MFW & Retirement Planning on a Single Income

nellis10

Hi everyone,

Longtime lurker/infrequent poster and all round fan of MSE back to post a wee diary to become mortgage free and plan for retirement in the next 15 years! :eek::eek:

I've recently been panicking about retirement and putting figures into the pension calculator and it is scaring me senseless!! So much so I don't know what to do first. But DF/MF is the first step!

A little bit about me:
I'm 46 (very soon!), divorced mum of 1 tween boy.
I have a house worth about £80K with a mortgage of £67K.
Mortgage currently 17.5 yrs remaining at 3.74%
Going through remortgaging with First Direct for a 2 year fixed at 2.29%

I currently pay £500/month towards mortgage of which £436 is actual repayment and the rest is a little overpayment.

I have a car I own outright (just!!) which is 7 years old and runs fine.

My house needs a lot doing to it, but I got central heating and rewiring last August and so I have some 0% debt (£3450) that I am paying off (central heating costs - I had NONE in the house just storage heaters, and a new boiler) at £550/month and I hope to have this paid off by June (if I get my bonus this March)

I am following the Dave Ramsey Baby Steps so once the debt is gone, I am putting the £550/month into my Emergency fund for the rest of the year. I already have £1000 in EF as Baby Step 1.

So from January 2018 my plan is to throw the £550 at the mortgage and be mortgage free some time in 2023.

Then I plan to use the £550/month to invest for 15 years until I am 67/68 and can retire.

So basically the sooner I am DF and MF, the sooner I can get my retirement plan underway and retire sooner than the state pension age of 67.

Wish me luck!
Nat.

iquit

Hi nellis10, I like your idea of becoming MF and working on retirement preparation. Only a little younger than you with the same worries about life in retirement. I'm subscribing and look forward to following your journey.

lippy1923

Welcome and good luck
I like your plan, you seem to have everything organised and I look forward to reading your progress.

nellis10

Thanks guys! :beer:

I've updated my signature to better reflect circumstances.
I have a spreadsheet for calculating all my bits and bobs, so I have a plan. If I end up a year or 2 out, that's OK..>I still need to find money for renovating house so it will be a balance between, mortgage, house and retirement.

So far from an investment/savings perspective I have the following:

• Emergency Fund Cash £1000
• Regular Saver @ 5% = £200/month Nov-Oct = £800
• 120 Shares in Company ESPP
• 2500 Shares in Company Options (None vested as yet)
• 20 Shares in Standard Life (free shares I got with demutualizing, but sold 200 a while back to pay off a debt during divorce so these are just fun shares now to forget about)

A rather paltry amount to be honest.

nellis10

Morning All,

OK so payday this month is 24th Feb. I use YNAB as my budgeting tool, so will be updating my March budget on Friday.

The aim is to reduce my "cash envelope" requirements (groceries, petrol, miscellaneous, health, school, etc etc etc) as this is where I can make savings over and above my regular saver.

I'm hoping the bonus I get at the end of March will go towards paying off the boiler 0% finance, but I also have a tax bill of £694 due to medical insurance benefit in work being undervalued for last 2 years and me having to pay 40% tax on it!!!

I have a spreadsheet that I am tracking potential savings right through to 2031 and mortgage overpayments, and so far I am on track to pay off the mortgage by September 2023.

Of course that doesn't allow for any luxuries such as taking my son on holiday, or home improvements, which is where I need to find extra cash for those events.

I need to start living on what I intend to live on during pension years (plus a little extra as I still have to look after my son). that will obviously not include the current debt and mortgage payments, but everything else will need to be pulled back a little to understand what it is I can afford in the future.

Nat.

nellis10

Just got the payslips in the post from HMRC for my tax bills.

1 - 183.04
2 - 511.20

These are underpaid tax due to Medical Insurance under calculated by company.

I've written the cheques and I really want to get them paid off so they won't go onto my tax allowance for 2017/18. If I pay them off my tax code for 2017/18 is 997L but if I don't it's a lowly 823L.

Anyway, I am deciding whether to dive into my emergency fund and pay them off in the post today or wait for my bonus. If I pay it off now, one of them will be covered by my pay this week, and the other will come from my Emergency Fund.

I feel better paying them off now, as then I won't be tempted to use my bonus for something else, and my tax code will remain high.

Off to the post office I go!

debtfreeoneday

Hi, just popping back in here to say hello. What a shame about having to pay back the tax bills.

nellis10

Just phoned Le Taxman.

We plugged in my private pension figures since 2015 in order to get the 20% tax relief.

We've also adjusted the 2017-2018 tax code to account for the tax relief to date and the tax relief for the coming year.

Turns out I am to get a little rebate from Le Taxman, but I still need to pay the underpaid medical insurance tax of 694.24!!

Apparently they cannot offset an underpayment with an overpayment.

iquit

:mad: The emotion that I usually feel about the taxman! But I got an expected rebate for 2015/16 from him so :T. Well done on sorting out the shortfall in your taxes, it should give you some relief to know it's done and dusted. I would be inclined to pay it off ASAP too.
Interesting idea to live off your projected retirement income now.

nellis10

iquit wrote: »

:mad: The emotion that I usually feel about the taxman! But I got an expected rebate for 2015/16 from him so :T. Well done on sorting out the shortfall in your taxes, it should give you some relief to know it's done and dusted. I would be inclined to pay it off ASAP too.
Interesting idea to live off your projected retirement income now.

Yep, it's probably a pipe dream to be able to live on a tight budget at the moment, as I still need to give my son a holiday etc, but the more frugal I can start to be, the better I will be positioned for a drop in income in the twilight years!

I have a real panic on these days about getting DF, MF and pensionable!!

AnotherJoe

nellis10 wrote: »

So from January 2018 my plan is to throw the £550 at the mortgage and be mortgage free some time in 2023.

Then I plan to use the £550/month to invest for 15 years until I am 67/68 and can retire.

.

Financially you'd be substantially better off other way round.

Reason is, your investments in your pension should be growing at 2-3x mortgage rate, so the earlier you get the in the longer they have to grow and their growth for outdoes the mortgage. Plus you get tax relief on payments into a pension which you dont get on a pension. Pay £100 into a pension costs you £60 if you are a high rate taxpayer which you indicate. Pay £100 into a mortgage costs you about £150 after tax.

It may seem less comfortable to do this, in which case, perhaps compromise and go 50/50, but as I think everyone knows but finds it hard to take on board and action, maybe because they have a big mortgage debut they can see and a pension 'debt' thats like a reverse mortgage and so its not right in front of you, the longer you invest in a pension the better and you'd be delaying it.

So, even if you can't stomach putting in all of that overpayment into pension , half would be better than nothing. Especially if you are a 40% tax payer, then pension beats mortgage by so much its no funny.

If you put £100 into a pension, that costs you £60, if it grows at 4% (modest) thats £104 pension for £60 after one year. (after tax at 20% when you take it out, about £25 profit from an investment of £60. Your £60 became £87.

Or, take the £100 that cost you maybe £150 to earn (because its taxed) to pay off your [STRIKE]pension[/STRIKE] mortgage (sorry, corrected that) and that saves you £2.89 from £150. Your £150 saved you £2.89

If you are a high rate tax payer you are almost literally throwing money away if you dont pay it into a pension instead of a mortgage.