Early-retirement wannabe

mark55man

Marine_life wrote: »

Thanks for the tip - I am interested in getting into peer-to-peer lending so I will take a serious look at that.

I will be honest (and few will agree or approve) but I have made my best returns playing online poker. Typically I play small stakes tournaments ($5 to $20 entry fee). I have been playing since 2004 and after my initial investment of around $250 ($50 to set up an account on five different sites) I have made around $30,000 and never had to reinvest. The problem is that each tournament takes around 8-9 hours so I have not played so much in the last 2 years but I will play again in retirement. Its not for everyone but it works for me.

I had some luck in the same sort of price range - my problem was that I couldn't spare the time, and every time I went up a league / played a different format I started losing. I haven't played for 3 years, and will try when I have more time, but my fear is that it is now so full of bots and sharks that any attempt will be short lived. My other fear, is that it will feel like work and I want to retire, not get a different job.

Snakey

Hi all

New to the thread - I've spent all afternoon reading the whole thing and picked up some interesting pointers and things I had not thought of.

I'd be interested in any comments/advice on my current plan.

Assets:
£570k in a pension
£320k in cash savings (of which £60k is in a cash ISA)

Why am I sitting on so much cash in this market? Well, it was all in nice fixed-rate and index-linked investments (NSI etc) until I cashed them all in a year ago as I was a couple of days from exchanging contracts on a flat. Then it all fell through. Since then, I've been trying to find another flat to buy.

I hope to find a flat in the £350-400k range, using my non-ISA savings plus a mortgage. There is a massive shortage of housing stock in this area, and prices are rising by 8-10% a year, so it's not that I'm being excessively fussy (or I don't think I am, anyway), it's just hard to find one that isn't either overpriced or got something wrong with it. If I can find a decent flat for this price, I will move my cash ISA into stocks and shares ISA. Otherwise, I may need to stick my ISA money into the flat as well and get a more expensive one.

The plan thereafter is to pay off the mortgage as fast as possible, or at least have an amount equal to the outstanding balance saved in ISA investments so that I wouldn't have to worry about losing my home if I lost my job or whatever.

I'm 41 now. I would like to retire at fifty, just because that was the minimum age when I started to think about it... I know it's now 55 for drawing a pension, but I think 50 may be realistic if I can pay off my mortgage by then.

At the moment my take-home pay is around £26k a year, of which £14k goes on rent/food/bills (£10k is rent), £2k gets blown on holidays, and £10k gets saved. Aside from the travel I live quite frugally and I'd like to spend significantly more in retirement. Comments upthread about how you won't have as much energy or want to go out as much as you think, surely don't apply to fifty-year-olds?

Each year I put the maximum into my pension (just changed from £50k to £40k a year total, for tax reasons), which is done via salary sacrifice so I get tax and NIC savings, and my employer uplifts it by 10% to reflect the net employers NIC saving.

I also put the maximum into a cash ISA. I am about to start a stocks and shares one (in addition), to make up for the reduction in pension contributions. Probably should have done that years ago, but oh well.

If I bought a flat with a low service charge, I would estimate that my annual savings compared to paying rent would be around £5,000. I'd need to find a home for that. Any non-ISA income would be taxable at 40%, so I'm thinking paying the mortgage down would be the way to go with that £5k (plus the surplus £4k that currently exceeds my ISA allowance). So I could pay off a £100k mortgage in eleven years without needing to touch my ISA money. Therefore I would need some pay rises in order to retire at 50.

Having retired, I'd live on savings for five years, then grab my tax-free lump sum and live on that for a while, and then when it runs out I start taking an annuity or whatever (I don't know much about this side of it). I'm assuming that by the time I get to 68 the State pension will be means-tested and I won't get a penny, and so it won't matter that I won't have a full contributions record.

If I run low on money in later life, I'll move from my central London flat to a cheaper one by the seaside or something. Eventually when I need someone to keep an eye on me I'll move into one of those McCarthy and Stone type developments (although hopefully they'll have thought of a better way of doing retirement living by the time I get there. I am confident that the baby boomer generation will be a sufficiently large and affluent market to ensure that someone will give it some thought outside the current "old people's home" style set-up).

I have no dependents so the aim is to swallow my last penny on my deathbed. This means that selling my flat to pay for late-life care is not an issue.

So.

What am I doing wrong? Any way I can improve all of this? What else do I need to be thinking about?

I also have no idea how the lifetime limit will affect me. Surely the £1.25m limit will be increased before I get to 55? And if not, the above plan has me stopping making contributions at 50 so maybe it won't hit the limit. Anyone got any thoughts on that?

gadgetmind

Snakey wrote: »

Having retired, I'd live on savings for five years, then grab my tax-free lump sum and live on that for a while, and then when it runs out I start taking an annuity or whatever (I don't know much about this side of it).

