Musings by the FIRE-side

michaels

Just pointing out that 5 years at full time = same number of days worked as 6 years at 4 days per week, so you are effectively spreading your first year of retirement over the next 6 years and spending the time with your kids while they are still appreciative of your company - no brainer imho.

chile_paul2

Wow, has it really been 5 and a half years since I first wrote this post! So much for my intentions of turning it into a regular diary about my progress towards FIRE!!

So what has happened in the last 1,964 days……. let's start with the finances:

In brief summary, I'm 40 45 and my wife is 37 43 and between us we have:

-        O/standing mortgage of £186k £150k against a house valued at ~£480k

-        DC pensions pots of £84k (myself) and £10k (DW) £265k (myself) and £41k (DW)

-        DB pension from previous employer providing £12k from age 65, indexed to CPI

-        S&S ISA of £200k £315k (myself) and £95k (DW)

-        Cash savings (emergency fund) almost all in ISA's of £30k (myself) and £12k (DW)

-        Savings (split 30/70 between cash and S&S ISA’s) specifically for when the 2x children (now 10 and 14) want to go to university / buy a house etc of £27k £63k

So financially it's been a good 5 years, helped by buoyant markets showing strong resilience (so far) against whatever Donald Trump tries to throw at them.

Back in 2020 I had said that I was "planning that I would have reached a comfortable FIRE position with 5-6 years with a combined DC and S&S ISA position (over and above the DB pension) of £450k."

I have substantially over achieved on those numbers, but still feel at least another 3-4 years away from FIRE.

Employment wise I made the decision to jump ship from my previous employer and to move to a new company in a new exciting role that I hoped would be more fulfilling, only to find myself going through a restructure within 12 months of joining that has resulted in me securing a role almost identical to the one that I had left at my old employer 😓.As part of the restructure I was offered a promotion, I didn't find it hard this time around to turn it down.

The good news is that I have, inspired by some of your thoughts and suggestions back in 2020/21 moved to a 9 day condensed fortnight giving me 1 additional day off every 2 weeks with no loss of income. I have also informed my employer that I intend to take 4 weeks unpaid parental leave this year and plan to do the same over the coming years as well. I still have moving to 3 days a week in my mind as an option at some point in the future, but the parental leave provision is a really good option to give that quality family time for extended holidays whilst they are off school.

A couple of big decisions due this year:

• The main one is that our mortgage 5 year fix at 1.25% comes to an end. We could pay it off, but my current thinking is to take out an interest only offset mortgage which my current provider offers and it appears we would be eligible for. The thinking here is to delay paying it off until pensions become accessible at 57 and then pay off from TFLS. By doing this I can maintain ISA allowances by having funds in the offset for the majority of the year and then moving them back into flexible ISA's for the tax year end. It should give much more flexibility for planning for early retirement and the bridge years in our early 50's
• Much smaller scale, but I think I've made the decision to install solar panels and batteries. It's a £10k investment and arguably that money may give a better return sitting in investments, but it's good for the planet and acts as a good hedge for future inflation in electricity prices

Any thoughts and input would be very welcome - especially on the decision on the offset mortgage, are there any downsides people can spot?

MallyGirl

https://forums.moneysavingexpert.com/discussion/comment/81987822#Comment_81987822

I am certainly considering an offset mortgage when our 1.16% 5 year deal ends later this year. I have retired but OH is still working so there should be no blockers to such an application. We had a VirginOne account for years so are very comfortable with the concept. I wish I had been more wise to the options opened up by a flexible ISA over a non flexible one for this scenario but maybe I can transfer some across to one.

We fitted solar and battery 2 years ago and have not regretted it.

SarahB16

…especially on the decision on the offset mortgage, are there any downsides people can spot?

I intend to take out an interest only mortgage when I move house in a few years' time and then repay the mortgage capital with my LGPS AVC lump sum aged 65.

