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

Gaberdeen

Albermarle said:

The level of interest payable on the mortgage ( now or in the future) is a missing bit of info .

Currently paying 3.62% until January and the best "fix" deal at the moment is 3.81%

My hope is that it drops the closer we get to January.

saajan_12

Gaberdeen said:

I thought I'd come back and update this as I'm now at another cross roads.

I carried on with the offshore job, got a pay-rise and upped my pension contributions significantly - I also paid off my flats mortgage and paid off the car loan - cards paid off too? 

Good Bits:

~£580,000 in a stocks and shares ISA which is yielding around £50,000 a year in dividends (8-9%)  - have the shares gained in value as well, not just dividends? Which fund(s) for the main portion? 
 ~£312,000 in my workplace pension scheme (with increased contributions and no LTA it has a £1.3m projection at 57), - don't fully rely on the no LTA, as there's significant political risk to that over the next ~20 years. 
~ Flat now valued at £85,000 but conversely pulling in £650 net a month in rent  - what are your costs against this, eg agent, repairs, service charges etc? For a property of this value, the costs can be relatively high, eating away at the rent. 
~Sold one of the cars (Bye Bye BNR34) and after paying off the flat mortgage have £100,000 in cash of which £80k is locked up earning 5% until November) - Nov is pretty soon, so you need to work out whats next. Depending on your tax band and the prevailing rates post November, you'll be paying 40% tax on this, ie 5% interest becomes 3%. So it may not be efficient compared to your mortgage rate where you pay the rate in full.  
~Remaining car worth around £50,000 - is this something you'd like to keep, or just an asset? If the latter then may as well sell. 
Take-home pay is around £2900 a month after increasing pension contributions.

Bad bits:

~£4000 credit card on 0% bill due November - presumably you'll just pay this off in Nov? While you could get another 0% transfer, for this amount its likely not worth the hassle even. 
~£200,000 mortgage on current home property - what rate, and are you in a fixed term? 

I've been surprised by how lucky I've continued to be on the stock market - as a de-risking strategy I've focused on value & income investments hence why there's a largish income of ISA money that gets reinvested as it accumulates.

The car was costing an arm and a leg to insure and maintain so I'm relieved I got it sold, the new owner is delighted so money well spent / earned.

Our mortgage is due in January and I'm cogitating on paying off the entity of it - but how I go about it is a conundrum.

Using ISA money will deplete the tax-free income and moreover would take 10 years to replace (at current £20k per year limit on ISA contributions)

The flat is yielding a decent return even though it's fallen in value - the tenants are happy enough I think but if they decided to leave before January I'd be amenable to selling up as the income is unavoidably subject to tax unlike the ISA - how long that would take to sell is anyone's guess, though.

I am erring towards putting the £100k cash against the mortgage, knocking it down to £100k outstanding but maintaining the level of payments so as to over-pay?

I was hoping that I could do this using an off-set account so that it eat's away at the interest payable on the principle - more and more over time. This offset account could always take the potential sale proceeds of the flat (if it happened) and that would probably completely eliminate interest payments entirely.

Am I missing anything super obvious, here? I think taking out the remaining debt would the the last hurdle in (at least one of us!) retiring.

Any feedback duly welcome.

Comments in line.. there's a few more questions before we can really advise. 

Gaberdeen

Thanks Saajan

ISA portfolio capital is broadly increasing in value - impossible to list all of the holdings (80+) as I don't have an individual position in anything greater than £15,000 - the aggregate return on the portfolio is 8/9% and the capital growth YTD (since diversifying) is ~10% - there are some losers in the basket but generally there's more winning than losing at the moment.

Good point about the LTA - I'll be paying attention to the budget and all subsequent budgets!

Last year I made a loss on the flat; There were two big-ticket communal repairs to the block, the old tenants moved out and it needed some repair work prior to bringing back on the market so wouldn't be fair to use that as a benchmark. On a good year all in costs are around £1300 for the year - that includes agent fees, PAT testing, gas boiler checks, legionella etc etc.

