Early-retirement wannabe

kidmugsy

settingsun wrote: »

I am not aware of the EU health cover at Reunion.

Wikip: "Reunion is one of the overseas departments of France. Like the other four overseas departments, it is also one of the 18 regions of France, with the modified status of overseas regions, and an integral part of the Republic with the same status as those situated on the European mainland. Reunion is an outermost region of the European Union and, as an overseas department of France, a part of the Eurozone." You could also think of the overseas parts of Spain, Portugal, Netherlands ... I don't know which count as fully part of the home nation, though obviously Madeira and The Canaries do.

gfplux

I agree with all that has been said about too much debt. I would also add that retirement is also a chance to make life simpler. Having one or two mortgages, other property and tenants to worry about does not for a calm and relaxed retirement make.

jamesd

Why aren't you retired already given that your potential income is far above your upper retirement target?

settingsun wrote: »

BTL home: £650k, mort is 360k, this was my previous family home where we lived for 10 years and we rented it out for 10 years. £1500 income per month

That's just 5% yield gross on the £360k, even worse on the whole £650k. If you're going to do BTL you need to be dumping this one and getting a bigger portfolio of cheaper properties with higher yields. With the leverage from mortgages you should be able to do way better than you are on this.

A less hassle approach would be looking into P2P lending, where rates of 10%+ are quite readily available. On the whole £650k you should be able to get an income of around £65k a year, £5,416 a month even after bad debt, assuming you have a mixture that includes a fair bit at 12% and up. Of course you don't have the whole £650k if you sell because you have to clear the mortgage, this para is just to compare what you're getting with what can be had elsewhere for the same sum.

Also worth looking at VCTs with say the Albion VCT paying 10% tax free with 30% of the purchase price refunded by HMRC, capped at income tax actually paid during the year, has to be repaid if sell within five years, 100% asset-backed. Or their Crown Place VCT paying about 11.1%, not fully asset backed. Not necessarily best VCTs, good if prioritising income and security.

settingsun wrote: »

Home: £450k value, interest only mortgage £250k outstanding

Good. Since you can make more from investments it makes sense to keep this.

If you continue to do BTL you should know that you can borrow for BTL by increasing this mortgage and reducing the BTL mortgage. The BTL business can pay the interest on the increase, talk with your accountant. Useful because BTL mortgages tend to be more costly than residential. The property used as security doesn't matter, the purpose of the borrowing does.

settingsun wrote: »

Savings: £125k, Isas and cash

I hope you're not using just current accounts and savings accounts for a lot of that, given what you can get with P2P these days.

settingsun wrote: »

Pension Pot : £475k (mostly mine, about 35k OH), expect to add £30k a year while working . Target is to get this pot to £600k

Why the £600k target? Not that it's bad, I'm just wondering how you got to that number.

settingsun wrote: »

Current Age 53 and a half (both of us), want to retire by 55 (18 months time) or 56 (in 30 months), OH will carry on till 60 earning about 18k pa before tax
...Final Salary pension of about 7k pa from age 60
State pension due at 67
Need about £40 -£45k in retirement

So assuming you sell the BTL and when you're 55 you have:

£475k + (650k-360k) + £125k = £890k.

Using the P2P 10% that's £89k a year of income. Using a common drawdown method that's saying 6% or so it's £53.4k a year. Using the 4% rule instead it's £35.6k. With another 15k or so on top from one state pension and work defined benefit pension to take even the 4% rule to £50.6k a year. I assume another 8k or so from her state pension? Find out for both of you.

Not using P2P for it all, of course, it looks as though using the 6% drawdown method you have a sustainable income of at least £68.4k a year and as though using some P2P you could start taking that today.

settingsun wrote: »

1. Do I wait till 56 and keep going for an extra year, or go in about 18 months? I am thinking i need to get the Pension Pot to 600k, so need to do the extra year. My spreadsheets and firecalc tell me i am fine, but in some scenarios I run out of money in my 80's (eg many years of high inflation plus low return on investment).

Retire already. You can clearly afford it with large safety margins when you do things like using P2P with higher returns and lower volatility plus adding small cap stocks to the mix.

Do ensure that you add your state pensions and DB to the Firecalc calculations starting at the appropriate times, guaranteed income like that significantly helps to reduce volatility and failure or reduce income level. Firecalc doesn't support the Guyton and Klinger drawdown rules that I suggest you use, modified to keep one year of planned spending from investments in cash because that improves the safe withdrawal rate by about 0.5% or decreases failure rates. You appear set to have fully 51% of your maximum specified retirement income coming from state pensions and final salary pension, which hugely reduces your worst case potential.

settingsun wrote: »

2.What do I do with the BTL, keep it going, or sell? If I sell do I use the spare money to pay my home mortgage, or do i keep my own home mortgage going may be covert it to a repayment . Thinking I keep the money as a contingency for a few years.

