Want to retire early - where to begin??

kidmugsy

I'm a pessimist about the future of USS. In your shoes I'd happily contribute from pay if that "earned" me an employer contribution too, but I'd be leery of adding any extra e.g. my LPGS.

ermine

Even if a portion of the USS becomes DC, is it still better to be in a partially DB scheme? Many thanks in advance for any advice.

This is not advice, but I personally would keep the LGPS as it is if it is a DB pension and there is doubt hanging over the USS. Normally your existing pension rights are grandfathered, so if you transfer the LGPS to the USS while it is still DB under DB rules they can't back-change those. But if it goes to the PPF you will lose a lot. I'm not an expert in public sector pension schemes. I was under the impression the LGPS was funded but the radio programme mentioned in this seems to indicate it has issues.

I second atush - join USS ASAP even if you only get a year's worth of DB pension. DB pensions are inflexible, particularly about retirement age, but it looks like they won't be a huge portion of your retirement savings, and they're usually great value.

AVCs work well with a DB pension in giving you a big tax-free lump around normal retirement age - you usually have to take both to get the primary benefit of that. You don't want to draw a DB pension too early, and that points away from AVCs for someone with ambitions to early retirement. A good stakeholder/SIPP with low costs and decent index funds probably is a better way, certainly on flexibility.

Reviewing your original post, the reservation on overpaying your mortgage is a lot harder to qualify in terms of a very early retiree. For early retirees (50 and up) keeping the mortgage and maximising pension payments to pay off the mortgage with the PCLS is a good one, and a trick I missed.

However, for extreme early retirees (40 and up), and particularly those who aim to drive down their consumerism costs, the benefits of owning a house outright may score. You typically pay about twice the sticker price for a house over a 25 year term in real terms at long-run UK interest and inflation rates, and you pay that from taxed income so you have to earn 30% more. One of the benefits of shunning consumerism is you can choose to work less, but carring a mortgage balance takes some of the choice away from you if interest rates rise. It's a tough call, but certainly not as simple as the early retiree case.

JohnnyJet

I have an alternative option to funding early retirement.

I have a LGPS which I will access at 67, this is my backup which should top up my state pension by £7,000 - £10,000. Once I get to state pension age I will be relying solely on this.

From the age of 57 to 67 I will be using a SIPP making use of my £10,000+ Annual tax allowance and of course my tax rebate for the initial investments. I expect the pot for this to be almost empty by 67.

I also aim to have an ISA which will pay the mortgage off and may allow me to go part time a few years before 57.

This is my goal but will only work if I manage to stay in full time employment at least unto my mid 50s.

cns06

Walking the walk is very difficult.


We are mid 30s and plan to retire at 55 - having taken that decision in our late 20s. Mortgage is the first thing we are clearing - 10 years into a 25 year term and 6 years to run due to overpayments.


Once that's gone we can start to top up the pensions and investments.


We are self employed and not earning huge salary - we do ok but the majority of our spare money goes into pension or on the mortgage.


Our goal is £20k income each - but its going to be very difficult and will need a massive dose of luck and risk too. Those of you on great company pension schemes and civil service etc should be thankful!!!

Thrugelmir

cns06 wrote: »

Our goal is £20k income each

How much do you think you'll need to have invested to be enjoying a pension income of £40k a year at 55?

I assume this to be £40k in today's money.

Money_Saving_PhD

Thank you kidmugsy, ermine and JohnnyJet for your opinions (not advice, I agree).

I've drawn a few tentative conclusions after doing a bit more research and thinking about my position. I will probably leave the LGPS pension where it is and also aim not to take it early, if possible. I have also been planning to have an investment pot by early retirement with a SWR of 4%, when actually I could run down some of the capital in this pot before I get to pension-claiming age. So I'll reassess the size of pot needed, whilst still being cautious that I won't run out.

I've realised that I need to think about state pension and my NI contributions - whether I will have enough years for full entitlement. As far as I can recall I've had two years where I haven't paid enough NI, so about ten years of contributions, maybe more if I paid enough at 16-18 years old. gadgetmind suggested registering as self-employed in the new tax year and paying class 2 self-employed NI at about £130 pa, I'll look into this too - would I have to do this from the start of the next tax year or can I start later but pay more if necessary (My alternative income stream would not begin until at least early 2016 and I haven't done enough research on self-employment yet).

I've made a first move this week after a lot of research and opened a NISA, I've started passive investing with a simple split between a global index fund and a UK gilts fund, I'm going to split my savings each month between this and paying off my mortgage for a while. I will also look at SIPPS and make a decision, but haven't got my head around all of the tax rules there yet and wanted to make a start and fund the NISA before the end of the tax year.

Thanks ermine for your further comments on overpaying the mortgage, I doubt I could stop overpaying it, as it's become part of my mentality, and I agree that I want the freedom and security of owning my home as soon as possible.

Can anyone recommend a spreadsheet template for making long-term saving/investment/pensions projections? Thanks again for your comments.

cns06

On the pension front our goal is £500k pot each. Currently sat at c.£70k each.... oops.


However, once mortgage is paid it will start to ramp up.


That all said, my trust in pensions has taken a hit recently with the govt moving the goal posts so I may not up it as much as planned until we are closer to mid 40s and put the surplus into ISAs until the actual rules are clearer for our planned drawing age.


We do have some other investments which are slowly building and also a reasonable number of shares each. Lastly our business has some reasonable assets plus its possible we could sell it at some point.


Our last resort would be to sell our business prem but the current plan is to rent it out which will make up any shortfall in the income we are hoping for at 55.

Thrugelmir

cns06 wrote: »

On the pension front our goal is £500k pot each. Currently sat at c.£70k each.... oops.


However, once mortgage is paid it will start to ramp up.

Compounding is what generates the real returns i.e. the longer the money is invested the better. So it'll be the latter years that the pension fund will ramp up. Think of it as a marathon not a sprint.

cns06

Yeah I was more meaning our contributions - we only have 20 years left now but mortgage should be gone in 6 max so that gives us 14 years to throw that in there too each month - but like I said bit wary now so might split the difference tbh. We are not high earners so its going to be a slog but it should be worth it.

Money_Saving_PhD

cns06 wrote: »

On the pension front our goal is £500k pot each. Currently sat at c.£70k each.... oops.

It's interesting to hear your plan cns06, a total pot of £1million sounds like a comfortable retirement for you both

My mortgage is currently half of my outgoings, actually more with the overpayments! So once the mortgage is gone I wont need so much to live on from my smaller retirement pot, and I've decided I would be happiest if I retire sooner and live on less.