Looking for some advice

Retireyoung

Hi All

I would be grateful for some advice, sorry for the long post.

I would like to retire early (before 50) in about 16 years time.

Currently have 1 wife and 1 daughter, which are both expensive to run I expect we will have another child in the next year or two.

So down to the brass tacks

Incomings
Me £46k + £30k bonus most years
Wife £25k

I have also started a business in the USA, which has generated $28k (before tax) since October and only takes a few hours of my time per week. As this is such a new business not sure how successful it will be I don’t think I should include this income at this stage.

Outgoings
I tracked our spending for all of last year which was £39k. This would reduce by around £12k as child care, car repayments etc in the future (not adjusted for inflation) will have finished.

We don’t have any overdrafts or credit card bills and keep around £2k in our current account.

BTL
Worth £85k and have an outstanding mortgage of £49k, rent more than covers all costs. Mortgage is a repayment mortgage and will be paid off in 14 years, I know it’s not tax efficient but I like the idea of having the property paid off and have the option to re-mortgage to release equity and potentially buy some more BTL.

This property brings in £350 p/m.

I own this property with a friend (figures above are just my half) who has his own building company with over 20 staff including plumbers, electricians etc, so any problems are sorted straight away free of charge. Basically I find the tenant and sort out any admin and he sorts out any other issues. We are both considering buying more BTL in the future.

Home
This is the main issue I’m unsure about.

Home is worth around £230k mortgage is £135k on an interest only at 2.4%

I know Jamesd would advise not overpaying the mortgage and use the 25% tax free from my pension, which I would agree with if I was in my fifties but I will not be able to access the 25% until at least 58, which is 24 years away.

I could pay £500 per month towards this mortgage but as the rate is only 2.4% I have been investing it as I can get a better return.

Another reason for not overpaying is I think I will also rent this property out when move to our next home. When that time comes I will re-mortgage and ramp the LTV up to 75% which should release about £40k of equity that I would put towards our next home.

If I was to let this property it would bring in around £900 p/m.

Pension
Currently £20k in a SIPP which I’m adding £1200 gross per month, I also add 1/3 of any bonus to the SIPP

Also have £50k in an ISA adding £500 per month to and 1/3 of any bonus.

The wife has around 8 years in LGPS, she would also want to retire early or go part time.

Summary
So basically we need around £30k net to live comfortably

Currently have
£20k in a pension for me and 8 years of LGPS for wife
£50k in invested in an ISA
£130 in property equity

is it possible to be financially independent in 16 years time?
What should I change?
Should I overpay our current home?

Thanks for taking the time to read

Retireyoung

Linton

Lets remove the detail and have a very broad brush look.....

1) I estimate you are saving £30K/year. Assume you can continue to save this increasing with inflation for the next 16 years. Assume that extra kid(s) dont mess up the plans.
2) Assume you get an investment return of 3% above inflation.
3) Working at constant value this will total £600K in 16 years
4) You have £70K now but will need to pay off a £135K mortgage.
5) So that leaves you £550K at current value
6) You need £30K/year until pensions start paying say 18 years later.
7) Lets say that will cost £450K - you will get some money from ongoing investment returns.

So it roughly works out but will it leave enough to supplement your pension income and pay for extra expenses?

Will you be able to support the ongoing saving?

atush

I think you may need to roll back a couple of years ie after 50. Mainly because child 2 will still be at home, and then there are university costs to consider as well.

So you should up your ISA savings for university expenses x2 (gosh knows what fees will be by then, and th interest rates for student laons are way abv mtgs at over 6%). And we haven't even gotten to the help with housing bit of parenting?

Open a PP or Sipp for the wife if she wants to retire early as it would be many years for her waiting to take her DB pension w/o reduction.

Retireyoung

Thank you for your replies

Linton
Yes I would say £30k/year is about the figure I’m saving. So £550k drawing down at 4% would give me around £20k, then two BTL should produce £15k before tax. This would mean paying off current home in the next 16 years.

Could we drawdown more than 4% between 50 and 68 as state pension would then kick in for both of us and also the wife’s LGPS.

Atush
As I’m a higher rate tax payer and the wife isn’t so I feel its better to put the cash into my Sipp at the moment. I think my Sipp is also a bit light which is why I’m currently putting more into the Sipp than the ISA.

As far as supporting the kids thru Uni I have not given it a great deal of thought. I had to fund my own degree and masters working full time and never had any help getting on the property ladder.

I don’t mind working past 50 if I have to fund there Uni as I do enjoy working just don’t want such a stressful job after 50.

atush

When you went to uni there were with no fees or low fees and 1% student loans. Maybe even grants. So yes, you should think about it? Do you really want to see your children carrying 60K of debt at 22 at over 6% interest p/a?

Not your children's fault your parents didn't/couldn't help you. And I do get your point, but I feel that todays graduates dont have the same level playing field you and others your age had after graduation.

As for PPs/sippsI didnt say you should not take advantage of your HRT relief, I said your wife needs a pension too. Even if just BRT relief if you are both going to retire early. As she wont be able to take hers for 15-18 years after 50? So perhaps some of her S&Sisa money could go into a PP as well.