Having a windfall of £100K - Best use for early retirement plans?

Thrugelmir

Maximise your pension contributions while you are able.  The removal of higher rate tax relief may be one of the targets of the Chancellor in the not so distant future. As the pandemic is going to have to be paid for.  

tuppleextra

cfw1994 said:

Can’t believe no-one has asked for a job with you: those RSUs exceed most people’s salary for 1-4 years - gissa job!
Guessing you work in technology, perhaps....my only caution (after a couple of decades in it!) would be the it is rare for those things to happen for many years....if your role is so senior that it does, I’d consider getting professional advice

Yep, it's in technology. I've been incredibly lucky as the RSUs value when granted was much lower so trying to ride it for as long as I can and make good finance decisions

Thrugelmir said:

Maximise your pension contributions while you are able.  The removal of higher rate tax relief may be one of the targets of the Chancellor in the not so distant future. As the pandemic is going to have to be paid for.  

Good point. 
I also found a good example of the BTL mortgage/rent/tax breakdown which helped me understand it from which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

Secret2ndAccount

tuppleextra said:

- Aim for 35x required annual income (is that before or after tax @Secret2ndAccount?)

Follow up question on SIPP allowance, is the £40K limit also including amounts from the salary sacrifice at work?

The 35x is before tax. Google (or search this forum for) Safe Withdrawal Rates. If you withdraw 3% per year from a properly invested pot, then you will (based on the past not the future) never run out of money. Take 4% and you should still be fine, but there is a small chance you run out, especially if you retire early. There are 1000 algorithms for varying withdrawal according to growth / inflation / other so that you can withdraw more if things are going well.

The £40K limit includes the amount from salary sacrifice. You should also take a peek at Tapered Annual Allowance, e.g. here: https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/tapered-annual-allowance/

It's possible it could affect you if you have a good year for both your investment profits and your salary.

BritishInvestor

Secret2ndAccount said:

tuppleextra said:

- Aim for 35x required annual income (is that before or after tax @Secret2ndAccount?)

Follow up question on SIPP allowance, is the £40K limit also including amounts from the salary sacrifice at work?

The 35x is before tax. Google (or search this forum for) Safe Withdrawal Rates. If you withdraw 3% per year from a properly invested pot, then you will (based on the past not the future) never run out of money. Take 4% and you should still be fine, but there is a small chance you run out, especially if you retire early. There are 1000 algorithms for varying withdrawal according to growth / inflation / other so that you can withdraw more if things are going well.

The £40K limit includes the amount from salary sacrifice. You should also take a peek at Tapered Annual Allowance, e.g. here: https://www.pruadviser.co.uk/knowledge-literature/oracle-plus/tapered-annual-allowance/

It's possible it could affect you if you have a good year for both your investment profits and your salary.

" If you withdraw 3% per year from a properly invested pot, then you will (based on the past not the future) never run out of money."
What fees and life expectancy did you use when making this assumption?

BritishInvestor

Secret2ndAccount said:

You don't say what annual income you require, now or in retirement. You should be looking for a pot size which is 35 x your required income. You say you want to get there as soon as possible. The only way to do that is to gamble at high risk / high return. The downside of that is that you might lose half or all of your pot, postponing your retirement for many years - not what you were aiming for. If you only need 30k/yr in retirement, that equates to a pot of  £1 million. You can be there in 5-10 years by just preserving your wealth with low risk investments. That seems like the sensible course to me, since, in the worst case, you can still retire in 10 yrs. 

You should put 40k/yr into your pension. That's the maximum which is subject to tax relief (might be able to put in a bit more this year as you can backdate 3 yrs). Use that, and your ISA, for your highest risk investments as there will be no CGT to pay. You wouldn't want to put all your money into pensions because you can't access it until you are 58. However, you are limited to only a moderate part of your income going in anyway, so it all works well. Keep your lower growth investments outside the wrappers. When you retire, you can dispose of them year by year, together with anything that has made a loss, to stay under your CGT threshold. That threshold might drop sharply in the near future - government is looking closely at it. Prior to retirement, you can still (under legislation as it is now) sell investments each April to realise capital gains, then buy something else (not the same thing back again) with that cash after April 6th. Use up your CGT allowance each year, to reduce the liability to tax in later years. Much easier to do that with shares / funds than with a house.

Don't forget to keep a rainy day fund in cash or near cash at all times.

"You say you want to get there as soon as possible. The only way to do that is to gamble at high risk / high return. The downside of that is that you might lose half or all of your pot, postponing your retirement for many years - not what you were aiming for. If you only need 30k/yr in retirement, that equates to a pot of  £1 million. You can be there in 5-10 years by just preserving your wealth with low risk investments. That seems like the sensible course to me, since, in the worst case, you can still retire in 10 yrs."

After building a plan you need to create an investment engine that best delivers on the plan:

1. gambling, or
2.creating a portfolio of investments that is lower risk that the O/P is happy with

is most likely suboptimal in terms of getting him to where he wants to be.

barnstar2077

The age you can access your private pension is due move to 57 in 2028.  I would assume for your calculations that it will be at least 58, possibly 60 by the time you get there, to be on the safe side.  As others have said, fill your pension, then concentrate on increasing your ISA to bridge the gap until you can access your pension.  I wouldn't worry about the mortgage yet, if interest rates suddenly skyrocket (unlikely given current circumstances) you can use the ISA money to reduce it.  The ISA gives your plan a lot of flexibility. 

mark55man

sheslookinhot said:

mark55man said:

Make use of your tax which means pension - but pension can't be touched until 55 and possibly later as you are quite young.  58 is not really retiring early, therefore you will need some money in ISAs as well as SIPPs (different mechanisms for holding the same investments).  You will need a reasonably aggressive strategy, unless ASAP is in the next 5 years - so you need to choose a target date and work towards that.

