Helping 31 year old to be financially independent at 55

MrSaving
MrSaving Posts: 4 Newbie
Hi Guys,

I am kind of new to this, but have been reading this forum with great interest.

A little about me.
I am 31 years old, married, recently bought a house with Mortgage projected to finish at 60, so just rebuilding cash saving. My Salary is 38 K + 9K Commission a year. So im a basic tax payer.
I currently contribute £500 towards my Work Pension, which currently sits at 12 K with Aviva.
I have a SIPP currently with 1 K and contribute only minimal £25 a month, this is with AJBell.
LISA account also sits at 1K and also contribute only £25 a month, also with AJBell.
I have an S&S ISA with 2 K and contribute currently £50 a month, also with AJBell.
State Pension currently showing 14 years of contribution and State Pension access at 68.

My Goal is to be in a position to be more financial independent at 55. Whether this would mean I could pack work in completely or draw part of money and also work just part time. I worked out that I would live quite comfortable on 20 k (todays Money) a year. This does not factor in mortgage repayment (which I hope to have cleared by then) or saving.
In 2042 this could mean around 40 k needed a year, if inflation is at 3 % year on year.

I am not sure, but it appears that in 2028 access to Private Pension will raise to 57/58.

So in those terms I could access different pots at those ages:

Cash ISA: 55
Sipp: 58
Work Pension: 58
Lisa: 60
State Pension: 68

What I may need:
S&S Isa: 60 K
Work Pension: 600 K
SIPP: 20 K
Lisa: 20 K

To achieve this I would have to invest the following with a potential return of 5 %:

1K a month in Work Pension
£100 a month in ISA
£25 a month in Sipp
£25 a month in Lisa

Alternative Income Source may also be possible from Age 35. So thought I can put about an additional £400 a month for the next 4 years towards the deposit of a BTL. And then reinvest the majority of any surplus made on the rent into the BTL to pay it of before hitting age 55.
Where I live, houses can be bought for around £80 K. After this is achieved, I could lump the £400 towards the SIPP/Lisa/ISA, but I haven’t done the calculation for that yet. I am married, but we don’t have any children yet. So this could also be on the cards in future, which would pretty much void the £400 towards anything else.

Let me know your thoughts on how I can improve and what I may be missing here.

Cheers

[purplesignup][/purplesignup]
«13

Comments

  • jamesrobins
    jamesrobins Posts: 23 Forumite
    You're in a not too dissimilar position to me. 36 aiming to be FI by 55 (hopefully earlier) and then maybe working part time.

    Haven't checked your figures but plan seems good to me. Would a BTL be worth the hassle? I keep toying with the idea but don't want the admin and if you put that money into S&S ISA you should get the same if not better yield anyway.
  • sashacat
    sashacat Posts: 821
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    If the BTL is a good property it will increase in capital value so you will have that as well as the rental.
    Retiring early is all about what you spend not just about what you earn.
    Most people raise their living standards eg shiny new car, if they earn more money.
    The trick is to keep your living costs the same and, when you earn more, save more.
    Look at buying some funds which pay dividends and reinvest the dividends.
    There is a movement in the US called FIRE..financially independent retire early.
    There are blogs about it. Look for mrmoney moustach....or something like that.
    It is doable. I retired at 53 and am financially independent.
    Wombling £457.41
  • fred246
    fred246 Posts: 3,620
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    I can't see any reference to wife's income. You have very low spending. I really can't imagine spending that little if you have children. FIRE only works well when you have high income and low expenditure. You probably need a bit more income. To me it sounds a bit frugal to have a good life but if you are happy with that it's up to the individual.
  • Albermarle
    Albermarle Posts: 21,635
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    Also you are looking at very detailed and potentially complicated projections of a personal nature which is really more the remit of an IFA , rather than a forum.
  • sashacat
    sashacat Posts: 821
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    FIRE does/can work if you control your expenditure even when you do not have a high income. You can live well but frugally.
    Wombling £457.41
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    sashacat wrote: »
    If the BTL is a good property it will increase in capital value so you will have that as well as the rental.

    Remember to factor into the equation tax. Likewise the exit costs. An empty property waiting to be sold will yield a negative return.
  • Thrugelmir
    Thrugelmir Posts: 89,546
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    MrSaving wrote: »
    To achieve this I would have to invest the following with a potential return of 5 %:

    The holy grail of investing. Where will you find investments that will guarantee this compound return over the next 24 years?

