Ten years to £1m?

DannyCarey

Hello friends,

I have just turned 40 and the realisation that I am getting on has fully hit me. I have been investing every month, a little more seriously since 2016.

Between wife and I we have £312,000 invested between S&S ISAs and pension - roughly £120k in ISAs.

I have been doing some modelling of what would it take to get to a million in ten years or less. We invest primarily in Vanguard's Global All Cap index fund.

I have two kids, one in primary school and the other still in nursery for another 18 months (£1k a month). Cant wait for that to finish to be honest.

I earn £65k base and 15% annual bonus which depends on company and personal performance. I also get quite a lot of RSUs every few months which I use for nursey fees and also holiday fund. Wife earns £35k and no bonuses etc.

I invest 30% into work pension (work pays 6%, i put in the rest).

In total we invest £2600 a month.. not counting bonuses (which I invest 100% of usually), if we did this for 10 years at 5.5% growth it would be £956k, which is good enough for me to maybe ease off a bit. 

We have a "starter home" (3 bed semi), which at some point I would like to upgrade to a bigger family home. that could complicate things but I don't want to eat into investments. House worth £220,000 and we only owe £68k on it. House in my area for what we would like would be about £350 - £400k.

My work pays well but its the tech industry and so it could go south at any time. I just want to earn and put away as much as I can to have more control.

Does that seem right to you all? Anything else I should consider?

masonic

As a rough guide, this does not look unreasonable. Obviously investment returns could be better or worse over the next 10 years, along with lots of other unknowns, so any long term projection is going to come with lots of caveats.

sheslookinhot

Make sure your wife is doing likewise with her pension.

Hoenir

DannyCarey said:

 Anything else I should consider?

Expecting linear growth of 5.5% over the next 10 years is a complete unknown quantity. When markets suffer a correct , as ultimately they always do, can take years to return to previous highs. If you were an investor in the US markets in 2007.  Then would have been 2013, some 6 years later to recover your losses.  The charts that paint a rosy picture of equity returns in the post GFC cheap money (QE) era have lulled a new generation of investors into a sense of complacency I sense. 

Nor are factoring into account inflation. A million sounds a lot. Apply 3% inflation over 10 years and you'd need around £1,350,000 to have the same buying power. 

El_Torro

Is 5.5% growth including inflation or excluding it? If it's after inflation then I'd say you're being very optimistic. If it's including inflation then as Hoenir says £1M will be worth less in 10 years time than it is today.

Bostonerimus1

You’re doing all the right things and most importantly you are modeling the growth of your portfolio which is something very few do. That will allow you to track your performance. Regular saving/investing as much as you can is is important early on and you are doing that. Keep doing what you’re doing and you will end up just fine… actually probably far better than that.

LeafGreen

Not that it’s a bad goal to have, but what is the thinking behind £1M in 10 years?  Without context, they both sound like fairly arbitrary numbers.  Are you hoping to retire early, or is there another reason?  Also, have you taken inflation into account in your calculations?

Alexland

You don't mention if your employer operates salary sacrifice/swap to save NI on pension contributions or if the level of contribution can be easily changed?

If so consider only putting enough into your pension to keep out of higher rate tax and the child benefit clawback but scheduling this as 'lumpy salary sacrifice' such that you draw high income in some months and low income in others.

In the months you draw high income (such as when you get bonuses) only make enough pension contributions to get the employer matching and you only pay 2% NI on the excess income and in the months where you draw low income make high pension contributions (staying above min wage) and you save 8% NI.

This was more lucrative when the NI rate was 12% but might still give you a few hundred quid a year.

If your wife is still under 40 consider a S&S LISA which may be more beneficial for her than excess unmatched pension contributions.as it's the same 25% uplift on contributions but no tax on withdrawal although if her scheme is salary sacrifice/swap then the NI saving could make up for the potential future pension income tax.

Personally I don't think Vanguard's Global All Cap is worth paying nearly twice the price of a World fund/etf but then World has done better in recent years so I have accumulated a buffer to be wrong about this.

DannyCarey

El_Torro said:

Is 5.5% growth including inflation or excluding it? If it's after inflation then I'd say you're being very optimistic. If it's including inflation then as Hoenir says £1M will be worth less in 10 years time than it is today.

