How to retire at 60

tibbles209

Hello,

I am a 27 year old junior doctor currently paying into the NHS 2015 pension scheme, which is an Average Salary scheme and pays out 1/54th of my average pensionable pay x the number of years I work for the NHS (which I expect to do until I retire). My Normal Retirement Age on this scheme is the same as State Pension age (which by the time I am reaching retirement age may be pushing 70!).

I very much would like to plan for my husband and I to be able to retire when we are 60, and have an adequate income during the interim years until Normal Retirement age to be able to be able to enjoy whatever healthy years we have left by going on holidays etc. I am hoping the well informed folks of this board could please help me out by telling me what the options are to make this possible.

My husband (same age as me) is a research engineer who is currently doing an engineering doctorate, so does not have access to a workplace pension. He will complete this within the next year and join a workplace pension ASAP but at the moment what form exactly that will take is an unknown.

Things I have been thinking about are;
-Lifetime S&S ISAs; we could deposit the full £4000 each until age 50 to draw on when retiring at 60.
-Property - we could aim to buy-to-let as a source of retirement income
-Private pensions - we are likely to both be higher rate taxpayers throughout the majority of our careers so would benefit well from tax relief, but I don't know much about these.

I would be really grateful if people could advise me about how the above options stack up against each other for what I am hoping to achieve, and if there are other options that haven't occurred to me.

Thank you!

justme111

It looks to me like you should be very well placed to retire not only at 60 but even earlier. When I put your lisa£4000 into compound calculator assuming growth above inflation just 3% it results in more than 200 thousands. So if you had where to live paid for and di
d not have expensive tastes (or work would have got too bad ) you could have retired at 60 on your lisa investments only.
To your planning you may want to add normal s&s ISA without restrictions of Lisa.
There will be options of buying additional work pensions that I am sure you will look into re your husband; I believe NHS additional pension terms make it not appealing to use for early retirement option.
Watch for life style inflation as those salaries may seem large now but it is amazingly easy to spend even the highest income specially as a lot of it will be swallowed by tax, NI and professional subscriptions.

kidmugsy

tibbles209 wrote: »

I am a 27 year old junior doctor currently paying into the NHS 2015 pension scheme

Carry on. It may be that by the time you are 60 the Lifetime Allowance rules will encourage you to retire and draw your NHS pension early.

tibbles209 wrote: »

to be able to retire when we are 60 ...

-Lifetime S&S ISAs; we could deposit the full £4000 each until age 50 to draw on when retiring at 60.
-Property - we could aim to buy-to-let as a source of retirement income
-Private pensions - we are likely to both be higher rate taxpayers throughout the majority of our careers so would benefit well from tax relief, but I don't know much about these.

Lifetime ISAs: in your shoes I'd be looking seriously at these. Do you own your own house (or have you done so in the past)? If not you might want to use LISAs in the short term towards house purchase, and in the long term towards early retirement.

Property: the recent tax changes make this much less appealing, especially to higher rate taxpayers. It can also be seriously time-consuming. If you pay an agent for the time-consuming work then you lose a chunk of the income. I suggest that at the very least you wait a few years until the recent tax changes have taken complete effect.

Private pensions: probably your best bet once you are equipped with emergency cash funds, and own your own house. To get started your husband could open one now and contribute £2880. The taxpayer makes this up to £3600 even though your husband is not (I assume) a payer of income tax. If you are saving for a house, however, probably it would be better not to open a private pension yet.

tibbles209

Thanks for your replies.

justme11 - The Lifetime ISA is the method I am considering most seriously at the moment - it would be nice to be able to flexibly withdraw after 60 without having to worry about the impact on tax thresholds/personal allowances etc. We would just need this to tide us over for the 7-10 years until whatever normal pension age is at that point. £400,000 between us over (pessimistically) 10 years sounds like a decent yearly allowance of £40k to live off, although I suppose the spending power of that £40k would be far less in the 2040s

You make a good point about considering a normal S&S ISA in addition... would certainly give us a bit more flexibility if it was looking like retiring even earlier than 60 was going to be feasible.