    Rather than purchase a BTL. I'd use the £400 to overpay the mortgage. Once your house is paid for and the mortgage gone. Then the neccesity to earn X per annum is greatly reduced.
  • gallygirl
    gallygirl Posts: 17,228
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    edited 5 March 2019 at 10:40PM
    When I worked out my retirement needs I did it in this way:
    - How much do I need per year (all calcs done in today's money, no inflation or growth assumed)

    - What is state pension age and how much will I get (again, in today's money) assuming I have full contributions.

    - What is my tax code (or basic tax code), so how much income do I need to obtain 20k net. I assumed no increase but had a cell for such a calculation on my spreadsheet.

    - What is the shortfall after state pension at say 68, assuming I live another 20 years then I need to fund 20 years x Shortfall A.
    - What age do I want to retire fully? Say at 63, then I need to fund 5 years x Shortfall B.
    - What age do I want to retire partially? Say at 58 and I expect to get a job paying 10k a year, then I need to fund 5 years x Shortfall C.

    A + B + C gives me my total shortfall, again all in today's money.

    - Then I started to pay around with funding the shortfall, again in today's money assuming no inflation or growth but building cells for both of these into my spreadsheet.

    - Using current funding gives me pots of varying amounts and available at different stages. Is the balance between the pots ok? What needs to be increased? In my mind the easiest solution was to have the pension pot (complete with 25% cash or 0 cash) completely fund A & B with others contributing towards C.
    - Once I had some idea of how my money was working then I started to build in inflation, both in terms of pots required and contributions. Plus growth. E.g. if growth averaged at 3% and so did inflation what happened? How about all at 1%? Growth greater or less than inflation? If personal allowances did/didn't mirror inflation and or growth?
    - When I had factored in everything I could think of I then saved multiple copies and had growth etc. vary in say 3 or 5 year cycles. How likely was I to end up broke? I have btls' so factored in rent and possible release of capital.

    This is very similar to what cFire Sim achieves in a much sexier way, but it was only by building my own spreadsheet that I really understood the figures. Part time was never an option for me, I ended FIRE'd at 53 and four years later all ok so far, touch spreadsheets etc!
    A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort
    :) Mortgage Balance = £0 :)
    "Do what others won't early in life so you can do what others can't later in life"
  • justme111
    justme111 Posts: 3,508
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    fred246 wrote: »
    I can't see any reference to wife's income. You have very low spending. I really can't imagine spending that little if you have children. FIRE only works well when you have high income and low expenditure. You probably need a bit more income. To me it sounds a bit frugal to have a good life but if you are happy with that it's up to the individual.

    Some more wild statements similar to your IFA bashing ones. He earns 47 k and contributes to savings 7 k/year at present. He was thinking about contributing to savings about 14k/year. He thinks he is going to be ok with 20 k in retirement when he will have no mortgage or children to maintain. How has the conclusion that he has very low spending come up?
    The word "dilemma" comes from Greek where "di" means two and "lemma" means premise. Refers usually to difficult choice between two undesirable options.
    Often people seem to use this word mistakenly where "quandary" would fit better.
  • Durban
    Durban Posts: 478
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    If you earn £47000 per year , a BTL will push you into higher rate tax bracket. BTL will lose you money rather than make you anything as a higher rate tax payer. This is due to the tax changes that the government have brought in. Research Section 24.


    Your wife would have to have the property in her name or the majority of it in name , assuming that she will not be in the higher rate tax bracket. I'm not sure how this would work re getting a mortgage if the property is not in your name. I'm sure that it can be done though.


    You will also pay 3 percent extra SDLT on top of the normal rate of SDLT , as a second home buyer even if there is none due . due to it being below SDLT threshold.


    Add that to the never ending rules and regulations , tax changes , capital gains tax , letting agent fees , landlord insurance , rent guarantee insurance , gas and electricity certificates , maintainance costs , void periods , nightmare tenants , possible interest rate rises etc, BTL is hard work and the profit margin is small.


    Don't rely on capital growth. It's a bonus if it happens but your focus should be on yield.


    This is not to put you off , BTL still can work but not in the way it used to and you have to do thorough research before going into it.


    The tax advantages of pensions and growth , without the hassle can make that a better option.
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