On track to retire at 50? Pension diary

MaxiRobriguez

I'm also 33 looking to retire early, but I've got £200k in the pot (plus a wife DB pension) and only £80k on the mortgage. My salary is a bit lower but I'm contributing more as a % - almost £10k more annually than you.

My calculations (which admittedly are relatively cautious) have us enough money at 50, with enough to support a couple of children with uni and a house purchase. Expect a total family pot at age 50 of £900k+, no mortgage, DB pension of c.£10k annually - which should give us an inflation-consistent £50k or so income, so take more from pot early on without state pension, and pull back a bit when we're both in receipt of that. Forecasting we might run out of money by 100 (but again, it's cautious forecast, so there's every chance we won't run out at all). It's a quite sizable pot but you need it if looking at a 50 year retirement horizon and not having access to state pension for up to 20 years.

Based on that, I don't think you're quite set for 50 yet unless you're willing to accept a higher percentage chance of failure (ie money running out before your years do). You probably need to up your contributions if on £75k anyway.

Simon11

Thanks for your post Maxi, not many of my mates have even looked into their pensions, so it hard to have a good discussion around preparing yourself! Fantastic achievement to get a pot of £200k and would be keen to see how much you are putting away to get that as that is around £15-20k per year which would be a struggle in your early career? 

As well as the pension pot which with my crude calculations could reach £400k by 50 for myself, I shall also have the B2L which should be worth around £400k after tax assuming 3-5% annual growth. Plus our existing house is in London, so always potential to move to a cheaper area and unlock some money.

I used the principle of half your age as a percentage into your salary. At the moment, I am therefore getting 17% into the pot and this year, we have been allowed to put our bonus into our pension, so took that offer after doing the numbers. This should be enough as long as I keep doing it?

One area to challenge you on Maxi, is the need to have a huge pension ready once you hit state pension age? I am more focused on ensuring a comfortable retirement between the ages of 50-68 (or slightly more if age move upwards) and just living on selling the B2L, which would give annual income of £20k p.a. and cover this period with some top-up from the pension/ general savings.

After the state pension comes in with potential £20k additional income p.a. together, tax becomes a major issue, plus you naturally spend less later on in life and if you have more money at the end of your life it disappears into a black hole of tax and care homes fees if you are not careful. 

AlphaKappa

If you (and partner) can afford it, you should consider salary sacrificing your income to below £50k so you can fully reclaim child benefits - which would be fully lost if either earns above £60k.
Kids are not cheap and cost depends on individual situation. Mine cost ~2k/month (cost increases as they grow ).
Whist FIRE is a good mission, it could be a long journey and could make you weary/depressed if you are not mentally ready or if your partner is not aligned.
If you can, invest some time and energy in developing/enjoying your career - don't close any doors (yet). Remain flexible with your plans.

Simon11

AlphaKappa said:

If you (and partner) can afford it, you should consider salary sacrificing your income to below £50k so you can fully reclaim child benefits - which would be fully lost if either earns above £60k.
Kids are not cheap and cost depends on individual situation. Mine cost ~2k/month (cost increases as they grow ).
Whist FIRE is a good mission, it could be a long journey and could make you weary/depressed if you are not mentally ready or if your partner is not aligned.
If you can, invest some time and energy in developing/enjoying your career - don't close any doors (yet). Remain flexible with your plans.

Great feedback and things to think about.

At the moment, after sacrificing salary through paying for pension, purchasing additional holidays and insurance, it is still at £66k and I can't see myself being able to get it below £50k. 30% of our joint income goes on the mortgage so there is some room to sacrifice more salary for the pension however it is challenging to know whether to hold back with children coming. 

I am also aware that I may move on with my career and I may not get the same benefits/ pay, so the more you put in now, the less you need to later on.

Albermarle

ajfielden said:

Simon11 said:

I have assumed that our month to month savings we have at the moment would support the child and with ongoing pay rises, we should be fine even if one of us goes part-time for a few days a week. Is there any thing specific I should budget or plan for?

A very, very difficult question to answer, if not impossible because everyone's situation is different.
In our case, we have two autistic spectrum daughters, who for various reasons have not got on well in mainstream education. I won't go into details as we'll be here all day, but the bottom line is that my wife has become full time educator, and has not had an earning job for about 20 years. This is a lifetime of income that we don't have. And bear in mind that this wasn't expected or planned for when they were younger. 

Yes , life can be unpredictable , especially when children come along .
Apart from issues with them directly , it can cause the parents to change . Plenty of career Mums ( usually Mums rather than Dad's) suddenly want to become stay at home Mums.

MaxiRobriguez

Simon11 said:

Thanks for your post Maxi, not many of my mates have even looked into their pensions, so it hard to have a good discussion around preparing yourself! Fantastic achievement to get a pot of £200k and would be keen to see how much you are putting away to get that as that is around £15-20k per year which would be a struggle in your early career? 

