Want to retire early - where to begin??

kidmugsy

Money_Saving_PhD wrote: »

gadgetmind suggested registering as self-employed in the new tax year and paying class 2 self-employed NI at about £130 pa

Abolition of Class 2 was part of the 2015 Budget statement. Whether that will await action by the post-election government, I don't know.

atush

cns06 wrote: »

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!!!

i understand why you have done this (and in fact overpay my mtg myself) but I cut it way back as I have found that compounding interest on pensions and investments is a far better way to boost your finances re financial independance/retirement than focusing ONLY on paying off the mtg..

cns06

Its not our only vehicle at the moment.


The other thing is the lower the mortgage the more secure we are in a SHTF situation. We are self employed and whilst there is no reason for something bad to happen once we own our house it will give us almost 100% security which will be a nice to have.

ermine

Money_Saving_PhD wrote: »

Can anyone recommend a spreadsheet template for making long-term saving/investment/pensions projections?

You probably have to cut this yourself. Using a template means you would be at the mercy of unknown assumptions. What I did was plot the years of accumulation (up to your target retirement) across the columns

In the rows list each class of financial resource/commitment -


annual in/out =
salary
mortgage
pension savings (one row per scheme)
isa savings
state pension from 67

and another set of rows to tot up the cumulative amounts of the savings and the mortgage

This will show you the ebb and flow of your totals across your working life, in one scenario. I then simply duplicated the rows to try different scenarios. There's probably a better way to do that but I couldn't find it.

Provided there is no large cash element, you can do it in today's money, and take inflation off the putative return on investment. That of course means you must make an estimate of the real return on equities 4 to 5% real seems to be a value bandied about. You can see how pensions fit in with your plans, which will have four main phases: accumulation, retirement to 57 (remember that may creep up) where you must run down your savings from net income, 57 to 67 (SP age) where you can use tax advantaged SIPPS, and 67+ where you will have the SP as part of your income, so you could run some of your SIPP down to allow for that.

You also need to account for any significant changes in lifestyle. Expensive hobbies, travel and children all fall into that sort of thing.

No plan survives contact with the enemy, so it will be wrong. It's for guidance - you see the sensitivity of the outcomes to small changes in savings rates and assumptions about returns. Particularly for an early retiree, and the effect of the errors will often be cumulative, so bear this in mind. As an example:

Mine only stretched across 8 years, I am an early retiree not an extreme early retiree. I must have written it in a particularly despondent frame of mind. I was horrifically pessimistic re income from dividends (note the market has been on a tear over the time, that shouldn't be projected without caution, though dividend income is much less volatile than share prices)

I did not predict Osborne's pension changes, I did not predict a period of low inflation. I did not predict QE inflating the stock market to such ridiculous levels. All these pushed my plan off track in only six years from the off. Because I was so pessimistic (remember what the world looked like in the financial crash) these are favourable variations.

gallygirl

I agree with Ermine, I tried various retirement templates but none were right for my needs or I didn't really understand what they were doing. Building my own made me really get to grips with my finances, how even a meagre 2k a year and small lump sums from 2 pensions at 60 would make a difference etc.

Once you've got to grips with how things could look and got a handle on the numbers there is one I've come across which I do like: http://www.cfiresim.com/input.php. It allows for one off money being received, a lump sum going out every x years to say buy a car, another going out every y years for new kitchen etc. It then runs your numbers through historical market data to see what would have happened and tells you often your plan would have 'failed' - i.e. you'd have been broke :eek:. You can also factor in unknown unknowns with what they call the Monte Carlo effect which I think basically uses historical models and chucks in things like one-off good/bad years, unexpectedly high inflation etc.

Two caveats - 1. It's a model, not a predictor. 2. If you want it to predict whether your money will last say 40 years it can only model from 40 years ago and older so will miss the unheaval in recent times. What you will see though in the graphs it produces is the impact of the 20's recession in depleting funds so that is similar to what we've been through - whenever you want to retire make sure it's not when we're about to enter a depression. Simples .

