Early-retirement wannabe

OldBeanz

You may need to consider your partner more - she is a tax free bundle.
With the tax free allowance due to reach £12k pa she can have a pension of £16k pa and not pay tax. Remember she can pay all her earnings into a pension and gain tax relief, even on earnings she is not taxed on. So drawing £16k from 55-67 then assuming a State Pension of £8k, you should think about topping up her pension.

jamesd

Andy1977 wrote: »

I’m expecting someone to point out the merits of VCTs at this point

LOL, I'm happy to oblige. You do seem to have accumulated enough that you could stop paying income tax if you wanted to, accepting deferral of some of your income for five years.

Do open a Lifetime ISA but it's perhaps of interest that you only get the tax relief on that once and it's not protected against benefits means test or bankruptcy. In some ways your first challenge is to accumulate enough to live on without losing your non-pension money to means tests if something bad does happen.

SuperSecretSquirrel

Hi jamesd

I've been mulling over my current strategy, thinking that if I want to retire early I'll want to avoid having too much tied up in a pension. In a while I'll likely reduce my pension contributions (or maybe just not increase them), in preference of my stocks and shares isa, or perhaps a lifetime isa invested in stocks and shares, or both.

It seems pensions are too restrictive - no access until a certain age and goalposts likely to be moved, but on the plus side cannot be considered for means tested benefits if all goes to hell. Both types of isa would allow access whenever I like, but are factored in when means testing. Do VCTs give all of the upside and none of the downside? Are there any other "best of both worlds" options out there? Are there any good online resources out there that you'd recommend as a straightforward primer suited to a relative newbie? Thanks!

jamesd

VCTs are still vulnerable to benefits means tests. The opportunity for repeated tax relief helps. No best of both worlds options.

Personally I'm at a point where I'm now making the highest pension contributions permitted by annual allowance plus carry forward and minimum wage and also maximum VCT buys that get tax relief. But this is last couple of years before age 55 sort of planning.

atush

Andy1977 wrote: »

Hi,

I discovered this thread a few weeks ago and decided I’d post once I’d read the whole saga. I’ve found it really interesting although as has been mentioned, a lot of the figures mentioned are way beyond what I’ll achieve. So in response to the original questions…

Who is aiming for early retirement (or who has retired early already)?

I’m aiming for early retirement. I’m 39 and have started thinking seriously about this over the last few months, driven mainly by no longer enjoying my job. I’m in the common dilemma of wondering if I can stick it out with my relatively well paid job, or gamble on a career change that I might enjoy more (or not) but for less money. Anyhow, while I’m continuing down my current path I want to make sure that I am doing all I can to ensure I can retire as early as possible.

What is the strategy for getting there?

My situation is as follows:
39 years old with a partner and 2 young children
Mortgage of 90k on property worth 250k, base rate tracker @ 1.54%

Savings of 170k - about half in s+s isa, the rest in cash isas, regular savers, high interest current accounts and premium bonds. I’m currently in the process of shifting more of this into s+s isas which will accelerate when the isa limit increases in the next tax year. I’m also planning on investigating P2P lending when the more established companies are available within the innovative isas.

I had been heavily overpaying my mortgage for years but stopped a few months ago when it became obvious that my rate was so low I’d be better off using that money elsewhere.

Pensions – I have an index linked final salary pension (now closed) which is due to pay 5k a year, a couple of defined contribution schemes which I currently have around 25k in. My current employer pays 10% into my current scheme (the maximum available) and I have upped my contribution to 14%. I am on course for the full state pension with 14 years more contributions required.

I’m am also stoozing with a 0% credit card and using the money to fund the additional pension contributions and fund regular savings accounts paying 5-6%.

Interestingly I turn 40 one week into the next tax year which presumably gives me 1 week in which to open a lifetime isa. This should allow me to contribute 4k a year with a government top up of 1k a year for 10 years. I believe this pot then becomes available to me at 60.

I’ve set myself some fairly challenging savings targets which I am hoping will get me to the following situation at age 50:
S+S and P2P Savings pot of around 400k
Cash pot of around 60k
Defined contribution pot of around 120K

At 50 – retire or at least have the option to, or maybe go part time. Drip feed 4% (16k) income of s+s isa into cash pot which we’ll live off. Expenditure will exceed 16k (thinking around 22k) which will deplete cash pot until…

At 55 – access 25% tax free lump sum of pension to clear mortgage (this is due to be cleared at 58 anyway), re-invest rest into isas for tax shelter. Mortgage being cleared frees up around 5k a year

At 60 – lifetime isa pot becomes available to me but will leave to generate income if possible.

At 65 – final salary pension of 5K becomes available

At 68 – state pension of 8k becomes available

At 68 I’ll hopefully have around 18k of pension income to live off which I expect to be close to what we’ll need so I’ll be happy to have gradually run down my 400k savings pot to around 250k by this point, maybe less.

I’ve not factored in any thought of downsizing but that could free up around 50k at some point if needed.

How much of a relative decline in income are you prepared to take / did you take?

I earn around 45k now, and probably live off less than half that when you factor in what I save, contribute to pension etc. I’d like to have 22k available but once the mortgage is cleared could probably be quite happy on 16-18k.

What are your main concerns?

The pensions goalposts being moved to my disadvantage.
Not knowing just how much my children will end up costing me.
Being overly exposed to the stock market - not really in a position to invest in property which I think is becoming less attractive anyway. I’m expecting someone to point out the merits of VCTs at this point

I haven’t factored in any thought of inflation mainly because a). I can’t control it and b). it wouldn’t change what I’m doing anyway. I’ve also not mentioned anything relating to my partners finances. Her salary / pension situation is not as good as mine but the figures I’ve mentioned should be ok for the 2 of us and her finances will provide contingency.