Bostonerimus1 said:

You’re doing all the right things and most importantly you are modeling the growth of your portfolio which is something very few do. That will allow you to track your performance. Regular saving/investing as much as you can is is important early on and you are doing that. Keep doing what you’re doing and you will end up just fine… actually probably far better than that.

LeafGreen said:

Not that it’s a bad goal to have, but what is the thinking behind £1M in 10 years?  Without context, they both sound like fairly arbitrary numbers.  Are you hoping to retire early, or is there another reason?  Also, have you taken inflation into account in your calculations?

Alexland said:

You don't mention if your employer operates salary sacrifice/swap to save NI on pension contributions or if the level of contribution can be easily changed?

If so consider only putting enough into your pension to keep out of higher rate tax and the child benefit clawback but scheduling this as 'lumpy salary sacrifice' such that you draw high income in some months and low income in others.

In the months you draw high income (such as when you get bonuses) only make enough pension contributions to get the employer matching and you only pay 2% NI on the excess income and in the months where you draw low income make high pension contributions (staying above min wage) and you save 8% NI.

This was more lucrative when the NI rate was 12% but might still give you a few hundred quid a year.

If your wife is still under 40 consider a S&S LISA which may be more beneficial for her than excess unmatched pension contributions.as it's the same 25% uplift on contributions but no tax on withdrawal although if her scheme is salary sacrifice/swap then the NI saving could make up for the potential future pension income tax.

Personally I don't think Vanguard's Global All Cap is worth paying nearly twice the price of a World fund/etf but then World has done better in recent years so I have accumulated a buffer to be wrong about this.

@El_Torro That's excluding inflation, just the return in general, which I hope is realistic, or under what will happen.

Bostonerimus1 - Thank you!

LeafGreen - I am thinking about the 4% rule and believing I could get by on £40k a year if I have no mortgage etc.

Alexland - my employer does salary sacrifice for the pension, contributions can be easily changed at at time. I often stick it up a percent or two each year if I keep getting raises. The RSUs make it difficult to avoid the total amount the tax man sees, so I have opted out of child benefit. 

masonic

DannyCarey said:

LeafGreen - I am thinking about the 4% rule and believing I could get by on £40k a year if I have no mortgage etc.

So the plan would be to retire at 50 and pull down £40k per year from the S&S ISAs until you can access your pension? That could be problematic if you want the safety of not running out of assets within these accounts specifically. You will either need to take less risk within your ISAs or be flexible towards delaying for a few years / going back to work if you get a bad sequence of returns. If you take less risk, then that 5.5% nominal return starts to look less reasonable.

Using the 4% rule is also somewhat optimistic. You might be saved there by the state pension, but you'll be about 20 years into retirement when that kicks in. If things do go badly in the early years, would you be willing to reduce it to 3%, or 2.5%?

Bostonerimus1

masonic said:

DannyCarey said:

LeafGreen - I am thinking about the 4% rule and believing I could get by on £40k a year if I have no mortgage etc.

So the plan would be to retire at 50 and pull down £40k per year from the S&S ISAs until you can access your pension? That could be problematic if you want the safety of not running out of assets within these accounts specifically. You will either need to take less risk within your ISAs or be flexible towards delaying for a few years / going back to work if you get a bad sequence of returns. If you take less risk, then that 5.5% nominal return starts to look less reasonable.

Using the 4% rule is also somewhat optimistic. You might be saved there by the state pension, but you'll be about 20 years into retirement when that kicks in. If things do go badly in the early years, would you be willing to reduce it to 3%, or 2.5%?

The OP looks to have a reasonable plan to me. A 40k index linked withdrawal goal from a 1M pot has a very good probability of lasting 30 years and probably longer, particularly if it isn't dogmatic. The lack of a mortgage will give the OP flexibility in spending and if they combine good budgeting with their investing I think they'll have the tools to adjust outgoings. The state pension will kick in no more than 20 years after age 50 and will probably cover 1/3 to 1/2 of the 40k annual income needs. This is one of the most common sense approaches I've seen here. There is a plan that is being tracked and analyzed and I see no reason why the OP won't succeed.