I'm not as pessimistic about your chances of retiring very early as others are. I started at 38 with 9k which I used as a deposit on a btl. I've just retired at 53, having worked hard to build up some btl's and save money to pay off the mortgages on them (or in practice, put in higher interest savings accounts and withdraw the mortgage capital each month). Admittedly though I worked full-time during that period - and the first btl cost 30k :eek:.

madeinireland_2

I'd also suggest trying https://www.retireeasy.co.uk as I found it to be really good as a planning tool.

Money_Saving_PhD

Hi everyone, I hope your 2016 has got off to a good start.

I've just reread this thread a year on, and thought I would update my situation in case anyone has further thoughts as we head towards the end of the tax year.

I opened an S&S ISA in March last year and have been making regular monthly contributions into Vanguard LS funds. I kept my LGPS pension frozen where it is, and joined the USS so that my part-time income can add a bit to the pension pot. I continue to overpay my mortgage, which is on track to be gone in ten more years (15 years early), but I'm not going to try to reduce it further than this, any excess now will go to investments. I also continued with a more frugal lifestyle and my savings rate is 70% on average. Oh, and I'm a whole year older - 31.

I'm happy with my progress so far, but I'm looking at what more I can do now, whilst I am in the position of having a reasonable income, and paying no tax, in order to boost my retirement funds.

I was wondering whether to open a SIPP before the end of this tax year for the tax relief, but I'm not sure how to split my money between the ISA, which will cover any pre-55 part of my retirement, and a SIPP post-55, which would allow me to leave my DB pension for the final phase and the arrival of state pension (if there will be such a thing, and bearing in mind how any/all of these goalposts will change in the next few decades).

I invest about £1,000 per month, so my ISA is not full yet. Not sure if I should split this somehow or put it all in a SIPP until April. I'm struggling to work out the relative benefits. My income this year will definitely be under the personal allowance, next year it might be a bit over/under, and hopefully the year after I will be in full-time work in the basic tax bracket. If anyone is in a similar position, or has thoughts on this I'd be very happy to hear them! Many thanks.

Linton

The tax benefits of paying into a pension for a basic rate tax payer are useful but not enormous - 20% of 25% = 5%, assuming you are also a basic rate tax payer when you take your pension. So given that you are building up your DB entitlement anyway I suggest you put all your spare money into S&S ISAs to cover you for the periods before you get your State Pension and/or can take the DB pensions without excessive reductions.

You know how much in current £s you will need per year and you know the number of years so a sensible aim could be to amass a pot of that size as soon as possible and rely on investment returns to deal with inflation. With any luck there will be a fair amount left over to increase your income during retirement.

To avoid being disheartened by the total size of the required pot, yo could have subsidiary aims based on the assumption of retiring at say 55,54,53 etc.

From your posts you are highly focussed and unlikely to spend ISA money on fripparies. However the flexibility of a large ISA pot could be helpful if your circumstances change.

atush

While further pension would be useful for you, your plans to have children (who are VERY expensive- i ought to know as have 3 incl twins) either with a partner (so much the better- two incomes) or alone- i would concentrate on S&Sisas and unwrapped investments and cash in current accts.

Because you take time off work for children, which is expensive, and they cost far more than you realise- think 200K+ to age 18 (w/o private schooling). holidays cost double or more, you need a larger car/house etc.

Then there is the whole university thing- you'll want to help with that by at least investing monthly the CB. I am still paying for the last child's University expenses.

So realistically, you need to set your timescale for 18-22 years after you have children. which in your case will be 50-55, which is still very early.

but you have made some fab progress, no question.

racing_blue

MrMoneyMustache - an animal like that was never going to stay caged for long.

He travels the world promoting his brand, having first tucked away a million dollars from tech jobs and from building luxury homes with his bare teeth.

Most of us are not like that.

But I'm grateful for the thought journey he led me on. I concluded that I like work days, and I like play days. Sometimes the work days are richer and fuller, sometimes the play days.

The important thing for me, a life actively chosen, control.