FIREside Chats

savingholmes

@ElmoRGood luck with your plans. Well done on the new job and commitment to saving for FIRE. 

I am a year or so younger than you. I'm aiming to be FI by age 60 and then either go part time and/or have fun redirecting my energies into creative pursuits and see if I can earn any extra money from that.

After a divorce and buying out my Ex, my mortgage at c£187K is higher than I'd like however I am prioritising growing my pension income / tax free lump sum rather than mortgage over payments as I'm currently on a 1.84% rate and will be until the start of 2027. 

My current pension provider allows me to accrue AVCs alongside my main pension and potentially take it all tax free as long as the AVCs are 25% or less than the total value of my pension plus AVCs combined. If the total is more than that I have the option of either taking any extra as cash and paying tax on it or buying more standard pension. Once I've moved I hope to triple or even quadruple my AVCs so I can hit my age 60 goal. 

If I can create a lump sum equal to my mortgage at age 60 - which is due to be around £127K - then I will have a choice of either paying off my mortgage as a lump sum - or using the tax free lump sum to fund my ongoing mortgage payments - which continuing to keep the majority invested.

I am moving further away from work to get the kind of views I want for the longer term including retirement - but work mainly from home so I'm hoping the commute won't be a significant issue. I'm downsizing slightly but by the time I've spent £ making it mine it is unlikely that I will save much. After the move I should have around £10-13K in savings as I will have released some equity even after paying moving costs.

Pension success

• I have a DB pension due to pay out £4.8K per year at 60 unreduced (sadly that was halved on divorce). This increases by RPI up to age 60 of up to 5% a year, after that it is due to change to CPI I think.
• I have already accrued enough in a further DB pension to give me close to £7.6K per year at age 60 even after hefty reductions. If I left it to age 67 - it would be worth closer to £12.8K per year. This is inflation linked.
• I have another small DC pot worth around £3.5K in total not per year.   
  
• I only have another year or so to work before hitting full state pension entitlement although I can't draw it for another 14 years.
• I am currently investing £450 a month into AVCs for a tax free lump sum - and am now at £5.6K total pot accrued over the last 13 months. 

Time will tell whether or not I manage to live on a lower monthly income to buy myself time freedom in around 6.5 years time. I'm waiting to up my AVCs until after I've moved so as not to scare off my mortgage provider! Wish me luck!

hugheskevi

1 year, 2 months and 6 days after arriving in Alaska, we have finally made it to Ushuaia! Interactive trip map is at this link. And a Google Map with all key places visited marked is at this link.



This was covered mostly by land, and the final 2km taxi journey to our AirBnb in Ushuaia coincidentally resulted in us having logged exactly 30,000 miles by road on the trip.

The trip cost slightly over £50,000 (or £43,000 on an annualised basis - about £60 per person, per day). A detailed day-by-day distance and expenditure log is at this link.

We have booked our return tickets, and come back from Rio on 20th January (just over 16 months after we started to travel) - we will see Buenos Aires, Iguazu, Ascunion, Sao Paulo, Rio and a few other places in the next couple of months, although this will be at a very leisurely pace.

We officially start back at work on 22nd December, but will immediately take a month of leave, and actually start back on 22nd January. That is doubly beneficial, as it means we get all the Christmas Bank Holidays paid, and also get more income in a year we will both be basic rate taxpayers due to being on unpaid leave for most of the year.

I am very much looking forward to what should be my last 18-24 months of full-time work prior to a more conventional retirement, albeit rather early at age 48 Although having already spent many years roaming the world (now over 4.5 years spent traveling outside Europe) I feel like I never really worked 'properly' at all sometimes.

