Age 38, very little retirement savings, but want to retire early

fairleads

Lokolo wrote: »

That's stupid. Just because the OP wants to retire early, not putting money in somewhere where it is doubled is stupid!

The OP can still put money in UTs etc. outside pension wrapper but not to take advantage of matched contributions is plain stupid.

Slip of grammar, should read don't contribute more than the op is already doing. In other words don't increase the pension contributions.
Are you perchance Atush's other half?:rotfl:

fairleads

Lois_and_CK wrote: »

Thanks for your reply, fairleads. UTs I'm guessing is unit trusts? What's ITs please? Do you mean via S&S ISAs?

ITs are investment trusts, google them

Sorry for the confusion re the pension contributions. What I meant to say is don't increase your contributions over and above inflation, rather invest your discretionary income into Unit and / or Investment trusts.

According to my calcs the combined pension pot ( yours and hubby) willl be about 217K in 20 yrs time. This should provide a net after tax income of around 15K p/a.
Investing an extra 300 per month for 20 yrs into U & I Ts at 5% return should provide another 100K capital which in turn should provide another 5.5K tax free p/a.

Lokolo

fairleads wrote: »

Slip of grammar, should read don't contribute more than the op is already doing. In other words don't increase the pension contributions.
Are you perchance Atush's other half?:rotfl:

Ah that's ok then (and you must admit, not making the most of matched contributions is pretty stupid!)

And no....... why?

atush

ITs are investment trusts, and are a very good way to invest in equities for many reasons, but not getting into that just now. UTs are too.

But I agree with lokolo. Some here, hate IFAs for no reason as they have never used them. Others, like fairleads hate pensions, but have never used them. I have never used the skills of a consultant heart surgeon but will not castigate their profession until I have some experience of same good or bad (hopefully good should I have the need lol).

The same EXACT investments can be put into a pension or a S&S ISA. The difference is that pensions are automatically worth 20-50% more depending on your tax rate due to tax relief, but ISAs are 100% tax free ont eh way out (penions are only 25% tax free on the way out)- the rate of tax on the other 75% will be from 0-50% depending on your income when you take it.

Each have a very important part to play in your pension and other financial planning. BUT NONE should ever be taken in isolation and all should be considered.

Lokolo

atush wrote: »

But I agree with lokolo. Some here, hate IFAs for no reason as they have never used them. Others, like fairleads hate pensions, but have never used them. I have never used the skills of a consultant heart surgeon but will not castigate their profession until I have some experience of same good or bad (hopefully good should I have the need lol).

Of course you do my darling OH. :rotfl:

atush

fairleads wrote: »

Slip of grammar, should read don't contribute more than the op is already doing. In other words don't increase the pension contributions.
Are you perchance Atush's other half?:rotfl:

You really are quite disgusting at times.


I am sure Lokolo is a fine person, but we are not related nor do we know edcah other and I suspect are not even of the same age.

You keep saying really really stupid things then try to use diversionary insults to keep others from seeing the true idiocy of your statements such as telling others to give away free money in employers contribs. You say now that isn't what you meant but I dont beleive it for one single minute.

hodd

Lois_and_CK wrote: »

State pension age is 67 and state pension forecasts are: me - £6,358 per year; husband: £8,799

Apologies to Lois and CK, I'm being a bit naughty here and temporarily hijacking your otherwise interesting topic.

My state pension forecasts show how many years of NI I still have to pay to reach the full 30 years. I've never seen any figures like those Lois and CK quote. I should add I'm not classed as a UK resident for tax purposes, but I still pay NI.

Paul_Herring

gadgetmind wrote: »

Perhaps you mean that your state pension age has crept up?

Since (by context) the reason for, and the rest of my comment was, directed at state retirement...

Yes. Did you have a point to make there?

I fully intend to retire (or die) long before I'm 90. When/if I get my state pension was what I was alluding to.

gadgetmind

Paul_Herring wrote: »

Since (by context) the reason for, and the rest of my comment was, directed at state retirement...

There is no such animal as "state retirement". There is "retirement" and there is "state pension" and while the latter is receding into the future at quite some rate, it's down to individuals to prevent the same happening to the former.

jamesd

Lois_and_CK wrote: »

we'd like to retire early if at all possible - late fifties would be nice. (Earlier would be better )

OK, that sets a couple of things up. First, you can't take pension income until you're 55. A retirement target after 55 means that you can use pension income as the core of your early retirement planning.

