Early-retirement wannabe

jamesd

N1AK wrote: »

I heard on the news about a lottery syndicate who just won over £2.5million each...

You really think that a bond paying out at the agreed rate is as unlikely as winning the lottery? Just how high do you expect bond defaults to be?

From just under 3,000 funds, most of them without paying a yield as their objective, that's a lot of lottery winners.

N1AK wrote: »

There are plenty of funds that didn't achieve 6%

Most funds don't have paying high income as an objective. Just pick emerging markets growth funds, say. Those are included in the list of three thousand or so but they will never pay out a 5% or 6% or higher dividend because they aren't supposed to.

In the list you'll find that 453 paid out a yield of 3% or more. Do you think those are all lottery winners, or maybe just funds that had paying some income as an objective? How about the 208 that paid out at least 4%? All lottery winners? Just because they pay more than a savings account does?

Of course, there's another problem. I didn't mention the ones that paid out most last year. The top three paid out 9.4%, 9.2%, 8.5% and so on down to the first one I mentioned, coming in at a relatively sedate 6.9%, currently eleventh in the list. And I didn't mention total return (yield and growth combined) at all, which matters because some funds can pay more by selling after growth and some funds can pay out more but lose capital value, just due to normal ups and downs.

N1AK wrote: »

Unless you are suggesting that those funds can be relied on to give a 6% or better yield in future then that really doesn't mean anything.

It's a list of 2,933 funds, sorted by yield to identify those that have paying it as a significant objective and some record of doing that. That's not a guarantee that they will do so in the future but it is a guarantee that they have done so and that it's an objective to continue doing so, unlike the growth funds in the same list.

If you wonder if what they did in the last twelve months is unusual, just go and look at their history. To get you started here's the history for one of them. Or go and look at the history of the FTSE yield or some bond tracker fund yields if you're really just trying to attack the funds because they happen to be actively managed funds.

Or maybe it's because they are funds? If so, try the FTSE 100 shares in order, highest dividend to lowest. Nine in that list paid out over 5%, a major insurer paying out 6.71%. Or take a look at a similar list for the FTSE 250. Nine paid out 6% or more and an additional thirteen at least 5%. The top few in that list don't look repeatable but many aren't exceptional, just habitual high dividend payers.

Being able to get 6% or more is not unusual and shares or funds that pay that much are not anything like lottery winners. They just have paying out at a high rate as an objective. For both the shares and the funds it's a little harder now than last year because capital values of shares have risen, so the yield has fallen for new buyers.

N1AK wrote: »

so cherrypicking the winners with hindsight is pointless. You might as well advise someone to bet on the Lions winning the next tour because 100% of Lions tours in 2013 ended up as wins...

Please stop trying to deceive people with bogus comparisons to lottery winners. Funds aren't lottery participants and don't rely on winning a lottery to pay out. The ones that pay the highest yields each year will vary a bit but that doesn't mean the rest aren't also paying out at rates above those paid by savings accounts.

N1AK

jamesd wrote:

Please stop trying to deceive people with bogus comparisons to lottery winners. Funds aren't lottery participants and don't rely on winning a lottery to pay out. The ones that pay the highest yields each year will vary a bit but that doesn't mean the rest aren't also paying out at rates above those paid by savings accounts.

I'm not trying to deceive anyone, I'm assuming that you weren't either but I believe that what you said could lead people to get a false impression of the market.

You picked a half-dozen high performing funds from the past which doesn't answer the question about reasonable return expectations in the future. The fact that, as you mention, many of those are bond funds also gives the impression that bond funds are a good bet, something I'd be very dubious about suggesting at this time.

You'll note that I never suggested that equities and other investments are a poor choice. In fact, I would probably suggest a decent proportion of their money be invested there, so we agree on course of action

kmoney

Afternoon guys,

I spent my day off yesterday reading all 44 pages of this thread and my hat is off to you all. Great planning across the board.

As my dad regularly tells me "Failing to plan is planning to fail"

At the ripe old age of 30 I finally decided to set up a SIPP. Only £4000 but thats all planning to be added to. I believe I am financially savvy for my age and even I was late to think about pensions. I can guarantee that not one single friend or family member around my age has or is in the processing of starting their pension. After reading this thread, I'm on a mission to educate them otherwise.

I own a relatively successful small business which over the past 2 years has afforded me a wage just under £100k. This has allowed me to pay off my £153,000 mortgage and put £23k into S&S ISAs and this £4,000 into my SIPP. I'm reluctant to put anymore into it just now as I have a pending tax bill to plan for. We have no other debt and I do have an emergency fund of 6 months expenses.

We have no kids (though this will probably change) and live relatively frugally, so before big budget items such as holidays, our outgoings are approx £1000 per month.

My plan right now is to squirrel everything available away into my sipp as this will have a great compounding effect in later years. Sound sensible so far?

I plan to retire at 40. Mabye only semi retire, but once I am Financially independent, I will make serious considerations.

I've always wanted to travel for extended periods, but unfortunately (maybe not), I started working straight from uni and haven't stopped since. My number is £600,000 with a safe withdrawal rate of 4% thats £30k per year. Realistically this far higher an amount than actually required. But shooting for this gives me a target and I never try to fail hitting targets.

I wanted to congratulate each and every one of you on your achievements to date. Between here and a blog I am planning to set up, I'll keep you updated on this target

richbeth

kmoney wrote: »

My plan right now is to squirrel everything available away into my sipp as this will have a great compounding effect in later years. Sound sensible so far?