All the figures are approximate and although I’ve given it plenty of thought, 10 years is a long time and I fully expect that the plan will become clearer as I approach 50.

My biggest problem now is trying to put this to the back of my mind and get on with living life. After reading this thread I’m in the mindset of imminent retirement!

Any thoughts, observations or suggestions very welcome,

Thanks.

My thoughts are, you have an awful ot of cash. Are you using your partners S&S isa allowance in full each year? Are you married? What is your partners pension provision?

You could afford to put more into pensions, even using savings to live on to do so.

Dandelion1_2

Fascinated by this thread but some of it much too complicated for me to understand! However, husband and I have found ourselves in a situation where we would like to retire early. He is 58 and I am 55 and we would like to retire asap. Fed up with the 9 to 5 and want to enjoy some freedom but also want to be sure we could afford it!. We have:
Cash savings £300,000
Husband would get an DB pension of £10,000 p.a .and also has DC pensions amounting to £650,000.
I have a DC pension of £75,000
We have no mortgage and no debts.
We have roughly totalled our essential expenses and reckon we could live on £25,000 net but would like more for holidays and house improvements, so realistically we would like £35,000 net

greenglide

also want to be sure we could afford it!

With over £1,000,000 it should be possible to produce well over £30,000 of income from drawdown (it is only 3%) to add to the £10,000 DB pension.

Some of that, presumably, will be subject to tax?

I wish I had that much:-)

Triumph13

Dandelion1 wrote: »

Fascinated by this thread but some of it much too complicated for me to understand! However, husband and I have found ourselves in a situation where we would like to retire early. He is 58 and I am 55 and we would like to retire asap. Fed up with the 9 to 5 and want to enjoy some freedom but also want to be sure we could afford it!. We have:
Cash savings £300,000
Husband would get an DB pension of £10,000 p.a .and also has DC pensions amounting to £650,000.
I have a DC pension of £75,000
We have no mortgage and no debts.
We have roughly totalled our essential expenses and reckon we could live on £25,000 net but would like more for holidays and house improvements, so realistically we would like £35,000 net

Yes, you should be able to retire with ease on those numbers.
First step is to get state pension forecasts for both of you and then work out how many more years of voluntary NI contributions you each need to pay. Assuming you can each get up to £8k pa of state pension, add in Hubby's DB and that's £24,600 post tax. You don't say when the DB can be collected without being reduced below £10k, but you are looking at say £250k max to plug the gap until they come on line so plenty of headroom in your cash savings to do that.
4% drawdown on your combined DC funds gets you another £29k of pre-tax income, £23,800 post tax (more than that before the pensions come on line as hubby would have PA that could be used).
So you could probably go tomorrow on £48k pa net.

WantToRetireEarly

Hi,

As someone who has recently taken the decision to retire early (by 45), just the thread I was looking for! To be clear, retirement for me means financial independence i.e. the choice to sit at home watching daytime TV all day or do any kind of work that I would like to do without looking at the pay check.

Basic info - 35 years old with a 32 year old wife and a child on the way. Living in London, annual household income around 80k, no debt besides a mortgage of £320k.

When did you begin planning and what drove the decision?

Begun planning a few months when we started trying for a baby. Inspired by Mr Money Moustache's blog (google Mr Money Moustache) that chronicles his journey to (VERY) early retirement. The aim is to be able to spend more time with my child during his/her early years and have the freedom to not wake up at a god awful hour and commute into central London every day.

What is the strategy for getting there?

1. Know exactly how much we spend every month. Reduce expenses by weaning myself (and my better half) off consumerism and delineating spending money with happiness.

2. Putting every penny to work - That means no money sitting idle in 0% accounts. Savings being allocated to - current/savings accounts with FSCS protection giving 3% or more, overpaying mortgage, a bit of P2P investments (nothing locked in for more than a year) earning 6% or more, an S&S ISA with low fee tracker funds through a low fee broker, etc.

3. Any more excess funds going to overpay mortgage.

How much of a relative decline in income are you prepared to take?
We've always been quite frugal and excluding mortgage payments and job related expenses (commute and office wear) spend around £1k a month in living expenses, £1.5-2k a year on holidays and £1.5k on annual expenses (car insurance, home insurance, vehicle taxes, MOTs, one off repair work). So (in today's money), we would be happy with a net income of £20k-25k.

What are your main concerns?
Change in goalposts by the government of the day. While currently the tax environment is very much conducive to income from a non-employment source, it remains to be seen how long that remains the case.

Challenges -
1. It look a very long time to get my better half to be convinced that we could achieve financial independence in the next decade.
2. Our mortgage is currently at 2% (and hopefully will go down to ~1.5% when we remortgage next year at a lower LTV). But I struggle to keep myself from overpaying the mortgage when I still have places I can put it in where the interest received exceeds 3%. I gain a very irrational sense of happiness from overpaying the mortgage.

I've subscribed to this thread and let's hope it becomes a sticky sometime in the future for anyone planning or thinking of early retirement!

muhandis

Andy1977 wrote: »

Interestingly I turn 40 one week into the next tax year which presumably gives me 1 week in which to open a lifetime isa. This should allow me to contribute 4k a year with a government top up of 1k a year for 10 years. I believe this pot then becomes available to me at 60.

Many thanks for sharing your story. Congrats on taking the decision to retire early and good luck with the journey!

Out of interest, can I ask why you would choose to pay in 4k into the LISA and not your work pension or a personal pension?

Thanks,

K