My spreadsheets tell me we need to work until September 2025 to smooth our income over the full course of our retirement, giving £66,000 p/a after tax between us with a mortgage-free property and no debt. I'll be happy to retire once we have moved into a new house and met all the costs of moving, decorating, new car, etc, whenever that might be though, as I think that should be far more than we need, or even want. I suppose that is one of the benefits of being in a country that provides such strong incentives for pension savings through higher rate taxation - I always took it as a personal challenge to avoid paying higher rate tax as much as I possibly could, so spent lots of time overseas traveling for leisure and when working poured lots of money into pensions I didn't manage to stave it off entirely, but I avoided it for many years!

As things currently stand, to perfectly smooth income I would need an additional £179,512 of post-tax cash and £31,703 of DC pension. Without this, our income between age 46-55 would be £45,686 after tax, with a mortgage-free house and no debt (so hardly a life of poverty!)

The way I envisage the financial aspects of retirement progressing are to live firstly on cash savings, then use cash ISA savings, and then investment ISA savings to fund the period between age 48 and 55. At that point, our DB and DC pensions are available (protected minimum pension ages). I will delay drawing DB pension until all ISA savings are used up (other than precautionary savings), and draw DC at a rate such that income is equalised each year between 55-68 - the DC pension will be drawn at 55 or shortly afterwards to ensure we are both using our Personal Allowances. Then when State Pension is paid at age 68 we might delay drawing one or both for a while to fully deplete DC pension (thus effectively converting DC pension into extra State Pension). I'll manage the delays State Pension so as to ensure our incomes are equalised in the event of either of us dying (ie the person with the lower outcome in event of death will defer for longer, to close the gap) - they are already quite well-balanced so this will just be a matter of fine-tuning how long to delay drawing each State Pension for.

I roughly plan to move into our final property just after age 75 when we will hopefully still be in good health, or earlier if health issues arise. That will be a much smaller property which will be much easier to manager, and which should reduce the burden of house maintenance. It will also be with an eye on future poor mobility, so as to hopefully remain independent for as long as possible. At that point all financial and personal affairs will also be simplified and put into good order, ready for the inevitable whenever it happens. From everything I have ever read about old age, this is something many people fail to do until it is too late and so end up living a completely unsuitable property in their final years, so I will be keen to get to done whilst still able.

Cornish_mum

Great to hear your update and plans CM

savingholmes

@hugheskevi
Very inspiring. Well done. Amazed at how much travelling you can achieve for two for that amount of money.

D123456789

I have opened a Vanguard SIPP today. Not sure if it’s a good idea or not but someone recommended diversification so I went for it. Hoping i’m not going to notice the monthly payment going out on pay day. How often do people look at their balance or do I just forget about it and check back in 5 years? 😂

hugheskevi

D123456789 said:

I have opened a Vanguard SIPP today. Not sure if it’s a good idea or not but someone recommended diversification so I went for it. Hoping i’m not going to notice the monthly payment going out on pay day. How often do people look at their balance or do I just forget about it and check back in 5 years? 😂

It is the investments within the pension (SIPP or otherwise) that give diversification. If you are a higher rate taxpayer you will need to claim higher rate relief from HMRC.

Depending on how you have set up automatic investment and dividend payment, you may need to actively purchase new investments as dividend income arrives, new contributions are made, and tax relief arrives.

How often to check balance varies significantly depending on personal preference, but somewhere between monthly and annually is sensible. Personally, I check weekly, but only as part of a wider update of my financial spreadsheets which I do every Friday.

You want to avoid getting into the habit of checking daily (or even more frequently!) Quarterly could be a nice balance, but as a minimum, you should check annually just to ensure the account is in good order, even if you don't care about the value of investments. You should be reviewing investment allocation periodically too, to ensure your investments continue to meet your needs taking into account your wider financial affairs. That doesn't need to happen very often, but annually for that would be sensible too.

D123456789

You are always so helpful Hugh. So I wasn’t a higher rate tax payer, however I just had a new bill from HMRC so I think I might be now. Last few years I have taken out the max childcare vouchers as salary sacrifice. But 2022 onwards I have taken less because my daughter is at school. I am not sure if that has made an impact or not, I am not sure if childcare vouchers may have reduced my pension. Either way I am paying more tax now it seems.

