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    • MrSaving
    • By MrSaving 5th Mar 19, 2:42 PM
    • 2Posts
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    MrSaving
    Helping 31 year old to be financially independent at 55
    • #1
    • 5th Mar 19, 2:42 PM
    Helping 31 year old to be financially independent at 55 5th Mar 19 at 2:42 PM
    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

    This Forum tip was included in MoneySavingExpert.com's weekly email!
    Last edited by Former MSE Andrea; 13-03-2019 at 8:04 AM.
Page 1
    • jamesrobins
    • By jamesrobins 5th Mar 19, 3:17 PM
    • 22 Posts
    • 14 Thanks
    jamesrobins
    • #2
    • 5th Mar 19, 3:17 PM
    • #2
    • 5th Mar 19, 3:17 PM
    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
    • By sashacat 5th Mar 19, 4:16 PM
    • 709 Posts
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    sashacat
    • #3
    • 5th Mar 19, 4:16 PM
    • #3
    • 5th Mar 19, 4:16 PM
    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
    • By fred246 5th Mar 19, 4:27 PM
    • 1,503 Posts
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    fred246
    • #4
    • 5th Mar 19, 4:27 PM
    • #4
    • 5th Mar 19, 4:27 PM
    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
    • By Albermarle 5th Mar 19, 5:21 PM
    • 733 Posts
    • 417 Thanks
    Albermarle
    • #5
    • 5th Mar 19, 5:21 PM
    • #5
    • 5th Mar 19, 5:21 PM
    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
    • By sashacat 5th Mar 19, 8:48 PM
    • 709 Posts
    • 579 Thanks
    sashacat
    • #6
    • 5th Mar 19, 8:48 PM
    • #6
    • 5th Mar 19, 8:48 PM
    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
    • By Thrugelmir 5th Mar 19, 9:20 PM
    • 63,137 Posts
    • 56,034 Thanks
    Thrugelmir
    • #7
    • 5th Mar 19, 9:20 PM
    • #7
    • 5th Mar 19, 9:20 PM
    If the BTL is a good property it will increase in capital value so you will have that as well as the rental.
    Originally posted by sashacat
    Remember to factor into the equation tax. Likewise the exit costs. An empty property waiting to be sold will yield a negative return.
    "'The true investor . . . will do better if he forgets about the stock market and pays attention to their dividend returns and to the operating results of their companies.'" - John Bogle
    • Thrugelmir
    • By Thrugelmir 5th Mar 19, 9:25 PM
    • 63,137 Posts
    • 56,034 Thanks
    Thrugelmir
    • #8
    • 5th Mar 19, 9:25 PM
    • #8
    • 5th Mar 19, 9:25 PM
    To achieve this I would have to invest the following with a potential return of 5 %:
    Originally posted by MrSaving
    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.
    "'The true investor . . . will do better if he forgets about the stock market and pays attention to their dividend returns and to the operating results of their companies.'" - John Bogle
    • gallygirl
    • By gallygirl 5th Mar 19, 9:37 PM
    • 16,777 Posts
    • 110,543 Thanks
    gallygirl
    • #9
    • 5th Mar 19, 9:37 PM
    • #9
    • 5th Mar 19, 9:37 PM
    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!
    Last edited by gallygirl; 05-03-2019 at 9:40 PM.
    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
    • By justme111 5th Mar 19, 9:42 PM
    • 3,279 Posts
    • 3,145 Thanks
    justme111
    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.
    Originally posted by fred246
    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?
    • Durban
    • By Durban 5th Mar 19, 11:25 PM
    • 140 Posts
    • 306 Thanks
    Durban
    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.
    Mortgage at highest start date - 25/9/2014 - 92000
    Mortgage now 13/4/2018 - 48,674
    MFD - October 2025 MF Goal Date 2021
    • fred246
    • By fred246 6th Mar 19, 12:05 AM
    • 1,503 Posts
    • 893 Thanks
    fred246
    I have followed FIRE for years. There is always the occasional person who:
    Won't heat the house
    Won't buy a car
    Won't have children
    Won't go on holiday
    Won't watch TV
    Won't go out
    Won't keep pets
    Search for food in bins
    If you have children you can
    Not allow school trips
    Never take them on holiday
    Not pay for parties or birthday/christmas presents
    Not buy them toys
    Not allow them to participate in after school activities
    No mobile phones
    There are people who are happy to live like this. Most aren't. The big question at 31 is 'are you having children?' The other one is 'does your wife want to live like that?'
    We just spent money on the things that were important to us and saved the rest. The other thought is if you hate work that much at 31 are you in the right career?
    • atush
    • By atush 6th Mar 19, 10:11 AM
    • 17,625 Posts
    • 11,150 Thanks
    atush
    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.
    Originally posted by Thrugelmir
    I personally would not overpay the mtg unles your rate is high. I'd put the 400 into pensions and S&Sisa instead.

