Retire at 58?

2nd_time_buyer

Hi. I would really appreciate some advice on how to get in a position where we could potentially retire at 58. I think we could comfortable get buy on £30k/year but would probably find useful ways to spend £40k/year. Any advice on how feasible it will be and suggestions on how to do it would be gratefully received.

 

Me, 43 years old, 48k/year salary

DB Pension £11k/year from 65 (or £8.8 from 58), plus 3x lump sum. Currently contributing 1/75th per year.

DC scheme: £5k balance. Invested in 50% in ethical equites, 50% in emerging markets equities).  Currently contributing £2k/month through salary sacrifice

12 years to full state pension

 

Wife, 44 years old, £42k/year salary

£47k in workplace DC scheme. Currently paying in around £500 per month (not salary sacrifice). 7.5% employer, 4% employee

Previous DB pension. £4.4k/year from 60.

8 years to full state pension

 

Joint

Two BTLs: Combined profit £8k per year (before tax but after all expenses). Combined interest only mortgage £175k, combined value £330k.

Our house: Value £420k, mortgage £230k

 £11k cash

AlanP_2

I'd start by setting up a s/sheet with your various guaranteed income streams aligned to dates when they become payable e.g. State Pensions & DB pensions.

Comparing that to your annual desired income (pre or post tax btw?) will highlight how much you need your DC pots and BTLs to generate for you.

BTLs you'll have a good idea about the income generated so that leaves any shortfall to come from the DC pots and or other savings / S&S ISAs etc.

Will main mortgage be paid off by 58?

What about BTL mortgages?

2nd_time_buyer

AlanP_2 said:

I'd start by setting up a s/sheet with your various guaranteed income streams aligned to dates when they become payable e.g. State Pensions & DB pensions.

Comparing that to your annual desired income (pre or post tax btw?) will highlight how much you need your DC pots and BTLs to generate for you.

BTLs you'll have a good idea about the income generated so that leaves any shortfall to come from the DC pots and or other savings / S&S ISAs etc.

Will main mortgage be paid off by 58?

What about BTL mortgages?

Thanks. The main mortgage is not due to be paid off till we are 75. The thought was to sell off the BTLs at some point in the future to clear it. The BTLs are interest only. The spreadsheet sounds a very good idea.

Marcon

2nd_time_buyer said:

Hi. I would really appreciate some advice on how to get in a position where we could potentially retire at 58. I think we could comfortable get buy on £30k/year but would probably find useful ways to spend £40k/year. Any advice on how feasible it will be and suggestions on how to do it would be gratefully received.

 

Me, 43 years old, 48k/year salary

DB Pension £11k/year from 65 (or £8.8 from 58), plus 3x lump sum. Currently contributing 1/75th per year.

DC scheme: £5k balance. Invested in 50% in ethical equites, 50% in emerging markets equities).  Currently contributing £2k/month through salary sacrifice

12 years to full state pension

 

Wife, 44 years old, £42k/year salary

£47k in workplace DC scheme. Currently paying in around £500 per month (not salary sacrifice). 7.5% employer, 4% employee

Previous DB pension. £4.4k/year from 60.

8 years to full state pension

 

Joint

Two BTLs: Combined profit £8k per year (before tax but after all expenses). Combined interest only mortgage £175k, combined value £330k.

Our house: Value £420k, mortgage £230k

 £11k cash

Those are quite modest numbers if you are hoping to retire at 58 on £30K, never mind £40K, given the size of the mortgages still outstanding on your various properties.

The cheerier note is that the DB figures you quote are presumably based on your current salary (for you) and (?) the pension your wife had built up at the time she stopped being an active member of her DB scheme. Her DB pension won't be frozen, so that should look a bit healthier by the time she reaches age 60. Before you go rushing off to the pension scheme administrators to ask how much it is likely to be, remember that they don't have the proverbial crystal ball any more than anyone else, so asking for 'updated' figures may well get you the same figures as when she left active membership, with a note saying they will revalue between now and when she draws her benefits.

2nd_time_buyer

Those are quite modest numbers if you are hoping to retire at 58 on £30K, never mind £40K, given the size of the mortgages still outstanding on your various properties.

