Factors to include in the plan..

SpeedSouth

I'm currently [STRIKE]looking[/STRIKE] obsessing with how I can get myself into a position to retire before I'm 60.

At present I'm 33, missus is 30 with not a great deal behind us except equity amounting nearly £200k ( I suppose that is a great deal just not in a pension pot) in 2 houses.

Pension is at a measly £10k and savings amount to £20k.

I've saved a lot of previous earnings towards houses (extension works) so I'm not beating myself up for splurging my disposable income.

I want to get a figure to work to that I need and work back from there. Missus is pretty handy with excel so what do I need to take into account? How do you bring it all in?

All I've really done so far is play with online calculators but I want to get it into excel and make it the plan.

I'm never going to earn super money I doubt and currently have 3 small kids so the missus will be out of work for the next 5 years I imagine.

Presently our outgoings are circa £1800 a month that includes a £479 mtg payment (I started looking a while ago at budgets and we have reduced our monthly food bill by £100 for the last few months as a result.

I'd guess realistically we'd only need the same per month to retire on (More would be nice but I can make the decision to work longer if I so wish). So grossing that up assuming the 4% rule we'd need £525k pot?

So to retire at 60, 27 years from now to get to that figure I need to save 19K per year (scary & impossible on current salary!!) but this of course is assuming no tax relief (pensions), interest, compound effect.

State pension I assume (hope) will come a good few years after I've jumped the ship.

Once I have it all I then look to fund it in the most appropriate ways possible.

Anything I've missed, or more info needed would be great to know.

I'll then give her the homework of getting started on this unless anyone knows of any easily obtainable.

redmalc

You are doing ok,you have property which is a saleable asset if required.
I am 59 and have been paying into my pension for thirty eight years,the early years was difficult with family and mortgage commitments but the last ten years have been ok with no mortgage and I have managed to accumulate 250K in the pot
Do not forget ,it's very difficult to get to a happy medium,enjoy life as well because you never know what's around the corner.

kidmugsy

In real terms, i.e. assuming inflation-protection, £1800 p.m. when you are 60 = £21600 p.a., which is about the size of two individual Personal Allowances against income tax. That suggests that a good idea would be to arrange things so that you will each get a decent pension income. Then you can each draw it tax-free: hurray. You could also expect to need to take a lot less from your pensions when your State Retirement Pensions begin (at about age 68 - 70, perhaps). So work out what saving is required to generate about £22k p.a. for ten years, and then, say, 7k p.a. thereafter. The way I do these things is just assume that investment growth will keep up with earnings-inflation, and that so will your earnings, your savings, and your pension needs. That way you can do all the calculations on a scrap of paper, or even in your head. For instance, for that first ten years of retirement you are going to need to accumulate £220k in about 30 years, so that's £7k p.a. Any investment growth above earnings-inflation would then be a nice surprise. An advantage of Excelling would be that you can easily find the calculations again when you need to.

Anyway, I'd say that a sensible early move is to put money into your wife's pension while she is off work. You can invest £2880 net p.a., which the provider makes up to £3600 by reclaiming from the tax man. That's half of the target £7k p.a. right there, at a cost of less than £3k. It's perfectly reasonable to expect to save a bit less while the children are expensive, and a bit more later, but be sure to try to balance the pension savings between the two of you so that you minimise your tax bills in retirement. Just be sure you always take advantage of employers' contributions: never - no, not ever - turn down the chance to maximise an employer's contribution. No excuses - they have all been seen on these boards and they are all rubbish. Do not turn down free money.

SpeedSouth

@ redmalc, For sure I'm not going to sacrifice life for the sake of the pension, but I don't want for stuff. I'm happy driving around in a 10 year old Mondeo and things. Holidays we take every year but these tend to be UK camping trips at the moment so are cheap. ( I travel with work a lot, and the last thing I want to do for my holiday is get on plane and stay in a hotel) I fully expect ski holidays and stuff when the kids are older to cost money but like you say will find the happy medium.

@Kidmugsy. The missus has no pension at all at present so if we started this we'd need to open a SIPP or something I guess. She will be in work for another couple months (number 3 is not quite fully cooked), so we could save more for a while I suppose not sure how that works when she goes onto statutory mp?