Locking the £80k away was more of a "F-you" to my bank, who informed me the current account it was in (which was offsetting my flat mortgage) interest rate was dropping to 1% from 2% - I was paying no interest on the Flat Mortgage so made the decision to completely pay off the mortgage and moved the bulk to a different bank for the locked-in term. The plan was always to use that money to reduce the House mortgage to roughly half in January.

I do want to keep the car for the time being, if I needed to, I'd sell it - but I don't have any pressing desire to at the moment.

Yes, CC will get paid off in full in November - never actually done a 0% transfer of any balance, I always just pay these off in full when the zero % term ends. Easy enough just to open another credit card account after paying one off.

Mortgage terms were updated above but they are 3.62% until January (we're paying £1442 a month of which ~£600 is interest (!!!!) - my priority really is to get this wiped-out but how I go about it has tradeoffs.

Thanks for your response.

Intoodeep

Marcon said:

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?

"Salary is around £70,000 a year "

Kernowshep

I'd genuinely consider going IO on the mortgage and then putting more into the pension (if you aren't saving all the HR tax amount already), you could spend your cash savings on monthly running costs if need be.

Gaberdeen

Kernowshep said:

I'd genuinely consider going IO on the mortgage and then putting more into the pension (if you aren't saving all the HR tax amount already), you could spend your cash savings on monthly running costs if need be.

I'm currently paying 45% of my pensionable salary into my workplace pension (salary sacrifice) and have scope to increase that from December to 54%

I haven't paid any higher-rate (45%) tax on my income in over 10 years, basically since I seriously started to invest in the pension. I'm in Scotland so I know the tax has differences to those calculated in England but you will appreciate that I'm already very much in the "avoid tax" fanclub.

I'd have to run the numbers on going IO - I assume you mean offset the mortgage with a linked cash account so that the interest payments are actually payments on the principle? Are we even allowed to do that?

MX5huggy

Have a look at this before deciding to pay off the mortgage. 

https://youtu.be/9MfCVkRvjQs?si=iJcf9mul1J8hvwcw

You clearly value the comfort of paying it off, but do you know the cost in missed opportunity of paying it off. 

Gaberdeen

MX5huggy said:

Have a look at this before deciding to pay off the mortgage. 

https://youtu.be/9MfCVkRvjQs?si=iJcf9mul1J8hvwcw

You clearly value the comfort of paying it off, but do you know the cost in missed opportunity of paying it off. 

Interesting video - thank you for sharing

barnstar2077

MX5huggy said:

Have a look at this before deciding to pay off the mortgage. 

https://youtu.be/9MfCVkRvjQs?si=iJcf9mul1J8hvwcw

You clearly value the comfort of paying it off, but do you know the cost in missed opportunity of paying it off. 

I like what he has to say, but I find him hard to watch as he moves his head around so much.  I guess I am not very animated myself! :  )

Exodi

barnstar2077 said:

MX5huggy said:

Have a look at this before deciding to pay off the mortgage. 

https://youtu.be/9MfCVkRvjQs?si=iJcf9mul1J8hvwcw

You clearly value the comfort of paying it off, but do you know the cost in missed opportunity of paying it off. 

I like what he has to say, but I find him hard to watch as he moves his head around so much.  I guess I am not very animated myself! :  )

I was hoping it was the James Shack video and was pleasantly suprised it was.

Extremely knowledgeable and useful youtuber (though I'd say it requires a decent understanding of finances beforehand).

If you find him hard to watch, I'd steer clear of most finance youtubers! I've lost count of the amount that make their career off thumbnails with flames in, big red downward arrows and laser-eyes photoshopped on people - typically coupled with exaggerated or controversial titles like "THE END OF THE S&P500?" or "WHY RENTING IS BETTER THAN BUYING". He's definitely one of the more relaxed and less click-baity. He also doesn't shill sponsorships every 5 minutes.

He's probably my favourite finance youtuber at the moment, definitely underappreciated.