Early Retirement.... with Young Children. Does this feel reasonable?

michaels · 5 October 2017 at 12:37PM

You need to have a very hard look at your income and how it relates to tax credits and you need to do this now rather than wait until universal credits for families is rolled out. If you are assessed under universal credit then any savings will count as capital and anything over 16k will remove your eligibility for child tax credits.

Pension income will be counted as income thus reducing your child tax credits entitlement but drawdown and any income made on savings in ISAs is not. Thus initially if you can keep your 'tax credits assessed' income down by living off isas, savings and drawdown then you will get about 6k pa of child tax credits from the govt. You may also qualify for free school meals, free music lessons, free school trips etc etc which is very good for your kids schools as they will then get £1000 pa for each child extra funding. Later when your kids are at uni they will then qualify for the full maintenance loan.

So my advice is check this out very carefully, 6k from the govt for 8+ years is a decent sum.

Oh and you can also use the 3.6k gross pension contribution (2880 grossed up by the govt) for non-earners and take this off any income you do get that is counted for tax credits purposes to help you minimise any counted earnings.

And you may even qualify for things like the £140 warm homes energy discount and reductions in your water bills for low income families if your 'relevant income' is below 16k.

AnotherJoe · 5 October 2017 at 4:49PM

atush wrote: »

Not sure if Martin's opinion still flies- now that interest rates for new loans are 6% or more. Nor letting them borrow at that rate which is higher than a SVR mtg.

University is expensive, and we had to delay our retirment because we had kids late.

It still holds because the 6% is an irrelevance as far as what gets paid back except for a small % of very high earners. Read his articles in here. Paying it off because it's gone up to 6% is a classic mistake unless you are one of the few very high earners

enthusiasticsaver · 6 October 2017 at 4:55AM

Repaying student loans is based on earnings so I would advise you do not pay the tuition fees upfront and get them to apply for the maintenance loan. This may all change by the time your children reach 18 but in many cases these loans will never be paid off if the graduate does not get a high paying job afterwards.

Our daughters were on the old scheme and we supported them with monthly allowances to subsidise the maintenance loan and initially paid tuition fees up front then once they were both at uni together as only one school year between them we let them take out loans for last year.

Our elder daughter did post grad qualifications and earns a very good salary so is paying back a substantial amount each month. Our youngest chose to move back to the West Country and is now married with a child and only works part time so is not paying any of it back. Paying upfront would have been a mistake in her case. As I said though this is the old scheme and the interest rate is 1.5%

AnotherJoe · 6 October 2017 at 9:47AM

enthusiasticsaver wrote: »

Repaying student loans is based on earnings so I would advise you do not pay the tuition fees upfront and get them to apply for the maintenance loan. This may all change by the time your children reach 18 but in many cases these loans will never be paid off if the graduate does not get a high paying job afterwards.

Our daughters were on the old scheme and we supported them with monthly allowances to subsidise the maintenance loan and initially paid tuition fees up front then once they were both at uni together as only one school year between them we let them take out loans for last year.

Our elder daughter did post grad qualifications and earns a very good salary so is paying back a substantial amount each month. Our youngest chose to move back to the West Country and is now married with a child and only works part time so is not paying any of it back. Paying upfront would have been a mistake in her case. As I said though this is the old scheme and the interest rate is 1.5%

The interest fee makes no difference if she isnt going to pay it off before the 30 years is up. Once the amount it increases by is bigger than what is being paid off, orv even if it isnt but the rate its being paid back means it wont be paid back in 30 years, it makes no difference if the interest rate is 1.5% or 15% or 150% because the payment stays the same.

Lets say she owes £30k and is paying it off at £500 a year. She's no worse off than if she owes £60k and is paying it off at £500 a year, because after 30 years, both debts are wiped and she has paid the same amount in either case because how much she pays isn't related to the size of the loan (unlike a normal loan, where in that example she'd be paying double for the latter).

As ML points out, its essentially just a graduate tax now, and the size of the loan, apart from a small minority of high earners, is irrelevant.

michaels · 6 October 2017 at 3:32PM

I guess it depends if you think your kids are in the 15% who will earn enough to pay it all back. For them it would be much cheaper to borrow the money from you at its marginal cost (2%?) than from the govt at 6%+. For the other 85% it makes more sense to borrow from the govt and never pay it (all) back.

atush · 6 October 2017 at 5:23PM

AnotherJoe wrote: »

It still holds because the 6% is an irrelevance as far as what gets paid back except for a small % of very high earners. Read his articles in here. Paying it off because it's gone up to 6% is a classic mistake unless you are one of the few very high earners

Nope, not believing this.

All 3 of mine are graduated, and all 3 make enough to pay off loans (if they ahd them). Many of their friends too. None are publc school kids, with parental old boy networks.

Sure people who took degrees that dont lead to well paid work wont be paying it back, but mine all got grad jobs and are earning well enough to pay.

So quite happy they arent having 6%+ loans to pay.

AnotherJoe · 6 October 2017 at 6:33PM

What don't you believe?
The numbers?
That oniy a minority pay it back? Take it up with ML. I doubt his numbers are wrong.
Found this study that says 75% don't pay it off.
http://www.independent.co.uk/student/graduates-three-quarters-never-pay-off-debt-loan-maintenance-grant-institute-for-fiscal-studies-a7824016.html

michaels · 6 October 2017 at 11:06PM

The proposal to increase the threshold to 25k index linked means an even smaller proportion will ever pay it all back.

atush · 7 October 2017 at 12:32PM

AnotherJoe wrote: »

What don't you believe?
The numbers?
That oniy a minority pay it back? Take it up with ML. I doubt his numbers are wrong.
Found this study that says 75% don't pay it off.
http://www.independent.co.uk/student/graduates-three-quarters-never-pay-off-debt-loan-maintenance-grant-institute-for-fiscal-studies-a7824016.html

It is specualtion, as those who pay the higher rate only graduated a few years ago and thos graduating int he future. None of them have been working long enough to say if they will pay if off or not.

My point was, and remains, mine WOULD have to pay it all plus the 6%+ interest.

bigadaj · 7 October 2017 at 2:44PM

atush wrote: »

It is specualtion, as those who pay the higher rate only graduated a few years ago and thos graduating int he future. None of them have been working long enough to say if they will pay if off or not.

My point was, and remains, mine WOULD have to pay it all plus the 6%+ interest.

Well surprisingly it's not all about you, or your kids.

People need to base their decision on their own circumstances and current knowledge and best guess of any future changes, the default solution however is what is the best option for the majority.

Early Retirement.... with Young Children. Does this feel reasonable?

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