Can I retire now? (age 40)

ent_moot

OP, I don't think you have fully outlined this so suggest you also consider what you would do with your new found time. I very much doubt you want to turn your hobby into 'full time' hours, so what are you going to do that's low cost? Big garden and like gardening for example is quite a time sink, but its not for everyone.

I'm a Software Engineer. It's basically a zero-cost hobby, as most of the best tools are free/open-source... apart from physical hardware (PC, monitor etc. ) which is maybe £2k every 5 years, if you like to have a high-end developer station. 

I do enjoy gardening / landscaping,  which can be done very cheaply if you do the work yourself. 

But am I the only person wondering how the OP only has £1.5M assets (a third of which is their home) when earning £200K+ (and wife is earning too) and yet only spending £32K a year, especially with stock market returns over the past year.

It always makes me chuckle when people ask this, given that 98% of 40 year-olds on my salary will have accrued a fraction of the wealth I have, due to a more expensive lifestyle. 

Obviously I didn't start on £200k.  As I mentioned earlier, I started on ~30k.   

Also, do you realise that on a £200k salary you pay £76,203 a year in tax?  (if one does not majorly salary sacrifice into a pension).

ent_moot

Someone else above suggested this and I’m still unhappy with the premise. The OP is essentially asking if he can afford to retire now and if it has to be done by taking out a loan then that seems counter intuitive to me. 

It's really about the point above:  in order to avoid paying a literal fortune in tax, I've built up a very large private pension (note this soon won't be possible under labour who will change the salary sacrifice cap from 60k down to 2k !).

However, I can't access this until age 57.  So, there's a period of a few years that I need to bridge. 

The way I see it, my options to bridge this are:

1) Work for 1 more year now.
2) Work for 2-3 years closer to the time, on a much lower salary 
3) Take out a relatively small mortgage, which can later be paid back

I'm inclined to plan for 3), but consider 2) closer to the time depending on how I feel.

I want to avoid 1), because I've already been putting this off for years and now is a crucial time in terms of my daughter's age etc.

My thinking is that I should take the mortgage out as late as possible, to avoid risk.  If I take the mortgage out sooner, than I'm on the hook for paying interest for many years.  Arguably I could put the cash into index funds and hope that it grows at a rate faster than the interest; however, this feels a bit risky to me, as I would be doubly exposed: first to mortgage rates rocketing, and secondly to returns slumping.  I'd rather have the equity in my house for as long as possible.

Secret2ndAccount

jimi_man said:

Someone else above suggested this and I’m still unhappy with the premise. The OP is essentially asking if he can afford to retire now and if it has to be done by taking out a loan then that seems counter intuitive to me. 

You can question whether the OP can afford to retire - does he have enough money; has he correctly estimated all his costs?   But if the assets are sufficient to meet the liabilities, then using debt to enable the cash-flow to work is a good idea. If you accept he has enough money, but he just can't get at it right now, then debt is the solution. Otherwise you are asking him to work extra now in order to have too much money later.
We all use debt financing to speed up our house purchase. The alternative is to save up until you are 55, then pay cash for a house. The mortgage requires us to pay interest, but it's still the best plan. Arguably the mortgage is higher risk than OP's plan: when you take out a mortgage you don't know if you will be able to pay it back or not. OP already has the money in the bank.

IMO OP's plan is a bit marginal. It's a 'what if it works' strategy, more than a 'what if it doesn't work' strategy, but there are plenty of people who live life that way.

NoMore

ent_moot said:

It's really about the point above:  in order to avoid paying a literal fortune in tax, I've built up a very large private pension (note this soon won't be possible under labour who will change the salary sacrifice cap from 60k down to 2k !).

No they haven't, you will still be able to put 60k into a pension receiving tax relief, they are capping the amount of NI you can save to 2k via salary sacrifice. So you lose a 2% (8% if basic tax payer but if you can afford 60k into pension you're not a brt) saving on 58k instead of getting it on the full 60k, but still get full 20%/40%/45% (depending on your marginal rate) tax saving on the whole 60k. It is not as bad as people make out and if you don't use salary sacrifice nothing has changed.

