Have we saved enough to do this?

Sweetmelody_2

Have recently been spending some time analysing what my husband (49) and I (46) should have available as income in retirement. Was pretty surprised by the figures since it seemed to suggest that if we stopped saving now, we should have a joint gross income of c£50,000. This seems to be above what we would require, based on current expenditure levels, assuming children who are now 10 and 3 are more financially independent (if not totally independent). I also noted the Which survey that suggested £39,000 net for a couple to enjoy a luxurious retirement. We live in South Hertfordshire, close to London so not the cheapest part of the country to live...

Db pension 1 £5,558
Db pension 2 £4,753
Db pension 3 £7,900
Rental property 1 net income £5,400
Rental property 2 net income £4,600
Rental property 3 net income £5,400
State pension x 2 £16,600

DC savings pot 1 £38,000
DC savings pot 2 £43,589

Property 1 is soon to be mortgage free
Properties 2 and 3 have combined interest-only mortgages of £145,000. Any DC savings pots will need to be increased to pay off these mortgages (a further £60,000 needed?).

We have been mulling all of this over because we are thinking about moving House in the next year or so. This will be expensive as it may require us to increase our mortgage to between £400k and £500k :eek: (50% LTV). But I have been the main breadwinner and pension saver for the last 15 years, supporting my husband and the family while he has been building his own business of which he is the sole shareholder and I think it’s fair to ask the business to now pay its way. While my husband’s pension savings have been limited to the mortgage free property to date, the business is now in a position where it can make employer contributions at the £40,000 allowance limit each year which is amazing for him after all his hard work. Given that he will be 50 next year, 5 years of saving into a SIPP will give us £250,000 (before any investment gains and before tax) that we can access when he is 55. Although we can borrow enough based on our current incomes, it is a huge commitment and I like the fact that this will give us the security and peace of mind that we could fund as much as half the initial mortgage amount (assuming tax free drawdown each year from 55) if, for example, my work situation changes and repayments became difficult. Anything left would go into the pension pot.

I know this will all need careful planning to ensure we can afford the tax too, but have I missed anything obvious? I would be really grateful if anyone would be willing to check my figures and let me know.

Linton

In my view £39K/year expenditure should be pretty comfortable rather than luxurious for 2 people. No world cruises or new cars every 3 years though you should be able to shop at Waitrose. But you have the childen who will be a drain on your resources perhaps for 15-20 years (or did you mean their ages are 10 and 13?). When would you plan to retire?



Some random thoughts....
- It isnt clear to me how you would pay for the £250K mortgage and pay off the BTL interest only mortgages. I would be concerned at having so much debt at this stage of your life.

- it is all very well having £250K in a pension pot, but will your husband be able to draw it down in the required timeframe without paying Higher Rate Tax or worse? Drawdown beyond the 25% tax free is taxed as income.

- Once the children have left home would you need such an expensive, presumably large, house.
- How will you finance retirement before the dates your SP and DB pensions start if that is what you want? Personally I would put that ahead of buying a new house. If you want a special last move house why not look for a somewhat cheaper part of the country?


PS re early retirement: do you want another 20 years of work?

Mnd

That is what 1 would be thinking. If you want to stop working say at 60, then you need to fund the gap between early retirement and your state pension

Sweetmelody_2

Linton - thanks for replying. Felt good to get it all down!

You!!!8217;ve given me some helpful prompts...

Children are 3 and 10 so yes, another 15-20 years

Our current earnings would make the repayments on the £500k mortgage. In five years, we would be able to draw down the £250k which we will build with contributions from the business. We would draw down in the most tax efficient way sufficient to meet up to the mortgage repayment each month (say £30k per annum) but yes, could mean paying higher rate tax on some of that. But surely no worse than earning as salary and paying PAYE, but more tax efficient?

The BTL mortgages would be paid for by the DC pots, but we are currently £60k short of the total required, so my current pension saving from my salary would need to be diverted to that goal.

At some point after 15-20 years we might want to downsize, but this is within appetite has have moved house more often than that to date.

Moving to another part of the country is not an option right now because of family commitments and school choices.

Because separate provision is being made for half the mortgage and because this will be achieved by the time my husband is 55, I!!!8217;m trying to get it clear in my head as to whether I could consider this a £250k rather than a £500k mortgage funded from our current level of earnings, with the £250k balance funded by business profits (which are currently not drawn from the business). The business!!!8217;s debt, as it were.

And yes, you!!!8217;ve surmised correctly that it essentially comes down to a choice between earlier retirement and a special last move, as the £250k accrued could go some way to bridge the gap between 55 and DB/state pensions (I!!!8217;ve not done that maths)

That was very helpful, thanks

bostonerimus

Have you done a detailed budget. You might think you are ok, but seeing where everything goes can be illuminating.

I would say the biggest areas of uncertainty are the children....they can be expensive.....and the mortgages. I'd want to reduce any outstanding mortgages.

Linton

I agree with bostonerimus that you need to make a detailed budget, at the moment it doesnt seem 100% convincing. Also you need to stress test it against major increases in mortgage rates. Having a large variable rate loan and a fairly fixed income could be uncomfortable.

Brynsam

Why is your husband the sole shareholder? You're missing a tax break on dividends - you can always have a second class of share if he doesn't like the idea of his voting rights being diluted by his wife's holding!

kidmugsy

Sweetmelody wrote: »

husband (49) and I (46) should have available as income in retirement.

Db pension 1 £5,558
Db pension 2 £4,753
Db pension 3 £7,900 ....

What are the scheme retirement ages for these pensions? Does any of them offer a Cash Equivalent Transfer Value so appealing that you might take it, expecting to use the TFLS at age 55 to help clear mortgage debt?

Sweetmelody wrote: »

Rental property 1 net income £5,400
Rental property 2 net income £4,600
Rental property 3 net income £5,400

Property 1 is soon to be mortgage free. Properties 2 and 3 have combined interest-only mortgages of £145,000.

Would there be any advantage in getting rid of mortgage debt by selling one of the properties?

Sweetmelody wrote: »

We have been mulling all of this over because we are thinking about moving House in the next year or so. This will be expensive as it may require us to increase our mortgage to between £400k and £500k :eek:

By golly, you're not worried about having so much of your wealth tied up in just one sort of asset, residential property?

Sweetmelody wrote: »

Given that he will be 50 next year, 5 years of saving into a SIPP will give us £250,000 (before any investment gains and before tax)

No; 5 x £40k = £200k (before any investment losses).

swindiff

kidmugsy wrote: »

No; 5 x £40k = £200k (before any investment losses).

Plus tax relief

Linton

swindiff wrote: »

Plus tax relief

The payment will be an employers contribution and so does not affect the OPs husbands tax. I think the 250 should be 240 being 6 years payments - ie this year and the 5 up to when when husband is 55.

AlanP_2

swindiff wrote: »

Plus tax relief

Do you get personal Tax Relief on a company contribution?