You'll have a pot that's *plenty* large enough to use drawdown. You'll be better taking the tax free cash in stages and spending some while shoving the rest into ISAs. Alternatively, take the lot and invest in things that generate dividend income and then draw enough from pentsion to avoid paying tax on the dividends.

I'm assuming that by the time I get to 68 the State pension will be means-tested and I won't get a penny, and so it won't matter that I won't have a full contributions record.

There are easy ways to keep gaining extra years and class 2 NI is the cheapest. Being self employed is very easy!

I also have no idea how the lifetime limit will affect me. Surely the £1.25m limit will be increased before I get to 55? And if not, the above plan has me stopping making contributions at 50 so maybe it won't hit the limit. Anyone got any thoughts on that?

Yes. The lifetime allowance keeps being reduced, as does the annual allowance, and the 25% tax free cash is under constant threat. The government clearly doesn't like personal pensions despite their statements to the contrary. Saving your *own* money for old age! Unthinkable!

itm2

gadgetmind wrote: »

There are easy ways to keep gaining extra years and class 2 NI is the cheapest. Being self employed is very easy!

I recently retired from full-time work but have advertised my services for local IT support as a supplementary source of income. So far I've only had one job, with no sign of any more. Would this qualify me as "self-employed" for the purpose of NI contributions?

gadgetmind

HMRC don't see to care how little you actually earn.

My wife told them she was self employed (picked job title that matches one of her hobbies and which actually made car insurance cheaper!) and then just pays the class 2 by DD and does a self assessment every year.

She only puts down about £200 in income, a few £k of dividends, and some capital gains. Tax bill is always just down to the latter.

jamesd

Snakey wrote: »

The plan thereafter is to pay off the mortgage as fast as possible, or at least have an amount equal to the outstanding balance saved in ISA investments so that I wouldn't have to worry about losing my home if I lost my job or whatever.

How would you pay the rest of the bills? Paying off the mortgage could force you to sell just to pay them. The investments let you live until the pension money can be taken.

Snakey wrote: »

I'm 41 now. I would like to retire at fifty, just because that was the minimum age when I started to think about it... I know it's now 55 for drawing a pension, but I think 50 may be realistic if I can pay off my mortgage by then.

Paying off the mortgage makes it harder, not easier. You lose the investment growth which has historically averaged about 5.2% plus inflation in the UK stock market. What that means is in part that a good approach is to use pension contributions and consider clearing the mortgage with a pension lump sum. That means you'd be clearing it largely with tax relief, effectively free. You already have £142,000 of lump sum available. Assuming 8% including inflation investment growth for 14 years that'd rise to £418,550. Enough to clear your contemplated mortgage capital.

Snakey wrote: »

At the moment my take-home pay is around £26k a year, of which £14k goes on rent/food/bills (£10k is rent), £2k gets blown on holidays, and £10k gets saved. Aside from the travel I live quite frugally and I'd like to spend significantly more in retirement.

Are there any low priced flats perhaps in less desirable areas that could save you money? Even interest only, at 5% interest rate a £400,000 mortgage costs £20,000 a year so that implies that there's some disconnect between where you're living now and where you're wanting to buy.

Snakey wrote: »

Each year I put the maximum into my pension (just changed from £50k to £40k a year total, for tax reasons), which is done via salary sacrifice so I get tax and NIC savings, and my employer uplifts it by 10% to reflect the net employers NIC saving.

Excellent deal. That tends to make it even more efficient to use pension investing to do mortgage equity clearing, since you seem to be getting around 52% tax and NI relief combined.

Snakey wrote: »

I also put the maximum into a cash ISA. I am about to start a stocks and shares one (in addition), to make up for the reduction in pension contributions. Probably should have done that years ago, but oh well.

True. Have you considered some VCT investing? 30% initial tax relief, repayable if you sell within five years, capped at income tax actually paid in the year. Tax free income of around 9% available from some, tax free. It's a potentially interesting way of increasing your spendable income since you can take it without impacting your income tax position. £20,000 a year would eliminate your basic rate tax. At around 9% income that's £1,800 a year or tax free income.

Snakey wrote: »

If I bought a flat with a low service charge, I would estimate that my annual savings compared to paying rent would be around £5,000.

Seems unlikely to be a real saving. Perhaps you're ignoring lost investment income and gains and providing free money for the purchase? That money really has a cost in lost income and growth.

Snakey wrote: »

Any non-ISA income would be taxable at 40%

ISAs arent' the only game in town. As well as VCTs you can use dividend income to pay less than 40% income tax.

Snakey wrote: »

Snakey wrote: »

So I could pay off a £100k mortgage in eleven years without needing to touch my ISA money. Therefore I would need some pay rises in order to retire at 50.

Paying off the mortgage seems to be harming your retirement plans and it's not necessary, since you can clear it more efficiently with a pension lump sum from age 55.

