Early-retirement wannabe

Ivrytwr3

AnotherJoe wrote: »

That's common but often a poor financial choice, you are paying off a debt at say 2% when a pension long-term and including tax relief might be getting you anywhere from 10% to 25% (latter if a high rate tax payer)

I agree, especially when our mortgage rate is 1% - however, my role could be gone tomorrow and where we live there is nowhere i could get the income we have now. We would most likely have to relocate which we do not want to do. Our thinking is that once the mortgage is done the pressure is off!

AnotherJoe wrote: »

Given you have ten years to get a bigger lump sum I'd say it's all reasonable target, it all depends what you think you need to live on. Do you know what you are spending now ?

We are spending too much and we also have 2 children who will be 18 when i hit 54.

The more i think about it, the more i think i will need to continue to work!

jamesd

You can get 10% interest after allowing a couple of percent for bad debt from secured P2P lending from the likes of Ablrate and MoneyThing, with that possible in an ISA in a few weeks from Ablrate. My before bad debt rates are around 12.7% from each at the moment. That's ten times the rate of your mortgage interest and the money is available to withdraw by selling, using a secondary market that works decently at each place. That gets you to the point where you could pay off the mortgage if you needed to faster.

As you get closer to 55, when you can take money out of a pension, you'd want to switch the money into pension contributions as fast as possible to get the pension tax relief. Then you can use the pension tax free lump sum to get rid of the mortgage if you want to be that foolish. Or you could instead invest the money and use the profit to do the mortgage clearing over time. I can without touching pension money clear my mortgage three times over. Why would I want to when I can make more than its costing me and when I have the money to make the payments indefinitely or clear it tomorrow?

Getting to the capability to clear the mortgage makes sense, but actually doing it unnecessarily when you can easily make more than it's costing you doesn't.

Once you have enough to cover the payments for five years you could look at VCT buying to eliminate your income tax bill by deferring some of your income for five years. 30% initial tax relief from HMRC, has to be repaid if you sell within five years. Assume about ten percent capital loss when selling. The Albion VCT I tend to mention most expects to pay tax exempt dividends of 7% a year. The deferred income is the 70% not initially refunded by HMRC that you get back at 7% a year then if you want it, the assumed 90% of your purchase price after five years. I no longer pay much income tax, I don't need to now I've accumulated enough to do this as well as pension contributions. Again, if you want to do mortgage paying, do it after you've exploited this, not before.

You can further improve your position by extending your mortgage term so the mandatory monthly payment is as low as possible. That cuts the amount you need to provide as a contingency fund and frees up more for investing. It also improves your cash flow after retiring early.

Whether you can actually retire depends on the income you need. Ideally you'd have accumulated enough money not to need to take any defined benefit pension reduction by taking it before normal pension age.

With less wasteful planing you might well be able to fully retire at 54. Of course your also want to do money saving things like switching energy suppliers and checking out cheaper ways to get other equivalent products and services. The lower your base cost of living gets, the lower the amount you need to accumulate and the faster you can retire.

I suggest that you tweak your objectives to better meet both your short and long term needs:

1. Getting to the point where you can meet your day to day needs with a local job. Mortgage overpaying harms this because the mortgage lender won't give you money back when in difficulties. Non-pension investments and longer mortgage term help. This is the first real pressure off time, when you've removed the potential of being forced to sell your home to pay the bills.
2. Now doing the same without the job. This completes the key pressure off bit because now you don't need to be scared of not getting a job.
3. And potentially retiring when you can meet desires rather than just core needs.

AnotherJoe

Ivrytwr3 wrote: »

I agree, especially when our mortgage rate is 1% - however, my role could be gone tomorrow and where we live there is nowhere i could get the income we have now. We would most likely have to relocate which we do not want to do. Our thinking is that once the mortgage is done the pressure is off!

As said by jamesd, theres a difference between being able to pay the mortgage off and having paid it off. Both remove the "pressure" but the former means you are better off, and when it is eventually paid off mean you'll have less pressure in retirement since you will have more money.

