On track to retire at 50? Pension diary

Anonymous101

Only just spotted this thread. Interesting reading.

I'd say you're well ahead of where I was when I was your age. I'm now forecasting to be FI before 50. I'm 40 now.
The thing I'll add to consider is that income can increase dramatically in your 30's. My salary almost trebled 30-40 and thinking about it now I'd say that it could have gone 4x or even 5x if I'd have been more focused.

From my experience getting to a position where you're comfortable and then holding that expenditure is the key to FI. Cap expenditure as best you can and grow income and therefore saving from there. As mentioned Sal Sac is extremely powerful also so is carry forward and knowing the rules around tax and NI. Planning up and down periods to maximise child benefit, NI relief etc etc are also pretty beneficial.

gtat

Some really interesting comments here - a useful thread!

It's good to see a few other posters around my age for me to benchmark against.

I'm 34 and I have about £18k PA already built up in my DB pension. Salary £50k + £4k bonus PA, although moving to a new job on £63k in early 2022.

Assuming state pension still exists when I get there, I think that plus my DB puts me in pretty good shape. However, reading this board has educated me that I should seek to build a healthy DC pot alongside it for added flexibility and the option of early retirement. I've recently opened a Vanguard SIPP investing in VLS100 for this reason.

We have a baby and a mortgage though (and maybe another child in future?), so there are lots of unknown costs on the horizon!

Albermarle

I'm 34 and I have about £18k PA already built up in my DB pension. Salary £50k

Normally with DB pensions you get approx 1/60th for each year worked . Even if you started this job at 20 , then you would normally only have built up a quarter of salary. 25% of £50K is not £18K , so you must have a very generous pension scheme !

Sounds like a job worth keeping . Very few private companies now offer this type of pension.

Assuming state pension still exists when I get there

It almost certainly will, as no govt is going to get rid of it as it would be political suicide . However the age at which you get it will probably be at least 70 by the time you get there .

gtat

Albermarle said:

I'm 34 and I have about £18k PA already built up in my DB pension. Salary £50k

Normally with DB pensions you get approx 1/60th for each year worked . Even if you started this job at 20 , then you would normally only have built up a quarter of salary. 25% of £50K is not £18K , so you must have a very generous pension scheme !

Sounds like a job worth keeping . Very few private companies now offer this type of pension.

Yes, I was with USS and then transferred that in to Alpha, which saw the DB increase by nearly 50% PA, although to be taken at state pension age. My salary whilst in the USS scheme was a little higher (£63k at the highest point). So a combination of two good DB schemes and a good transfer offer!

The new job is also DB. It's a higher wage and can be taken from 62, but a lower accrual rate. So still a need for a healthy DC pension to 'bridge the gap'.

Simon11

One year on from my original post, I have been squirreling away and taking onboard all the advice here. 

Our child is nearly 1 and will be going into nursery soon three days a week ($$$) with parent working 4 days per week and grandparents helping with one day, but hopefully we will have enough money coming in to keep putting into my pension (to take advantage of reducing 40% tax bill- although still not able to benefit from child benefit) and pay all the bills! Over the last six months, our cash reserves have fallen but we have had quite a lot of things to replace in the house, a few trips abroad and work on the garden to make it safer. Luckily pay has increase 9% this year, which should make it easier to stick to putting £40k into the pension.

Plan is still to spend a lot of time supporting charities when older and would really love having the option to retire at 50 to focus more of my time supporting them. I would estimate that with my partner (who may retire around 55), we would need £35k to live comfortably.

Here is my current pensions at age 33 (yes I got my age wrong last year! ):

* Defined contribution pension: £98k [60k LY] pot with target to put in £40k from pay/ bonus
* Defined contribution pension: £18k [foreign pension]

* Defined benefit pension: £940 annually

* State pension: Expenditure of £1k to fill two years, would give me 35 years of NI credits by 50
* B2L: Currently worth £180k and should increase due to major infrastructure being built close by. Expect to have tiny mortgage by 50. I am aware of capital gains tax however if I sell once I stop working, this will minimise my tax.

Partner (33)
* Defined benefit pension: Government pension with 8 years collected so far
* State pension achieved hopefully by 55

Only major debt is the mortgage which is around £500k with three years still to go on the cheap fixed rate so may need to hold back some savings to reduce this at a later date.

Nice to see we are on track, however it will be interesting to see whether we can maintain pension savings with a 1 year old and maybe another kid.

Roger175

Simon

I'm intrigued by your various comments on your BTL. We also have a BTL, which we are now looking to get rid of. We have 2 years left to run on our low (1.8%) BTL mortgage, thereafter if we have to renew at what is almost certainly going to be a considerably higher rate, the whole thing becomes totally un-viable. 

In a previous post you say "Year to year, I make around '2k profit' according to the Government however they do not include paying off the mortgage". I'm struggling to understand what you're getting at here, you are liable to tax on the total rental income, less expenses and can only claim 20% tax relief on the mortgage interest. It's not tax on the profit after the mortgage.