Snakey wrote: »

Having retired, I'd live on savings for five years, then grab my tax-free lump sum and live on that for a while

That's wasteful, discarding your income tax personal allowance and leaving money trapped inflexibly in the pension. Better to take the maximum permitted pension income and invest the lump sum, or at least the part you don't need to subsidise income. This way you effectively move the money out of the pension wrapper that's inflexible into the S&S ISA one that is flexible.

Snakey wrote: »

then when it runs out I start taking an annuity or whatever (I don't know much about this side of it).

You can take between 4% and 6% income depending on caution level, if using income drawdown. This is subject to something called the GAD limit that restricts how much you can take out. It can be a factor that limits income at 55.

Snakey wrote: »

I'm assuming that by the time I get to 68 the State pension will be means-tested and I won't get a penny, and so it won't matter that I won't have a full contributions record.

Unlikely. The proposed flat rate pension is just enough to keep people above the current means tested benefit level, so there's relatively little to gain by reducing it. The money would just come from another budget instead for many people - estimates were up to 50% or so entitled to means tested benefits.

Snakey wrote: »

I'll move from my central London flat to a cheaper one by the seaside or something.

Well, that helps to explain the housing costs. Better to move sooner rather than later to maximise the number of years of saved expenses.

Snakey wrote: »

I also have no idea how the lifetime limit will affect me. Surely the £1.25m limit will be increased before I get to 55?

Not likely. The Liberal Democrats are already talking about reducing it to £1 million.

Snakey wrote: »

And if not, the above plan has me stopping making contributions at 50 so maybe it won't hit the limit. Anyone got any thoughts on that?

Your existing pension pot size of £570k will rise to £1.67 million if you achieve historic average growth of around 8% including inflation for the next 14 years. You're getting enough gains to make it worth doing but take it as a fact of life that you are going to be affected by the cap because the only thing that will prevent it is bad investment performance. It's unlikely to be worthwhile for you to make pension contributions with anything other than money taxed at higher rate and you should be looking at options that are not going to be affected by the limit. VCT is one option, not as much tax relief on the way in as higher rate income tax and employer NI but less reduction due to a lifetime allowance being exceeded. Remember that VCTs are small company investments and probably not suitable for more than about 10% of assets even for those with quite high risk tolerance.

Stanski

After 4 days reading may I wish all who have contributed to this very interesting (No Pun Intended) collection of advice, uncertainty and general human frailty, A very happy and prosperous New Year.

I shall muster some time to add my scenario once I have researched all the acronyms offered in the advice.

The future is yours, own it and use it.:beer: to all.

atush

give us a list of any you cant google lol

Marine_life

Well 2014 has arrived and I wish you all a happy new year.

When I started this thread fours years ago this was the year I dreamed of and its hard to believe that the time has passed so quickly. But the closer the retirement date comes the desire to just go now seems to be increasing.

There are two key dates in 2014, the first is 23 October which is the first possible date when I could actually leave work from a payroll perspective which is 289 days away. I can deduct from that my accumulated holiday which would see me physically leave work around the end of August. The other important day is 1 April which (given I have a contract notice period which is six months from the end of the quarter in which I hand my notice in. So that's just 84 days away! Of course we are now all about details as everything is now possible this year!

However, the above is the possible but as i mentioned a few posts ago the most likely scenario is slightly different and it goes something like this: We are intending to take a BIG holiday after my 50th birthday and we have taken a big step forward by booking the flights - we will travel to Australia on 03 November 2014 with a planned return date of 17 December. I will likely either hand in my notice immediately before going or will spend the holiday thinking about it and hand in my notice either when we get back or on 1 January 2015. That means a leaving date between 1 June 2015 and 30 September 2015 (although I imagine they would just let me go earlier as effectively I would not be taking on any new work).

So how does the money look?

Unless anything disasterous happens this year we are largely ok (I think), pension income will be fine and we will have around €55-60k per annum (in today's money) from age 62 i.e. before the state pension kicks in. That excludes a deferred income account which I have been maxxing for the last 5 years and kicks in from age 60.

We paid off the mortgage in December and had our property valued. We will likely sell and move to something less expensive although that is a little bit up in the air at the moment.


That leaves us with a need for cash / income to survive the 9/10 years between retiring and when the pensions start kicking in. We are hoping to have around €1 million which is probably just doable and hopefully we can use that to generate €30-40,000 of (relatively risk free) income although I am fully expecting (and happy) to dive into capital.

Of course we still have not resolved the biggest issue of what we will actually do or where we will live (details, details) but at least the bare bones of the plan are there. I am currently toying with the idea of working (:eek:) 30-50 days a year in retirement which will obviously help the overall equations.

The days are passing quickly and I think this year may be a bit of a rollercoaster!

tell_it_how_it_is

It's been quite an interesting thread, and given me food for thought when the time nears for me, but I've never known so much dilly-dallying in my (marine-)life. Sort yourself out man!,:)