Help planning for financial independence

Fire45

Hi all,

Wanted to get some constructive advice on financial planning for financial independence and ultimately retirement.

Mainly, what to do with our spare income...

My wife and I are 34 and 36 respectively with a 3 year old and a baby. House is mortgage free.

We are fortunate enough that I’m a high earner well into the additional tax braket and my wife is a higher tax rate payer.

We are saving around 70% of our income now that the mortgage has been paid off. As significant nursery fees reduce this may improve.

We max out our ISAs with S&S passive index trackers or a simple vangurd life strategy 60. I’m paying 32% on top of my company 5% pension to use up my carry forward unused allowances from past 3 years as this 2018 tax year onwards my annual allowance will be reduced to the minimum £10k. My wife pays in 22% on top of the company 7%

I have £1k in a 5% ratesetter 1 year loan and £60kin our Santander current accounts making a nominal 1.5%.

I don’t want to hold much cash, but will drop feed into stock market ISA monthly to ‘dollar cost average.’

Where do I go from here? I’d prefer hassle free investments of stocks over a buy to let property. I could help the wife top up her pension, but I would like to be financially independent before pensionable age so we need accessible income now. I’m not overly keen on ratesetters model should the market slide after brexit.

Have I exhausted tax efficient options and should just open a taxed investment account and start reading up on capital gains tax? (I know little of this so at this point)

I’m not even 100% on how much we would need to cover our costs until pensionable age and at that point if we should take a tax lump sum or not, but that seems a way off.

Any constructive input appreciated. Thank you.

AlanP_2

For your ages you are doing better than probably 99.5% of the population so congrats.

If it was me, with that much disposable income and the desire to come up with a long term plan I would engage the services of an Independent Financial Adviser (IFA) with the stress on the I.

A simplistic answer is to invest in a non tax-advantaged account for for the residual amount as you mention.

S&S LISA for both of you to get 1k bonus from Gov on £4k per year you each invest? Replaces part of your standard ISA allowance I believe.

For cash look at the various threads on here and main MSE site discussions on interest paying Current Accounts and Regular Savers.

SmashedAvacado

while you are thinking about what to do, its worth buying your max premium bond entitlement as you never know whether you'll win big - they are fully liquid, and return a bit more than most bank accounts without the hassle of tax.

Perhaps buy a property or two?

tacpot12

Yes, congratulations on getting to a happy state.

If you don't have income protection insurance, I would sort this out as a priority. Making a monthly budget, so that you know how much it currently costs you to live, will be useful in setting the level of this insurance.

Given your situation, l would look to keep puttting cash into S&S ISAs for you both, and the remainder into non-tax advantaged investment accounts - often called General Investment Acounts or GIAs.

I think you are right to steer away from the effort of running a portfolio of rental properties. The government are adding new requirements onto landlord that will further erode margins and increase the risk of significant loss if you are unlucky. Stick with what you know works, and just pay more tax. You will still be much better off.

Once you have most assets, you might look at Venture Capital Trusts (VCTs) as a way of reducing your tax liability. I would only ever put a small proportion of my wealth into VCTs though.

Thrugelmir

Enjoy life a little while you are able. Time is more valuable than money. Best laid plans often go awry. How ever well planned they may be.

Albermarle

If you are earning so much money as a couple , that you can live a nice life and still save 70%, then why worry about the detail of investments and how much tax you may or may not have to pay.
Even if you make some less than perfect financial decisions you will still be better off than 99.9 % of the people in the world.
In theory at least one big advantage of having loadsamoney is not having to worry about money, like most people have to .

Clive_Woody

You might want to consider a junior ISA to start setting aside some money for the little one.

https://www.moneysavingexpert.com/savings/junior-isa/

Start reading up on pensions, in particular life time allowance which most likely will become an issue you will need to think about. Understanding your options for early retirement, drawing down your pensions, knowing what your money is invested in, etc are useful things to be aware of.

As mentioned it may be well worth the cost of talking with an IFA to discuss options as they may well be able to produce better returns than you can DIY, or at least point out some of the potential pitfalls. Also maybe consider talking with an accountant who may be able to talk about tax planning and sort out any CGT that may soon become a concern.

Given your age and income I would consider a higher risk VLS fund, either 80 or even 100% shares to maximise growth as you still have a lot of time for the money to grow. Or at least stick some of the money in funds with a potential for higher growth. But then that reflects my attitude to risk.

Also, don't forget to enjoy yourself and don't become totally focused on saving/money. Life goes on, kids grow up far too quickly so take some time for yourself and your family.

michaels

I guess the basics still apply, calculate your number and see what retirement age that give you given your current saving rate.

One thing I do is work part time to stay out of higher tax bands. This does reduce what I can save now but I see it as taking part of my retirement early in a more tax efficient way.

kangoora

You probably want to read up on the Lifetime Allowance and check whether it could hit you.

https://www.gov.uk/tax-on-your-private-pension/lifetime-allowance

With the sizable contributions you are making to your pensions it seems likely and as already fill your ISA allowance you may struggle for tax efficient savings - spend some and have some fun

bostonerimus

Definitely max out all your pensions and ISA options and then open a general accounts for you and your spouse. The UK has large capital tax gains allowances and so there are lots of opportunities to minimise/avoid that when it comes to sell.

The main thing I would do though would be a detailed budget so you can see how your investment and pension pots match up against your income needs. It will also help you to see where you are spending and maybe trim costs a bit more. With a young family I'd also check that your insurance coverages are all how you want them.

Cruixer

I think the first question needs to be, what are you doing it all for? If you love your jobs, and you are happy with the way your lives are, then I suppose it makes sense to either keep investing or start spending.


I'm 46, with a 4 year old, mortgage paid off, one other rental property and about £60k in the bank. I am starting to think more about whether I could reduce my hours to part time. Personally I think that I would rather work 3 days a week from now and retire at 65, than say work 5 days a week and retire at 58. Having said that, if I had two days off a week, while my daughter was at school I would be working on the house and probably be making on a net gain versus me working and paying others to do it.



I think its the latter point that makes this question about financial independence very personal. For people who have expensive tastes and want to go on 3 cruises per year, you need a big pot. For people who have inexpensive hobbies and other activities to occupy their time, its really more about having enough to pay the bills. You also have to trade it off against how valuable your time is, especially when you have young children, as you don't get that time back.