It has a small effect for people using salary sacrifice but they will still be able to build up large pensions.

kimwp

NoMore said:

ent_moot said:

It's really about the point above:  in order to avoid paying a literal fortune in tax, I've built up a very large private pension (note this soon won't be possible under labour who will change the salary sacrifice cap from 60k down to 2k !).

No they haven't, you will still be able to put 60k into a pension receiving tax relief, they are capping the amount of NI you can save to 2k via salary sacrifice. So you lose a 2% (8% if basic tax payer but if you can afford 60k into pension you're not a brt) saving on 58k instead of getting it on the full 60k, but still get full 20%/40%/45% (depending on your marginal rate) tax saving on the whole 60k. It is not as bad as people make out and if you don't use salary sacrifice nothing has changed.

It has a small effect for people using salary sacrifice but they will still be able to build up large pensions.

I think you are underplaying the impact of the 8% NI. In my case, I have been salary sacrificing to min wage, which means 30k ish of my pension contribution is in the 8% NI bracket. Happily, my contribution plans shouldn't be significantly affected because of fortuitous timing, but it would be a significant chunk if I continued to do this after this change is brought in.

Pipthecat

ent_moot said:

I want to avoid 1), because I've already been putting this off for years and now is a crucial time in terms of my daughter's age etc.

I'm 54 and my main discretionary spend are my two kids who are both at Uni.  I'm fortunate enough to be able to fund them laptops, phones, cars and help them with the costs of Uni.  This is on top of them having the usual loans and me paying for family holidays etc. I hope to be able to help them post Uni also.  At your age I had no idea of what costs I would be facing in my 50's or that I would be divorced.  Life has a funny way of trampling all over our plans.

Unless you really need the extra 40-60 hours a week retirement would give you, I would work while you can. If you are an IT Contractor there will be plenty of opportunities to drop down to fewer hours or working from home even if on less money.  Given what you have told us I would continue to work for 1 to 2 years and retire with a debt free future. Whichever way you go keep us posted.

RNV

<<
I want to avoid 1), because I've already been putting this off for years and now is a crucial time in terms of my daughter's age etc.
>>

Presumably, timing of  a bigger house/better area/whatever added value 700k house move would bring to you is also crucial in the context of your family/daughter - i.e. would rather be enjoyed now than in 15 years time...

Being a highly skilled expert as your salary / explanations suggest, can you land a consultancy type of work for a handful of days/hours per month (that would not restrict your desired time for family/hobby) to fund the costs of a "small" offset mortgage now?

RNV

posts crossed above with similar thoughts on part-/very part- time work now

ent_moot

Being a highly skilled expert as your salary / explanations suggest, can you land a consultancy type of work for a handful of days/hours per month (that would not restrict your desired time for family/hobby) to fund the costs of a "small" offset mortgage now?

Yes, this could work   

Cobbler_tone

NoMore said:

ent_moot said:

It's really about the point above:  in order to avoid paying a literal fortune in tax, I've built up a very large private pension (note this soon won't be possible under labour who will change the salary sacrifice cap from 60k down to 2k !).

No they haven't, you will still be able to put 60k into a pension receiving tax relief, they are capping the amount of NI you can save to 2k via salary sacrifice. So you lose a 2% (8% if basic tax payer but if you can afford 60k into pension you're not a brt) saving on 58k instead of getting it on the full 60k, but still get full 20%/40%/45% (depending on your marginal rate) tax saving on the whole 60k. It is not as bad as people make out and if you don't use salary sacrifice nothing has changed.

It has a small effect for people using salary sacrifice but they will still be able to build up large pensions.

It is not a small impact for someone like me earning £65k and sacrificing 50%, it will carry a significant reduction in net income if continuing at that rate. With other bits like share schemes, extra holiday purchase and taxable benefits it would reduce my net monthly pay of £1,900 odd down a fair bit....luckily I'll be long gone (hopefully not in body or mind!) before it actually comes in. People in my position are probably the exact reason they are bringing it in, on the flip side I could never have afforded to contribute at this level for most of my working life.