Early retirement advice - how would those who have done it do it today?

Linton

Gen_Y_Saver wrote: »

Thanks, Linton. I've got to stop micro-obssessing over the differences between broadly similar funds (and focus on earning more!).


Could you recommend any small cap funds?

I hold separate small cap ( capitalisation) managed funds for the US, Europe, UK, and Japan. There are a few global funds including a Vanguard Global Small Cap Index Fund. I believe that Small Cap funds benefit from local knowledge and so am not a fan of global small cap funds nor of small cap index funds. But if your portfolio is too small for it to be worth while holding separate geographic funds they could be useful.

If you want to research funds I suggest you become familar with trustnet which has details of a very large number and the facilities to compare them. There is little point in recommending specific funds as the ones I hold were chosen to meet my particular objectives.

MallyGirl

Some way off early retirement here - and I am thinking of retiring at 60 as early. DD will be 25 by then and standing on her own 2 feet. I am 50.
In some ways I wish I had gone into S&S earlier and paid more into pensions. I have always paid the amount required to get max employer contribution but only started doing sal sac AVCs recently. I focussed on paying off the mortgage (or at least offsetting it all) even though it was under 4%. But then I remember at the beginning it being 14% so that is probably why. Fully owning the roof over your head is also an emotional thing. I am now fully offset on a house worth £1 million or so and will downsize when I no longer need to live in the Thames Valley for work. I pay my max into S&S ISA, as does DH, and pay about 25% of high rate salary into pension via sal sac with employer adding 10%, the rest is cash in multiple high rate bank accounts/reg savers.

I think that starting early with S&S is a good move for you - there are plenty of years to weather the inevitable storms and come out smiling.

Terron

I effectively retired at 54 (I lost my job and my skills were largely outdated).
I have a pre-tax income of about £25k mostly from investing £420k in property so yout £5-600k to generate £20k seems overly cautious to me.
On the other hand I have not yet drawn on any of my pensions which will add about £20k pa in a couple of years.

swedespeed

Dear Gen_Y_Saver

I am not in retirement, but am in a remarkably similar position to you which seems quite unusual amongst our age group! Reading this thread with interest.

We're a little older than you (I'm 32, my partner is 34) but we've worked hard to pay off our mortgage earlier this year and start the process to early retirement.

I thought it might be helpful to share my own plans, and I am very open to critique from other members! As it's an anonymous forum I am also happy to share earning details, although as a newbie I'm not sure it's the done thing.

I am currently on a salary of £60k, My partner is on a salary of £30k plus bonus which is usually between £5k and £10k per year. After deductions - including workplace pensions - we have about £5.5k to spend every month.

We try not to be too frugal, but are not naturally big spenders. We live on an average of £1800 a month leaving, some £3,700 spare. I hold back about £700 for non-regular spending (short-term savings, holidays, etc.) leaving me with £36k a year to invest/save.

My work place pension is defined benefit and in today's value, would be worth about £28k a year assuming I continue to accrue service and leave work at 55, but don't opt to take my pension to 68. This, in theory, would be sufficient for us to live on on its own.

Therefore, my strategy is being able to generate enough savings and investments that I can live on between my anticipated age of retirement and 68.

The £3k per month is currently invested in the following split:

£18k a year into SIPPs. I could do more, but the way the annual allowance is calculated for DB schemes means that investing much more is likely to give me a tax liability. Our SIPPs are with Hargreaves Lansdown and are invested into a range of funds worldwide; there is a reasonable amount of risk at present which I will change the closer we get to retirement. The £18k invested receives tax relief of 40/20%.

£8k a year into a Lifetime ISA for each of us (£4k each) . This then makes us both eligible for the maximum £1k yearly 'bonus'. These are held with Hargreaves Lansdown too and are invested in a range of funds.

£6k a year is invested into a S&S ISA with Fundsmith. I've had this for a number of years and it has performed very well to date.

The remaining £4k is saved into a mix of Regular Savers and Peer-2-Peer lending with the balance sitting in a cash ISA.

My admittedly over-complicated financial modelling shows that I should have enough cash/readily accessible funds to live on between 55 and 60 at which point I will have access to funds held in LISA and will begin draw-down of my SIPP.

My DB pension will begin at 68 which point we will in theory have far more than we actually need, although in reality I am sure there will be plenty to do and spend it on.

jamesmorgan

In terms of investment, I would invest mainly in property (own house) and passive global index funds. Rest (10-20%) in bonds. Keep it simple, minimise costs (including tax) and don't try to time the market.

However, the most import advice is to really think through what you mean by retirement. When you are young the temptation is to view it in very binary terms. You are either working full time or free to do whatever you want. As you get older you understand more that there are many shades of grey.

I 'retired' first when I was 41 and spent 10 years living off my investments. I say retired with some caution as much of my time was looking after my children. When my children left home I decided to seek new employment. I retrained in a completely new area and now work on something I really enjoy rather than pursuing a career with the main objective of making money. I earn about 25% of what I used to earn, topping up the rest from investment returns. Initially I was working part-time, but enjoyed it so much that I transitioned to full time.

