I work with a couple who recently decided that they would like to retire as soon as they can but even though they had a million pound Investment Portfolio the chances of them being able to retire with the lifestyle that they wanted did not look good but by doing something that went against the grain something that most people would never think of they were able to leave corporate life and start living the retirement lifestyle they were looking for although this is an example of a couple with larger assets the lessons to be learned here are applicable to everyone and may enable you to start living the life that you're looking for much earlier than you ever thought possible hello and welcome back to the channel if you're new here hi my name is James I am a financial planner and this is a place where you can learn to make smarter financial decisions JN and Jess are a couple that I started working with a few years back they initially reached out to me because Jon had taken on a new role as a chief technology officer earning considerably more than he had in the past at that time johon was excited about the prospects of this new role it had a lot more responsibility but he was looking forward to the challenge which is why why I was surprised when sometime later I received a call from Jess asking if we could look at the possibility of John retiring earlier than we had originally planned ideally as soon as possible at this point they were both 55 they had two children aged 18 and 15 in John's role as a CTO he was earning a base salary of £200,000 with share options and bonuses on top Jess used to work in marketing but stopped 12 years ago to spend more time with the kids in terms of assets Jon had £500,000 in a defined contribution pension Jess had £200,000 in hers and they each had isers worth £150,000 so a million in total and they also had a home worth 1.4 million with 2 years left on the mortgage we got together for a meeting and at the start Jon said that although his job was stressful at times he enjoyed the challenge but would just like to understand when he might be able to stop I thought that there might be a little bit more to this so I asked Jess what she thought of Jon's relationship with his wife work and she said that since JN had taken on this new role I've seen a big change in him coming home stressed unable to switch off with the weekends being a brief moment to catch his breath before being thrown back into the Maelstrom Jon agreed that things had been difficult of late the role was more consuming than he thought it would be but he said that a lot of that was related to short-term problems that the company was facing Jess challenged him on this and said it was only last week that you were telling me that there always seems to be another thing that crops up up you said that if it carries on like this it's going to kill you I know you were joking but you're more stressed than I've ever seen you you're complaining that you no longer have time to exercise or to keep up with your mates and I'm concerned for your health Jess was really holding John to account and this was a prime example of why it's so important to include your other half in these types of conversations because they have a unique perspective they see things that you don't and will call you out when you're not being true to yourself at this point John opened up a bit and and said that the CTO role was a lot more stressful than he realized he'd recently had to restructure several teams and let people go and he found it hard not to take that stuff home with him he said that for as long as I can remember I've aspired to be in that top job and I've worked really hard to get myself into this position but now I'm here the weight of that responsibility is much heavier than I expected yes I'm earning more than ever before but I feel like I have no opportunity to enjoy it but what other option is there we've still got 2 years left on our mortgage and the kids are about to go to university so I don't think I can afford to stop I said okay well let's take a look they said that in retirement they wanted to be able to spend £5,000 per month plus a £10,000 annual budget for traveling until they're 70 they still had 2 years left on their mortgage which was another £2,500 per month and they wanted to contribute £10,000 per year to the costs of each of their children going to University they were both going to qualify for full state pensions and they had a million pound worth of assets but even with that the prospect of them achieving this lifestyle did not look good this blue line represents how their liquid assets are set to grow or to De cumulate over time and we can see that based on the assumptions that we've made they are projected to have depleted their Investments by age 77 this is not really surprising given that in their first year their expenses are £110,000 which equates to an 11 % withdraw rate which is really really high especially when planning for a 35 Plus year retirement as a general rule of thumb a 4 to 5% starting with drw rate is often a sustainable range but again that depends on how old you are how you're invested and what state pensions or other income you have coming in to make this projection we've had to make some linear assumptions about investment growth and inflation but in reality they're both unpredictable and volatile so there is a very real chance that they could run out of money even before this but if you're using sensible assumptions this type of modeling is a great starting point because it allows us to visualize the key events and test the plan's feasibility in this case we can see that unless they got very lucky with their Investments it's highly unlikely that this plan is going to work on seeing this Jess was really disappointed and for John it just confirmed his expectation that he was going to need to continue on in his role but before admitting defeat I wanted to zoom out a bit and understand a bit more about what they were actually trying to achieve so I asked John what does retirement mean to him and he said I want freedom of my time and freedom of my mind at the moment my calendar is dictated by other people and my mind is consumed by other people's problems I Want to Be Free of that to spend time doing the things that I want to spend time with Jess to travel since we've had the kids it's been really hard to get away and see the places that we said that we would and yeah my focus on my career has come at the cost of my health and my relation relationship with my friends and I want to spend time focusing on those things with the rest of my time though I would still need to be working on something if I was sitting around doing nothing I would go mad and I said Okay so we've talked a lot about the things that you don't like about work but what do you like and he said well to be honest James at times I'm not sure being a CTO is something that I've had my site set on for a very long time as an engineer I worked with several great CTO and I aspired to be like them it seemed like the natural progression but now I'm here I realize what you have to sacrifice the hours