Just turned 40 - want to retire at 58 - sense check

rawhammered

Just crashed through the 30/40 divide and would like to retire as soon as I can: believe I can access my pensions when 58 so that's a date to aim for. Wife (same age) is part time teacher and have 2 primary school kids.

Summary of finances:
- Mortgage is just shy of £100k on approx £275k house. no intention of moving. Intend to make 10% overpayments each year which should be paid off in 8 years or so.
- My DC pension pot is currently £250k +/- daily fluctuations of a few k depending on how markets moving. Invested in company's higher risk plan with management charges of 0.13% which seem nice and low.
- Currently my employer is contributing ~£2k into my pension each month (sal sacrifice putting me comfortably into basic rate).
- Wife is in standard teachers pension, no AVCs and not sure what's it's worth (expectation this will be used by us as rainy day money when we both retire).
- household take home pay is £4k net, which is significantly more than we need to survive on. From this we save about £1k per month into S&S ISAs and £1k into a variety of rolling 5% regular savers.
- we have about £20k each in our S&S ISAs currently. Kids also have a small Junior ISA each of about £8k which I'm gusssing will be £20k or so each when they turn 18 and likely blow it on all on cars/uni/holidays. Such is life.

Expectation is that we'd live comfortably in retirement of about £3k per month (£2k month for basics and then £1k buffer for frivolities).

Does this sound realistic and sustainable? Guess biggest issue would be 10 wait for state pension to kick in (if it exists!), so will continue to grow ISAs to mitigate that need.

MallyGirl

If it were me I would not be overpaying the mortgage while rates are so low and you aren't seeking to improve LTV for another move. I would be making more use of the sal sac and putting it there. You can pay off any remaining mortgage with the TFLS having gained 32% tax and NI uplift plus investment growth.

Albermarle

I agree with the above , even more so if your employer is giving you back the employers NI being saved by salary sacrifice ( some do and some don't)
Otherwise you seem to be on a good track but of course you will need to reassess nearer the time whether the figures add up for retiring at 58. Life will have moved on, and not always as expected .

Triumph13

The first thing to do is to check what your wife's TPS is likely to pay. Then add that to a couple of state pensions and work out a) how much more you'd need on top and b) how much you need to bridge the gap between retirement and pensions.
As a quick back-of-a-fag- packet exercise, I assumed that her TPS would pay £7,500 PA if she works to 58. Add two lots of SP gets you to £24k pa post tax. Assume a 10 year gap between retirement and that coming on line gives roughly a quarter of a million needed for bridging.
You also need a pot to give you another £12k pa post tax - say £15k pre tax. At a conservative 3% drawdown that would be another half a million. Total required in your DC as 58 is therefore £750k.
You have £250k now and £24k a year being added. Assuming 3% real growth would get you to £1M by 58. You are also saving £1-£2k a month from your take home on top of this? Hmmm.

You have a difficult decision to make. Do you want to spend more now and/or in the future, or do you want to retire significantly earlier than 58? I can recommend the latter!

Bemma

As MallyGirl says above, forget the mortgage overpayments and make use of the sal sac. Most people get fairly emotive when it comes to mortgages, but purely financially, the pension would be better. Particularly with Sal Sac.

With 32% relief you get an instant 47% uplift going in to your pension (1/0.68). Does your employer contribute any employer NI, which would make it even better.

So that £10k you were going to use for mortgage overpayments, becomes at least £14.7k in your pension instantly if you sal sac, that takes you close to the £40k annual limit. The long term gain would probably more than the mortgage interest too, but you're already 47% up!

Looks like you are well set up with some cash for emergencies etc, you'll have such a large pension fund at 58, the mortgage will be insignificant. Also, watch the LTA at those rates of contribution.

Sea_Shell

Don't underestimate how much 2 kids might cost you over the next 18 years!!!

Are you willing to sacrifice your planned retirement to help them, financially?

squirrelpie

rawhammered wrote: »

Guess biggest issue would be 10 wait for state pension to kick in (if it exists!), so will continue to grow ISAs to mitigate that need.

Just to note that if you're already of an age when you can access your pensions when you retire, then you could use those to bridge the gap as well as ISAs. Also, you have just missed your chance to open a LISA; is your wife still below 40?

Triumph13

You should also be looking to get enough money into a SIPP or PP for your wife to cover her personal allowance between when she retires and when her TPS / SP kick in. Unless your employer is sharing their NI savings this is just as good a deal as your sal sac now you are below HRT (For you £68 => £100 => £85 post tax. For her £80 => £100. 25% gain in each case.)
I can second Sea Shell's point on expenses going up with kids, but that should be easily covered by what you are currently saving from your take home.

rawhammered

Thanks for all responses.
No, the employer doesnt share their NI savings , but the points about increasing level of pension contributions further is something to consider rather than overpay mortgage. The main issue of this is twofold:
- emotive: no mortgage is a nice feeling and gives a sense of security
- cashflow (tying up money for at least another 18 years without access): If i lose job or have an immediate cash need (e.g. kids will be getting to double digit ages over next couple of years!) having overpaid mortgage over pension would be of benefit.

Agree with finding out about wife's TPS position is something we need to do.
Potential LTA issue of my pension pot would be reduced if we upped contributions into her scheme though (and potentially make better use of her PA each year). Would she benefit from the same level of tax efficiency that I do via salary sacrifice though? Not sure how AVCs work with teachers.

rawhammered

Triumph13 wrote: »

You should also be looking to get enough money into a SIPP or PP for your wife to cover her personal allowance between when she retires and when her TPS / SP kick in. Unless your employer is sharing their NI savings this is just as good a deal as your sal sac now you are below HRT (For you £68 => £100 => £85 post tax. For her £80 => £100. 25% gain in each case.)
I can second Sea Shell's point on expenses going up with kids, but that should be easily covered by what you are currently saving from your take home.

sorry missed this which answers my question above. One follow on question: the £100 => £85 bit in your analysis why is this element taxed at 15% and not 20% tax rate?

squirrelpie

cashflow (tying up money for at least another 18 years without access): If i lose job or have an immediate cash need (e.g. kids will be getting to double digit ages over next couple of years!) having overpaid mortgage over pension would be of benefit.

I don't understand this bit. Having the money tied up in the house isn't much better than having it tied up in a pension. Yes, you can get at it in an emergency but it has to be a serious situation before you consider selling the house or even remortgaging it. Much easier to access savings in an ISA if required.