We’d like to remind Forumites to please avoid political debate on the Forum.
This is to keep it a safe and useful space for MoneySaving discussions. Threads that are – or become – political in nature may be removed in line with the Forum’s rules. Thank you for your understanding.
📨 Have you signed up to the Forum's new Email Digest yet? Get a selection of trending threads sent straight to your inbox daily, weekly or monthly!
Self employed retirement
SamW123
Posts: 8 Forumite
Hi, I have some questions about how my partner and I should approach and plan for retirement.
Background: We run a partnership company together so are both self-employed. Business is doing ok at the moment and we want to capitalise on this and ensure that (a) we can retire by the time I'm 60 and she is 55, and (b) have enough to live on comfortably for the foreseeable future after that. We have savings of 65K at the moment and own a house (current value approx 400K - we have about 285K to pay on it). I am 46 and she is 41. We are currently able to save roughly 4K a month and have been for about a year. We could at a push save a little more by spending a little less. Business revenue has been consistent. We have a number of ISA and current accounts and try to maximise interest (insofar as one can with interest rates as they are).
Problems: Having looked at a number of retirement calculators and websites discussing what would be a "good" retirement income i.e enough to live on comfortably (but not excessively) - it seems that an average retiree needs an annual income of about 27K (although with inflation I would expect that to be rather more in 14 years' time). So for both of us that would be a requirement of at least 54K. Based on current savings and our saving ability, we should be able to save up around 850K in 14 years, however based on average income requirement that would last us about 13.7 years. That doesn't seem like long enough to me. (I'm not factoring in the "state pension" as that might not even be a thing when we retire - or we may not get all or even any of it - and its pretty meagre anyway)
There are options such as selling the business, but we may pass that on to our son, particularly if it becomes even more difficult for young people to get decent jobs. Also I haven't factored in the target that we have of paying off our mortgage in the next 10 years. I can't work out how precisely that might reduce the "required income" for retirement - maths not being my strong point.
Of course, business might tail off and we may end up with a lot less so whatever we've saved may not get us very far at all (and may mean we're still paying off the mortgage much later than we want). However anything is better than nothing- I appreciate that we should have been thinking about this in detail when we were young, but we are where we are so to speak.
We've been self-employed for a long time so don't have employee pensions. I looked into the possibility of a private pension a while ago but as far as I could tell they're linked to markets / stocks and shares so there's a large element of risk with investing in them, particularly in these volatile and chaotic times.
So we're using ISAs (and my partner also has a LISA) and savings accounts to maximise what we can in as risk-free a way as possible, but obviously that doesn't amount to much at all.
I'd like to know if anyone has any ideas as to how we can improve our prospects in terms of having enough to live on when we retire. 850K sounds like a lot (well, to me anyway) until I work out that it might not last us as long as thought. It's possible we might need 1.5 times that if we manage to stick around. So it's a real problem. Any ideas / tips appreciated.
Background: We run a partnership company together so are both self-employed. Business is doing ok at the moment and we want to capitalise on this and ensure that (a) we can retire by the time I'm 60 and she is 55, and (b) have enough to live on comfortably for the foreseeable future after that. We have savings of 65K at the moment and own a house (current value approx 400K - we have about 285K to pay on it). I am 46 and she is 41. We are currently able to save roughly 4K a month and have been for about a year. We could at a push save a little more by spending a little less. Business revenue has been consistent. We have a number of ISA and current accounts and try to maximise interest (insofar as one can with interest rates as they are).
Problems: Having looked at a number of retirement calculators and websites discussing what would be a "good" retirement income i.e enough to live on comfortably (but not excessively) - it seems that an average retiree needs an annual income of about 27K (although with inflation I would expect that to be rather more in 14 years' time). So for both of us that would be a requirement of at least 54K. Based on current savings and our saving ability, we should be able to save up around 850K in 14 years, however based on average income requirement that would last us about 13.7 years. That doesn't seem like long enough to me. (I'm not factoring in the "state pension" as that might not even be a thing when we retire - or we may not get all or even any of it - and its pretty meagre anyway)
There are options such as selling the business, but we may pass that on to our son, particularly if it becomes even more difficult for young people to get decent jobs. Also I haven't factored in the target that we have of paying off our mortgage in the next 10 years. I can't work out how precisely that might reduce the "required income" for retirement - maths not being my strong point.
Of course, business might tail off and we may end up with a lot less so whatever we've saved may not get us very far at all (and may mean we're still paying off the mortgage much later than we want). However anything is better than nothing- I appreciate that we should have been thinking about this in detail when we were young, but we are where we are so to speak.
We've been self-employed for a long time so don't have employee pensions. I looked into the possibility of a private pension a while ago but as far as I could tell they're linked to markets / stocks and shares so there's a large element of risk with investing in them, particularly in these volatile and chaotic times.
So we're using ISAs (and my partner also has a LISA) and savings accounts to maximise what we can in as risk-free a way as possible, but obviously that doesn't amount to much at all.
I'd like to know if anyone has any ideas as to how we can improve our prospects in terms of having enough to live on when we retire. 850K sounds like a lot (well, to me anyway) until I work out that it might not last us as long as thought. It's possible we might need 1.5 times that if we manage to stick around. So it's a real problem. Any ideas / tips appreciated.
