Early-retirement wannabe

kidmugsy

andrewm1981 wrote: »

Kidmusby, good point about diversification. I guess that all I'm betting on is that over 50 years, rental prices won't crash..

How do you know? By golly property crashed in Japan around 1989, and has stayed low for a generation. So have equities. Bonds have done pretty well though. That's why one diversifies.

atush

I think one BTL to begin your portfolio might be an OK idea. I agree with Daniel you will be overleveraged should anything bad happen as 100K sounds a lot but isn't if the worst happens.

If you do go ahead, after the honeymoon transfer 50% of the ownership of your rentals to your new wife. Will save at least some of the huge CGT bill you will be building over time?

andrewm1981

Daniel, it's a quite an eye opening statement, £530,000 of debt, and yes an awful lot a in property. Maybe it's because I feel most comfortable in property-it's tangible, you can see it, and I'm used to it. I'm not sure what other options give future payments, without reducing capital though. I'd definitely start with just one BTL though, and buy 2nd and 3rd after a couple of years once I was confident.

Interesting point about the wife/CGT. To be honest my plan would never be to sell though- I'd keep the property until I died, take £3k/ month out of them until that day happened, and let my wife/ kids inherit them :-)

atush

I'm not sure what other options give future payments, without reducing capital though.

Many equity income funds and investment trusts. Capital can fluctuate, but no reduction for income if you stick to spending the income.

To be honest my plan would never be to sell though- I'd keep the property until I died, take £3k/ month out of them until that day happened, and let my wife/ kids inherit them :-)

If you pay extra on top to a firm to manage these properties (there for reducing your profit/income) fine. But to be a landlord in your 70s-90s may actually be a bother and reduce your LE thru stress. And your family may not want the bother of running them either?

Daniel54

andrewm1981 wrote: »

Maybe it's because I feel most comfortable in property-it's tangible, you can see it, and I'm used to it. I'm not sure what other options give future payments, without reducing capital though. QUOTE]

Good words from Atush.I agree it would be sensible to buy one property and see how you get on

Please bear in mind the rationale and criteria for buying your home are quite different to those for investing in residential property as an asset class

Your capital is at risk in property,just as it is with any investment.That risk is magnified through the gearing provided by a BTL mortgage.Just because you can see and feel property doesn't make it a much safer place to put all your money

One of the problems with ending up with so much tied up in property is that you can't sell just a couple of bedrooms if you want some capital to help the children with their education costs or onto the first step of the property ladder or take your wife on her dream holiday.

Don't forget to factor in IHT.The taxman gets you in multiple different ways unless you plan appropiately

It's great that you are planning to be prudent with your inheritance but I would strongly recommend you build in more flexibility and diversification than your current plan allows

KrytenIceCubeHead

Since March 20k of my savings account (1.5%) and cash ISA (1.8%) have been reinvested in S&S ISA, through Cavendish. When the amount available to save in ISA goes up (July I believe) more will follow. Plan thereafter is to put as much as I can p.a. into S&S ISA, avoiding cash ISA altogether. A complete change of plan which I'd never have thought of before visiting this thread. Thanks to all for the advice.

goRt

KrytenIceCubeHead wrote: »

Since March 20k of my savings account (1.5%) and cash ISA (1.8%) have been reinvested in S&S ISA, through Cavendish. When the amount available to save in ISA goes up (July I believe) more will follow. Plan thereafter is to put as much as I can p.a. into S&S ISA, avoiding cash ISA altogether. A complete change of plan which I'd never have thought of before visiting this thread. Thanks to all for the advice.

You don't need to withdraw from the cash isa and then invest in the s&s isa, have been able to transfer for the past year.

hugheskevi

Following my recent post in this thread (1208) I thought folk might be interested in a chart from my spreadsheet of my modelled pension income:



All figures are in real (RPI) terms. From left to right:

• DB pensions with a protected age of 50 are commenced at age 50 with actuarial reduction and no lump sum commutation.
• DC pensions are taken at age 55, drawing 25% tax free and as much as possible to avoid higher rate tax each year
• When DC pension is exhausted, commence second DB pension early, again with no lump sum commutation (this happens sooner for my wife than it does for me)
• State Pensions commence at State Pension age

Note the incomes from the DB pensions are shown as declining as they are increasing line with CPI whereas the graph is in RPI terms. For the same reason, State Pension income (increasing in line with earnings) is increasing in real (RPI) terms over time.

Interesting (and coincidental) that the increasing State Pension almost perfectly offsets the decline in real (RPI) value of the DB pensions, so total income rises in line with RPI, give or take a little once I reach State Pension age.

This is only pension income - there will be an un-mortgaged primary residence as well as non-pension assets involved in the plan, but thought the withdrawal pattern was quite interesting (as well as looking a bit like a factory, or maybe a ship).

amandajc

That is a very interesting example of how to model the timing of several different pensions and where it will leave your income.

I suppose the "chimney" is so tall partly due to lump sums from your personal pensions - but why are you withdrawing all of your wife's pension in such a short time - doesn't that mean you do hit tax issues?

Thanks for posting - I have used MoneyVista in the past which produces similar kinds of graphical representations (although with far less sophistication). Last time I used it it showed a fairly smooth path, but since I've decided to aim for funding early retirement by using a personal pension and aiming to defer my DB pension (if possible) I think it would probably have a lot more "ups and downs".

hugheskevi

I suppose the "chimney" is so tall partly due to lump sums from your personal pensions - but why are you withdrawing all of your wife's pension in such a short time - doesn't that mean you do hit tax issues?

You are right that the 'chimney' is tall due to 25% tax free lump sums from both my and wife's personal pensions along with drawing an amount of taxable income from the personal pensions to fully utilise both of our basic rate allowances. It is coincidental that the size of my wife's personal pension is expected to be such that it can almost all be taken in a single year without moving her into higher rate bracket, I wouldn't take any that was going to be taxed at higher rate, instead withdrawing it in a future year and delaying commencement of the second DB pension accordingly.

In practice, I may not withdraw all that amount, particularly if I was at any risk of not fully utilising either of our personal allowances before State Pensions commenced. In terms of the overall modelling, it is not important whether the money is in an ISA or pension (or unwrapped) as long as it is being taxed as lightly as possible as it comes out of the pension (whenever it may be taken) and that I am in no danger of paying capital gains on unwrapped investments.