Partial Early Retirement

It may be Friday, but this one isn’t frugal as I think I’ve exhausted all my ideas for the moment. I may try to write one once a month, but we’ll see. Instead, it’s time to take stock.

Could I really achieve financial independence and retire early?

Is FI/RE realistic for me?

Although I talk about FI/RE on this site, in terms of my situation, this isn’t truly realistic at my stage of life. I’ve started too late and unless I am going to put a lot of time and effort into a side hustle, then I am unlikely to have enough money to stop work completely over the next ten years.

I started thinking about this the other day whilst listening to Chrissy’s new podcast. Although it is a Canadian-focused venture I thought that I would check it out. There have only been a few episodes so far, but the most recent one was about the 4% rule or as the presenters concluded, the 4% ‘assumption’. What was interesting for me was they talked about lots of different ways people could achieve financial independence and that when looking at how much money you need, you should consider what your pension would provide when you reach traditional retirement age. Therefore, you don’t always need to make your money last for the rest of your life. You also don’t need to ‘retire’, but could work part time or change your job to something more rewarding, but which doesn’t pay as much.

I am lucky enough to have a defined benefit pension

My pension

One of the benefits of working for the public sector is that I have a ‘defined benefit’ pension i.e. I know exactly how much money I will receive when I retire. Nowadays most pension schemes are ‘defined contribution’, so that you put in a set amount, but what you will receive depends on how the market performs.

Although my pension scheme is a good one, I didn’t have a full-time job until I was 32. You might say that I had my period of ‘early retirement’ in my twenties. Whilst others were getting married and having kids, I was living in a shared house, working part-time, volunteering and travelling. Mr Simple refers to it as my time as ‘a bum’. Although life was easy and I didn’t have any responsibilities, neither did I have much money. When I got my full-time job, after going to college for three years, my salary tripled overnight. I then started on the traditional route of buying a car and three years later a house. That wasn’t too far from being paid off when Mr Simple and I moved in together and bought a larger house, with a bigger mortgage.

A lot of my salary goes towards the house

Current expenses

As you may have seen from my spending reviews I am currently paying off the mortgage by making twice the actual payment each month, as well as saving some money into an ISA and another high interest savings account. I am also paying all of the bills, as Mr Simple’s money is going on the renovations to the house. If we didn’t have any work to do to the house, and Mr Simple and I were sharing the costs, then my savings would increase dramatically. But, there we are. We chose this house and I love it, but it comes at a price.

I am sure that many of you would say that I should stop overpaying the mortgage and invest the money, as with such low interest rates, financially this makes sense. I completely agree with you, but there is just something psychologically comforting about owning the house outright. So, whatever anyone thinks, that’s what I want to do and each of us has to make our own choices.

At the current overpayment rate we will pay off the mortgage in seven years and three months. By that time I will be 57. I would really like to pay it off in five years’ time, but to do that I would need to find an extra £20,000.

Savings

Leaving that to one side for the moment, if we now look at my savings. I currently have approximately £34,000. In the FI/RE world that is nothing, but compared to a lot of the population it isn’t bad. If I keep saving at my current rate, even at an interest rate of 4% I will have £71,000 in five years’ time. I give it that low interest rate as although I have some in a stocks and shares ISA, which is currently making 10%, some of my money is in a cash ISA, locked away until November 2021 and it is only earning 1.75%.

In five years’ time all my money would be in investments and hopefully earning more than 4%. When I consider that £71,000 and apply the 4% ‘assumption’ i.e. draw 4% every year, I would get £2840 per year. £2840 divided by 12 is £236. At the moment I am paying all of the monthly bills, but in five years’ time, Mr Simple should be contributing his half again as all of the DIY will be done. If we don’t count the mortgage, this £236 per month would go quite a way to paying my half of the bills i.e. gas, electricity, water, council tax, etc.

I spend two-fifths of my wages on the mortgage

How my salary is divided

At the moment I think of my wages in fifths. Two-fifths go towards the mortgage, one fifth towards the bills, one fifth is saved and I live on the other fifth. If I could:

  • pay off the mortgage somehow = 2/5ths  gone
  • Mr Simple starts paying his half of the bills and my investments pay my part of the bills = another 5th gone

I could continue saving and would only have to work two-fifths of the time that I do now i.e. two days a week instead of five.

I hope that you’re keeping up.

This may need replacing soon

A potential problem

One large potential spanner in the works is having to buy a new car over the next five years. Now, when I say ‘new’, I obviously mean ‘new to me’. My car is nine years old and has recently started using more oil than it should do. The garage can’t find out what is wrong with it and in order to do a more thorough investigation they tell me that it would cost £3000, which is probably more than the car is worth. The temporary solution is to check the oil each month and fill it up if it is low. I am also driving around with a bottle of oil in the boot.

At some point I fear that the problem will get worse and eventually I will have to buy a new car. Currently a second hand Toyota Yaris, which is what I have at the moment, is between £7000-£10000. The cost would have to come out of my savings. Best case scenario, that would take my savings down to £63,000, which wouldn’t be quite enough to cover my monthly bills, but would cover a lot.

More than 4%?

There is also the question of whether I could, in five years’ time, withdraw more than 4%, because that figure is chosen as it is believed that at that rate, the capital will last and still increase in value for many years to come. I though, don’t need this to last for 30 years, I just need it to last until I get my pension. My current pension age is 67, but I could retire earlier, say at 60, although my ‘defined benefit’ would be less. It is too far in the future for the pension company to tell me how much I would get if I wanted to draw on it early. They will only say how much I will get at the standard age. It is though a possibility that I could draw 5% from the £63,000 and that would definitely cover my half of the bills.

