Some good points made here, definitely food for thought. Perhaps my friend's plan isn't quite as comfortable as he originally thought
Just to clarify a few things, €40k is his anticipated annual expenditure, but the intention would be to draw approximately €50k net annually to provide some headroom for tax and unexpected costs. The plan would be to leave work at 50 with a pension fund of around €1m, hopefully growing to approximately €1.2m by age 52, assuming investment performance is reasonably favourable. He would have savings available to help bridge the initial two years.
The key consideration is that the pension would remain invested in equities, so he's not assuming the fund simply depletes by the amount withdrawn each year. Over a long period, investment returns should hopefully offset a meaningful proportion of the drawdowns, although he appreciates that returns are unlikely to be smooth and that the order in which they occur matters.
The tax-free lump sum and remaining savings would also provide a buffer in poor market conditions, potentially allowing him to reduce pension withdrawals or avoid selling investments after a significant fall. He'd also have the option of undertaking some part-time work if necessary, which would reduce the pressure on the portfolio. The €50k net target is therefore an objective rather than an inflexible commitment regardless of market conditions.
I suppose the real question is whether, with a reasonable degree of flexibility, this is a viable strategy or whether he's underestimating the risk of retiring at 50 with a relatively long period to fund before other sources of income become available. I'm conscious that a 4–5% initial withdrawal rate is a very different proposition when you're potentially funding 40 years or more, particularly if withdrawals need to increase with inflation.
Appreciate the challenge — it's exactly the sort of feedback he's looking for before making any decisions.