Ivrytwr3 wrote: »

We are spending too much and we also have 2 children who will be 18 when i hit 54.

The more i think about it, the more i think i will need to continue to work!

Thats very bad timing unless the plan is to earn so little that the kids get maximum grants (or whatever they are called nowadays). So in your case I'd set the target to retire after the last one has left uni, if they follow that path. Either that, or be very clear that 54 is your target and they will have to cope with lack of parental contributions.

You could, obviously, "duh" also look at spending less, if you are spending too much now. 10 years of not spending too much might significantly contribute to a bigger sum saved when you retire.

chiefie

AnotherJoe wrote: »

As said by jamesd, theres a difference between being able to pay the mortgage off and having paid it off. Both remove the "pressure" but the former means you are better off, and when it is eventually paid off mean you'll have less pressure in retirement since you will have more money.



Thats very bad timing unless the plan is to earn so little that the kids get maximum grants (or whatever they are called nowadays). So in your case I'd set the target to retire after the last one has left uni, if they follow that path. Either that, or be very clear that 54 is your target and they will have to cope with lack of parental contributions.

You could, obviously, "duh" also look at spending less, if you are spending too much now. 10 years of not spending too much might significantly contribute to a bigger sum saved when you retire.

It's a real balance - if you earn v little by retiring early the kids will get a full maintenance loan - but they have to pay it back ! Mine got about £3,700 and now top it up to pay for accommodation and living expenses for the first year, but have agreed with them they need to get a job from year 2 onwards. The first one has done just this 😀I suspect however that I will have to go back part time to help them as much as they need it which I am fine with - it's wrong that they have this burden when I got a grant and didn't have to pay anything back.

atush

Ivrytwr3 wrote: »

I agree, especially when our mortgage rate is 1% - however, my role could be gone tomorrow and where we live there is nowhere i could get the income we have now. We would most likely have to relocate which we do not want to do. Our thinking is that once the mortgage is done the pressure is off!



We are spending too much and we also have 2 children who will be 18 when i hit 54.

The more i think about it, the more i think i will need to continue to work!

WE put off early retirement as our twins only finished Uni (which we payed for) a year or 2 ago (one went on to graduate school for a year).

As to uncertain employment, putting money into a S&S isa could be accessed if needed.

gfplux

I have said this before on this thread but I think it is worth repeating.

Paying off the mortgage does tie up the cash and it is less liquid.
However
DO NOT Underestimate the feeling of freedom living in a home without a mortgage gives you. I certainly felt so many more choices opened up.

bugslet

gfplux wrote: »

I have said this before on this thread but I think it is worth repeating.

Paying off the mortgage does tie up the cash and it is less liquid.
However
DO NOT Underestimate the feeling of freedom living in a home without a mortgage gives you. I certainly felt so many more choices opened up.

Very true - or so I should imagine.

I've overpayed slightly for years (along with building a pension) and am very much looking forward to knowing the house is mine. i recently thought of moving to a bettr area, only ten minutes walk up the road, but one of the factors was better to live in your own home in a less good area, than have more years paying off a mortgage in a better area.

AnotherJoe

gfplux wrote: »

I have said this before on this thread but I think it is worth repeating.

Paying off the mortgage does tie up the cash and it is less liquid.
However
DO NOT Underestimate the feeling of freedom living in a home without a mortgage gives you. I certainly felt so many more choices opened up.

How about the feeling you could pay off the mortgage any time you choose, but you choose not to as you are becoming richer every day as a result of a more astute financial strategy?

chiefie

AnotherJoe wrote: »

How about the feeling you could pay off the mortgage any time you choose, but you choose not to as you are becoming richer every day as a result of a more astute financial strategy?

I suppose if you are risk averse the payoff of surety is greater than the opportunity of growth or loss - head or heart time ?

Deneb

AnotherJoe wrote: »

How about the feeling you could pay off the mortgage any time you choose, but you choose not to as you are becoming richer every day as a result of a more astute financial strategy?

Indeed. Do not underestimate the feeling that having a mortgage and also having the money to pay it off, which is earning additional income over and above the cost of servicing the mortgage, also gives you.