Pie in the sky pension question

GT1979 · 10 October 2017 at 1:16PM

I wanted to pick your collective brains, if I may. Currently I'm living and working in London but want to explore my options for moving out into the country and changing down a few gears in the medium term. Some details:

- I'm 37 and currently earning around £50,000pa.

- I have £30,000 in a previous work pension and 18 months in a DB pension. Current work pension is just getting started.

- I own a flat worth around £290,000 with a mortgage of £100,000.

- Savings of £15,000 in a cash ISA.

If I wanted to move somewhere and buy a modest house for around £220,000 and have a small income of £10,000 what would be my best strategy and how soon could I do it?

bigadaj · 10 October 2017 at 3:43PM

Your current flat equity isn't far off the house value so that should be attainable in the near future.

In terms of generating an income of £10k then a rule of thumb is that investing will yield 3.5% sustainably, ie likely to grow with inflation. This would suggest a necessary pot of around £300k, and ideally more as a couple of years in cash is if ten recommend to ride market turbulence.

kidmugsy · 10 October 2017 at 3:48PM

If you're planning to earn £10k p.a. in future at least contribute enough to your pension now to avoid the 40% tax rate. Do you really think you'd be happy to try to live on £10k p.a.?

If you mean that you want an investment income of £10k p.a. then you're nowhere near rich enough. Years of saving and investing would be required. Anyway, why aren't you attempting to live on £10k p.a. (plus mortgage payments) now?

DairyQueen · 11 October 2017 at 12:22AM

The cost of your house move would take a biggish chunk of your current ISA savings. It's unlikely that even a small mortgage could be funded on £10k p.a. You would therefore need an additional £25k/30k in savings before you could buy that £220k house mortgage-free - more if you want a cash buffer.

Assuming that you are able to achieve this before house price inflation moves the financial goal posts then you could consider taking-in lodgers. That would go some way to achieving such a modest, unearned income. However, you would likely need to work part-time in order to finance any income deficit, and in order to earn sufficient NI credits for a full SP. Such an income would be too low to fund capital expenses.

As has been mentioned it would require a few hundred thousand in capital to finance even that modest income allowing for inflation. That few hundred thousand takes many people until their 50s/60s to accumulate and is required in addition to SP to keep them off the breadline.

It isn't cheaper to live outside of London if you are mortgage-free. kidmugsy's suggestion is sound; try and live off £10k for 6 months and then review your definition of a 'modest' income. Don't shoot the messenger/s but I think that your goal is unachievable unless you define the medium term as 15/20 years, and you are prepared to save a good chunk of your income into a pension throughout. That 40% tax incentive is a no-brainer

Silvertabby · 11 October 2017 at 9:20AM

Live comfortably on £10K per year - I don't think so!

That's just £833 per month. Council tax, utilities, house insurance, etc will take a good chunk of that.

It's only houses that are cheaper outside London - everything else costs about the same.

greenglide · 11 October 2017 at 10:32AM

It isn't cheaper to live outside of London if you are mortgage-free.

It's only houses that are cheaper outside London - everything else costs about the same.

I think I would have to disagree with that.

While the major difference would certainly tend to be in housing costs there is also a significant difference in day to day living costs outside London and the south east.

The OP hasn't said where the would move to but there are plenty of places in the rest of the UK where £220,000 would buy more than a "modest" house!

mgdavid · 11 October 2017 at 11:19AM

Surely utilities and normal standing bills (gas, elec, coal & logs, council tax, sewerage & water rates, buildings & contents insurance, vehicle tax, insurance & fuel, TV licence, mobile phone, broadband, club memberships & subscriptions) all cost pretty much the same nationally? Perhaps varying by single-digit percentages.
Surely you'd need to see savings of 25% - 50% on a few of the above to make a substantial difference to the annual income required.
Arguably living out in the sticks could cost more for some things (CH oil, bottled gas) ?
It all points back to 'the Number'...

Bravepants · 11 October 2017 at 11:34AM

You can get a good quality terraced house up in the Lake District, near Whitehaven, for around £80k, cheaper if you are prepared to "do it up". Our friends sold up from Essex and moved up there.

scaredofdebt · 11 October 2017 at 12:04PM

As suggested, plenty of parts of the country where you can buy a "modest" house for a lot less than £220k. Parts of Wales, the North East etc.

I live in the North East and you can get a perfectly reasonable terraced house ready to move into for about £40k, there are even cheaper areas than that, try Hartlepool for example.

If you use less of the £220k for the house, that gives you more to use to earn an income.

I have a friend who has a BTL property in the North East, paid £42k for it and rents in out for £395 pcm, that's a yield (gross) of around 11%, so in theory you could earn your £10k income with BTL properties worth around £90k.

Obviously there are risks involved with BTL but it's worth consideration.

Silvertabby · 11 October 2017 at 12:09PM

Council tax for our Band E house (nowhere near London) is just under £19K.

Band E for:

Kensington and Chelsea = £1298.03

Tower Hamlets = £1523.89

enthusiasticsaver · 11 October 2017 at 1:50PM

I think I would struggle to live off £10k per annum. Most houses even in cheaper areas of the country would be minimum £1000 council tax so that is 10% gone already. Once you add on utilities, food, travel and everyday living expenses even without a mortgage it would probably eat even further into costs but if you are willing to sacrifice holidays and don't go in for expensive cars it may be doable. Presumably you would be looking for part time work so researching areas where this is plentiful would be wise. It depends on your areas of expertise as to how feasible this is unless you are going to look at seasonal work only so touristy areas.

You are very young though and have not yet built up significant pension savings so I think I would be reluctant to give up a good paying job at this precise time before really planning financially for it. Try and live on £10k per annum, it really is not that much cheaper outside London or certainly not in the south of the UK. I have no experience of North so maybe it is cheaper to live up there.

Pie in the sky pension question

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