I want to retire early - how can I plan for it?

Gaberdeen

I turned 40 this year and reasoned that another 25 years at the coal face in the my industry is not as attractive as it was when I was 20, so I'm looking for a way out that doesn't leave me potless in retirement. I am fortunate enough to have been very lucky with some investments in the Stock Market a few years ago so I have a reasonable baseline from which to grow my savings / retirement pots.

Good Bits: I currently have around £380,000 in a stocks and shares ISA, £200,000 in my workplace pension scheme (£469,000 projection at 55), a flat worth around £100,000 that's currently pulling in £500 net a month in rent, a pair of rare sportscars that can be sold for for around £150,000 now or potentially as much as £180,000 in a few years time. My pensionable Salary is around £70,000 a year and after all expenditure, I have around £1,100 surplus per month.

Bad bits: £2000 outstanding car loan, £5000 credit card bill, £240,000 mortgage on current home property, £40,000 mortgage on flat.

Advice I received years ago was to always avoid or reduce debt before trying to save or invest any money - but in this instance - if I used my ISA money to pay off all my debts, it would take 20 years for me to get back to that figure, assuming I could even save £20,000 a year to do it. I have no great sentimental attachment to my cars short of the fact they constitute a hobby I enjoy.

In terms of the workplace pension, I could capitalize on 40% tax relief on my pension contributions by ramping up the % I invest (salary sacrifice) but ultimately, I still need an income to pay the mortgage & meet the cost of living. I live with my partner who is 11 years my senior, she has a teeny workplace pension and we don't have children. In retirement I would like to pull in around £30,000 a year in pension/investment income but have budgeted for around £20,000 a year.

Ideally, I'd like passive income/growth to hasten the reduction in debt/mortgages from now until I'm 55 that will also allow me to increase my pension over the same period - is this achievable and what would be the best strategy to follow?

QrizB

So you're 40, have £900k in assets and £300k in liabilities? By most people's standards you're in a good position.

You've laid this out as if you're single. Are you married, have children or any other dependents?

What does your current standard of living cost you, excluding mortgage paments and pension contributions? Would you expect to continue at the same standard in retirement?

Marcon

You don't say what you earn, or how much you think you need in retirement to maintain your standard of living, or your attitude to risk/ability to absorb loss. 

You have plenty of assets now, so why not invest in some proper financial advice to get you on the right track, based on a full understanding of all the relevant factors, rather than hoping that random strangers will be able to hit the jackpot for you based on hopelessly inadequate snippets of information?

anselld

You can do all the planning and get all the financial advice you like, but the bottom line is the need to keep stuffing money into the pension until the projection starts to approach LTA.   Make sure also that your pension plan is not being eaten alive by charges.

MX5huggy

Get rid of the car loan and credit card debt today (presuming the interest rates are typical), by either cashing in some ISA or moving it it a 0% deal. The mortgages are different that’s a more nuanced debate I fall on the side of keeping them and investing as long as you plan for paying them off.

I would increase your pension contributions to the maximum or leaving you with £12570 tax free allowance what this is is a bit complicated how much do you earn? Then live off your ISA for a few years basically moving money from the ISA to pension saving massive amounts of tax on the way. 

Classic cars, if they are not sentimental (mine is I would probably never sell, and isn’t that valuable). I would get rid of at least 1 they cost a fair bit to maintain. The market is very fickle what’s popular today could be worth a lot less next year. Use the funds to get more into pension. On the plus side they aren’t subject to Capital Gains Tax.

Watch out for Capital Gains Tax liability building up on the flat. 

You need to do some thinking about how much you need in retirement, a low, I’d manage on this much per year, a medium this is the aim and maybe a luxury figure. Only then can you see if you are on course. 

cloud_dog

Gaberdeen said:

In terms of the workplace pension, I could capitalize on 40% tax relief on my pension contributions by ramping up the % I invest (salary sacrifice) but ultimately, I still need an income to pay the mortgage & meet the cost of living. 

As @MX5huggy says you could use some of tour ISA investments to subsidise additional pension contributions.  I am doing this.  Each year I sell £X of my ISA investments and draw on this money to top up my reduced salary income.  This allows me to salary sacrifice down to NMW.

barnstar2077

My initial thought is that you are not saving much money compared to your salary.  I would take an in depth look at your expenses and see what you could remove or improve upon.  You obviously want to maintain a certain standard of living, but I would look at value for money in your outgoings personally.

Gaberdeen

MX5huggy said:

Classic cars, if they are not sentimental (mine is I would probably never sell, and isn’t that valuable). I would get rid of at least 1 they cost a fair bit to maintain. The market is very fickle what’s popular today could be worth a lot less next year. Use the funds to get more into pension. On the plus side they aren’t subject to Capital Gains Tax.

Neither are classics as such - one is a limited edition "homologation" car and the other is a BNR34 - the market for them has gone absolutely batsh*t the last few years.

Cus

Bnr34 - legend. Hope it's blue..

Albermarle

If you think you and your partner will still be together in later life , you need to look at your finances as a couple .
For example they should have a pension that was large enough to take at least a taxable income up to the personal allowance, as this is tax efficient . You could give her money that she could then put in a pension gaining at least 20% tax relief.

QrizB

Working backwards, counting in £k and in current-day money ...

You want to retire on £30k pa. If you pay enough NI (incl. future voluntary contribs) for a full state pension that will be £9k pa. Add £6k pa from your BTL and you've got £15k of retirement income in the bag already.

• You'll need an extra £15k pa from SPA (68?) until you die. Say 30 years so £450k.
• Before SPA but after DC age you'll need to replace the £9k pa SP for 13 years. £117k.
• Before DC age you'll need to find £24k pa. If you retire today that's 15 years, £360k.
• Plus you need £290k to clear your current debts.

That's a total of £1217k, roughly £600k more than you've got at the moment. For every extra year you work that number will fall by £24k (as you are closer to DC age) and by however much of your debt you pay down, and your ISA & DC will rise commensurately.

If you can instead live on £20k per year, knock off 58 years at £10k pa - £580k - for a total of £637k. That's quite close to where you are now.

(This has all been mental arithmetic so please don't trust my numbers.)