Helping 31 year old to be financially independent at 55

fred246

I have followed FIRE for years. There is always the occasional person who:
Won't heat the house
Won't buy a car
Won't have children
Won't go on holiday
Won't watch TV
Won't go out
Won't keep pets
Search for food in bins
If you have children you can
Not allow school trips
Never take them on holiday
Not pay for parties or birthday/christmas presents
Not buy them toys
Not allow them to participate in after school activities
No mobile phones
There are people who are happy to live like this. Most aren't. The big question at 31 is 'are you having children?' The other one is 'does your wife want to live like that?'
We just spent money on the things that were important to us and saved the rest. The other thought is if you hate work that much at 31 are you in the right career?

atush

Thrugelmir wrote: »

The holy grail of investing. Where will you find investments that will guarantee this compound return over the next 24 years?

Rather than purchase a BTL. I'd use the £400 to overpay the mortgage. Once your house is paid for and the mortgage gone. Then the neccesity to earn X per annum is greatly reduced.

I personally would not overpay the mtg unles your rate is high. I'd put the 400 into pensions and S&Sisa instead.

We need to know about your OH's pensions and savings, and if you plan for children that means time off work so i'd be upping cash savings and her pesnion while she is still working

DT2001

I did not see that the OP hated his job.
£20k in retirement without kids, mortgage and a small property would seem reasonable having seen some on this forum happily living off 2/3rds of that. Presumably the figure is based on current spending?
Personally I’d avoid BTL. I preferred to extend/improve own home which allows letting of one room, occasionally, utilising rent a room relief. A few K extra straight into savings pots.
Over the years accumulating savings we have chased high interest accounts for the reserve fund, cash back sites, regular savings, ISA’s, SAYE, BTL, renting out a room, home swaps to keep holiday costs down. So IMO looking for opportunities, planning (as the OP is doing), starting early and being flexible is the key.
As fred246 I think is saying, work out what you are comfortable with saving/spending now.

fred246

I'm basically saying it's doable unless you have children. If you have children you won't be able to save that much. You then help them through university. You might be able to have children if you don't let them live a 'normal' life. FIRE doesn't come easily. If you have a very high income and live a modest life it's quite easy. If you have a standard income you have to have a very frugal life. You need to enjoy today but with an eye on tomorrow. Don't have a hard time today hoping that some time in the future everything will be great.

AlanP_2

Durban wrote: »

If you earn £47000 per year , a BTL will push you into higher rate tax bracket. BTL will lose you money rather than make you anything as a higher rate tax payer. This is due to the tax changes that the government have brought in. Research Section 24.

£6k a year pension contributions may mean that OP would still be a BR taxpayer which makes the BTL calculations very different.

MrSaving

Hi guys,

appreciate all the pointers and suggestions.

The idea of a BTL is only really to see whether i could diversify even further and get another income stream.

In regards to my Job, i dont hate it. Its actually quite good and provides great flexibility with some occasional work travel which i dont mind. But having the flexibility to decide what i would like to do when in my 50s, is just a great feeling.

In regards to our quality of life, we are quite happy. The Mrs is not the one "been" frugal, that thats ok as she earns her own money. I do all sorts of stuff, from cashback, to regular bank switch, to collecting air miles with credit card. We go out at least once a week for dinner - can even use the Meerkat 2 for 1 dinner to bring price down if wanted, have friends over, have some TV streaming subscriptions, and go on holiday about 4-5 times a year. I get a thrill from finding great holiday bargains.

In regards to children for now we do not want any, but i suppose the wife is entitled to change her mind later down the line.

My wife is from abroad and had a good Job before we got married.

So in her home country she has an apartment which is paid off and rented out. So that makes about £350 a month.She has about £10 K worth of savings and from her employment a private Pension which holds about 50 K, in this we are not making any further contribution at this time. With this pension she has the option to start drawing it at age 50, but she gets better returns from age 55. An Annuity style offer she would get about 5 K a year or she can opt for a draw down style pension instead. We will decide on what she would like to do when she hits 50. She is currently only 32.
She is now starting to earn better again, but still not perfect. 14 K a year on 30 hrs a week with a Pension contribution currently of £100 a month. Her pension Pot here is currently only at £500, so we are building. She is saving about £300 a month and has 4 K in Cash.