In terms of halving the tax bill, to make them equal not thought of that. Your saying we weight them so that we are both drawing equal amounts so I don't end up paying 20% tax on my £20k and she is only pulling down £1k a month? Simple but not even crossed my mind....

The £7k pa after your assuming state pensions for us both of £6k or so are you?

At present I take the max 4% my company offers, but it's only since auto-enrolment I've been getting this hence the low pot.

Silian

Hi Adam,

Good that you are planning now - and don't feel pressurised into buying stuff you don't really want if you are working towards financial freedom. As Mr money moustache says, each £100 that you earn now you can either spend, or you can use it to pay you £5 per year for the rest of your life . The earlier you save that £100 the more it will earn for you over your lifetime.

Anyway, I also started my retirement planning this year. I used the following in my calculations :
Inflation 2.5%
Wage increase 2.5%
Investment performance 6%
Interest 5% (I am still paying down my house so have to work paying that off into my plans)

I know that some of my figures will be out, but I am hoping that the positive factors outweigh the negatives. And if it doesn't I can just work another year or two.

(Also, remember that any money you can shave from your budget has two benefits. It means that you have to save less money, and you also have more money to save. This will help you reach your goals much faster.)

xylophone

https://www.gov.uk/new-state-pension/overview

See above and obtain a statement for each of you after 6.4 16.

Consider a pension for your wife while she is a non - earner - it could be a SIPP or another kind of personal pension.

See https://forums.moneysavingexpert.com/discussion/comment/68563219#Comment_68563219

http://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/

https://www.gov.uk/tax-on-your-private-pension/pension-tax-relief

You could contribute more to your own pension - this might mean that you become entitled to Child Tax Credits, or, if you happen to be a 40% tax payer, restore Child Benefit.

https://www.gov.uk/tax-credits-working-out-income

kangoora

Make sure child benefit is in your wife's name so she accrues NI years towards her state pension until the child is 12 years old.

Triumph13

The bits of data we are missing is how much headroom you have between income and spending at the moment (entirely understand you might not want to share that), whether the mortgage is a repayment or interest only and what the story of the second house is...
Assuming that mortgage is repayment then that is presumably paid off by the time you retire. Strip the mortgage payments out of your £1,800 pcm and you are looking at only about £16k pa needed to fund your current lifestyle. If you can both get the full single tier pension then that should basically cover that (see point above about child benefit and consider voluntary NI if she doesn't return to work after child 3 reaches the age where NI credit stops).
Your funding needs therefore are really just 16K pa for the period before state pension, plus paying off any mortgage balance if the current mortgage is interest only. Anything beyond that pays for an increase in expenditure above what you currently spend.


A back-of-a-fag-packet calc says that if say you wanted to retire at 59 but collect SP at 69 then you need to accumulate another £150k to get to the £160k to fund the 10 years. Over 26 years saving and assuming a fairly conservative 3% real return that's somewhere around £3,850 pa to save. Tax relief brings that down to just over £3k a year cost. Employers contributions bring it down further.


So if you can find these kind of pension contributions for the next 26 years then your dream of going early is entirely achievable.

kidmugsy

adam81 wrote: »

we could save more for a while I suppose not sure how that works when she goes onto statutory mp?

The £7k pa after your assuming state pensions for us both of £6k or so are you?

In tax years when your wife has low or no earnings she can still contribute up to £2880 (net) per annum, which gets made up to £3600.

I'd assume bigger State Pensions, in line with the new-style State Pension that begins on 6/4/2016. The thing to be sure of is that you each get credited with at least 35 years worth of National Insurance contributions. You could both ask in a few years' time to see how you're progressing on that.

atush

For a start, your rental ( i assume you live in one of the properties) what kind of yield do you get after tax? mtg?

you could be better off selling, using both your CGT allowances, and putting this money into pensions for both of you.

kidmugsy

atush wrote: »

… your rental … what kind of yield do you get after tax? mtg?

you could be better off selling, using both your CGT allowances, and putting this money into pensions for both of you.

Or better off with it entirely in the wife's name while she's not earning: that'll save income tax. At what cost in Stamp Duty presumably depends on the value of the property - it could be nil.