Planning for early retirement

NumberMan · 24 September 2018 at 11:27AM

I am planning to retire early - somewhere in the range 40 to 45 - and want to sense check my plan to see if it is feasible and if there is anything i have missed.

I am 37 years old and currently earn £70k. My wife doesn't work and whilst it is possible that may change in future i don't want to allow for this in planning.

We have combined £190k in ISAs and £320k in pensions. All of this is invested in passive equities approximately 25% uk and 75% developed world ex-uk. I am contributing £20k to my ISA and £14k to my pension each year taking advantage of the maximum employer match (10%).

Our house is worth £350k and has £150k outstanding on the mortgage fixed at 2.2% for five more years and we're paying £9k pa.

With a fair investment wind behind us, i'm hoping we can build up sufficient assets to generate income of £20-£25k optimistically by age 40 but certainly before 45.

Does this all sound feasible? Am we prioritising the right areas in our saving? What would your plan be for the mortgage in my situation? Any other observations? Thanks for reading anyway!

Robin9 · 24 September 2018 at 11:34AM

How well do you want to live ? Go on holiday, a bottle of wine, run 2 cars, eat ?

Get your pension pot up to well over £1m

NumberMan · 24 September 2018 at 11:47AM

We spend about £20k-£25k (plus mortgage payment) now and are happy with our standard of living and would prefer the extra years of retirement to increasing standard of living.

MallyGirl · 24 September 2018 at 11:48AM

sounds like quite a lean retirement, and a big come down from £70k. Why only £14k into your pension on that salary? I am in the same ballpark and sal sac £30k plus to take me down to basic rate tax.
are you paying £3600 gross into wife's pension?

Linton · 24 September 2018 at 11:56AM

To get a sustainable £25K/year inflation adjusted income you would need a pot of say £700K. Though this would be reduced particularly if you pay sufficient voluntary NI so that you both get full State Pensions. Add in a lot for contingency, paying off the mortgage, inflation between now and then and tax on the income you cannot get sheltered by ISAs, lets call that £1M.

You currently have £510K. So £490K more. With your savings of £34K/year, assuming an aveage 5% return you should be OK to retire at 45 but 40 looks too tight.

You may wish to consider significantly reducing your 100% allocation to equity in the near future - it would be a little disappointing were you to lose 40% of your wealth a couple of years before you want to retire.

PS: Is the employers pension contribution (£7K) in addition to your £14K or part of it? I have assumed the latter.

Linton · 24 September 2018 at 12:03PM

MallyGirl wrote: »

sounds like quite a lean retirement, and a big come down from £70k. Why only £14k into your pension on that salary? I am in the same ballpark and sal sac £30k plus to take me down to basic rate tax.
are you paying £3600 gross into wife's pension?

The problem with putting the whole £34K into a pension is that a large amount of money will be needed before the pensions can be accessed, I guess when he is 58.

Anonymous101 · 24 September 2018 at 12:12PM

Very interested in this.
I'm in almost exactly the same position. Age, income, savings rate etc. Although I'm slightly behind your current ISA and Pensions position but not by much. My Mrs. does work too but we have plans for children soon so her income isn't a factor in our F.I. numbers.

I'm planning to be F.I. in around 10 years time. At best at age 45.
£25k pa income would be around our number but I'd like that to be fairly robust. We're not against continuing to work beyond F.I. although this could be in drastically different roles to our current one's.

Have you any thoughts on working, self-employed, part-time or otherwise past your 40-45 deadline? A small income can make a big difference?

Also have you qualified for full state pension? Perhaps thats worth thinking about too?

If you're flexible about your retirement date (as I am at the moment) then keeping 100% equities allocation isn't an issue. If there were to be a large reduction in your pot value you'd have to be prepared to work on for another few years. Doing that could of course be very healthy in the long run for your pot with all the investment at cheap prices.

AnotherJoe · 24 September 2018 at 12:24PM

I think you dont have quite enough but could adjust to make it.

The pension money cant be accessed until your late 50's so what you actually have for retirement at lets say age 45 is is £190k + 8*20 plus a bit of growth. Lets say £400k or even lets be optimistic maybe its £450k. That is an income of perhaps £20k if you plan to run it down somewhat, since your pension will then come into play aged late 50's.
But you also have to pay £150k off your mortgage as well. Paying £8k/year that comes off your (say) £25k income down to £17k.
You could start by cutting all your spending to £25k right now and putting all the excess into a mixture of ISAs and pension and overpaying mortgage. I would start by upping pension for the next year or two, lets say until you are 40 to make sure you take the max 40% tax relief while its going,it surely is destined for the chop.

After age 40 or after HRT relief is removed, I'd put everything above £25k spending, into ISA and paying off mortgage quicker (keeping the max employer contribution to pension though), you dont need that big outgoing once you are retired. The reason for doing that is not just to save but also be sure you can live on £25k. No point packing it all in and then find that wasnt enough.

You should also open a SIPP for your wife and she puts £2880 into it every year, thats a free £720 a year.Maybe you are doing that already. Once you retire (eg stop earning) you should do that also. Thats nearly £1500/year between the two of you from late 50's onwards, well worth having.

I also second what anonymous said about flexible retirement date and staying high in equities.

NumberMan · 24 September 2018 at 12:34PM

Thanks for all the observations so far. Some answers to specific questions:

The £14k pa into my pension does include employer contributions and the reason i don't pay more is that i think i am more "underfunded" for the pre-58 period than my post-58 period.

I am happy to run an aggressive investment strategy while working as it wouldn't be a complete disaster if i had to work a few more years however i'll have another look when i get really close. On that note what do you think about remortgaging just before retiring to preserve a low fixed rate rather than just paying it off in full - too risky?

We plan to pay voluntary NI so both of us will qualify for the full state pension.

I haven't got any concrete plans to take on any part-time work after retiring. Even if i did, i wouldn't want to retire on the income.

NumberMan · 24 September 2018 at 12:35PM

Sorry - i meant "rely on the income" at the end of that last post and my edit post button also broke!

Kit_Katt · 24 September 2018 at 12:44PM

I think for your age you are in better shape financially than most at that age point. I think the number looks a bit light for a decent retirement - I would have said north of £750K in Pension and a significant increase on your ISA numbers.
Like most wise owls I would say pay more into pension now and sacrifice the overpayments on the mortgage especially with the rates being so low - the Pension growth over time will take care of that little worry.

Good luck your doing great so far

Planning for early retirement

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