We are not generally very spendy people... we have a fairly modest lifestyle and save about half of our income each month. I do think we will 'inflate' our lifestyle a bit - for example I would like to have a nice family home before having children - but I will heed your caution about keeping it under control


kidmugsy - I do not/ have not owned a house, although we have a fairly sizeable deposit for a property, some of which is in H2B ISAs, and we are just waiting for my husband to get a permanent job next year so we can get a joint mortgage. He counts as a 'student' at the moment which would make getting a mortgage a big struggle. I do plan to open a LISA when the Skipton cash one becomes available in June so will use it for house purchase in the first instance, then perhaps aim to continue contributing the full £4000 each thereafter. My biggest worry about LISAs is the potential for the rules/ goalposts to be shifted before I get to 60, though I suppose that probably applies to whatever we do.

I haven't looked much into the recent tax changes for buy-to-let properties yet but I have heard others giving a similar assessment to you - that its less appealing now. You make a good point about it being time consuming work - thats what I will be retiring to try and escape!

We do already have an emergency cash fund built up and will get a mortgage on a property in a little over a year. You are correct he receives a tax-free stipend rather than a taxable wage. I think we will likely hold off on a private pension at least until we have bought our first property and know what form his workplace pension will take, but I am going to need to do a bit of reading to figure out if a pension would be a better place to put our early-retirement-savings rather than a LISA.

justme111

It would be reasonable to expect it to be above 200 grand in today's money , not sure why you quoting 400,000. Plus do not forget it will be more than the amount you have on a retirement day because there wil be interest on that money while you using it. When you do your calculations for how much you will need do not forget to adjust tax, NI and that you would not be saving anymore. So if you save about half of your income your pension being less than a half of what you on now would offer you the same lifestyle.

Bravepants

Once you start earning more and get above 40% tax bracket start a SIPP (you can draw down from age 55 with current rules); skim off your salaries into the SIPP to save the 40% part of your tax bill. You may be basic rate payers in retirement, and you will have made 20% for free.

Anything extra stick it into a S&S ISA with an appropriate mix of equities and bonds...buy a copy of Tim Hale's "Smarter Investing". I've just started reading it, and it has confirmed lots of the stuff I have read on these boards and that I have read on places like monevator.com. The first part of the book is worth it alone for the £20 purchase price.

You are a great young age to start investing for your future...think "get
rich slowly"!

Stay away from buy-to-let...the British have been obsessed with property as Joe Public seem to think it's the only investment option! It's rather stressful with void times between tenants, non-paying tenants, whinging tenants, renovations, repairs etc.! Concentrate on your own family home instead. This is just my ranty opinion of course! ;-)

cns06

Mix your investments. SIPP - I would go self managed to start with at this early stage to save fees, max your ISA allowance each year, look at affordable homes for BTL, build good cash reserves (i.e 123 account) as rainy day fund.

On the pension front watch the LTA limit.

Ref the BTL, lots of people don't like traditional BTL any more and I can understand why as the rules are now pretty strict but if possible doing BTL on a cash basis (I,e no mortgage) or with very low LTV can see excellent returns. I have one that's currently generating c.7% return plus the property value has been going up around 5% each year. If you can do that you can then reinvest that money into your SIPP or other investments.

One thing to consider is life in general, at 27 you will be living a very different life in 10 years, mark my words. So take advantage of any savings you can make now and do your very best not to touch them - this is why a SIPP is so good. "BTL" is also good for this.

Don't underestimate how quickly time will fly and also how much damage and stress your job can do to you - I would be aiming for 55 not 60!!!

If you are seriously looking to save a lot then look at the Mr Money Moustache forums...

enthusiasticsaver

I would do a combination of things. We started thinking about retirement in our mid 20s too. My husband enrolled on his then final salary booster scheme paying 10% of his salary in (specifically designed for those wanting to retire early). My pension was less attractive at that point but I paid 6% monthly and we did a mix of mortgage overpayments and savings. Later on we did stocks and shares isas and I have a sipp. My husband retired last year at age 58 and I retire at the end of this year, one month before my 58th birthday.

The earlier you start the better so your investments have time to grow. Pensions are the most tax efficient vehicles particularly for higher earners.

BobQ

Another option you have is Early Retirement Reduction Buy Out whereby you pay higher contributions now in return for retiring up to 3 years earlier without any actuarial reduction for those years.

justme111

When I looked at it (paying extra contributions) the condition were not appealing but I am open to be corrected.