You don't say what the mortgage or rental income is, so it's difficult to judge whether the BTL is worth keeping in your case, but in our case, the dynamics have totally changed in the last year. We found ourselves as 'accidental' landlords and 3 years ago decided to keep our former house rather than sell it. Ours is worth about £420k with a mortgage of £180k. 3 years ago, if we'd sold, we could have got next to nothing by putting the equity money on deposit and by taking out a £180k mortgage at £270/month we could achieve a rental income of £1050/month. This seems like a no-brainer at the time, but roll on a few years, we are facing the prospect of the mortgage tripling and if we had the money in our hands we could now get plus 4% in a fixed interest account (or invest it). At current rates (£4% plus) on our £240k of equity, we could get nearly £10k p/a interest. I know this is very simplistic and we have some CGT to pay (although this will be more than we hoped due to the changes in the budget), but we have decided, it's just become a mugs game and need to get out of it. 

Simon11

Roger175 said:

Simon

I'm intrigued by your various comments on your BTL. We also have a BTL, which we are now looking to get rid of. We have 2 years left to run on our low (1.8%) BTL mortgage, thereafter if we have to renew at what is almost certainly going to be a considerably higher rate, the whole thing becomes totally un-viable. 

In a previous post you say "Year to year, I make around '2k profit' according to the Government however they do not include paying off the mortgage". I'm struggling to understand what you're getting at here, you are liable to tax on the total rental income, less expenses and can only claim 20% tax relief on the mortgage interest. It's not tax on the profit after the mortgage.

You don't say what the mortgage or rental income is, so it's difficult to judge whether the BTL is worth keeping in your case, but in our case, the dynamics have totally changed in the last year. We found ourselves as 'accidental' landlords and 3 years ago decided to keep our former house rather than sell it. Ours is worth about £420k with a mortgage of £180k. 3 years ago, if we'd sold, we could have got next to nothing by putting the equity money on deposit and by taking out a £180k mortgage at £270/month we could achieve a rental income of £1050/month. This seems like a no-brainer at the time, but roll on a few years, we are facing the prospect of the mortgage tripling and if we had the money in our hands we could now get plus 4% in a fixed interest account (or invest it). At current rates (£4% plus) on our £240k of equity, we could get nearly £10k p/a interest. I know this is very simplistic and we have some CGT to pay (although this will be more than we hoped due to the changes in the budget), but we have decided, it's just become a mugs game and need to get out of it. 

Nice low B2L mortgage rate there, mine is at 2.1% with 3 years to run. However your rental income is quite low and I would sell too- Before covid hit I had a tenant for two years paying £900 a month! My property is a 1 bed flat in a student area/ major city centre so plenty of tenants wanting it and normal attracts more wealthy tenants (hopefully reducing risk).

My understand of the tax relief being removed on mortgage was incorrect, although I always inserted when asked the mortgage costs into self assessments (phew!)

I did some calculations to compare:
The B2L is worth around £180k, with rent of £850 a month. This gives an income of £10,200. I have expenses of £3.7k property management fees, £3.7k mortgage, agency fee £1k and repair/ insurance £300. If my numbers are correct, this gives me a cash profit of £1.5k per year. Tax is around £1k (as government thinks my profit is around £4-5k per year), not leaving much to cover sudden expenses or if my tenant decides to stop paying. In covid, my international student abandoned the flat and stopped paying- thankfully he gave back the keys (plus 1 month deposit taken) so I could re-market it after a few months but in a really bad rental market.

For now, it is worth keeping the B2L (I originally purchased the flat to live in before moving and buying another place), providing it covers its costs, tenants are good and only takes up a small amount of admin time for me. In your case, the property doesn't sound like a good business case unless you can really jack up the rental income which should be far closer to £1.5k per month.

Roger175

Simon

Yes, the rent is too low. This is a 4 bed detached family house, but in a rural village in the SW, nevertheless we could be getting more, somewhere around £1,200 - £1,300 seems to be the going rate, but we're too soft! we haven't put it up because we have excellent tenants. Seems mean to put it up in Feb when it's due for review, only to give the tenants notice soon after.

You still don't say what your mortgage/equity is in your case. If your paying £3,700 at 2.1% (assuming interest only) then you don't have much equity in the property. What will you do when you come to renew and your mortgage rate jumps significantly? We are assuming next time around we will be looking at 5-6%.

Simon11

Roger175 said:

You still don't say what your mortgage/equity is in your case. If your paying £3,700 at 2.1% (assuming interest only) then you don't have much equity in the property. What will you do when you come to renew and your mortgage rate jumps significantly? We are assuming next time around we will be looking at 5-6%.

I have 2/3 equity after paying it off for a decade and on a long term mortgage slowly paying off the remainder. I am sure I could put that money into a better place or strip some money out to reinvest elsewhere but easier to stay where it is.

I have three years to decide when the mortgage rate ends and I can see what the market is like. The main reason for buying this place, is that it is on the doorstep of a HS2 station and once it is built, I expect to see a good increase in value of the property like with Crossrail.

One of the benefits for me, is that my agents do everything and I haven't actually been inside my flat for 10 years nor met any of my tenants. Thus, I don't get any emotional connection with my tenants and makes it easier if I need to increase my rent (I still like to be reasonable with any increase in rent per year and normally it increases c£25 a month- then when a new tenant comes, I can jump it to market rates).

Roger175

My misunderstanding. Good luck with it all!