Planning for early retirement

atush

I dont think you have enough for 40 for sure (190K and 150K mtg means only 40K left).

If you could get your mtg down to 0 at 45-50 and still have a healthy S&S isa balance plus some cash, maybe.

If you want to go before 55, you really need to slam as much as you can into S&S isas which you can pay off the mtg with, then draw as income.

NumberMan

Albermarle wrote: »

Reading the OP makes me think I must be a bit over cautious.
I am in a stronger financial position but still hedging my bets at 59 about early retirement !

On the other hand although I am not a big spender , I wouldn't like to live off just £20/£25 K a year for a couple . Also there is no mention of children so no Bank of Mum & Dad to fund when they get older maybe.

We certainly live quite frugally. We have one young child who is definitely one of our main expenses - although you could say she saves us money by restricting our ability to holiday too exotically!

I can see the difficulty in deciding exactly when to go and am trying to get a definitive plan together to avoid thinking "one more year" every year and end up working for five years more than we needed.

hugheskevi

Over such a long period, you should consider if simple price escalation will be adequate or whether you should target earnings increases, perhaps until State Pension age. Earnings escalation will preserve standard of living relative to wider working population, prices preserves standard of living relative to point of retirement.

Currently £20,000 is 23% higher than minimum wage (based on 40 hour week, 52 weeks of the year) and £25,000 is 54% higher.

If £20,000 increases in line with CPI (2%) it would be less than minimum wage by 2028 (assuming minimum wage increases in line with earnings at 4.2% p/a). £25,000 increasing in line with prices would be below minimum wage by 2039.

Anonymous101

michaels wrote: »

Can't you use the house equity/mortgage to help bridge the gap to 58 then pay it off using the tfls...ie maximise your mortgage on an io basis fixed until you are 58 and then save all capital payments you would have made into pension and ISA's.

I've had a little bit of a lightbulb moment from this post!
For some reason the ability to use a remortgage in my late 40's to bridge the gap had never really occurred to me.

I'm now thinking it would be much more efficient for the OP (and myself) to maximize saving into pensions, as much as possible within the 40% bracket. Then once you've saved sufficient within the pension remortgage and live off that equity until you could access the TFLS and repay it.

May put a different slant on my F.I. strategy.

michaels

NumberMan wrote: »

This is an interesting question. I agree that your approach is the best option from a pure maximising expected return perspective. In practice, whilst my portfolio is already very geared (c.140% equities, -40% bonds) I feel uncomfortable with taking any more risk. I find it difficult to articulate why this is exactly where I draw the line though - more a gut feel.

I do understand this exactly, we are stoozing a 300k mortgage making a small profit on the turn between our fixed rate mortgage and the borrowed funds deposited in savings accounts. If the 300 wasn't hypothecated against paying back the mortgage then of course it would be invested more aggressively.

However it does mean that we are maxing pension saving rather than maintaining another rainy day accessible cash fund so I guess we are doing a bit of both.

Terron

Linton wrote: »

To get a sustainable £25K/year inflation adjusted income you would need a pot of say £700K. Though this would be reduced particularly if you pay sufficient voluntary NI so that you both get full State Pensions. Add in a lot for contingency, paying off the mortgage, inflation between now and then and tax on the income you cannot get sheltered by ISAs, lets call that £1M.

I am getting about that income with from an investment of £400k in properties over the last 5 years. With capital growth that is about £600k at todays values, but my LTV has dropped below 40%. That is net income before tax, paying letting agents to do most of the work. I was lucky enough to grow up in an area with high yields and to still have contacts there when I started.



I also have pensions, some DB and some DC, total value probably around £600k.

CheesePlant

I am your age and also hoping to retire at a similar age. Our figures are similar although my DH and I both work. We have 170k investments, 170k remaining mortgage, 300k in pensions, combined income of 110k and 2 small children who are probably our biggest expense. One of my concerns is the age at which we will be able to access our private pensions. It's currently 58 but I think it's possible that that could rise to 60 or even 65 before we get there. We put the amount that our respective employers match into our pensions but we put everything else into ISAs and I am anticipating needing to fund the gap until at least age 60. I personally like to actively manage my investments but I know that's not for everyone.

Albermarle

I would think however well your investments do, and how much money you save , it will be a LONG drop down in income from £110K, if you retire in your 40's
You might have a reasonable income in early retirement and obviously you do not spend the whole £110K but with two young children, who only get more expensive as they get older., then.....

Linton

Terron wrote: »

I am getting about that income with from an investment of £400k in properties over the last 5 years. With capital growth that is about £600k at todays values, but my LTV has dropped below 40%. That is net income before tax, paying letting agents to do most of the work. I was lucky enough to grow up in an area with high yields and to still have contacts there when I started.



I also have pensions, some DB and some DC, total value probably around £600k.

Yes, 3.5% return may seem very low, even inflation,matched. especially after our 8 or so years of high growth. However...


The sustainable income figure is based on calculations done on what would have happened over the past 100 plus years if someone had taken an initial annual amount increasing with inflation for say 30 years from an invested pot with a 99% or something like that chance of not running out of money in the meantime despite world wars, the great crash, the rise and fall of nations etc etc.



If you are prepared to take greater risk and/or to reduce your income/expenditure when your investments are failing to deliver then you can take a larger %. However, I believe that you should plan your retirement on the minimal risk basis if at all possible. Coping with running out of money when it is far too late to do anything about it is not an inviting prospect.

MK62

Anonymous101 wrote: »

I've had a little bit of a lightbulb moment from this post!
For some reason the ability to use a remortgage in my late 40's to bridge the gap had never really occurred to me.

I'm now thinking it would be much more efficient for the OP (and myself) to maximize saving into pensions, as much as possible within the 40% bracket. Then once you've saved sufficient within the pension remortgage and live off that equity until you could access the TFLS and repay it.

May put a different slant on my F.I. strategy.

The slight flaw in this is that you have no idea what interest rates will be in 10 years time - taking a £200000 mortgage against your house, might give you a £25k pa income for 8 years or so, but at say 5%, that's £10k pa in interest repayments alone (assuming an interest-only mortgage), and you'd have to be pretty sure your pension would grow to >£800k to support the final mortgage redemption payment of £200k from TFLS......all in all it's a fairly high risk strategy tbh....
Of course you could be lucky, but relying on that isn't really planning........

On your original plan, unfortunately I think you have no chance at 40, and only an outside chance at 45, unless you get favourable returns and are prepared for life on a joint income of c£25k pa, with little in the way of a safety margin for big ticket items such as replacement cars and house repairs etc (and in a retirement period of possibly 45+ years, these will surely come).
Personally, I think a more realistic retirement date to plan for is around 50 (or more)...... you could always go early if the opportunity does arise.