Why is retiring at 58 “not really retiring early” ?

Surely any retirement before Normal Retirement Age is retiring early.

The reason I used the phrase "58 is not early" is that for a thread by someone in their 30s to be talking about retiring early, then I didn't think they meant a few years only.  I thought they meant seriously mid 40s early - which is early.

My personal target (and yes I do regard it as early retirement) is 60.  I didn't mean to understate the amount of work and forward planning required even to get to that milestone.  Anyone who has succeeded in retiring even a year before state or scheme retirement age deserves a huge pat on the back - even if in these pandemic times it needs to be self-applied   

Secret2ndAccount

BritishInvestor said:

"You say you want to get there as soon as possible. The only way to do that is to gamble at high risk / high return. The downside of that is that you might lose half or all of your pot, postponing your retirement for many years - not what you were aiming for. If you only need 30k/yr in retirement, that equates to a pot of  £1 million. You can be there in 5-10 years by just preserving your wealth with low risk investments. That seems like the sensible course to me, since, in the worst case, you can still retire in 10 yrs."

After building a plan you need to create an investment engine that best delivers on the plan:

1. gambling, or
2.creating a portfolio of investments that is lower risk that the O/P is happy with

is most likely suboptimal in terms of getting him to where he wants to be.

To be clear, I am absolutely NOT suggesting the OP go high risk or gamble. I was making the point that I thought he had the question a bit wrong, as, if he really wanted to push for the earliest possible retirement, that would be an unnecessary risk. Indeed, the OP came back and clarified that he just didn't want to be stuck in a high stress job forever.

On your point 2, I completely stand by my view that he needs focus on capital preservation. OP's greatest asset is his earning ability. He can reach his goals using just his salary, so it is pointless to put his capital at great risk. It doesn't have to get too boring; his salary + rainy day fund covers his fixed income allocation, so all the invested part can go into equities/funds. If he had gone 50% MSCI World Index and 50% Capital Gearing Trust, the return for the last year would have been >9% - not too shabby.

BritishInvestor

Secret2ndAccount said:

BritishInvestor said:

"You say you want to get there as soon as possible. The only way to do that is to gamble at high risk / high return. The downside of that is that you might lose half or all of your pot, postponing your retirement for many years - not what you were aiming for. If you only need 30k/yr in retirement, that equates to a pot of  £1 million. You can be there in 5-10 years by just preserving your wealth with low risk investments. That seems like the sensible course to me, since, in the worst case, you can still retire in 10 yrs."

After building a plan you need to create an investment engine that best delivers on the plan:

1. gambling, or
2.creating a portfolio of investments that is lower risk that the O/P is happy with

is most likely suboptimal in terms of getting him to where he wants to be.

To be clear, I am absolutely NOT suggesting the OP go high risk or gamble. I was making the point that I thought he had the question a bit wrong, as, if he really wanted to push for the earliest possible retirement, that would be an unnecessary risk. Indeed, the OP came back and clarified that he just didn't want to be stuck in a high stress job forever.

On your point 2, I completely stand by my view that he needs focus on capital preservation. OP's greatest asset is his earning ability. He can reach his goals using just his salary, so it is pointless to put his capital at great risk. It doesn't have to get too boring; his salary + rainy day fund covers his fixed income allocation, so all the invested part can go into equities/funds. If he had gone 50% MSCI World Index and 50% Capital Gearing Trust, the return for the last year would have been >9% - not too shabby.

Risk a complex topic. For those in retirement, the biggest risk may well be running out of money, and not necessarily short term movements in portfolios (which I'll refer to as volatility). During this phase, it may well be that you can build a portfolio with less volatility (equity exposure) than the maximum you are prepared to accept and still not run out of money.
During the accumulation phase, and if the plan is to retire as soon as is practically possible, the portfolio composition will most likely be dictated by how much volatility you are happy taking, on the understanding that long term equity returns will give us the best growth and inflation protection. I would suggest that not everyone would be happy with 100% equity exposure. I'm also not aware of many professionals using capital gearing trusts as part of a robust portfolio, but accept that everyone has their own views.
Unless the plan is to buy an annuity at retirement (which potentially conflicts with the desire to retire asap), I'm not really sure where capital preservation fits into it - the financial plan, and therefore the investment engine to deliver it, should cover from now until death, not just now until retirement.

atush

BritishInvestor said:

"You say you want to get there as soon as possible. The only way to do that is to gamble at high risk / high return. The downside of that is that you might lose half or all of your pot, postponing your retirement for many years - not what you were aiming for. If you only need 30k/yr in retirement, that equates to a pot of  £1 million. You can be there in 5-10 years by just preserving your wealth with low risk investments. That seems like the sensible course to me, since, in the worst case, you can still retire in 10 yrs."

I disagree that you can lose 100% of your pot, if you use funds of many different companies (or even assets) over single shares.  Sure when markets crash you will see a drop, at least temporarily, if you dont sell.  But markets recover.
Diversify.