with, but you never know what they’ll do. In some scenarios the ISA funds will last another couple of years but if not I’ll need to get more side-income coming in. It’s not the Big Bang early retirement I was planning for but I’m having to adapt for the circumstances I find myself in.
LikeLiked by 1 person
I think for you 58 is sensible as you are much younger. There’s a real possibility this will be true for you
LikeLiked by 1 person
Yeah – I think the WASPI changes have set a precedent showing how quickly thing can change.
LikeLiked by 1 person
The women’s state pension changes were announced in 1995 and phased in over 10 years starting from 2010. The rise in the state pension age from 65 to 67 and beyond (and corresponding change to the age of accessing private pensions) was similarly phased in with more than a decade’s notice. Of course, there’s no guarantees about the future, but the government’s track record on this is pretty good.
LikeLiked by 1 person
That’s what I’m banking on so here’s hoping there’s no sudden moves.
LikeLike
What are you going to do about health insurance since you’ll be 10 years shy of Medicare eligibility? Whatever your response I have the exact same concern as I also plan to retire at age 55, in 4 years….
LikeLiked by 1 person
I’m ever thankful for the U.K. NHS so healthcare is not something I need to plan for. Thanks for reading!
LikeLike
Those numbers look reassuring to me. Given you already side hustle on MB, you will likely carry on in some vein even in your first year.
One thing to consider, kids at uni these days even if they get max loans often need parent top ups especially if living away from home as student accommodation is so expensive. Think £7k a year in bigger cities.
LikeLiked by 1 person
Yeah, that is a real concern. I’m trying to encourage them to go to the local uni and live at home – not seeing much enthusiasm for that. But I have a defined budget of what I’m prepared to contribute and if they choose to go somewhere more expensive then that’s on them. They will be adults and I want them to have skin in the game and not coast through their uni years. It’s a selfish attitude in some ways but an important life lesson too I think.
LikeLike
That’s a good way to plan otherwise you could be looking at a lot of money for the year they are both, hopefully, at uni.
LikeLiked by 1 person
Your plans look good. I also have a massive spreadsheet I play with for hours. I bet once retired traveling the traditional way of working stiffs will lose some appeal… so your budget is probably not that far off even if you want to do some slow travel.
LikeLiked by 1 person
I think so too. I’m surprised how comfortable I am with winging it a little – that’s not like me, but being conservative things look just about ok.
LikeLike
Hey, thanks for sharing. Just one question, (as I’m in similar circumstances), are you planning to get the 25% of your pension pot tax free or monthly/quarterly/yearly withdrawals?
LikeLiked by 1 person
Hi – I don’t know yet. A lot depends on what happens between now and then, how much I’ve run my ISAs down etc. I may take some advice from the Pension Service first. I would like to take the lump sum but the calculations I have now depend on staying in the market so it’s more likely I won’t. There’s the option of taking the lump sum and drip feeding it into ISAs maybe but then what to do with the rest? The reason I’d like to take it is in case the rules change and the benefit is removed – safer option may be to take the lump sum. Probably haven’t helped you at all, sorry! What do you think you will do?
LikeLiked by 1 person
Thanks for the reply. My thoughts are to take the 25% of the pot tax free and sip feed to ISA and SIPP as required. My rationale for this is the abusive fees for the company pension, (about 0.75%, active funds). I will consider to open a SIPP if Vanguard starts to provide the service and only contribute to the company pension’s enough to get the employers contribution.
LikeLiked by 1 person
I’m also waiting for the Vanguard SIPP – promised later this year. Can’t come soon enough.
LikeLike
If you take the 25% lump sum and then drip feed back into a SIPP – won’t you then have to pay tax when you withdraw?
LikeLike
Interesting blog! I can relate to a lot you have written.
To make it work you may need a couple of years of cash in you ISA to protect against a downturn during Phase 1. However, your Final Value is greater than 0, so you do have some wiggle room.
LikeLiked by 1 person
Thanks! Hope you keep reading
LikeLike
I have some cash saved outside of these numbers as a safety net. About 2 years worth of drawdown. On the same wavelength 😊
LikeLike