The cheerier note is that the DB figures you quote are presumably based on your current salary (for you) and (?) the pension your wife had built up at the time she stopped being an active member of her DB scheme. Her DB pension won't be frozen, so that should look a bit healthier by the time she reaches age 60. Before you go rushing off to the pension scheme administrators to ask how much it is likely to be, remember that they don't have the proverbial crystal ball any more than anyone else, so asking for 'updated' figures may well get you the same figures as when she left active membership, with a note saying they will revalue between now and when she draws her benefits.

Thanks for the sobering thoughts. We have reached the point where we have a little more disposal income than we have had in the past. I guess one of the main things is what proportion to use to pay off the mortgages and what proportion to pay in to pensions. At the moment it is fairly heavily towards the pensions. 

I am hoping that a combination of the defined benefit (currently around £15k per year) and state pensions (forecast at £18k year) should cover us from 68.  

barnstar2077

I second the spreadsheet idea.  A quick look at an online interest calculator though suggests that an initial 5k deposit, adding 24k a year and 3% growth (growth after inflation and costs) would give you a pot of about £454k in fifteen years time.

Your wifes would be £184k in fifteen years.  A spreadsheet would be better though, then you could factor in pay rises etc.  I rather optimistically factored in a 2% pay rise for myself before covid turned up :  )

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

2nd_time_buyer

barnstar2077 said:

I second the spreadsheet idea.  A quick look at an online interest calculator though suggests that an initial 5k deposit, adding 24k a year and 3% growth (growth after inflation and costs) would give you a pot of about £454k in fifteen years time.

Your wifes would be £184k in fifteen years.  A spreadsheet would be better though, then you could factor in pay rises etc.  I rather optimistically factored in a 2% pay rise for myself before covid turned up :  )

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Sounds like I need to stop being so lazy and do a spreadsheet!

Those figures sound promising though. Of course who knows what the future will bring but if you aim for the stars...

Thrugelmir

2nd_time_buyer said:

Hi. I would really appreciate some advice on how to get in a position where we could potentially retire at 58. I think we could comfortable get buy on £30k/year but would probably find useful ways to spend £40k/year. Any advice on how feasible it will be and suggestions on how to do it would be gratefully received.

 

£30k gross or net of tax? 

The mortgage debts leave you exposed to a hike in interest rates in the years to come. Is your main mortgage on an interest only or repayment basis? 

50% in emerging markets is an adventurous approach. Might pay off or equally back fire depending on where the money is being invested. 

2nd_time_buyer

Yes 30k after tax ideally.
The main mortgage is repayment but will not be paid off till we are 75 (so only paying off £6k per year ATM).
Yes good point regarding sensitivity to interest rates. I tend to fix for 5 years or more to protect ourselves a bit. Though 5 years is not very long in the grand scheme of things.

Terron

15 years is a long time. There is so much uncertainty that I prefer rough calculations with pessimistic assumptions. Using a spreadsheet seems a waste of effort.

First pass using rules of thumb, rounding income down, interest matches inflation.

DB + BTL income 23k

Target 30k - roughly 35k before tax.

Shortfall 12k.

DC pension needed to make that up using 4% rule - £300k

DC = 5k +15*12*2k = £365k

Add you wife's scheme and you look fine for £30k pa after tax.

Target 40k - roughly 47k before tax

Shortfall 24k

Total DC pension needed  - £600k

Your DC £365k

Wife's DC - £500pm paid and £900pm from employer - 47k + 15*12*1400 = £299k

Looking good for £40k as well.

(Yes I know the 4% rule is considered optimistic for the UK, but I ignored the state pension and used the simple figure.)

2nd_time_buyer

Terron said:

15 years is a long time. There is so much uncertainty that I prefer rough calculations with pessimistic assumptions. Using a spreadsheet seems a waste of effort.

First pass using rules of thumb, rounding income down, interest matches inflation.

DB + BTL income 23k

Target 30k - roughly 35k before tax.

Shortfall 12k.

DC pension needed to make that up using 4% rule - £300k

DC = 5k +15*12*2k = £365k

Add you wife's scheme and you look fine for £30k pa after tax.

Target 40k - roughly 47k before tax

Shortfall 24k

Total DC pension needed  - £600k

Your DC £365k

Wife's DC - £500pm paid and £900pm from employer - 47k + 15*12*1400 = £299k

Looking good for £40k as well.

(Yes I know the 4% rule is considered optimistic for the UK, but I ignored the state pension and used the simple figure.)

Thanks. That is very helpful. Sorry my wife's pension contribution is £500pm total. However, state pension wasn't included so it might still be in the right ballpark.