I have been spending my time researching and reading articles and guides on how to construct a drawdown plan. The winter weather has been too bad to do anything else, so I have focused on the question : How do I manage my honey pot and get it to serve me well over the next few years and consider myself FI?
I did the original ‘target FI income’ x 25 calculation to obtain my FI target figure years ago and my Honey Pot has reached that total, in fact it passed that figure last year but has, due to current market conditions, crash to just above this target. I expect it to drop below this level very soon.
I quit my job 2 years ago, I was not intentionally retiring permanently, just having a break from working for a while. I was intending spending this time traveling and experiencing things I had been unable to do due to work commitments. I needed a break from the work grind. The pandemic hit and smashed my plans and I have been living through the pandemic on cash reserves, rent and any side income. This has proved to work for now and to make sure I am ok, I have been living on about 70% of my target FI income to give me a buffer. During the pandemic this wasn’t too hard as the lockdowns prevented me from doing any leisure expenses other than a 2 week holiday in the UK last year. But now the world is opening up, I want to get out more.
I now need to do some serious number crunching to see how I can fare over the long term. I want to be able to draw enough from the Honey Pot to live without a job being necessary. I want to be able to go out and do things, travel and complete life experiences and not run out of money.
Now, unlike some other FI bloggers I follow, I do not have a dependent partner or children. This has its pros and cons. I have less to worry about from a financial dependency viewpoint but it does mean I don’t have the benefits of joint finances or shared expenses. I cannot therefore use economies of scale to help reduce expenses and living costs are therefore higher for me.
I watched a few YouTube videos recently on lifespan, I have used a few sites and my forecasts suggest I have a 25% chance of living to 95. I have been working on plans running to 95 and a little beyond just so I can make sure I have a margin of error. We don’t know how long we really have but I can only use forecasts and look around at close family relatives as a genetic guide to what is possible. Anything can happen, nothing is guaranteed.
I have to therefore allow for a minimum of 42 years in my plan. I don’t need to preserve my Honey Pot for others so I can focus on one life. I have been looking at pension income and when these will become available. I have 14 years until I reach the current state pension age(SPA), when I can claim my state pension (which is less than the full £9k as I do not have the full 35 years entitlement) and also gain access to a company DB pension which when added to the state pension will equate to 75% of my ‘FI target income’. I would therefore need my other investments to top up the difference at this point.
I have also read articles saying that once we reach the age of 75 our spending decreases so maybe my FI target income figure could be reduced, I will maintain it for now so I can assume ‘the worst case scenario’.
I am using a 3% SWR to determine how to drawdown my ISA and SIPP (when I can access it). I have some shares to sell too, the majority of which are from an ex-employer and accrued from sharesave schemes during my employment with them. These currently provide some dividend income which I add to my annual income stream. My intention is to sell these off in stages over the coming years to utilise CGT and add to my cash pot – any extra, I will invest to provide some additional growth.
I have also been reading about variable SWRs and maybe I should use this as a way of living now; draw a higher SWR now and then phase it downwards to 3% as I reach SPA and determine what the actual top up rate would need to be from my ISA and SIPP at that point.
There are quite a few ideas running around my mind at the moment. I need to find a good site to enable me to do some scenario simulations and see what the success outcomes are.
I am excluding my BTL from these plans at the moment. I am looking to sell the BTL soon so I can release money tied up in it, after expenses and taxes I should have some additional cash to replenish cash pots or investment accounts. This is a area I am separately running scenarios for.
I have plenty to keep me occupied and I have a few spreadsheets on the go at the moment. I am trying to model scenarios and determine the best plan and have a few variants to use should things go awry. This maybe more important than ever as I look at the stock market and the world news which is currently looking bleak.
If others have suggestions or useful info and tools that could help with this I would be happy to hear about them. Feel free to add them in the comments below.
In the meantime, I will ponder options, run scenarios and determine a number of routes I can take and determine if I am truly FI.