On track to retire at 50? Pension diary

MaxiRobriguez

HCIMbtw said:

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? 

...

We too have a baby (6 months!) and the desire to have another at some point (at least, the wife does anyway, so by default that means us ) - we've spent a bit more because of him but we pay ourselves first - pension, mortgage and ISA all come out first so if we go overboard on the little lad it means the money comes from what would otherwise be a meal out or a holiday. 

Re: mortgage so low - had parental support at an early age to put a deposit down for a little terrace. Meant I could build up equity right from the get go of leaving university rather than renting for a period of time. Appreciate that's not something available to many and it's a fortunate position I've acquired through chance. House we're living in at the moment is a 3 bed semi but only paid £170k for it (we live up Norf).

HCIMbtw

MaxiRobriguez said:

HCIMbtw said:

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? 

...

We too have a baby (6 months!) and the desire to have another at some point (at least, the wife does anyway, so by default that means us ) - we've spent a bit more because of him but we pay ourselves first - pension, mortgage and ISA all come out first so if we go overboard on the little lad it means the money comes from what would otherwise be a meal out or a holiday. 

Re: mortgage so low - had parental support at an early age to put a deposit down for a little terrace. Meant I could build up equity right from the get go of leaving university rather than renting for a period of time. Appreciate that's not something available to many and it's a fortunate position I've acquired through chance. House we're living in at the moment is a 3 bed semi but only paid £170k for it (we live up Norf).

Nice, you are a few years ahead of me for sure, and going at a faster rate.. I went down the route of fixer uppers myself post uni after saving a deposit, have about 160k equity in our house now after a couple of moves, but selling/moving/doing up is an absolute pain in the backside/life sink.. don't see us moving any time soon again though with kids..  I'm getting about £1.5k into pension per month which includes the employer contributions... similar attitude towards work as you expressed in another thread... should be getting about 800pm into ISA once my wifes back at work next year, appreciate it is very early days on the road to saving towards retirement and lots can change, but I am kinda cautious about future tax changes to pensions and would rather have more in ISA where it can be more quickly moved/adjusted if rules change 

Will be interested to see what type of progress we've both made in five years time! I need to keep chipping away at salary progression in my role as there is still a decent bit of space for upwards movement and that can all go in pension as well, took me 12 months of pestering to get a bump this year though.. 

HCIMbtw

Simon11 said:

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

Do it..

There are a lot of variables to pay attention to/consider along the way 

- Is your rate of pension contribution taking you to close to LTA based on market projections 
- Do global market fundamentals change (shouldn't if governments keep printing money) 
- Do the higher tax rate benefits of paying into a pension change 
- Does the lifetime allowance, or access to pensions change

But you might as well make hay while the sun shines, and at the moment, while you are fit and able, money into the pension is most tax efficient and appears the best

But the caveat/caution is if markets keep going you would smash LTA at those upped contribution rates.. and not be able to access the funds until 55 (but potentially later if pension rules change).. but then LTA could change.. or any of those points above.. so just need to make sure that your accessible cash/assets from 50 provide that bridge 

So again it kind comes back to, make hay now, and revisit your plan 5 years down the line

Ibrahim5

Too many pensioners. Not enough lorry drivers 

HCIMbtw

Ibrahim5 said:

Too many pensioners. Not enough lorry drivers 

Don't worry those lorries will drive themselves in a few years. 

Simon11

HCIMbtw said:

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

You are spot on there. The BTL that I have was my first every home and I was able to retain it when getting a second home. Key reason for keeping it, is that right next to HS2, so I am hoping the value will increase substantially when it opens in 10+ years time like we have seen with Crossrail. There is also the opportunity to turn it from a 1 bed to a 2 bedroom to increase value too.

Year to year, I make around '2k profit' according to the Government however they do not include paying off the mortgage. Thus in reality, I do make a small loss each year and during covid, I had a vacant property for 9 months. With the media not covering it fairly, the Government have been really anti-landlords over the past few years, which is getting worse. When my tenant suddenly left the property mid-way through the contract, they stopped paying however didn't inform my agent. Due to laws, we couldn't re let the property until the tenant had confirmed in writing they had left and as they lived abroad, I could only reclaim their deposit (which took 9 months to get my hands on!). I am all for protection for a tenant, but I have bills to pay too!

With an agent managing the property, there is not too much work to do however stock and shares give far better returns.

Simon11

HCIMbtw said:

Simon11 said:

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

Do it..

Increased contributions from 17% to 29% this morning, so an extra £740 going into the pension every month, although I will only see a reduction in pay of £424. Exciting to watch the pot grow!

HCIMbtw

Simon11 said:

HCIMbtw said:

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

You are spot on there. The BTL that I have was my first every home and I was able to retain it when getting a second home. Key reason for keeping it, is that right next to HS2, so I am hoping the value will increase substantially when it opens in 10+ years time like we have seen with Crossrail. There is also the opportunity to turn it from a 1 bed to a 2 bedroom to increase value too.

Year to year, I make around '2k profit' according to the Government however they do not include paying off the mortgage. Thus in reality, I do make a small loss each year and during covid, I had a vacant property for 9 months. With the media not covering it fairly, the Government have been really anti-landlords over the past few years, which is getting worse. When my tenant suddenly left the property mid-way through the contract, they stopped paying however didn't inform my agent. Due to laws, we couldn't re let the property until the tenant had confirmed in writing they had left and as they lived abroad, I could only reclaim their deposit (which took 9 months to get my hands on!). I am all for protection for a tenant, but I have bills to pay too!

With an agent managing the property, there is not too much work to do however stock and shares give far better returns.

Does it make sense to pay the mortgage off on the BTL?

It may do for tax reasons.. but paying off a 1.5% debt, foregoing the ability to invest that money long term and grow/compound at a better rate.. 

The value of the property increases/decreases regardless of the debt you service to own it... something to think about

Grats on upping the contributions! can always tweak them again if you aren't happy how it works out. 

Simon11

HCIMbtw said:

Does it make sense to pay the mortgage off on the BTL?

It may do for tax reasons.. but paying off a 1.5% debt, foregoing the ability to invest that money long term and grow/compound at a better rate.. 

The value of the property increases/decreases regardless of the debt you service to own it... something to think about

Grats on upping the contributions! can always tweak them again if you aren't happy how it works out. 

Interest rates on BTL are usually higher, so for example I am paying 2.14% for a 5 year fix. The mortgage still has 20 years to run and thus, I am making very small steps to pay it off.

I could take money out of the BTL when I remortgage on similar rate and put into shares (which hopefully has to give a better rate than 2%), however it just doesn't feel right after seeing this mortgage reduce over the last 10 years (it is money wise though......!) and there is the risk of mortgage rates going up.

sammyjammy

Re the tenant doing a moonlight flit, nothing to stop you taking them to court and getting a CCJ against them, will impact them badly on return to UK and could be financially beneficial in the longer term.