Balanced Plan for Retirement - what do you think?

Mr_EDATD

***long post alert***

Hi Everyone

I have been lurking on these forums for a while, getting ideas and generally enjoying people talking about things that most of my friends aren’t interested in. I thought that it was about time I introduced myself and put my plan out there to see what people think.

A bit about myself and Mrs EDATD – we are 38 and 40 respectively, through a combination of years of study, hard work and being in the right place at the right time we have got well paid jobs. We both have a mixture of final salary and career average pensions (we know that we are lucky to have these!). Although we like our jobs we are definitely ‘work to live’ people rather than ‘live to work’ so want to retire earlier than SPA. I have therefore come up with a strategy that I think will work that takes into account the following requirements:

1. We want to enjoy life now and not feel that we are giving up too much
2. We want to be comfortable in retirement (I know that this is subjective)

Below is a basic monthly SOA based on the last year’s outgoings:

Income (after pension contributions).......6,357.99
Mortgage payments..................................(724.19)
Mortgage overpayments........................(1,000.00)
Other expenditure..................................(3,074.00)
Total Expenditure...................................(4,798.19)

Monthly Savings.......................................1,559.80


Assets
House...................................................250,000.00
Mortgage (lifetime tracker 2.24%).......(83,000.00)
Cars x 2...................................................50,000.00
Cash..........................................................6,500.00
Premium bonds......................................34,500.00
S&S ISA (HSBC global balanced)...............3,570.00
Total.....................................................261,570.00

The premium bonds and cash are our emergency fund / savings for holidays and longer term items such as home improvements / next cars. These are topped up by c£1k per month. The ISA is something that I started fairly recently as a rehearsal for what to do with the spare cash when the mortgage is paid off in 4 years (to test how we react to market movements and learn about our risk appetite). £500 goes into this each month at the moment.

Our passions are fitness, holidays and cars. These are what about 50% of our £3,074 is spent on. Overall we are happy with how much we spend now and what we spend it on. That has led me to my first main retirement decision – our ‘number’ is c£48k after tax. We could definitely live on less which would bring retirement closer but that would be going against requirement number 1.

Working on the basis that I don’t want our retirement to be dependent on the state pension I have calculated that we will be able to achieve this (actually £4.7k after tax) without any heroic assumptions around pay rises by 2035 (I’ll be 55 and Mrs EDATD. will be 57).

The question then is how to cover the gap until the final salary pensions kick in at 60 and then until the rest of the pensions kick in at 68.
I have calculated the gap to be £352k. This is based on requiring £48k x 13years = £624k less our pension receipts after tax of £272k. breakdown of £272k is:

• My final salary scheme: £11.7k for 8years + £35.1k Lump sum = £128.7k
• Mrs' final salary scheme: £8.8k for 10 years + £26.4k Lump sum = £114.5k
• Mrs' career average scheme: £14.4k (inc tax deduction after personal allowance used up) for 2 years = £28.8k

To achieve that amount we will continue to build on the ISA by £500 per month until the mortgage is paid off in April 2023. (£3.5k + (£500 x 51)) = £29k.

When the mortgage is paid off we will add the additional funds to the £500 to make a saving of £2,224 per month for just over 12 years, I.e. 145 months = £322,480. This would be split between both of us to keep within the £20k allowance and in the real world will need to be uplifted by inflation if it is to have the desired effect.

I make it that this will leave us £520 short so fingers crossed investing for 17 years will result in beating inflation by a fraction

People may say that we would be better not paying off the mortgage and investing instead. I can see why that might be the case but Mrs EDATD is more risk averse than me so this part keeps her happy.

In coming up with the plan I have considered various options for filling this gap. Putting more towards pensions (SIPPs), particularly mine as I’m a higher rate tax payer, and it did look tempting but that means tying up the funds for the long term and reducing flexibility if something happens that means life changes in a way that I haven’t thought of. Also, I have been fairly conservative with the growth in salary when creating the plan but based on history and potential career development opportunities the LTA could fairly easily come into play. I maybe do need to consider a mixture of additional SIPP and ISA but perhaps that is something to work on a bit further down the line – I won’t be able to access the SIPP from 55 anyway and if pay rises / investment growth mean that we can retire even earlier then it would be nice to have the option.

There you go then people, thanks for taking the time to read all of this, let me know what you think. Have I made any huge errors?

Mr_EDATD

Sorry I spent a lot of time doing the calculations but was conscious off not making the post even longer.


£48k x 3 is the annual requirement for the 3 years until Mrs EDATD can draw the first part of her pension (the final salary one).


