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Old 23-08-2008, 10:39   #1
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What would you do?

Hi, just interested in peoples views on a financial matter that I have already decided on but will not disclose till later in the thread!
a little about myself... I'm 42, public service employee, who will in three years be buying a boat most probably (Rival 32) for cash and will have no outstanding debt. Intend to become a livaboard/ circumnavigator, hopefully with my girlfriend, (if she lightens up about wanting a bigger boat!) The following options are open to me! which one would you pick? (have converted all cash to dollars at exchange rate of $2 to £1 for ease of calculation)

1, take a possible redundancy package in 2011 the package will be around $100,000 cash plus $2000 per month (index linked)

2, take early retirement in 2016, again around £100,000 and $2000 per month (not index linked until 2021)

3, take full retirement in 2018, $210,000 and around $2300 per month (not index linked until 2021)


just thought it would make an interesting thread? Will post my decision later!


Cheers Max
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Old 23-08-2008, 11:03   #2
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Originally Posted by max_hyde View Post

1, take a possible redundancy package in 2011 the package will be around $100,000 cash plus $2000 per month (index linked)
Unless I am missing something (quite possible!) to me number 1 is way the better deal - from being index linked from 2011. £1,000 / $2k a month index linked means you won't be "rich" in most (cheaper) places in the world, but IMO "doing quite ok" and being index linked good odds that it will stay that way.

Plus it's sooner rather than later Another 10 years to double that in index linked terms? you could be dead by then. seriously.

Doesn't mean that you have to "go now" - can always get another job or go and return as and when needed to top up the cruising kitty / to fund a bigger boat / house or business or wife! in the 3rd world etc.....especially if you have a skill set that is desirable (you say public service, so maybe not? )

Of course could be a one way trip financially from UK plc - good or bad thing is personal choice.
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Old 23-08-2008, 12:18   #3
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Option 1 - even if you want to work for a bit longer (at some other job)
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Old 24-08-2008, 19:48   #4
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I'm a public service employee in the states. I'm not familiar with the term index linked though?

Either way, it seems to me there isn't much financial incentive to wait. I agree, take option 1!
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Old 25-08-2008, 03:28   #5
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An index-linked investment is an investment that pays a return based on the performance of one or more stock-market indexes. Instead of earning an interest rate which is known from the beginning, your interest return will depend on the particular stock marketís performance.
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Old 25-08-2008, 03:36   #6
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I beleive that Index Linked in this case means the annual pension is linked to the Inflation rate index in the UK.
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Old 25-08-2008, 04:11   #7
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#1 is the clear winner to me. The others are only if you are getting caught up in the "worry" side of the "more" money. But, of course that is how we all work till we are too old to enjoy it anyway.
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Old 25-08-2008, 06:02   #8
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Quote:
Originally Posted by max_hyde View Post
1, take a possible redundancy package in 2011 the package will be around $100,000 cash plus $2000 per month (index linked)

2, take early retirement in 2016, again around £100,000 and $2000 per month (not index linked until 2021)

3, take full retirement in 2018, $210,000 and around $2300 per month (not index linked until 2021)
I would immediately rule out No. 2. It's only advantage is that you will presumably earn more than $2,000/mo from now until retirement, but you have to work, and you have to wait for the $100K lump sum payment.

The best way to compare Options 1 and 3 is by doing a Net Present Value analysis. Assuming your actuarial life expectancy to be age 82, you have 40 years to live. Pick a discount rate (your view of the "cost of money") and an inflation rate for the years in which your stipend is not indexed, and the computer makes the calculation easy.

Using any reasonable values for Discount Rate and Rate of Inflation, No. 3 always comes out ahead. For example, at 5% DR and 3% IR, the NPV for No. 2 is $510K and No. 3 is $610K, the discounted values of the stream of payments.

The larger lump sum payment in No. 3 makes the difference, even though you have to wait seven years for it. Of course, if you have the cruising "Bug", you should just take the money and run--NPV be damned!
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Old 25-08-2008, 06:10   #9
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In answer to my own question obviously scenario 1, is the choice! BUT it appears this is still in the discussion stage, if this doesn't come off I will do my full 30 and retire in 2018, I know its an extra 2 years on the early retirement option but I will still only be 52! but the extra $130,000 will come in handy if the cruising lifestyle didn't pan out or a future girlfriend wanted a bigger boat (never happen!)

cheers for all your replies Max
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Old 25-08-2008, 06:16   #10
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Number 1 is a no brainer. You might not last another five years. No one knows how long they've got in this world. Anyone that has an interest in going sailing should quit as soon as possible and go. Few have regretted this course of action. Working five or ten more years for more money in the belief that this will equate to more security and a better life is foolish. Life doesn't work that way. The choice is not one of dollars and cents.
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Old 25-08-2008, 08:14   #11
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Well said, and I have followed that rule. I have quit work twice, and gone sailing. I am 57 now, and hopefully by 62 at the latest I will be good to go. Sail to the Philippines for retirement, and gunkhole 6 months out of the year around the islands until my body's not fit any more. Live life!:cubalibre
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