the responsibility the stress of managing other people and I don't think I realized how much I miss building stuff cutting code working with new technologies that's why I got into Engineering in the first place and that's what I love and now I don't get to do so much of that and I thought that what JN had just said there was a fantastic Insight something that I see happening a lot social norms and higher pay packets lead us to assume that the only direction that we can take our careers is either up the corporate ladder or to become an entrepreneur we're conditioned to look up to these leaders and aspire to be like them to want their responsibilities to earn what they earn and most importantly to be held in such high esteem by our peers that's what we see from the outside but what's not visible is the sacrifices these people had to make to get to where they are the sacrifices they continue to make with their families relationships their physical and mental health and whether you're looking up to a professional athlete a small business owner or just a senior manager in a business if we knew the true costs of being in that position most of us would probably realize that that's not for us but unfortunately like in John's case you often won't realize the true costs until you get there which means we often spend Decades of Our Lives making sacrifices putting off living our lives trying to get to to a position that we think will give us fulfillment because we've been conditioned to think that that is what success looks like we believe that once we get to that next rung on the ladder that that's the point when things will get better that that's the point when we will be able to start living our lives but what if there is a better way a way that you can start enjoying life now I said to John let me just break down what you've just told me you don't want to retire to nothing you want to keep active and you want to keep doing work that you enjoy which is building stuff coding and working with new technologies it sounds like even if you did have enough money to retire you would still want to keep working but in a way that allows you to work on the things that you're interested in without management responsibilities a role that gives you control of your calendar and the flexibility to travel and to take the time to focus on your health and your relationship so if we can find something that fits in this intersection perhaps we can find a path forward where your work fits around the lifestyle that you're looking for rather than the other way around but as we already know to achieve the lifestyle that JN wants he's going to need to earn something so how much this is the thing JN and Jess have already saved a huge amount of money they don't necessarily need to save anymore they just need to give it time to grow so if they can cover most of their costs for a few years they can Coast their way to financial Independence John and Jess have said that whilst their children are University they're still likely to be pretty homebound so if we can assume that Jon keeps working in this new fashion until he's 62 earning £60,000 per year our projection now has them stretching right to the end but there's even more we can do here in past tax years Jon's earnings have meant that he's only been able to contribute £4,000 per year into his pension which is why they've built up significant amounts in Isis but if Jon starts earning £60,000 per year he can uses Isis to make pension contributions of £60,000 per year to do this he could make a £48,000 contribution to his sip hmrc would then add 20% tax relief on top and he would then need to claim the additional £2,000 of high rate tax relief from his self- assessment tax return or a more tax efficient solution would be to sacrifice his new salary straight into his pension right down to the minimum wage which is the most that you can do and then make a small contribution to a sip and fund their remaining expenditure from their Isis if they did this it would leave them £215,000 better off and that's in today's money which shows why it's so important to make the most of every single tax planning opportunity no one knows what will happen in the future investment returns may end up being worse than we've projected or inflation could end up being higher but what I like about this plan is that not only does it have a decent margin for error they also have their home equity that they could fall back on if required but if John can find a new sustain able work life balance it's much easier for him to choose to continue to work for longer if required without feeling like he's sacrificing too much of his life and as I say in a lot of my videos this flexibility is the really important thing that helps you to cope with the uncertainty of retirement but even though this all sounds logical it's much easier said than done John has already sacrificed a huge amount to get to where he is in his career years of working of training and much of his identity is wrapped up in his role as a CTO and to walk away from that to walk away from the money to walk away from that status is really hard especially when there are so many other people who would kill to be in his position but what Jon needs to work out is whether he wants to be chasing his own definition of success or someone else's and to avoid falling into a sunk cost fallacy again that's easy to say it's hard to do and that is why these things take time it took John about 6 months months to come around to this idea and in that time we had several other meetings to look at other ways that they could achieve their goals through downsizing reducing expenditure and thinking about how they were going to pay for things like long-term care if they need it but eventually John decided to just start opening some dos start having some conversations with people and see if he could find a role that would fit his criteria it took him another six months to find it and even now he has I expect him to keep iterating on that and trying new things and designing his work to fit around the lifestyle that he wants the traditional view of retirement is that you need to keep climbing the ladder to keep working and putting off living your life until you have enough money to never work again but this view leads us to keep sacrificing the present for a future that may never arrive and even if we do get there we're often not satisfied because you need to retire to something you need a purpose without one you age quickly and die now many people find their purpose in their friends family or their Hobbies but for some it's about having the freedom to work on the things that they want to so why not start doing that earlier find something that allows you to cover your costs or to supplement your income and Coast into retirement whilst living more along the way if after watching this you're still sitting there thinking but James I don't feel like I have anywhere near enough to even start thinking about this well you need to now watch this video video here where I help you to unpick the big question of how much you actually need to retire see you there