It therefore seems very likely that I could work part time from aged 55, but I just need to find £20,000 to pay off the mortgage. One possibility is to do AirBnB, which Mr Simple and I have discussed, but at the moment we’d have to pay guests to stay here rather than the other way around. It is a real possibility for the future, although I am not sure how much it would bring in. We could rent out a room and you can earn £7,500 a year doing this before having to pay any tax. Having a lodger for three years would cover the shortfall in the mortgage payments, but on a practical level I would rather have occasional guests than a full time one.

Mr Simple thinks that we should just stop overpaying at that point and just pay the £200 a month that we would owe, shared equally, for the rest of the period. That would certainly be a lot more doable than the £1000 that I am currently paying.

Sorry, that was long. I don’t usually write so much, but this has been a good opportunity to try to set down what exactly I am aiming for, which until now I haven’t been sure about. It will probably change as time goes on, but at least for now I have a goal and can track my progress towards that. As always, I will let you know how I am getting on.

Are you aiming for FI/RE, or are you just hoping to work a little less in the future? I would love to know your thoughts on my plan as well as your ideas for the future.

15 Replies to “Partial Early Retirement”

  1. Great post. I see no problem with semi retirement. I don’t want to achieve financial independence to retire completely but to give me options. I may want to retire, or to keep working, or to drop to 2 days a week, or change to a job close to home which pays less etc.
    It’s about the freedom to choose for me, not a need to retire early.

  2. 💕 Really enjoyed your detailed and honest blog. I would really miss your lovely blogs if you only wrote once a month. It must be incredibly difficult to write something when you sit down. I would like to know a little bit more about how and what was the turning point in your life that helped you decide on your future path. Do you feel happy/unhappy with the choices you have? Oh dear if this is a bit depressing please ignore my question. 💕

    1. Sue, you don’t need to worry. When I said that I may write once a month, I meant I might write a Frugal Friday post once a month rather than every week as I have been doing. At the moment I am trying to post every Tuesday and Friday, so I will continue to try to do that, but the FF posts are on hold.

      That’s a deep question you’ve asked there. When you talk about my ‘future path’ I am not exactly sure what you mean, but I will do my best to answer. In respect of my interest in keeping myself fit and healthy, this came about due to my diagnosis of atrial fibrillation (irregular heartbeat). As I get older it may get worse. I will most likely have to take blood thinners and maybe have an operation. I hope that the healthier I keep myself the less likely it will be that it will get worse.

      In respect of my financial journey, my interest in FI/RE is fairly recent. I can’t remember why, but a few months ago I googled ‘frugality’ and found ‘The Frugalwoods’. I did her ‘Uber Frugal Month’ and it went from there. Obviously, as well as saving money they are an example of the FI/RE movement. From that point on I started to look at my life through a different lens. Since then I have been consuming blogs and books on the FI/RE movement.

      As to whether I am happy with the choices that I have made, I would say that it is no use regretting the past as you can’t change that. Obviously I wish that I had discovered the FI/RE movement sooner, but at least I have discovered it now and over the past few months I have made major changes to my spending. I am starting to realise what is important to me and which things I am prepared to spend money on. I find that both reading and writing helps me constantly evaluate where I am going and I am really enjoying the journey.

      I hope that answers your question. If not, let me know. Sam

      1. 💜Thank you so much for your answers. Yes it’s everything I wanted to know, thanks, I appreciate your honesty. I felt from reading your blogs that you and I are reaching a stage in our lives were you realise that your priorities change. I’m a little older than you (55) and have reached a point were my life is changing, we feel in control of our future. My hubby and myself have never chased the Jones, so to speak. Mainly because we haven’t had jobs that payed fantastic salaries. We’ve always lived within our means. We haven’t craved big houses, cars and holidays abroad. For the past 5 years our sole focus has been to pay off all our debts. So at last we are mortgage and debt free. This means financial freedom, ok we still have the day to day running cost but I’m now working par time and my hubby has literally retired this week. So if we’ve done our sums right and continue to live a frugal lifestyle we should enjoy the next chapter in our lives. It’s not been an easy decision for us but we do love a challenge.
        💕Thank you once again💕

  3. Hi Sam—wow, thanks for the shout-out! We’re thrilled to have a non-Canadian listener. 🙂

    It sounds like you could quite safely scale back on work as you approach your pensionable years. Have you heard of Coast FIRE? (You have enough in investments/savings that, even without further contributions, they’ll grow enough to cover your retirement.) Maybe you’re there already?

    Even if not, it looks like you’ve got plenty of options to reach you goals. It’s always interesting and educational for me to read about other’s creative strategies for reaching FI. Thanks for sharing!

    1. Chrissy, I haven’t heard of Coast FIRE – any recommendations for good blog posts on this? I don’t think that I can stop saving quite yet, but at least now I have a plan and that feels quite exciting.

  4. I’m in love with the FIRE movement but plan to work until 55 because of the pension (and I currently enjoy my job a lot). I completely understand your logic. Freedom comes in a lot of different ways!

    1. I agree. The concept of FI/RE is so exciting. I just want to tell everyone I meet all about it. Unfortunately not everyone is as interested as we are. It’s great that you enjoy your job as there is a lot of people who don’t, but they can’t see that if they spent less they wouldn’t need to work as much. 55 is still early retirement, certainly here in the UK, where pension age is currently 67 for me and will probably keep increasing.

  5. You totally took a long “early retirement” in your 20s. We in the FIRE community get so fixated on full retirement sometimes that the whole goal of freedom, options and a fully designed, intentional life can get lost in the shuffle.

    1. The thing is that I didn’t know at the time what I was doing. I just didn’t want to get into the ‘rat race’ like everyone else.

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