I plan to retire at 40. Mabye only semi retire, but once I am Financially independent, I will make serious considerations.

I've always wanted to travel for extended periods, but unfortunately (maybe not), I started working straight from uni and haven't stopped since. My number is £600,000 with a safe withdrawal rate of 4% thats £30k per year. Realistically this far higher an amount than actually required. But shooting for this gives me a target and I never try to fail hitting targets.

Hi,
If you are aiming to "retire" at 40 you'll need to balance the funds in the SIPP vs something you can access before 55 as having £600k in a SIPP at 40 and nothing else won't be very useful Using your ISA allowances with equity investments is a good way to do this.

I personally have a spreadsheet that allows me to vary various factors and look at the impact e.g. amount into pensions, ISAs, income post retirement etc. When you do his you'll realise there is an optimum balance between pension/non-pension investments. At 40 you might find that pensions aren't best for you but if you are in the £100-120k bracket the effective tax rate is above 40% so they can be tax effective.

If you have your own business your accountant should be able to advise as it may be beneficial to leave money in the business to gain tax relief when you sell.wind-up the business.

Good luck,

Richard

kmoney

Hi Richard

Thanks for the reply. I'm still intending to remain an owner of this business in retirement, so an income will still be present at that time, or indeed if the situation changes, I'll take a buyout from my business partner. This would be the bridging gap for that period before SIPP drawdown.

I have fully stocked S&S ISAs for the past two years, but the reason for starting the SIPP now is indeed for the tax benefit. I have paid off my mortgage and right now have no immediate large scale future investments, so it would be under utilised in my savings account.

Thanks again

jamesd

N1AK wrote: »

You picked a half-dozen high performing funds from the past which doesn't answer the question about reasonable return expectations in the future.

Have a look at the funds I gave and their payment histories. If you don't like those, look at some of the others. Those aren't particularly unusual compared to what I've found in the past. It is likely that they and many others will continue to pay out or have total returns that are quite decent compared to the alternative of paying off a mortgage. That's really the challenge here: beating mortgage interest rates. And that's usually easy enough to do.

N1AK wrote: »

The fact that, as you mention, many of those are bond funds also gives the impression that bond funds are a good bet, something I'd be very dubious about suggesting at this time.

Most of those with highest yields would be bond funds, typically the better for current circumstances strategic bond class. But you probably noticed that of the five funds I mentioned, the ones with bond holdings both have good and long track records, as well as lots of flexibility and good managers. It wasn't an unfiltered list, even though the source was.

N1AK wrote: »

You'll note that I never suggested that equities and other investments are a poor choice. In fact, I would probably suggest a decent proportion of their money be invested there, so we agree on course of action

Yes, I'd also favour equity-based investments at the moment, and property as an alternative to bonds, though in fund form to get decent diversification.

It'd be nicer if any buying was happening in early 2009, though.

jamesd

kmoney wrote: »

My plan right now is to squirrel everything available away into my sipp as this will have a great compounding effect in later years. Sound sensible so far? ... I plan to retire at 40.

Not sensible given that retirement age so there are other things you should do:

1. Given your income, SIPP first for the really high value tax benefit, to at least eliminate personal allowance reduction, but stopping there.
2. Maximum S&S ISA use every year. Tax free income later and you can draw on it at any rate.
3. Venture Capital Trusts. You have the income for this and they pay out tax free income. 30% tax relief that you keep as long as you hold for five years. Don't go for the limited life ones, better for your purpose to use the long term income/growth investment types.
4. Maybe more pension use also.

The objective from this is ISA and VCT income or capital drawdown potential sufficient to provide for your income needs before you're allowed to draw on pension money.

BeatTheSystem

kmoney wrote: »

Afternoon guys,

My number is £600,000 with a safe withdrawal rate of 4% thats £30k per year. Realistically this far higher an amount than actually required. But shooting for this gives me a target and I never try to fail hitting targets.

If you are used to pulling in 100K, 600K may not be enough. I once thought 600K was enough but really you want to aim to hit the LTA.

Your story could be similar to mine, I started putting serious cash into pension in my early thirtys, this was via very large company contributions from my own business which reduces corporation tax. I assume you are paying yourself dividends for maximum tax effeciency. For a number of years I legally paid a pitiful amount in tax. I will be paying more tax in retirement no doubt.

I did get a bit obsessive and now in my mid forties I have 1M+ in pension and not much in ISA. So if I had my time again I would save a little more outside of pension, but the tax efficiencies of pension contribtions are overwhelming. Also in the course of business one never knows what may happen and I like the security of the fact that pretty much no matter what the pension is safe.

Is your business the sort of busines you could sell in the future?

Do you want the bagage of a business when you want to start your travels.

I have just sold my business and could retire now but have no intention to btw.

Sounds like you are on the right path...

OffGridLiving

kmoney wrote: »

I have fully stocked S&S ISAs for the past two years, but the reason for starting the SIPP now is indeed for the tax benefit.

Sorry, not sure whether you've already mentioned this but if you pay directly (gross) from your company into the pension then you'll not only get the full 40% tax rebate without having to detail it on a tax return, but you will also save the company corporation tax. You just have to tell your pension provider that it's going into the pension as a gross payment so that they don't add any further rebate to it.

AlwaysLearnin

BeatTheSystem wrote: »

... but really you want to aim to hit the LTA.

The reduced annual allowances now make that harder. It's down to 40k next year, so even 600k will need continued contributions after the planned 40 'retirement'