0
Comments
-
Ignore inflation effects on your income requirement for now.
How much do you need to live on when you are retired? Write down / analyse your banks & CC statements and work out what you spend, on what today.
Take off those things that won't be factors when retired e.g. mortgage, travel to work costs etc. to arrive at the income you need.
Various discussions across the web as you say, but do you as couple need 2 *27k or is it actually 1 * 48k (example only)?
That gives you a target income then you need to work out how to get there.
Unless you INVEST as opposed to SAVE then I think you will really struggle.
A diverse investment across geographies and asset types has typically returned inflation + 4/5% - Are any of your savings accounts giving you that?
Unless you use PENSIONS (one for each of you) with their associated tax benefits I think you will struggle.
Are you both ensuring that NI is paid and that you will both qualify for a State Pension?
Pretty meagre in your opinion perhaps but 2 * 8.5k, inflation linked and guaranteed for life isn't in my opinion.
If you did need the 2 * 27 = £54k you mentioned then 17k of SP is almost a third of it.0 -
So we're using ISAs (and my partner also has a LISA) and savings accounts to maximise what we can in as risk-free a way as possible, but obviously that doesn't amount to much at all.
What do you mean by risk free?
You are replacing with investment risk with shortfall risk and inflation risk. Those two things may only happen with investments but will happen with cash savings.
Using cash savings can actually increase your risk.
What do you mean by that and how do you think it differs from other times?particularly in these volatile and chaotic times.I am an Independent Financial Adviser (IFA). The comments I make are just my opinion and are for discussion purposes only. They are not financial advice and you should not treat them as such. If you feel an area discussed may be relevant to you, then please seek advice from an Independent Financial Adviser local to you.0 -
If you can save £850k (in today's money), have paid off your mortgage and be in line for full SP by the time you at 60/55, you will be well set up for a comfortable retirement by most standards.0
-
Ignore inflation effects on your income requirement for now.
How much do you need to live on when you are retired? Write down / analyse your banks & CC statements and work out what you spend, on what today.
Take off those things that won't be factors when retired e.g. mortgage, travel to work costs etc. to arrive at the income you need.
Various discussions across the web as you say, but do you as couple need 2 *27k or is it actually 1 * 48k (example only)?
That gives you a target income then you need to work out how to get there.
Unless you INVEST as opposed to SAVE then I think you will really struggle.
A diverse investment across geographies and asset types has typically returned inflation + 4/5% - Are any of your savings accounts giving you that?
Unless you use PENSIONS (one for each of you) with their associated tax benefits I think you will struggle.
Are you both ensuring that NI is paid and that you will both qualify for a State Pension?
Pretty meagre in your opinion perhaps but 2 * 8.5k, inflation linked and guaranteed for life isn't in my opinion.
If you did need the 2 * 27 = £54k you mentioned then 17k of SP is almost a third of it.
Thanks for the reply, and the advice. You say invest rather than save, but invest in what? I'm very wary of stocks and shares and want to eliminate risk as much as possible.
As we've both been self-employed for a long time we don't have company pensions, which is obviously another area of concern.
We do pay NI (it's included as part of our tax return) so assuming the state pension is still around in 15 years I imagine we would be eligible (although I try to assume absolutely nothing).0 -
If you can save £850k (in today's money), have paid off your mortgage and be in line for full SP by the time you at 60/55, you will be well set up for a comfortable retirement by most standards.
Is this for a single person?
I'm married (one of the advantages being sharing the bills and things like a car).
Does £750K sound ok?0 -
You refer to a 'partnership company' - which is it? A partnership or a company? I suspect the former, in which case you might want to look at the merits of becoming a limited company, not least in terms of pension contributions.0
-
What do you mean by risk free?
You are replacing with investment risk with shortfall risk and inflation risk. Those two things may only happen with investments but will happen with cash savings.
Using cash savings can actually increase your risk.
So we shouldn't be trying to make cash savings? I don't see there's much else we can do- in terms of investments we've bought a house, although I don't expect house prices will rise much going forwards (they may even fall)- we're hoping to pay it off as quickly as we can obviously- so perhaps a house isn't much of an investment any more...
Obviously it's critical that we don't run out of money and that things are as certain as they possibly can be, which is why I don't want to go down the road of "investing" in things particularly as I wouldn't know what I'm doing.0 -
You refer to a 'partnership company' - which is it? A partnership or a company? I suspect the former, in which case you might want to look at the merits of becoming a limited company, not least in terms of pension contributions.
Correct, it is a partnership. I suspect if we made it a limited company our accounting might become more complex and we would have to enlist the (expensive) services of a professional accountant to sort everything out- especially if pensions were involved.0
This discussion has been closed.
Confirm your email address to Create Threads and Reply
Categories
- All Categories
- 352.1K Banking & Borrowing
- 253.6K Reduce Debt & Boost Income
- 454.2K Spending & Discounts
- 245.1K Work, Benefits & Business
- 600.7K Mortgages, Homes & Bills
- 177.5K Life & Family
- 258.9K Travel & Transport
- 1.5M Hobbies & Leisure
- 16.1K Discuss & Feedback
- 37.6K Read-Only Boards