You have these income challenges to face:

1. Getting enough income and capital to draw on to last until you can take pension income. Since you can't take pension income this has to be outside a pension, which mainly means within S&S ISAs.

2. Once you can take pension income you next need to survive on that plus any other money until your income is boosted by the state pensions starting. Since you'll have a higher income when those start, the challenge here is to be able to draw on income and lump sums at a high enough rate to get the same income now as you'll have when the state pensions start. At younger ages like those you're considering, income drawdown is the way to go and the GAD limit will regulate how much income you can take from a pension.

3. The challenge after state pension age is to have your income target met for the rest of your life.

The earlier you want to retire, the greater the amount of non-pension money you need to have accumulated. This is because this is the pot that you can draw on as fast as you like to top up income at whatever rate you need.

The effect of this is that it can be good to start with a high non-pension pot and as you get closer to reaching step 2 you could start to convert some of it to pension money. This is because the amount of non-pension money you need will be decreasing the closer you get to 55 because the time in stage 1 will be reducing.

For stage 3 that's the £5,843 topup. For a cautious view assume that you can take 4% of investment value as income, for a more expected one use 6%. That gives a capital target of £146,000 to £97,400.

For stage 2 you'll need that £5,843 and also £15,157 to hit the £21,000 income target. You could try doing that with pension money but that isn't the cheapest way because of the cap on how much pension income you can take. That effectively prevents you draining capital from a pension pot.

Instead you can use investments within a S&S ISA. You can use a blend of drawing on capital and taking income from this pot to drain the money in fourteen years. Perhaps use fifteen to allow a safety margin for additional changes in state pension age and starting at age 55. Using 6% as the growth and income rate you need £135,000 in this pot. Using 4% you'd need £148,000.

As you can see from those numbers the age 55 target requires about as much money in S&S ISA as pension pots. ISA money can be converted to pension money but not vice-versa, so be most determined to accumulate the ISA parts first.

If you want to retire at age 50 the S&S ISA or other non-pension pot target increases to £192,000 to provide the £15,157 plus £27,000 to provide the £5,843, a total of £219,000. Those are with 4% income and growth rate. At 6% they fall to £169,000 and £26,500, a total of £195,000.

Lois_and_CK wrote: »

• me - current company pension ~£6,000 with £230 p/m contribution from employer;
• husband - current company pension ~£1,000 with £200 p/m - half contribution from employer, half from husband;
• husband also has another old company pension that has around £1,000 in it;
• we each have old stakeholder personal pensions that have around £2,000 each in them (these are with Virgin - I've seen opinion on here is that they're useless)

The Virgin one isn't so much useless as expensive for what it is. Not something to worry about hugely, just transfer it to a better place sometime.

What matching is done in those work pensions? Is either a salary sacrifice scheme? Is either of you a higher rate tax payer? Salary sacrifice or higher rate tax would favour pension contributions by that person over the other one because of the increased pension value obtained.

Lois_and_CK wrote: »

[*]Mortgage has £157,000 outstanding and 20 years term remaining (age 58).
[*]We have £1,300 p/m 'spare' for retirement saving and maybe mortgage overpayments. (We have other ongoing savings for replacement cars, holidays, household repairs, etc. so this £1,300 can all be allocated to mortgage overpayment/retirement). When we've paid off the mortgage this will free up another ~£900 p/m.
[/LIST]

First thing is to cease overpaying on the mortgage. Investments make more long term than mortgage interest cost so any capital payments on a mortgage delay your early retirement. In addition, the mortgage capital value is fixed while wages increase typically at 1% plus inflation. The effect of that is to decrease the real cost of clearing a mortgage at older ages.

If you want to clear it early one good time is to use part of a pension lump sum at age 55. That way you're clearing it with money you've received tax relief on.

Lois_and_CK wrote: »

I'd welcome any opinions on whether we're kidding ourselves with dreams of early retirement, and how others would approach this, e.g. opening personal pensions as well as work pensions, consolidating all the old small pensions, ISAs, overpaying mortgage, etc.

You're not kidding yourselves. It's entirely possible given your level of commitment.

My suggestion:

A. Use all employer pension contributions that get a match from the employer but no more. The 100% immediate return from an employer match is hard to beat, so is possible NI saving. This may delay early retirement, but provide higher income later.
B. Stop all mortgage overpayment.
C. Maximise use of S&S ISA every year until you reach your first target.
D. Then accumulate more until you're able to retire at the age you've reached.