Planning for early retirement
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AnotherJoe wrote: »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.
Good point on the SIPP.
On your first point, I think I already am living on considerably less than £25k pa. £70k gross less £7k pension contributions leaves around £45k of post-tax income of which I am saving £20k in my ISA and paying £9k mortgage.0 -
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.
I can't make that add up. £70k with 10% pension contribution is £46k take home. If you are saving £20k into an ISA and paying £9k of mortgage then you must be living off £17k pa not £20k - £25k.
If the error is in your calculation of spending and so you only really need £17k then I think your plan works fairly comfortably. If the error is actually in calculating your ability to put £20k into an ISA then no chance.0 -
Cross posted with you. Plan probably does now work. You should be able to hope to get to about £800k by age 45 and take a 4% income of £20k from that without it running out before your state pensions come on line. You'll want to factor in the costs of voluntary NICs to get the full state pension each.
The thing that will take careful juggling is to put as much as possible into pensions whilst ensuring you have enough outside pensions to last you the probably 15 years before you can access them.0 -
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.
Any other observations? Thanks for reading anyway!
Hi, good luck with your plan.
We retired from our business when we were around 45'ish and now with our 68th birthday last week our plans we made worked out well. In fact much better than we had planned.
I have had some philosophical thoughts about this including how you might micro and macro your decisions with the use of detailed spreadsheets and I've posted links to earlier posts so as not to repeat and in case they are of interest.
https://forums.moneysavingexpert.com/showpost.php?p=71315722&postcount=21
https://forums.moneysavingexpert.com/showpost.php?p=73119503&postcount=45
https://forums.moneysavingexpert.com/showpost.php?p=70791814&postcount=2407
https://forums.moneysavingexpert.com/showpost.php?p=68149281&postcount=5
https://forums.moneysavingexpert.com/showpost.php?p=44189524&postcount=3
In summary, my spreadsheet and philospohy of viewing all assets as a sinking fund and the assumptrions and presumptions I made have resulted in us having a high spending retirement at a relatively high level of luxury with currently a greater overall total asset/cash balance much better than I would have predicted. This is against a somewhat difficult background of what many would say has been an extremely cautious approach to invcestment ie all our non-property and pension assets held in current acccounts for a very long time. I simply felt that would prefer to reuce lifestyle than risk it all if it came to a crunch. We had enough worry and stress running a business and it was simply a decision we made.
If any of this or the posts I linked to sparks any questions by all means ask.0 -
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 agree with your assessment. I'm getting around 14k into my pension too including my employers contributions. I've thought long and hard about whether to increase this but haven't due to the "bridging the gap" issue. If its looking like I'll be working nearer to whatever the pension access age is at the time then you can always backfill the pension with post tax savings (to a point) for a few years before you retire.
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?
Again I tend to agree. Its worth baring in mind the minimum mortgage amounts some lenders have. 40-50k seems to be the norm so you'd need to fix for 5 years or so the last time around and plan to do the last year or two on the standard variable rate or just settle it. Also worth baring in mind you need to keep the lender aware of any significant changes in your employment, I'm sure it won't be an issue if you can demonstrate you'll continue making repayments.
If you remain flexible and the worst did happen and it was costing you rather than benefiting you. You could always work to make the repayment rather than taking it from investments.0 -
Can't you use the house equity/mortgage to help bridge the gap to 58 then pay it off using the tfls...ie maximise your mortgage on an io basis fixed until you are 58 and then save all capital payments you would have made into pension and ISA's.I think....0
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That is sort of what we are doing - £30k+ into pension to bring down to BRT plus £20k into S&S ISA means that the offset mortgage is creeping up a bit. It is due to be repaid in 2025 when we are 58 but a bit nearer the time we will either ask them to extend or we will remortgage to a fixed rate to see us to retirement at 60.I’m a Forum Ambassador and I support the Forum Team on the Pensions, Annuities & Retirement Planning, Loans
& Credit Cards boards. If you need any help on these boards, do let me know. Please note that Ambassadors are not moderators. Any posts you spot in breach of the Forum Rules should be reported via the report button, or by emailing forumteam@moneysavingexpert.com.
All views are my own and not the official line of MoneySavingExpert.0 -
Reading the OP makes me think I must be a bit over cautious.
I am in a stronger financial position but still hedging my bets at 59 about early retirement !
On the other hand although I am not a big spender , I wouldn't like to live off just £20/£25 K a year for a couple . Also there is no mention of children so no Bank of Mum & Dad to fund when they get older maybe.0 -
Hi, good luck with your plan.
We retired from our business when we were around 45'ish and now with our 68th birthday last week our plans we made worked out well. In fact much better than we had planned.
I have had some philosophical thoughts about this including how you might micro and macro your decisions with the use of detailed spreadsheets and I've posted links to earlier posts so as not to repeat and in case they are of interest.
In summary, my spreadsheet and philospohy of viewing all assets as a sinking fund and the assumptrions and presumptions I made have resulted in us having a high spending retirement at a relatively high level of luxury with currently a greater overall total asset/cash balance much better than I would have predicted. This is against a somewhat difficult background of what many would say has been an extremely cautious approach to invcestment ie all our non-property and pension assets held in current acccounts for a very long time. I simply felt that would prefer to reuce lifestyle than risk it all if it came to a crunch. We had enough worry and stress running a business and it was simply a decision we made.
If any of this or the posts I linked to sparks any questions by all means ask.
Thanks - you seem to think about this very similarly to myself. I have also started to construct a similar spreadsheet to yourself mapping out my period until 58 to see what income my assets could support until my pension becomes available. It is certainly interesting, but I am still working out how to allow for risk.
I also appreciate the concept of having "enough". You have talked about this in terms of having investments high enough that they will support you even in the worst case and keeping a high level of cash available. Ideally, I think I would use an annuity for the same purpose. Having a base level of guaranteed income irrespective of unknown investment returns would be worth a huge amount from a peace of mind perspective albeit coming at a high cost in monetary terms. I am also not bothered about leaving an inheritance - hopefully I can teach my daughter enough that she would not need it - just as my parents taught me.0 -
Can't you use the house equity/mortgage to help bridge the gap to 58 then pay it off using the tfls...ie maximise your mortgage on an io basis fixed until you are 58 and then save all capital payments you would have made into pension and ISA's.
This is an interesting question. I agree that your approach is the best option from a pure maximising expected return perspective. In practice, whilst my portfolio is already very geared (c.140% equities, -40% bonds) I feel uncomfortable with taking any more risk. I find it difficult to articulate why this is exactly where I draw the line though - more a gut feel.0
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