Even though I am now working full time, I feel as 'retired' as when I had stopped working. The key criteria is that I am free to work on what I want without feeling compelled to do things to 'advance' my career.. If 'retirement' can still include money earning activities, it is possible to be a lot more flexible in retirement planning. If you stick with the binary definition of retirement there is a risk that by the time you have accumulated enough money to do it, you are not fit/healthy enough to enjoy it to the full.

Gen_Y_Saver

Some really interesting stuff on here! Thanks again all.


swedespeed - its great to connect with someone who has a similar outlook to me. Are you based in London as those are some decent wages! Well done! Your approach seems pretty solid to me. My only advice would be to read a few posts by the Escape Artist. His advice is invaluable and has really helped me. Best of luck!

wiltshiregirl69

Hi Gen

Interesting thread - albeit I am a bit late to post.
I am in my late forties and not retired yet but I have to agree with some of the posts on here about houses. Instead of paying off a mortgage now - I would buy the most expensive house you could afford jointly - fix at a low rate of interest repayment mortgage for 5 years. The UK is short of housing and there is no policy which clearly addresses this issue, hence I can't see the situation changing much - houses you live in are a very good investment for the future as well as being a nice home. Also it is a tax free saving/investment pot. Then I would max out in a pension only when you hit the higher income bracket. Otherwise I would max out ISAs first.
Friends who were comparable to us at your age saved and scrimped to pay off a mortgage quickly and hence did not move up the property ladder. They are financially worse off than us by some margin for having taken this tack even though they saved like mad from a very early age when we didn't have the spare money to save as our mortgage took most of our 'spare income'.
We dabbled in buy to let but sold that flat off with a reasonable profit some time ago to assist in our final house move. Try and do a job you enjoy rather than concentrating wholly about freedom in retirement. The last thing I was thinking about at 27 was retiring early. I'd worked hard to find my dream job and I'm still in it now. Live life to the full, eat out, travel, have fun, meet interesting people now (because people can get boring when you are older!), concentrate on living this dream right now alongside some saving.

Thrugelmir

You are only 29. Plan for the unpredictable. Life is a roller coaster. While you can aim for long term goals. Whether you achieve them or not is another matter.

swedespeed

Gen_Y - Not in London - but we are in the south east!

SimonBirtwistle

I'm also a subscriber to the early retirement blogs and having a go at it - I'm about to turn 29.

I thought I'd share a few comments - some chime with what's already been mentioned, others are perhaps a bit different:
1. I fill my ISA allowance every year in S&S. My cash emergency fund is in high interest current accounts and regular savers, with the cash remainder in premium bonds (for tax reasons). I've switched away from all other forms of cash saving given the low returns.
2. We also put as much as possible into pensions. I carefully checked the fees in my employer pension - some schemes to have high charges. That's not a reason to forgo employer contribution/matching, but it could have been a good reason to start a SIPP with any other contributions. Fortunately in my case it wasn't necessary. My wife has a civil service pension, which means we are happily diversified.
3. My wife and I bought a long-term home last year. We did this as early as possible so we could spread repayments over longer (while staying well within our means if interest rates rise). That caused a significant increase in expenses - not just mortgage, but we are spending a significant amount on maintenance, improvements, even utility bills. This is part of our "leisure spending" - we enjoy the house, we enjoy the DIY improvements and gardening, but it is a significant cost. It also future-proofs us against children in future.
4. We're also in Vanguard LifeStrategy funds (80% for me, 60% for my wife as she is more risk adverse), held in a Halifax S&S ISA. However, as the pot gets bigger I will be worrying about two forms of concentration risk - platform concentration and fund concentration, i.e. what happens if Vanguard or Halifax fail? These are low risk, and in theory in both cases an investor shouldn't lose out, but with these sums of money I think it's best to be careful. At some point in the next couple of years I'll buy funds other than Vanguard, even if they have higher charges, and I'll open another S&S ISA to hold them in.
5. We're making use of the dividend allowance (currently £5k, expected to go down to £2k), via the Vanguard UK Equity Income fund held outside an ISA. We'll each need about £40k in this to use the full allowance at a yield of 4.5%, which is a very long way off! However, it's the place we chose to go after filling up the S&S ISA for tax efficiency reasons.
6. Finally, and related to the house purchase, we made sure we had appropriate life insurance and critical illness cover so that if something terrible happens to either one of us the other is not put in a difficult situation.

With any spare cash, rather than chase after other forms of high-risk investment (EIS, SEIS, BTL etc) , we'll increase our leisure spending a bit. We've always had dinner out and gone on holiday etc, but we're also now not worrying overly about occasionally buying a new phone, or some furniture for our house. This gives us flexibility to cut back a bit if necessary without changing the core saving plan.

I'm very conscious of the feedback of others around regretting not doing more when younger and want to avoid that while ensuring that my future-self and family are put in the best position possible.

That turned into a much longer post than I expected, sorry! Hopefully it's at least a little useful if you make it to the end.