I have set up a monthly DD to the SiPP, do the other factors you refer become clear later on? 

hugheskevi

D123456789 said:

You are always so helpful Hugh. 

Sorry I was less helpful this time - I completely missed your post until today when I was glancing through bookmarks and saw a new post on the thread.

D123456789 said:

So I wasn’t a higher rate tax payer, however I just had a new bill from HMRC so I think I might be now. Last few years I have taken out the max childcare vouchers as salary sacrifice. But 2022 onwards I have taken less because my daughter is at school. I am not sure if that has made an impact or not, I am not sure if childcare vouchers may have reduced my pension. Either way I am paying more tax now it seems.

It is imperative to know what your taxable income is, as if higher rate tax relief is due in respect of the SIPP contributions you will need to claim this from HMRC, it will not be awarded automatically. You can do this by amending your Tax Code within the tax year so that you pay the correct amount of tax. You can even do this in advance of making the contributions at the start of the tax year, and then amend again close to the end of the tax year when you are sure of the final details.

D123456789 said:

I have set up a monthly DD to the SiPP, do the other factors you refer become clear later on? 

No one will come and tell you to claim higher rate tax relief, that is up to you to arrange with HMRC.

If you are receiving cash dividends on your investments then the cash balance of your SIPP will increase. It is likely that your SIPP provider will only add tax relief to your account when it is received from HMRC several weeks after your contribution and that will arrive in the cash balance too. However, that doesn't matter if you are regularly purchasing new investments (either manually or have set up the SIPP to automatically invest any cash).

Investment allocation, and when to make changes, and in what way (eg sell investments and buy new ones, or just redirect new contributions) is all up to you.

Suffolk_lass

@D123456789 if you have a workplace pension, it is worth checking if your employer would contribute more if you did there, and other factors like is it defined benefit (final salary) or defined contribution (and if DC, who manages it).

The key point being that your employer would manage the tax situation and in addition to the tax relief at source, their contribution might boost it more than the cheap cost of a Vanguard SIPP.

hugheskevi

The final update from me for a while - we have almost reached the end of our 500-day trip through the Americas. We both celebrated 2 birthdays on the trip, so we return with us both aged 46. It brings my time spent roaming around outside of Europe up to 4.69 years, mostly racked up during my 20s (one of the best decisions I've made, albeit not financially advantageous!).

The trip was flying into Anchorage, driving around Alaska, taking an 8-day cruise to Vancouver, then driving around western USA in a big loop, then taking buses down to Panama. From there we flew to Cartagena, and then took buses down to Ushuaia (and 1 internal flight in Argentina). Then we visited Trelew, Buenas Aires, Carlos Pellegrini, Iguazu, Asuncion, Bonito and finally Rio. So it was essentially a Vancouver to Ushuaia overland trip, with a few things bolted on to the end.


We are now in Rio, spending a week here before flying back to the UK next week-end. Links to the logs I've kept are below:

• Interactive trip map is at this link
• Google Map with all key places visited marked
• Daily log of milage, expenditure, etc

Our highlights of the trip were:

• Denali National Park, USA
• Yellowstone National Park, USA
• Copper Canyon in northern Mexico
• Chichen Itza and cenotes in Yucatan, Mexico
• Snorkeling at Caye Caulker, Belize
• Actun Tunichil Muknal cave in Belize
• Tikal, Guatemala
• Acatenango volcano, Guatemala
• Lake Atitlan, Guatemala
• 10 days in Galapagos Islands, Ecuador
• Temple of the Sun and Temple of the Moon at Trujillo, Peru
• 5-day Santa Cruz trek in Huaraz, Peru
• 10 days going deep into the Amazon on a charted boat from Iquitos, Peru
• Nazca Lines flight, Peru
• Cusco and Macchu Pichu, Peru
• Seeing Andean Condors at Chivay, Peru
• 3-day trip across the Salt Flats in Bolivia
• Glaciers and trekking around El Chalten and El Calafate in Patagonia, Argentina
• Iguazu Falls, Argentina