Why throw money away by paying of your home mortgage when you can get more from investments? Pointless, keep it as long as the lender will allow and boost your investments.

BTL is more hassle and you're clearly not running it as a proper business at the moment because you're not getting anywhere close to what's achievable. Ditch it and invest seems to better suit your desires. If not, diversify into better returning properties in cheaper areas.

settingsun wrote: »

3. The Florida home is a drain on finances, we struggle to make it work. We like having it and going over 2 or 3 times a year and when retired want to have extended 2 month stays.

It's an affordable luxury given your income potential.

settingsun wrote: »

4. How do I fund the period when i am retired and wife is working (56 to 60).

Use P2P for a fair bit and deliberately drain capital. Your wife clearly doesn't need to work if she doesn't want to. Up to you two to decide what to do. Maybe she wants to work.

settingsun wrote: »

Any thoughts on any of this from you wise folk would be good!

Learn about P2P, get invested and retire ASAP. You have the money, you aren't using it particularly efficiently, your procrastination seems pointless, get on with it and use some of the extra time to up your returns.

jamesd

settingsun wrote: »

We want spend a couple of months a year exploring and hiking the US, places such as the rockies, yosemite, grand canyon, smokey mountains..... Thinking was that we would top and tail with a week or so in our home, to prepare and recover. We could just rent somewhere but there is nothing like being in your own place.

Have you considered an RV? You should be able to get a 30' or so diesel of high quality used for under $100k. Depreciation for new purchases is horrible so avoid new if you can, used and upgrades you want are likely to be cheaper.

settingsun wrote: »

Its in West London ( probably one of the cheapest areas), so just keeps rising in value hence the reluctance to sell till now. I will have to get advice on capital gains. Various online calculators which take into account my having lived there and sharing the gain with my wife work out a cgt payment of around 5 -15k each. I don't know if we can go and live in it again for say 6 months and if that makes a difference.

Trade off for appreciation vs the potential gains you're giving up can be hard but I think selling is decent. Hard to know what London gains might be like. You can reduce your CGT if you make it your PPR before you sell and really do live there. Can let your current place instead.

settingsun

Wow!

Thanks Jamesd, you have given me so much to think about. I was hoping you would find time to comment based on your previous posts on this thread over the years.

I think I was just impressed that the house of the BTL had gone up from £300 to £650 that I ignored the yield and what else I could do with the capital.

I will go through and think about what you said on each item over the week.

settingsun

So i have been working through the comments from Jamesd:

I hope you're not using just current accounts and savings accounts for a lot of that, given what you can get with P2P these days.

I don’t have P2P at all. Mostly in shares Isas, and some short term funds in Santander. Right I will look at P2P, if I can really get 6 -10% it does change my approach. I am not familiar at all with the VCT approach you mentioned.

Why the £600k target? Not that it's bad, I'm just wondering how you got to that number.

I get to 600k by starting at 475, then adding 40 I am due to put in during 2016 and about 25k in 2017 and may be 10k in 2018. Then I am assuming 4% growth for 3 years.

475k + (650k-360k) + £125k = £890k.

Using the P2P 10% that's £89k a year of income. Using a common drawdown method that's saying 6% or so it's £53.4k a year. Using the 4% rule instead it's £35.6k. With another 15k or so on top from one state pension and work defined benefit pension to take even the 4% rule to £50.6k a year. I assume another 8k or so from her state pension? Find out for both of you.

Not using P2P for it all, of course, it looks as though using the 6% drawdown method you have a sustainable income of at least £68.4k a year and as though using some P2P you could start taking that today.

This is useful. Thinking about this I can have 4% from my pension pot of 600k = 24k, plus put proceeds of London house say about 250k after other costs, and CGT into P2P. Lets assume 7%, so about another 18k. With my wife working (about 18k) that’s about 60k in total, some tax to pay but that would work. Plus I will not have eaten into my Isas. I will still need to pay my home mortgage, but I can delay that till the state pension kicks when I need less income from the investments.

Do ensure that you add your state pensions and DB to the Firecalc calculations starting at the appropriate times, guaranteed income like that significantly helps to reduce volatility and failure or reduce income level. Firecalc doesn't support the Guyton and Klinger drawdown rules that I suggest you use, modified to keep one year of planned spending from investments in cash because that improves the safe withdrawal rate by about 0.5% or decreases failure rates. You appear set to have fully 51% of your maximum specified retirement income coming from state pensions and final salary pension, which hugely reduces your worst case potential.