I believe interest only offset mortgages have a higher interest rate compared to standard interest only mortgages so my question is do you have a lot of liquid funds sitting in another account that would therefore offset the higher interest that you would likely be charged? If not then would a standard interest only mortgage be better? You'd have to do the maths and compare the two interest rates and the amount that would be offset if you used the interest only offset mortgage.

I will look forward to reading the replies as I will definitely be taking out an interest only mortgage but at the moment I'm not sure if the interest only offset mortgage would be better than a standard interest only mortgage.

Bostonerimus1

Investing in the stock market is a gamble, the odds have been good, but it's still a gamble. So I'm amazed that people continue to double down on that gamble with the roof over their heads with products like interest only mortgages. Offset mortgages are better as long as you don't mind the higher interest rates and have the will power to never touch the money. It's sold as convenience, but it could cost you so I'd just put down a bigger down payment.

Having a large payoff amount on an asset that might be depreciating just as you go into retirement is not ideal. I had a conventional mortgage and a schedule to pay it off by the time I was in my early 50s. I did that and then retired early. While I don't like "creative" mortgages if you actually have a plan to pay it off before you retire then it's not the worst strategy…for most people the worst strategy is to take the mortgage into retirement.

webmasterpolo

I like the flexible ISA idea to bounce it in and out to max the offset and maintain the ISA wrapper on the funds. is this possible with S&S ISA? I've only seen it on cash ISA.

MallyGirl

we are only considering carrying on the mortgage rather than paying it off at the end of the cheap fix because we have approx 10% LTV and have sufficient cash to fully offset. Pretty low risk to the roof above our heads.

I like the flexibility gained by not paying off at this point in case we come up with a big spend we want to make - that was the joy of the VirginOne account before it became unloved by RBS.

chile_paul2

https://forums.moneysavingexpert.com/discussion/comment/81988283#Comment_81988283

We have S&S ISA's with both Vanguard and Charles Stanley - both are fully flexible

NormalNorman

Wind forward to the future. Say in you want to help kids through uni on top of saving large amounts into ISA, Pension, kids savings, daily life etc. the tax bands are going to feel very tight. So glad I'm not servicing a mortgage as that allows me to exist in the 20% band. I used to engineer my salary to way less than the HRT threshold but now make full use of the 20% band [just like I plan to with the DC in retirement] with excess going ISA. I don't want everything under a PAYE code. Cheers!

hugheskevi

I have substantially over achieved on those numbers, but still feel at least another 3-4 years away from FIRE.

That would put you at age 48-49, and presumably unable to access pension until age 57 (55 if you have a protected minimum pension age). It is worth thinking what you will do between those ages regarding taxable income - using up at least personal allowance in taxable income is very valuable.

Any thoughts and input would be very welcome - especially on the decision on the offset mortgage, are there any downsides people can spot?

In theory, offset mortgages can be a good plan to ensure liquidity and enable tax efficient borrowing shortly before pension income becomes available, and something I did just over a year ago. It works very well - the set-up costs were trivial (a few fees like bank transfer fees from the solicitor, and a bit of interest until fully offset). The biggest pain running it is that the provider will not take monthly repayments from the offset account, so I need to arrange for funds to be available in my current account for a direct debit repayment, and then move the money back - not a big phaff though.

I recently moved money into my flexible ISAs for tax year end and back again once the tax year started. That was all straightforward, with the withdrawn offset funds arriving in my current account the next working day, and then moving on to my ISA and going on the reverse journey soon after. One thing to watch out for is lower transfer limits on current accounts - I use a Starling account rather than my main current account due to their extremely high transfer limit for big transactions.

A key risk however, is the lack of providers and the upfront fees charged. I was fortunate to get a nil-fee arrangement with Yorkshire Building Society but that has now been removed. Of the other major providers, there was only Barclays offering them. I would definitely have a Plan B for a scenario where there are no competitive products available in a few years, and be keeping an eye on the market in the meantime. This is particularly the case if you do not intend for the mortgage to be fully offset most of the time, as that adds interest risk (but it doesn't sound like that is what you plan to do anyway).