The £4k (monthly requirement) less her £734 monthly pension that pays out from 60 for 24 months (until I'm 60)


The next one is for the six years that we are both drawing the pensions that pay out from 60 (until the Mrs is 68 and she receives the second pension)


The next one is for the two years until I can access my career average pension.


The final two adjustments are the 2 lump sums that we will receive when we turn 60.


I have worked out the monthly amounts taking into account the current tax regime.

NoMore

OK, but it would have been easier to follow if you had just calculated total income required (48k x 12) and then your total expected income during the same period and then took one from the other.

Your corrections for each year are confusing to follow at the moment.

At least for me!

Mr_EDATD

NoMore wrote: »

OK, but it would have been easier to follow if you had just calculated total income required (48k x 12) and then your total expected income during the same period and then took one from the other.

Your corrections for each year are confusing to follow at the moment.

At least for me!

Agreed - it made sense to me to calculate it chronologically but I can see that it looks a mess. I'll sort it out tomorrow.

k6chris

Mr_EDATD wrote: »

Agreed - it made sense to me to calculate it chronologically but I can see that it looks a mess. I'll sort it out tomorrow.

Welcome to the world of thinking about FIRE - and the need for 'clarity of calculation'. How much will you need, how much do you currently have and when do you want to hit your goal???

Happier_Me

Forgive me if this is a stupid question - in my defence I'm somewhat sleep deprived - but if you're happy with your current after tax spend of around £37k a year why are you aiming for £48k after tax? I get you may want to still save or have a contingency but £11k seems a bit excessive particularly if you have access to lump sums.

Probably missing the obvious here so ignore me if that's the case.

Mr_EDATD

Hi Happier Me


The extra £11k is to cover the longer term items such as new cars or home improvements that were excluded from the £37k. It is probably on the excessive side but I am also conscious that at the moment a lot of our time is spent at work so when we have more time on our hands spending is likely to go up so I guess that is to cover that as well.

enthusiasticsaver

You have done well so far in building up those assets and pensions and I agree that you should not sacrifice your lifestyle today for the sake of saving for tomorrow.

I would maybe consider directing more of your spare money to investing in sipps or stocks and shares isas rather than overpaying the mortgage but understand if your wife is risk averse why she would decide to prioritise that. You are still putting £500 a month away though in the s and s isa so are not ignoring that.

Your plan looks good to me anyway and I cannot see any glaring holes. We found a combination of different income sources worked out best from a tax and flexibility point of view. So DB pensions including the TFLS, SIPPs and stocks and shares isas.


The thing which meant we delayed our retirement until age 58 was kids and helping them out with Universities, house deposits, weddings etc You don't mention that so I assume you don't have any? No plans to move house?

Bravepants

What sort of cars are you interested in?


Are they usually new, shiny and straight off the dealership forecourt?


What about considering the amount of spare time you have in retirement and what you will do with your spare time?


Instead of spending money to buy new cars every few years, you could get into buying modern classics to do up, use for a while, then sell on for little or no loss, maybe even gain! Thus turning your love of cars into something that provides not only pleasure but a less demanding income requirement.

Mr_EDATD

No kids and no plans to have any so that definitely helps in terms of financial planning. No plans to move house - we live in a good sized 3 bed detached house with a massive double garage and a nice garden. It is in a decent area in biking distance to work and close to friends and family. I do occasionally get tempted with the idea of moving to a more exclusive area to a large house with more kerb appeal but other than showing off and spending more time cleaning I'm not sure what the point would be.

My car is 9 year old Jag (bought 3.5 years ago after someone else had taken a £50k depreciation hit). The costs are more around tax (£555/year - supercharged 5L V8) insurance (not too bad now I am getting on in years) and maintenance (a couple of expensive issues this year plus servicing / tyres etc.) I only do 4500 miles a year so don't spend a fortune on fuel but I recognise that it is an extravagant expense - 510bhp feels awesome though:eek:. I am not massively hands on mechanically but spend a disproportionate amount of time keeping it shiny. I have thought about modern classics but the prices of the things I'd be interested in are getting as expensive as new cars anyway.


Mrs EDATD drives a 2 year old 4 series which she did buy from a dealership but it wasn't new - this was a victory for me as her previous car (before we were together) was new, although she did keep it for 8 years.


In terms of what to do with our time - we both have a lot of hobbies so at the minute I guess more of that. We struggle to fit them all in around work so I'm not worried about having things to do. I'd like to play golf on a more regular basis and my better half would like to bake more (she is good enough to turn it into a business if she wanted to).

atush

I have to say the cars stood out for me. 50K? Are they truely worth that now after depreciation or is that purchase price?

In any case, might be spending too much on caars now.

I agree i'd up the S&S isas and pensions over buying another car that expensive, and over overpaying mtg.