I think that about covers it.

Terron

I work in todays values.


Assuming your wife also has a state pension and is close to tour age that is 16k between you at 68. So you only need another 4k, which ~£100k in a pension is likely to be enough to cover.
Another £200k will cover you from 58 to 68 with likely some left over.
£60 in other savings will cover 55 to 58.
That looks to be about half what you are looking at,


If I were looking at BTK in your curcumstances I would use a limited company and either accumulate the profits to buy more properties (paying corporation tax) or pay directors's pension to yourself and your wife (paying no tax). BTL is working well for me, but it does require some administration even if. like me, you use an agent to manage the properties. It isn't for everyone.

VDOT47

MrSaving - you sound to be in a similar situation to me in terms of your ambitions for 55 and your projected annual expenditure (once mortgage free). Good luck!


GallyGirl - I've just worked through your step by step post above - very useful and a better way of thinking about the 'Shortfall' than I had come up with myself. I have followed your steps (calculating only regular annual expenditure and a sensible annual amount for discretionary spending and holidays when doing step 1) on the assumption that 57 is still the age for pension release when (if) I get there and 68 for state pension. This has given me some interesting figures to consider. What of course it doesn't factor in are changes to those ages and additional 'one-off' or emergency expenditure, nor having a buffer and emergency fund beyond these figures in case of living longer than 20 years after SP age.


For interest, my calculation is £24,000 p.a. regular expenses, assuming mortgage paid off, cars owned and no remaining credit card debt. So, gross, this is somewhere between £30k for one earner (ie. if the pension income all came through one person's pension pot) and £12k personal allowance for each of us if we can get the income more evenly split between us. Obviously this latter option is preferable.


State Pension of £17000 (between me and my wife), so shortfall A would be anywhere from £7k x20 up to £13k x 20 = £140k to £260k


Shortfall B (assuming retirement at 57) = between £24 - 30k x 11 = £264k - £330k


Total Shortfall = c£400k - 590k (and this assumes no other income from part-time work, my wife continuing her business etc between 57-68)


So the target for us has to be to build up pension pots of c£600k by age 57 (ideally fairly evenly split between us, so that drawdown can be done most tax efficiently) and also to have maybe £100k in cash ISAs for emergencies etc.


MrSaving - sorry if the above has hijacked your thread, but hopefully my calculations above (which are pretty similar to what yours would be) will be helpful!

michaels

Thrugelmir wrote: »

The holy grail of investing. Where will you find investments that will guarantee this compound return over the next 24 years?

Rather than purchase a BTL. I'd use the £400 to overpay the mortgage. Once your house is paid for and the mortgage gone. Then the neccesity to earn X per annum is greatly reduced.

I am assuming OP figures are based on a gross return of 5% with 3% inflation - ie a real return of 2% pa - is this not a reasonable (conservative) figure to use for a S&S based pension investment?

gallygirl

VDOT47 wrote: »

What of course it doesn't factor in are changes to those ages and additional 'one-off' or emergency expenditure, nor having a buffer and emergency fund beyond these figures in case of living longer than 20 years after SP age.

Doesn't actually matter though - you have to start somewhere and you can always add an emergency buffer to your figures. The important thing really is to be thinking about it all from a more knowledgeable place than you were earlier!

I have followed FIRE for years. There is always the occasional person who:
Won't heat the house
Won't buy a car
Won't have children
Won't go on holiday
Won't watch TV
Won't go out
Won't keep pets
Search for food in bins
If you have children you can
Not allow school trips
Never take them on holiday
Not pay for parties or birthday/christmas presents
Not buy them toys
Not allow them to participate in after school activities
No mobile phones
There are people who are happy to live like this. Most aren't.

You're right, there are some like that but the majority are just knuckling down to saving while having not too dissimilar a lifestyle to friends and colleagues. They just don't have the biggest house, newest car, 70" TV etc. What I like about MrMM is the way he gets you to look at your lifestyle, simplify it and concentrate on important stuff like family time spent cycling or hiking rather than trailing round a shopping centre buying yet more stuff you don't need then having to buy a bigger house to keep it all in.