Searching for critical mass

DannyCarey

I wanted to send this out as a pulse check to see if we are on the right track, generally, and if there is maybe other things we should consider.

Married, 2 kids, just turned 40.

My partner and I have £390,000 invested across ISAs & pension. Combined we are putting away around £2500 a month into these, and mainly into Vanguard All Cap Index. Sometimes more when bonuses come.

In a house worth £220,000, owe £59,000 on it. Overpaying.

The idea would be to move to the "forever home" in a few years once the little one is in primary school and off the nursery books, ideally without touching investments at all. House move would be about 400k. Existing nursery fees which will go away soon would cover most of the newer mortgage.

Both of us work in tech which is stressful and also has us worried about AI and losing jobs.

I want to get to a stage where we hit critical mass, or a "coast FI" type number, so that if we do need to pivot into a lower paid job down the line, that retirement will be ok and we have built up enough to keep contributing whilst the monthly amount not being so critical.

If I was to guess, would something like £500,000 be that coast FI type number, where 5% growth almost represents essentially our contributions (£25k)

I appreciate any thoughts or advice!

Aylesbury_Duck

I'd start by compiling a list of essential and discretionary annual expenditure you foresee between now and retirement, including the big mortgage jump, and then the same for when you're retired. Adopt the principle of zero growth and zero inflation, i.e. everything is expressed in today's money, as a prudent measure.

What does that come to (I assume it will be a scary negative sum at this stage), and how much do you need to earn and put by to make it reach zero by the time you die?

I did something similar for every year between now and turning 90 - a reasonable life expectancy for someone of my age with good health and good inherited health.

From the figures you've given, you're in a good position, massively better than the majority of the population I'm sure. The big ticket items are that new mortgage and what sounds like maybe up to 20 more years of supporting at least one of your children?

LHW99

Don't forget, even if you don't actually receive child benefit, the one who takes time off should claim it / refuse payment - that ensures they get their NI credits to help qualify for a full SP

SarahB16

I would stress test and work on the assumption that one of you does lose your job after you have moved house (hoping of course that doesn't happen). Do you have liquid funds you could draw on to ensure you can keep up with the mortgage repayments until that person finds another job and let's assume the new role pays c.£15k less per annum.

You don't say the value of your funds you could access if you needed to. If I were you I would definitely invest in your pension earnings taxed at 40% however for your earnings taxed at 20% I would ensure they remained relatively liquid in case one of you was made redundant.

That to me seems the bigger risk you face, i.e. having access to funds (within a year) if one of you was made redundant after you have moved into the bigger house which has a larger mortgage repayments. Maybe you have thought of that and you do have sufficient funds otherwise perhaps cut back on the pensions contributions so you only contribute the earnings which benefit from 40% tax relief.

Bostonerimus1

Taking a bigger mortgage is a retrograde move as far as financial independence is concerned. Have you done a detailed current budget and projected your future income requirements?

I would be very careful if you intend to “coast” into retirement as that will magnify the effects of sequence of return risk. The years before retirement are generally when you can make the largest pension contributions and they will compound nicely over the perhaps 30 years of your retirement. As a contingency plan it’s good to have and it’s good that you are stress testing your plan with “what ifs.”

DannyCarey

Thanks for the replies! I appreciate all the replies and thoughts.

Some follow up info… of the £390k invested, £125k of it is in ISAs, so could be drawn against should something bad happen, which hopefully never comes to pass.

Nursery bills will finish in August of this year, which will free up just over £1000 a month, so the plan is to build up cash and have more of a liquid emergency fund, as right now we don't have much of one.

I do have a budget sheet for todays budget including for fixed and variable costs. To be overly simplistic, all fixed and variable costs / 12 comes come to around £3900 a month (inc ISA contributions) and our combined inflows after pension deductions (i put 30% into pension between employer 7% and my 23%) and money for each other (including hobbies like golf etc) is about £4k to joint account. We could add more from each other if needed.

I duplicated my sheet, removed the nursery bill, upped mortgage section from 800 to 1200 (should we move) and moved a few items up by 100 here and there like groceries, council tax etc. This isn't an exact science of course but generally looks similar, possibly a £7/800 gain since nursery is so expensive and that bill is gone forever. Should one of us lose our jobs we would of course have to cut back discretionary things in the interim like social money, golf, kids investments etc. Hopefully that never happens…

@Bostonerimus1 I definitely am more on the cautious side and would never want to coast, that "coast Fire" term doesnt sit with me that well to be honest, but the main thing I am after is knowing in the back of my mind that the snowball I am generating will be enough to self sustain so that I can sleep well at night should some bad luck hit us. I do always plan to be investing until the day I stop working.

leosayer

You are effectively borrowing against your house to invest in the stock market. Are you comfortable with the risk this entails?

I ask this as someone who has been through the experience (during the credit crunch) of seeing my investments drop 30%+ and my job seem like it could end any day.

DT2001

https://forums.moneysavingexpert.com/discussion/comment/81921899#Comment_81921899

How would you mitigate the risk?

If OP builds up a rainy day fund after August when no longer paying nursery fees until their house move (a few years in opening post) they will have enough to cover 6/9 months of expenditure assuming no belt tightening, no redundancy and both losing job at same time.

I agree with Bostonerimus1 that generally you contribute most to your pension in the latter years however if you have achieved your goals you can ‘coast’ into retirement. Coasting I am presuming means putting in less than you have been. My OH likes her work so continues and enjoys holidaying with our adult children (she pays for them) and contributes minimally to her pension. I reckon we have a better than average chance of ‘enjoying’ a poor sequence of returns when she does retire fully however that is built in.

OP is in a good position and is working on back up plans. I always tried to have a plan B, C and D - as long as I knew there were alternatives, even if less than ideal, it helped me sleep more easily.

snowlaser

https://forums.moneysavingexpert.com/discussion/comment/81920881#Comment_81920881

But taking a bigger mortgage to buy a nicer house for your children to grow up in would be seen by many people - most people in fact - as a great move, even if it delays financial independence.

They are only young one. They will only live with you for a short time.

I paid off my first house mortgage completely by age 40 but was still then happy to take out a big mortgage to allow us as a family to upsize. My kids love it. I love it. There is more to life than money.

DannyCarey

Thank you for the encouraging words.

I agree with you snowlaser, i remember well moving house at aged 11 to a bigger house and have many fond memories, such as playing football with my dad and siblings in a much bigger garden, wouldnt have been a thing in our old place, just one small memory.

Also their house is a true big family house, where we visit along with grand kids now and they can entertain big events like christmas. our house is a semi detached and really not great for having more than 2/3 people over, which does frustrate me somewhat.

Key thing for me is balancing risk, not working to i die & setting the kids up well.

Storcko14

I think many in their 40s and 50s probably live in a 'lesser' house than their parents largely as a function of the housing market so I can completely understand wanting to upgrade if it feels do-able.

As a recent early retiree after 30 years in tech - or IT as it used to be called ;-) - I would say you're well placed if you keep ahead of and embrace change. It's a great industry for re-invention and you both have a good 15-20 potentially lucrative years ahead.