Retirement plan and life change

jeannot18

Not sure if this is the right forum, part of my question probably belong to it so I will go ahead, moderator please feel free to move it if it's wrong.

In the process in the next year or so of paying off our mortgage. I am 58 and my pension plan is not the greatest (made the mistake of not investing early enough). At the same time i have been working for over 40 and i am kind of getting fed up with work. Our plan is to sell the property where we are currently, estimated currently at around £420K. Investing the entire saving (we have some extra savings to see us for a while, plus i could work part-time or temping), if i leave my job, and instead of buying  a new property we would be renting one (where we are going we are looking at around a maximum of £1,300 for the rent. The question is could the £420K generate enough interest to live on (we would need around £24K per year. Obviously i will have to look at the tax aspect of it, how safe the investments are etc. But do you know anyone who has done something like this successfully?

Thanks
J

Alistair31

Working 40years paying down a mortgage only to then start paying rent ? 

wary

£24K per year isn't much to live off for two of you, esp if over half of that is going on rent (presumably the figure you quote is monthly) and any interest over £1000 in a year could be taxable.  Then you have to taken into account inflation, maybe 3% pa, which will likely exceed interest rate rises year-on-year.  If you both qualify for a full state pension in 9 years time and you feel that would cover your yearly expenditure, and you have enough in savings & pensions etc to cover you for the interim period, then keep the roof over your head.

jeannot18

wary said:

£24K per year isn't much to live off for two of you, esp if over half of that is going on rent (presumably the figure you quote is monthly) and any interest over £1000 in a year could be taxable.  Then you have to taken into account inflation, maybe 3% pa, which will likely exceed interest rate rises year-on-year.  If you both qualify for a full state pension in 9 years time and you feel that would cover your yearly expenditure, and you have enough in savings & pensions etc to cover you for the interim period, then keep the roof over your head.

Wary, thank you for the reply. When you say keep the roof over your head, do you mean buy something not using a mortgage and using the proceeds of our sale? This was the initial plan of buying something with a maximum price of £350K, investing the rest, but this would mean that i stay employed for a number of years until the state pensions kick in (2028 according to the HMRC website).Thanks

J

wary

jeannot18 said:

wary said:

£24K per year isn't much to live off for two of you, esp if over half of that is going on rent (presumably the figure you quote is monthly) and any interest over £1000 in a year could be taxable.  Then you have to taken into account inflation, maybe 3% pa, which will likely exceed interest rate rises year-on-year.  If you both qualify for a full state pension in 9 years time and you feel that would cover your yearly expenditure, and you have enough in savings & pensions etc to cover you for the interim period, then keep the roof over your head.

Wary, thank you for the reply. When you say keep the roof over your head, do you mean buy something not using a mortgage and using the proceeds of our sale? This was the initial plan of buying something with a maximum price of £350K, investing the rest, but this would mean that i stay employed for a number of years until the state pensions kick in (2028 according to the HMRC website).Thanks

J

Downsizing would certainly make more sense than renting.  If you really believe you could live off £24K whilst paying half of that in rent, say, and you'd be mortgage-free, then you'd only need to fund another 9 years at £12K pa (plus inflation) as you wouldn't be paying rent or mortgage.  Can you manage this using your savings, pension & equity release ... is the question.

jeannot18

wary said:

jeannot18 said:

wary said:

£24K per year isn't much to live off for two of you, esp if over half of that is going on rent (presumably the figure you quote is monthly) and any interest over £1000 in a year could be taxable.  Then you have to taken into account inflation, maybe 3% pa, which will likely exceed interest rate rises year-on-year.  If you both qualify for a full state pension in 9 years time and you feel that would cover your yearly expenditure, and you have enough in savings & pensions etc to cover you for the interim period, then keep the roof over your head.

Wary, thank you for the reply. When you say keep the roof over your head, do you mean buy something not using a mortgage and using the proceeds of our sale? This was the initial plan of buying something with a maximum price of £350K, investing the rest, but this would mean that i stay employed for a number of years until the state pensions kick in (2028 according to the HMRC website).Thanks

J

Downsizing would certainly make more sense than renting.  If you really believe you could live off £24K whilst paying half of that in rent, say, and you'd be mortgage-free, then you'd only need to fund another 9 years at £12K pa (plus inflation) as you wouldn't be paying rent or mortgage.  Can you manage this using your savings, pension & equity release ... is the question.

The plan is to move to Devon or maybe Cornwall. At this stage we don't know much about this part of the country other than going on holiday, hence maybe starting renting instead of committing to something we may regret (i know we could still resell the new property but everytime it would incur solicitors fees, stamp duty(?), stress etc. This new property will have maybe to be the last one, unless our circumstances change considerably. The main thing for me is to stop working or at least change my job for something that i would enjoy, no more commuting to London and keep away from the corporate BS. I see your point though (which was our initial plan anyway), and maybe my new plan is just too utopia-based ;0) ) . I will know better where we stand once the mortgage is paid (hopefully by this time next year). We have got a couple of ISA, a couple of private pensions that we could cash, and then eventually the state pensions (if they are still around by the time we get there. So yes it would be a possibility. I am personally not too keen and renting, the only purpose was for me to stop working all together. Thanks for the replies

J

wary

I can certainly understand why you'd want to give up commuting to London to move to Devon/Cornwall, esp if you don't enjoy your job, even if it means living a very frugal lifestyle.  You'll never be this young again, and the upcoming years you'll never be able to buy back.  Good luck with that, and be sure to perform some proper calculations on how much you can really afford to live on.

Mnd

My feeling is you need almost 6% to generate 24k. Where are you going to get that?

Dan29

Hi Jean

I've been considering a similar plan (also fed up of corporate BS!) - sell my house in London, rent in Devon or Cornwall, live off £24k a year. 

I think I'll need £600k-£800k in the bank/stock market to achieve this. You're a bit closer to receiving your pensions than me though, so your sums might be a bit different. 

To the people who are dubious about the renting plan: if someone's moving to a new area, i.e. they've already sold their previous home, do you not think in some circumstances it makes more sense to save/invest and use the proceeds to pay rent, rather than buy a property?

Dan

Notepad_Phil

Dan29 said:

To the people who are dubious about the renting plan: if someone's moving to a new area, i.e. they've already sold their previous home, do you not think in some circumstances it makes more sense to save/invest and use the proceeds to pay rent, rather than buy a property?

I can see that renting for the short term can make sense but not for the long term.

Renting is basically you paying the mortgage for someone else, with those payments usually going up every year. If there was a guaranteed way to invest the money from selling a house so that after tax it fully covered the costs of renting AND you do not mind maybe having to find new accomodation every now and again then it might make sense, but there is no guaranteed way and I know in my case I do not want to be at the whim of the landlord of the house as to how long I can continue renting the house.

Thrugelmir

jeannot18 said:

Obviously i will have to look at the tax aspect of it, how safe the investments are etc. 

Therein lies the problem. To achieve a return better than what's on offer through deposit accounts. It's neccesary to accept both risk and volatility. 
Not to late to start planning for retirement.  Still time to make a difference.