Future Planning Advice

geeovana

Hello,

Thought I would start a thread to ask advice / confirmation on my financial situation / planning.

Currently just turned 28 and in an OK paying job. Aim is to put as much money away as possible for a lavish retirement. Ambitious goal is to put enough money away, that in 10-15 years I could take early retirement or have enough financial freedom to take breaks off work should I want to spend more time with my potential future family. Currently have a girlfriend of 7 years.

I have been working for two years since graduating and I am currently enrolled in the companies DC pension plan. I pay in 8% and the company matches 16%, which equates to roughly £800.00 per month at present. This is the maximum the company will match so I don't see any benefit in adding more via AVC's etc. that aren't matched.

I am enrolled in the companies SIPP, which the company matches my 2.5% with 5% and I then top up to the HMRC maximum. Again, we are allowed to add more out of bonuses etc. however this extra is not matched so I wont bother.

We have just bought our first house. The mortgage is in my girlfriends name that is only £400 a month. We are currently overpaying this x2. We went for a modest new build in the end to keep the mortgage in just one name that will enable us to keep the house and rent out when we want / are ready to move.

I have filled up my 2016/17 S&S ISA and have miraculously gained 13% (at time of writing) picking my own shares. After realising I don't really know what I am doing and these gains are primarily due to the current bull market, I want to invest in a passive fund such as the Vanguard 80/20 or 100. I have also nearly filled my 2017/18 S&S ISA, however this is currently not invested and will also be fed into the chosen fund over a period of time. My investment aims are to fill my S&S allowance every year and purchase the same fund each month, utilising dollar cost averaging to my benefit.

Any spare cash each month will be split between spending or saving in cash towards future house deposits / emergency fund etc. Obviously as my salary 'hopefully' increases through the years I will have more cash to enjoy myself / invest in other revenues which I can decide upon as and when that happens.

Does anybody see any major flaws in the above plan or any tweaks they would make. How do you think this stacks up against other people in my age bracket?

Thanks in advance for any advice.

Alexland

So if £800 per month is 24% of your salary am I correct to assume your annual salary is £40k? If so on what you have told us, unless you are going to quickly have significant pay rises or inheritance, it seems extremely ambitions to be able to retire in 15 years time.

You talk about starting a family or buying a bigger property both of which are extremely expensive. In addition you need around £300k (or more if you retire early) in your pension pot for each £10k of private income in retirement. Inflation will errode the gains on your investments so consider real returns which are lower than actual returns.

My view is that even if you save and invest really hard with future life events you are on target to retire at 60 to 65.

geeovana

I would be really interested to know your math on that. To be honest I have never really considered inflation. :think:

I have worked off the premise that if I add a further 20K each year, increasing by 1K each year to allow for an increase in the amount allowed to be invested in S&S ISA, assuming a 6% return after costs, then I would end up with around 600K after only 15 Years. Granted this is a good case scenario. I would then have the amount from my SIPP, potentially around 80 K being conservative, plus equity in our house / houses that we have paid off.

This is excluding anything from my Pension.

What adjustments do you recommend making to these calculations to factor in Inflation?

My Girlfriend has a reasonable job (38K at present) and so obviously she would be contributing somewhat to future costs, living expenses and savings.

Thrugelmir

geeovana wrote: »

assuming a 6% return after costs,

That's a high hurdle to jump every year. On the optimistic side.

Alexland

1 - I would reduce your future investment growth assumptions down to 2-3% above inflation. P/E ratios are a bit high at the moment and (although I am not able to estimate volatility or predict over-correction crash events) that is fundamentally likely to suppress future returns the real return above inflation is caused by earnings and capital growth.

2 - when you have children your partners earnings often reduce (if they go part time or quit for a few years and struggle to get back into work at the same wage) or you pay a lot in childcare.

3 - have you determined how much extra mortgage you will need to borrow to get a good size family house and the total likely repayment? Larger properties have higher running and maintenance costs especially periodically replacing the kitchen, bathroom(s), carpets, drive, fences and patio(s). Ok maybe we are unusual in having multiple patios and paying for several days of tree surgeory every year but big houses have quirky expenses. How will this affect your ability to invest at the planned rate?

4 - kids make living expenses higher - such as buying larger family cars, taking holidays in peak season and investing to help them with uni, weddings and house deposits. Suggest you read the LV Cost of a Child survey for the costs to 18.

Sorry I was in a similar position to you in my 20s and now having invested wisely and accumulated a lot of wealth by my late 30s it's still clear I have 15 to 20 years work ahead to provide for my family and have a good standard of living in retirement.

Alex

justme111

Op is on 40 k roughly then. They pay into pension about 4 k leaving them with 36k . After tax and NI it leaves them with 27 k. From them they fill an ISA of 20 k so they spend only 7 k. According to drawdown calculator £100 k pot would give 7 k yearly income for 35 years assuming 4% growth.
He needs to work only for 3 more years contributing as he is to have that 100 k to have 7 k a year till SPA. He will not have SP as he worked for too few years of course but if one adds a couple of more years work till he is 35 lets say with a present rate of saving he will never run out of money if he needs just 7 k a year :T

geeovana

I earn closer to 50K / year after Bonuses etc.

Thanks for the replies.

I guess I need to be a lot more conservative.

justme111

So if you spend about 15 k then 200 k that you would have got in about 6 years would have lasted you for about 20 years. If you work for another 6 years you would have enough to top your SP to those 15 forever but you would not need the same level of income as your mortgage would been paid

Alexland

Yup be conservative but don't stop being ambitious for what you can achieve for your future family.

Audaxer

geeovana wrote: »

I have filled up my 2016/17 S&S ISA and have miraculously gained 13% (at time of writing) picking my own shares. After realising I don't really know what I am doing and these gains are primarily due to the current bull market, I want to invest in a passive fund such as the Vanguard 80/20 or 100. I have also nearly filled my 2017/18 S&S ISA, however this is currently not invested and will also be fed into the chosen fund over a period of time. My investment aims are to fill my S&S allowance every year and purchase the same fund each month, utilising dollar cost averaging to my benefit.

Good plan to move from individual shares to a fund like VLS80 or VLS100 - just don't panic if there is an equity crash with a 50% drop.

I'm puzzled that you have nearly filled your 2017/18 S&S ISA but it is not invested. If it's already in your S&S ISA as cash I would invest it as a lump sum into your preferred fund. If you had planned to drip feed it into the fund, I would have fed it into the S&S ISA monthly from an account earning interest, rather than have it sitting in the S&S ISA as cash.

Otherwise you seem well-organised financially, but early 40s seems very early to retire. You may well change you mind when you get nearer that age.

atush

I agree with most above, at your current rate of saving, retiring under 55 seems to be a big ask. Yu are overstating returns, and you are underestimating the cost of children. I have 3 incl twins and they are super expensive line items. Worth it, but expensive. 200K to age 18, more if you help with Uni, house etc.

AS far as investments go, yes using a fund will be less risky for you. At you age i'd probably go with the 100, depending on how you are investing in your pensions. And i would not consider thinking of takeing mor than 3.5%, so each 100K = 3.5K income- unless you want to run down capital.

Overpaying- what it your mtg rate? I would suggest, if it is as low as most- to stop doing this immediately. And invet the money instead.

OH- what are their pensions like? Do they fill their S&S isas?

So over all well done- you are saving far moer than your peer group. But are too ambityios as to your retirement age. You msy be able to buy a year off work when kids are younger, if your employer will allow it re a sabatical.