We will have driven/bused/vaned/motorcycled around 32,000 miles during those 500 days. Our total expenditure on the trip will be around £57,000, working out at £57 per person per day. The cost breakdown is:

• £12,900 on travel (car hire, buses, flights, etc)
• £15,500 on accommodation (typically 1-bed apartments from AirBnb or Booking.com)
• £11,700 on activities
• £11,500 on food (we usually eat out once per day - eating out twice was just too unhealthy)
• £4,600 on 'other' (eg insurance, vaccinations, new passports)

That may initially look a large figure, but the entire cost was covered by rental income (net, after charges), paid leave from work and PAYE tax refunds. This is what makes long-term travel so much better value than normal holidays. There are no regular costs to pay at all, and your house provides you with income. Both my wife and I saved leave to take after we left and then used leave before we returned, resulting in about 5 months of paid leave in total. Taking unpaid leave gives a rare opportunity to convert annual leave into cash at a tax-advantaged rate as well, as you can time the leaving and return dates to avoid higher rate tax. Even better is that it is true leave - no working hard to clear decks before going on leave, then coming back to a busy inbox.

At an annualised cost of £42,000 it is also considerably less than we would spend just living in the UK if you subtract the rent received from that annualised cost. So bizarrely, it is a money-saving thing to do compared to spending a normal year in retirement living in the UK simply due to the high cost of living in the UK compared to the much lower living costs in central and south America.

Once we return we immediately start back at work. We plan to work for 18-24 months, then conventionally retire in the UK. This is partly to get a bit more cash to smooth retirement income, partly so we have a bit of rest after travel before the next step, and partly to fit in with the optimal time to move  (so we will market our London house in February 2025, and should move in summer 2025). We plan to purchase our next house with an offset mortage such as this one, as this would allow us to buy the house without a chain if that would be helpful (briefly owning 2 houses, our current home is mortgage-free, and using mortgage would keep ISAs intact). This would also provide a pool of funds to dip into if necessary before age 55 and pensions being available. But the intention would be to keep it fully offset the rest of the time.

As things currently stand, we will have a retirement income of a bit over £70,000 after tax. This takes into account the upratings to State and DB pensions due in April 2024. After State Pension age that all comes from State and DB pensions (DB is revalued and indexed by uncapped CPI, we need further qualifying years for State Pension, these are accounted for under DC pension needs so that they can be purchased with tax-advantaged income). To have the same income in all years before State Pension age, we need a further £206,000 of cash and £45,000 of DC pension. We will also accrue some more DB income during our last spell of work. By the time we have moved and quit work at age 47/48, everything should pretty much line up.

I don't expect to spend anything like what we have available - our usual expenditure in the UK is about £35-£40K per year. My initial plan was that I would just delay taking pensions at age 55 (we both have protected pension ages on DB and DC pensions) to use up whatever cash remained, and then delay State Pension to use up whatever DC pension remained. However, higher rate tax is becoming a possible issue due to the frozen thresholds - my taxable income from State and DB pension is around £43K, and my wife's around £39K. So it appears we'll be incentivised by the tax system to take everything as early as possible and ensure I withdraw up to higher rate tax in every year (my wife doesn't have much DC, so she will find this harder than me). We can take our DB pensions from age 50 if we wish, but between age 50-54 they are much lower so it isn't very attractive, but perhaps with higher rate tax being an issue yet not being taxpayers between age 50-54 it might be worth it nonetheless (or maybe taking them aged 53/54) - I will keep this under review as we approach age 50 and see what the exact figures are, but it isn't Plan A.

So if all goes to plan, two years from today we should be happily retired in our next house!