As well as the pension pot which with my crude calculations could reach £400k by 50 for myself, I shall also have the B2L which should be worth around £400k after tax assuming 3-5% annual growth. Plus our existing house is in London, so always potential to move to a cheaper area and unlock some money.

I used the principle of half your age as a percentage into your salary. At the moment, I am therefore getting 17% into the pot and this year, we have been allowed to put our bonus into our pension, so took that offer after doing the numbers. This should be enough as long as I keep doing it?

One area to challenge you on Maxi, is the need to have a huge pension ready once you hit state pension age? I am more focused on ensuring a comfortable retirement between the ages of 50-68 (or slightly more if age move upwards) and just living on selling the B2L, which would give annual income of £20k p.a. and cover this period with some top-up from the pension/ general savings.

After the state pension comes in with potential £20k additional income p.a. together, tax becomes a major issue, plus you naturally spend less later on in life and if you have more money at the end of your life it disappears into a black hole of tax and care homes fees if you are not careful. 

I'm currently putting away £2.4k a month into the pension, including employer contributions, plus another £500 a month into a S+S ISA - and have done as much for about three years now after a fairly sizable pay jump didn't come with any lifestyle inflation. Before that I was contributing a "normal" amount which would have got me a "normal" retirement at a "normal" age... so.. basically anywhere between £200 a month at career start and about £800 a month up until about 8 years in (again with employer match). The split between pension and ISA is £130k vs £70k currently - I need both as retirement at 50 means at least 7 years of not being able to access the pension. The ISA is quite high as I shifted £30k from mortgage in March 2020 when it was up for renewal and popped it into S+S ISA in two transactions within a month and have benefitted from the price accumulation since COVID bottom.

Half your age is, firstly just a guide, and secondly meant for people retiring at a normal age - mid 60s, it probably doesn't apply to people seeking early retirement. My current contributions (plus employer match) put me nearer 50%.

As for "huge" pension - then yes, it's needed, as I want to fund various things as per previously stated which aren't particularly cheap. I also want to have an enjoyable retirement rather than just survive. If you're happy to live off £20k annually then you can probably get away with a £500k pot. 

But it leaves little room for error, as you've got a 4% withdrawal rate for 17 odd years before state pension kicks in, and a poor sequence return in the first few years could knock you off course for all the years after SP too.

RE: B2L - yes need to include that but probably temper expectations for B2L capital gains. I think we are fast approaching a period of real terms losses for housing (ie, inflation > price) so you might want to just focus on the income element. Whatever you make in profit from income (less taxes, less any work etc) multiply by 12 and take that away from your £20k need - basically assume inflation linked income from here as a safe bet.

Don't get me wrong I don't think you're a million miles away - as a guess I think you'd be looking at mid 50's at the moment. It sounds like a small difference but the difference between the two is that accumulation phase is restricted to 17 years rather than 22 if you retire at 50, and spending phase might be as much as 45 rather than 40. 

If I were in your shoes I'd look at expectation management and re-assess that I can still meet my goals in the event of difficulties ie:
1) What if inflation is high for a few years and stock gains are low?
2) What if you're BTL generates 0% real capital returns for the next 10 years?
3) What happens to your portfolio if there's a 40% sell-off right near your proposed retirement?
4) What happens if state pension is pushed back to 70, or means tested, before you get there?
5) What spending increase have you factored in for children?

Only other point to make, given your age... make sure you get life insurance when you have kids.

HCIMbtw

MaxiRobriguez said:

Simon11 said:

Thanks for your post Maxi, not many of my mates have even looked into their pensions, so it hard to have a good discussion around preparing yourself! Fantastic achievement to get a pot of £200k and would be keen to see how much you are putting away to get that as that is around £15-20k per year which would be a struggle in your early career? 

As well as the pension pot which with my crude calculations could reach £400k by 50 for myself, I shall also have the B2L which should be worth around £400k after tax assuming 3-5% annual growth. Plus our existing house is in London, so always potential to move to a cheaper area and unlock some money.

I used the principle of half your age as a percentage into your salary. At the moment, I am therefore getting 17% into the pot and this year, we have been allowed to put our bonus into our pension, so took that offer after doing the numbers. This should be enough as long as I keep doing it?

One area to challenge you on Maxi, is the need to have a huge pension ready once you hit state pension age? I am more focused on ensuring a comfortable retirement between the ages of 50-68 (or slightly more if age move upwards) and just living on selling the B2L, which would give annual income of £20k p.a. and cover this period with some top-up from the pension/ general savings.

After the state pension comes in with potential £20k additional income p.a. together, tax becomes a major issue, plus you naturally spend less later on in life and if you have more money at the end of your life it disappears into a black hole of tax and care homes fees if you are not careful. 

