First post: Staring down the gun of early retirement

[Cap_Scarlet]

I promised myself about four years ago that I would retire by the time I was 50.  I am planning to miss that by 6 months.

I am based in Europe, Germany to be precise and here is my retirement plan / finances.

I expect to have around €1 million in cash (around $1.35 million) and investments representing:

- Around €300k in shares and bonds
- Around €120k in other investments
- Around €150k on long term deposit (maturing in 2015 / 2016 invested 5 years ago at rates between 4-5%)
- Remainder will be in cash.

In addition, we have property (unmortgaged) worth a combined c. €800k and we plan to downsize to a home worth around €500 k so releasing an additional €300k

The above cash needs to last us for 12 years (until age 62) at which point we will have access to:

- A deferred income fund of around €900k which will pay out in five (taxable) instalements over 5 years (to age 67).  [fours instalments of 7% of the fund and the remaining 72% in one instalement]
- A defined benefit pension of around €45k per annum
- A second defined benefit pension of around €15k per annum
- From Age 67 we will get the state pension which I am guessing will be about €10k per annum
- Various other pension pots which collectively will pay around €2-3k per annum.

So I am quite comfortable with the pension arrangements and my strategy has been based on providing enough money to fill the 12 year void when there could be no income coming in.  It sounds like we have a lot of cash but am currently in very high paid employment (take home pay around €25k per month) so am expecting to materially reduce outgoings (mortgage paid off and kids education cost coming to an end will be a big chunk of reduced expenditure).  The big expenses going forward will continue to be child 2 (roughly €10k per year), health insurance (c. 6k per year) and then a bunch of normal living costs.

My big concerns (you may dispute whether I should have any) are:

- A lot of money in cash - but am extremely risk averse so reluctant to have any more in stocks and bonds (someone tell me I am wrong?)
- making the transition from money coming in to money going out and watching my hard earned next egg dwindle.
- filling my time in retirement!

Twelve months today I will be retired at age 50 years and 6 months.

[mxt0133]

You didn't mention your current savings rate but having a monthly income of €25K and expected €1 million in cash to last you 11.5 years , with a 50% savings rate you will be short, your savings rate currently needs to be 71% or your yearly expenditures needs to be below €87K.  This assumes no investment returns.

[Debt Free in Alabama]

Unfortunately, inflation will cause your small investment gains from "shares and bonds" to dwindle over time, as you have 60% or so of your savings in non-growth investments.
I am wary of stocks at this point, but I believe you will need SOMETHING growing in that portfolio or you WILL run out of money.
Alternatives like peer to peer lending, buying a couple of small, attractive rental houses (they MUST be purchased in a decent area, and at an attractive price so the rent actually provides a return over time), pipeline stocks, etc come to mind.

[former player]

You don't necessarily have to hold yourself to a promise made by "4 years ago you".  Be kind to "now you" and leave your options open.  That might be retirement or it might be reducing workloads or changing jobs.  The only criteria is that you do what you think is right for you at the time: no-one else can tell you what you should or shouldn't be doing.

Money-wise, you seem to have 2.22m euros (1.35m cash, 570k investments, 300k equity) to see you through the next 12 years.   At 62 you move to having additional pensions of 62k per annum, and at 67 you move to having pensions of 72k per annum plus an additional lump sum of 900k.

You could probably live off this without bothering with investing the cash.  Alternatively, you could invest your 2.22m and with a (conservative) 3% safe withdrawal rate would have an immediate income of 66k per annum with the capital probably increasing year on year.

Your fear of investing and your fear of seeing your funds dwindle are completely incompatible, result: paralysis.  Your fear of investing is probably part rational (plenty of people would love to live off taking some -or all- of your money in return for investing it) and part irrational (cash is a losing proposition because of inflation and economic growth, if stock markets crash to the extent that index tracking funds become worthless and produce no income, the cash you hold will be just as useless as your invested funds).  But you are going to have to take rational actions on the rational fears, and overcome the irrational ones, if you don't want to spend down your accumulated capital in retirement.