Planning for early retirement

michaels

Of course currently you can fix for 10 years at 2.49% and you effectively won't pay the full interest bill in Y1 as at that point most of the money will be unspent, hopefully earning something close to 2.5% interest.

MK62

michaels wrote: »

Of course currently you can fix for 10 years at 2.49% and you effectively won't pay the full interest bill in Y1 as at that point most of the money will be unspent, hopefully earning something close to 2.5% interest.

You haven't forgotten that the OP still owes £150000 on his current mortgage have you?

Anonymous101

MK62 wrote: »

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.

Yes that is a very valid point. I wouldn't gamble my retirement date on all of this strategy but I think its certainly something to bare in mind to gain an extra couple of years retirement.

By flavoring the pension but not using it exclusively I'd hope to invest perhaps an additional £100k in the pension rather than the S&S ISA and then use a remortgage to fund retirement for 4-5 years. Broadly speaking I'd hope to almost match interest rates on the mortgage with the investment performance so it wouldn't be costing more than a percent or two a year which I'd feel should be made up by the growth of the gross amount within the pension over the same timeframe.

I suppose its just another possibility at this stage and something to think about whilst trying to capitalise on the efficiency of the pension saving rather that post-tax.

Triumph13

Anonymous101 wrote: »

Yes that is a very valid point. I wouldn't gamble my retirement date on all of this strategy but I think its certainly something to bare in mind to gain an extra couple of years retirement.

By flavoring the pension but not using it exclusively I'd hope to invest perhaps an additional £100k in the pension rather than the S&S ISA and then use a remortgage to fund retirement for 4-5 years. Broadly speaking I'd hope to almost match interest rates on the mortgage with the investment performance so it wouldn't be costing more than a percent or two a year which I'd feel should be made up by the growth of the gross amount within the pension over the same timeframe.

I suppose its just another possibility at this stage and something to think about whilst trying to capitalise on the efficiency of the pension saving rather that post-tax.

An offset mortgage could be a good compromise in this situation. Get the mortgage in place before your retire and fully match it in the associated savings / current accounts so that, initially at least, you pay no interest. Spend the money in those accounts over the last few years before pension access then pay off from the TFLS. For a higher rate tax payer the tax savings would more than offset the interest paid.

Anonymous101

Triumph13 wrote: »

An offset mortgage could be a good compromise in this situation. Get the mortgage in place before your retire and fully match it in the associated savings / current accounts so that, initially at least, you pay no interest. Spend the money in those accounts over the last few years before pension access then pay off from the TFLS. For a higher rate tax payer the tax savings would more than offset the interest paid.

That's exactly what I was thinking. A good way to use the equity in your house to bridge the gap until retirement.

cns06

We also plan to retire in the 40-45 age range.


We also would like an income of c.£25k PA (ideally more but that's the minimum).
As such our min pot invested needs to be around £650k. We are aiming for more like £800k though to give some room for bigger bills here and there.


Your SIPP whilst helpful is not going to help you from mid 40s until closer to 60. We don't know the exact date yet but its likely to be 58 before we can draw our SIPP, So you will need to fund around 18 years at 25k PA. So you have to look at balancing the 2 pots.


Personally I have tailed off the SIPP now and push for filling the ISA each year. That might not be an issue for you as your income is more than mine.


Also part of our plan is to have the mortgage either gone or reduced to virtually nothing, or just downsize. But that's a bit further down the road yet.

cns06

I should have said, so our plan (at the moment) is:


Assuming retirement 42/43 then fund 15 years at £30k out of a pot of at least 650k.
This should hopefully leave at least £300k.
Then draw down about £20k from the SIPP and £10k from the £300k balance.


All things being well that should give us a steady £30k per year.

Terron

Linton wrote: »

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.

I am aware of where the 3.5% figure comes from, but that applies to pensions.


I was pointing out that you can do better with property in the right area. I was lucky enough to some knowledge of contacts in an area where investing in property for income would work. Even then my first purchase has not done all that well, but others have and for the last three years I have been getting an income of over £25k from them. That includes a couple of significant void periods. I was also lucky enough to buy before the effects of the boom in Manchester reached here, but that capital growth is just a bonus. My LTV is low and a problem in one tenancy does not affect a large part of my income so the risk is not high. Anyway I have more money in my pensions.



The OP may not live in a suitable area and investing in an area you don't know is not low risk. But then maybe he is in a suitable area.


It is not complete returement. A few minutes a week to check that payments have been made and a few hours a year to do my accounts isn't much work though.

NumberMan

Terron wrote: »

I am aware of where the 3.5% figure comes from, but that applies to pensions.


I was pointing out that you can do better with property in the right area. I was lucky enough to some knowledge of contacts in an area where investing in property for income would work. Even then my first purchase has not done all that well, but others have and for the last three years I have been getting an income of over £25k from them. That includes a couple of significant void periods. I was also lucky enough to buy before the effects of the boom in Manchester reached here, but that capital growth is just a bonus. My LTV is low and a problem in one tenancy does not affect a large part of my income so the risk is not high. Anyway I have more money in my pensions.



The OP may not live in a suitable area and investing in an area you don't know is not low risk. But then maybe he is in a suitable area.


It is not complete returement. A few minutes a week to check that payments have been made and a few hours a year to do my accounts isn't much work though.

I know some people have done well through property but it isn't my area of expertise and I am wary of horror stories of people thinking property was an easy way to make money and getting bad tenants or excessive building repairs. I think it is fine for you, but not for me.

NumberMan

cns06 wrote: »

I should have said, so our plan (at the moment) is:


Assuming retirement 42/43 then fund 15 years at £30k out of a pot of at least 650k.
This should hopefully leave at least £300k.
Then draw down about £20k from the SIPP and £10k from the £300k balance.


All things being well that should give us a steady £30k per year.

Why are you overfunding the pre-retirement pot by so much? Surely it would be more efficient to drip feed the £300k you expect to still be available in your pre-retirement funds at age 58 into your SIPP and take advantage of tax relief?