Saving to retire early.

andys15

Hello. 

I have about 9 months left on my mortgage. I will be 45 when the mortgage is repaid. I want to ideally retire at 50. 

I would then have 7 years to wait before I can touch my pension. 

Therefore I need 7 years of income from my savings. 

I currently have 0 savings as I put it all onto my mortgage. 

I overpay my mortgage by £6000 a month. Therefore in 10 months I will have £7500 a month to save. 

The question is where do I save it. I don’t want any risk to my money but I could keep it tied up for 5 years. 

I have never looked into premium bonds or ISAs etc 
The truth is I have never ever saved money. I have gone from being debt free to nearly mortgage free, throughout my career. 

So what would you do?  

barnstar2077

Five years is not enough time to invest in a stocks and shares isa.  So premium bonds to start with.  Personally, once that is full I wouldn't worry about trying to get the rest of it anywhere other than your bank, as you will be retired before you know it. 

andys15

Many thanks. How much can you have in premium bonds? Could I get them for me and the wife. I definitely don’t want to do the stock market. 

andys15

Infact. Just googled that. So I can have £50k. So £100k for the two of us. 

Would you then just open loads of banks accounts to get better interest rates or is it just not worth it 

Apodemus

barnstar2077 said:

Five years is not enough time to invest in a stocks and shares isa.  So premium bonds to start with.  Personally, once that is full I wouldn't worry about trying to get the rest of it anywhere other than your bank, as you will be retired before you know it. 

But the OP will be saving £90k a year for five years.  Premium bonds would be full by month seven and the FSCS protection limit on any single bank would be reached every 11 months thereafter, so this strategy will need Premium Bonds plus accounts in five separate banks.  A simpler alternative would be to use an NS&I account instead of the four additional banks.

Personally, at that level of income, i would start now and split the additional money three-ways between mortgage, premium bonds and an S&S ISA, so that the mortgage was repaid at planned retiral date.  If the money invested in the S&S Isa was "first-in, last out" it would have up to 12 years of investment life, which is hopefully sufficient time to ride-out any market downturns and provide some additional returns.

andys15

The mortgage has become a bit of a mission really and I know I am not getting the best for my money there. 

I only pay £69 a month interest at the moment but although I know it’s not savvy I want it out the way. 

andys15

No my pension will kick in after 7 years. I just need enough money to last 7 years. 

Moe_The_Bartender

If your money is needed in five years and has to last seven years, your time horizon for some of it is 11+ years. You don’t need to be fully into cash for that time frame so I would suggest that you put some of it into cautious investments like Capital Gearing Trust and Personal Assets Trust.

Albermarle

andys15 said:

No my pension will kick in after 7 years. I just need enough money to last 7 years. 

Are you sure that your pension on its own will be enough , with no back up savings or investments ? Presumably it is a defined benefit/final salary pension linked to inflation ?
As you are planning to retire very early , it will be probably 20 years before the state pension kicks in .

andys15

I think it will be. I was allowed to take out my final salary pension and put it in a SIPP which is run by a company. 

It’s currently worth just over a million. My wife is still in her final salary pension, as hers wasn’t worth enough to take out.
I don’t know how much I would need to live well on. 

We wanted about £400k for 7 years and not worry about money. 

I don’t think we will need that much. 

Although our combined annual salary is about £240k, it would be hard to give that up early, but I want to do it. 

Alexland

If you really want no risk and can make it work with cash (despite the below inflation rates eroding your spending power each year) then you are cool to go ahead with premium bonds and the best-buy NS&I and FSCS protected savings accounts. But as above if you started investing for a few years in a suitable medium risk S&S portfolio now (rather than paying off the mortgage so soon) then that initial money would be invested for long enough to ride out any market crashes and then you could take it back to cash at a good point in the market cycle in the final 5 years before spending it. Might give a slightly higher return on the early money to offset the inflation risk in the later years. We have enough in ISAs to repay our mortgage but don't because it's very cheap leverage on our higher growth investment portfolio. It's only really worth repaying early when the LTV is still high so the interest rate includes the risk premium or if it runs longer than you reasonably expect to be employed.