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Cash Flow - 53 until 55

Posted: Fri Mar 15, 2019 8:24 am
by Nomad
At present, I'm putting a lot of money into retirement accounts that can be accessed at 55.

It is well above 50% of my gross salary because it goes in pre-tax and this is very advantageous.
On the whole, the net gain compared to a more normal contribution is a 25% increase in pension+takehome.

However, the downside is cash flow.
I am likely to be 'on paper' FI at 53, but not able to get my hands on the majority of the capital for another two years...
I've considered these options...
  • Part-time working or complete one or two fixed term contract jobs in the gap
  • Take out a loan(prior to packing in work)
  • Remortgage house (prior to packing in work)
Has anyone else planned for this situation?

Note: I'm in the UK and pensions are fairly flexible to extract from. 25% lump-sum tax-free, then flexible drawdown that can be
below the income tax threshold...

Re: Cash Flow - 53 until 55

Posted: Fri Mar 15, 2019 8:58 am
by IlliniDave
One additional option is, if you have the time/ability, just save two years worth of expenses outside of retirement accounts to cover those years. Another is just to work two more years at your present job.

My situation is somewhat different being in the US, but I have done the former: just set aside some money outside of retirement accounts to span a gap.

Re: Cash Flow - 53 until 55

Posted: Fri Mar 15, 2019 11:50 am
by Salathor
The UK part is important, since tax rules are different. In the US we have a lot of options, such as the 72t rule and Roth conversions. I'd personally just follow IlliniDave's advice and save up 2 years of expenses, if the early withdrawals are going to be penalized.

I would definitely not borrow money. FIRE is about resiliency, and taking on a high, regularly-scheduled expense is the opposite of my philosophy.

Re: Cash Flow - 53 until 55

Posted: Fri Mar 15, 2019 12:54 pm
by George the original one
Though USA, I opted to save money in a taxable account for the 5-yr gap until I can collect the pension. Have less than 2 years remaining in the gap period. Using Roth conversions to satisfy the government that we qualify for Obamacare.

Do not borrow money to cover the gap years!

Re: Cash Flow - 53 until 55

Posted: Sat Mar 16, 2019 2:56 am
by Seppia
In case you can’t save up 2 years of expenses as suggested, I would simply go with the option of shifting to a part time job that just covers minimal expenses.
For “us” ERE people that usually means almost any job

Re: Cash Flow - 53 until 55

Posted: Thu Mar 28, 2019 3:35 pm
by Nomad
I am wary of taking a loan but I crunch the numbers nonetheless. I think a sensible approach would be to simply save more in a taxable account and
then maybe go part time.

Re: Cash Flow - 53 until 55

Posted: Thu Mar 28, 2019 5:18 pm
by wizards
Calculate the cost of taking out a loan to cover the two years of expenses and paying back the loan with part of the 25% lump-sum.

Compare this to the extra amount of taxes you need to pay to save up the 2 years of living expenses.

I guess the loan will be the smartest, and in cases like this, debt definitely is (IMO) a viable solution.

Don’t know about UK mortgage rates, but in many European countries it’s so cheap that a controlled use makes really good sense. I am only making minimum payments on our mortage which has a rate below 1 % including margins.