I'm currently putting away £2.4k a month into the pension, including employer contributions, plus another £500 a month into a S+S ISA - and have done as much for about three years now after a fairly sizable pay jump didn't come with any lifestyle inflation. Before that I was contributing a "normal" amount which would have got me a "normal" retirement at a "normal" age... so.. basically anywhere between £200 a month at career start and about £800 a month up until about 8 years in (again with employer match). The split between pension and ISA is £130k vs £70k currently - I need both as retirement at 50 means at least 7 years of not being able to access the pension. The ISA is quite high as I shifted £30k from mortgage in March 2020 when it was up for renewal and popped it into S+S ISA in two transactions within a month and have benefitted from the price accumulation since COVID bottom.

Half your age is, firstly just a guide, and secondly meant for people retiring at a normal age - mid 60s, it probably doesn't apply to people seeking early retirement. My current contributions (plus employer match) put me nearer 50%.

As for "huge" pension - then yes, it's needed, as I want to fund various things as per previously stated which aren't particularly cheap. I also want to have an enjoyable retirement rather than just survive. If you're happy to live off £20k annually then you can probably get away with a £500k pot. 

But it leaves little room for error, as you've got a 4% withdrawal rate for 17 odd years before state pension kicks in, and a poor sequence return in the first few years could knock you off course for all the years after SP too.

RE: B2L - yes need to include that but probably temper expectations for B2L capital gains. I think we are fast approaching a period of real terms losses for housing (ie, inflation > price) so you might want to just focus on the income element. Whatever you make in profit from income (less taxes, less any work etc) multiply by 12 and take that away from your £20k need - basically assume inflation linked income from here as a safe bet.

Don't get me wrong I don't think you're a million miles away - as a guess I think you'd be looking at mid 50's at the moment. It sounds like a small difference but the difference between the two is that accumulation phase is restricted to 17 years rather than 22 if you retire at 50, and spending phase might be as much as 45 rather than 40. 

If I were in your shoes I'd look at expectation management and re-assess that I can still meet my goals in the event of difficulties ie:
1) What if inflation is high for a few years and stock gains are low?
2) What if you're BTL generates 0% real capital returns for the next 10 years?
3) What happens to your portfolio if there's a 40% sell-off right near your proposed retirement?
4) What happens if state pension is pushed back to 70, or means tested, before you get there?
5) What spending increase have you factored in for children?

Only other point to make, given your age... make sure you get life insurance when you have kids.

I love your strategy maxi.. wish I could get away with following it but my wife would kill me, and we've a baby and another probably on the way at some point 

thing that gets me about your predicament is your mortgage is so low though, you living in a pretty modest home? or how did you get so much equity in it? 

I wish i'd done what you did with mortgage and ISA, but count taking out a 5 year fixed mortgage in April this year as probably my worst financial error to date (should be pumping my ISA).. but i can't fix that now, so hey ho 

I put in 23.5% myself into pension, get 8% employer contribution on top.. ISA's a bit all over the place.. put very little in it at the moment because my wife is effectively on £0 maternity at the moment (actually putting some money in crypto assets a bit nowadays but will revert to ISA once I am happy with my allocation). 

Only have pension at 60k (i've put in for nearly 10 years, but the early scheme was TERRIBLE) ISA at 24k, but only became higher rate tax payer this year so hopefully starting to properly ramp up now (34 atm).. 

That said think my mortgage is more like £220k outstanding

In theory 55 should be easy.. just have to see how career and investment actually go though... earlier would be great xD

Have occasionally considered BTL, but when I cost it out I really can't see that much advantage for the hassle

Simon11

Thanks for the post, it has made me think about the percentage I put into the pot in order to reach 50 as a potential retirement age and review my current disposable income. With plenty of income at the moment and wishing to maximise compounding.....

With 40% tax savings, I could reduce my monthly income by just £400 and increase the amount of my salary put into the pension pot from 17% to 28%. Thus increasing investment by 65% without really impacting on lifestyle and with plenty of savings in the bank already, may be worth considering in the new year, then reviewing regularly

Simon11

MaxiRobriguez said:

Don't get me wrong I don't think you're a million miles away - as a guess I think you'd be looking at mid 50's at the moment. It sounds like a small difference but the difference between the two is that accumulation phase is restricted to 17 years rather than 22 if you retire at 50, and spending phase might be as much as 45 rather than 40. 

If I were to live off savings and the B2L sale from 50 to at least 60 years old, then my current pension pots will have at least 27 years to accumulate, if not more.

MaxiRobriguez

Simon11 said:

MaxiRobriguez said:

Don't get me wrong I don't think you're a million miles away - as a guess I think you'd be looking at mid 50's at the moment. It sounds like a small difference but the difference between the two is that accumulation phase is restricted to 17 years rather than 22 if you retire at 50, and spending phase might be as much as 45 rather than 40. 

If I were to live off savings and the B2L sale from 50 to at least 60 years old, then my current pension pots will have at least 27 years to accumulate, if not more.

Sorry should have been clear, you're not earning anymore in order to buy new units, so yes you can leave it untouched but you're only benefitting from any growth, not inputting any more capital.