Applying the above approach (cash btl / P2P / dont finish paying mortgage till 75) gets me about 80% success on firecalc, which is a little scary. What this does not take into account is the reduction in income from about 75 and that I have my Florida home and family home to downsize if required.

Why throw money away by paying of your home mortgage when you can get more from investments? Pointless, keep it as long as the lender will allow and boost your investments.

Seems there are plenty of mortgages available till 75. Switching to repayment will give me more options, IO seems restricted. There may also be a trap in the mortgage lending criteria when not earning a regular salary and depending on investment returns. I can look at those details nearer the time.

Use p2P for a fair bit and deliberately drain capital. Your wife clearly doesn't need to work if she doesn't want to. Up to you two to decide what to do. Maybe she wants to work.

I think she likes to and go and meet people and work, she is self employed so can manage a reduction in work as time goes on.

Trade off for appreciation vs the potential gains you're giving up can be hard but I think selling is decent. Hard to know what London gains might be like. You can reduce your CGT if you make it your PPR before you sell and really do live there. Can let your current place instead.

yes timing this will be hard, plus we have the emotional issue of selling the home the kids grew up in. Also the tenants have been there for 10 years and although i have never made a promise they seem to think they will stay there for ever! The CGT will be complex as we lived there for 10 years, so i will take some professional advice on that.

Thanks again everyone for your ideas and suggestions! I feel I have a better and more viable plan and the key issues are clearer in my mind.

kidmugsy

One thing that puts me off BTL is the difficulty in finding good tenants. If you have them already, that might alter the balance of advantage. However, people have been bragging so loudly and so long about the advantages of BTL that the Chancellor has it firmly in his sights. Even good tenants can't change that.

But: the new penalties for BTL landlords are going to hit those who pay higher rate tax and who have a mortgage on the BTL property. So one approach would be to reduce that BTL mortgage as quickly as conveniently possible. For example, sell or mortgage the Florida property, increase the mortgage on the owner-occupied, and use the capital released to reduce that BTL mortgage. Finally wipe it out using the TFLS from your pension in 18 months. Whether you really want such an upheaval just to retain good tenants is for you to judge.

Alternatively, swap the role of the two houses and wipe out the smaller mortgage. If the bigger mortgage is swapped to owner-occupied terms it should become cheaper.

Or even aim for you both being basic rate taxpayers in 18 months time, so that much of the penalising of BTL landlords will pass you by anyway. Still, you have an awfully large proportion of your wealth in residential property. Is that wise?

settingsun

One thing that puts me off BTL is the difficulty in finding good tenants.

They are good tenants but they do get a good discount off the price. Thats been my approach to BTL, never push the price but be picky with who you take on. Doesn't always work.

I think my strategy is clear now. Refinance the BTL for 2 more years then give them notice in about 18 months after that. That would give me 6 months to sell. I would then pay off a little off my main mortgage (and maybe covert to repayment) to get the best possible deal on that and invest the rest. If i can get 6 or 7% on p2p I am clear. if that is not looking likely then I will probably have to sell the Florida place.

On that basis need to pass go and collect for another 25 months. Also gives me time to get my bits fixed on the health insurance (knee).

cheers

bigadaj

It might be difficult realising the capital from the buy to let house without paying significant capital gains.

People have tried moving back in and claiming residency again but hmrc have challenged this over relatively short time periods and I believe won their case resulting in large tax payments, you might need to look into this in quite a lot of detail.

jamesd

settingsun wrote: »

They are good tenants but they do get a good discount off the price. Thats been my approach to BTL, never push the price but be picky with who you take on. Doesn't always work.

You're not the only one. I've had no rent increases for ten years in the place I'm renting (also own somewhere), helped along by lower mortgage rates that have clearly increased return or the landlord. Payments by standing order and the landlord only ever hears from me when it's really necessary. Compared to other places he's been running and given up on I'm easy money.

My sympathy with the knee, that's actually a big part of why I haven't moved into the place I own yet, though that's looking finally to be getting healed up enough to do it.

settingsun wrote: »

Refinance the BTL for 2 more years

Be sure that you know and understand the use of a residential mortgage secured on your own home rather than the BTL property for this. It'll probably be significantly cheaper with the interest still deductible to the extent permitted by the upcoming changes in law. Many people don't know that this is possible but it can be a big deal in terms of saving money.