    We need to know about your OH's pensions and savings, and if you plan for children that means time off work so i'd be upping cash savings and her pesnion while she is still working
    • DT2001
    • By DT2001 6th Mar 19, 10:24 AM
    • 104 Posts
    • 108 Thanks
    DT2001
    I did not see that the OP hated his job.
    20k in retirement without kids, mortgage and a small property would seem reasonable having seen some on this forum happily living off 2/3rds of that. Presumably the figure is based on current spending?
    Personally I’d avoid BTL. I preferred to extend/improve own home which allows letting of one room, occasionally, utilising rent a room relief. A few K extra straight into savings pots.
    Over the years accumulating savings we have chased high interest accounts for the reserve fund, cash back sites, regular savings, ISA’s, SAYE, BTL, renting out a room, home swaps to keep holiday costs down. So IMO looking for opportunities, planning (as the OP is doing), starting early and being flexible is the key.
    As fred246 I think is saying, work out what you are comfortable with saving/spending now.
    • fred246
    • By fred246 6th Mar 19, 10:41 AM
    • 1,503 Posts
    • 893 Thanks
    fred246
    I'm basically saying it's doable unless you have children. If you have children you won't be able to save that much. You then help them through university. You might be able to have children if you don't let them live a 'normal' life. FIRE doesn't come easily. If you have a very high income and live a modest life it's quite easy. If you have a standard income you have to have a very frugal life. You need to enjoy today but with an eye on tomorrow. Don't have a hard time today hoping that some time in the future everything will be great.
    • AlanP
    • By AlanP 6th Mar 19, 12:07 PM
    • 1,595 Posts
    • 1,273 Thanks
    AlanP
    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.

    Originally posted by Durban
    6k a year pension contributions may mean that OP would still be a BR taxpayer which makes the BTL calculations very different.
    • MrSaving
    • By MrSaving 6th Mar 19, 12:32 PM
    • 2 Posts
    • 2 Thanks
    MrSaving
    Hi guys,

    appreciate all the pointers and suggestions.

    The idea of a BTL is only really to see whether i could diversify even further and get another income stream.

    In regards to my Job, i dont hate it. Its actually quite good and provides great flexibility with some occasional work travel which i dont mind. But having the flexibility to decide what i would like to do when in my 50s, is just a great feeling.

    In regards to our quality of life, we are quite happy. The Mrs is not the one "been" frugal, that thats ok as she earns her own money. I do all sorts of stuff, from cashback, to regular bank switch, to collecting air miles with credit card. We go out at least once a week for dinner - can even use the Meerkat 2 for 1 dinner to bring price down if wanted, have friends over, have some TV streaming subscriptions, and go on holiday about 4-5 times a year. I get a thrill from finding great holiday bargains.

    In regards to children for now we do not want any, but i suppose the wife is entitled to change her mind later down the line.

    My wife is from abroad and had a good Job before we got married.

    So in her home country she has an apartment which is paid off and rented out. So that makes about 350 a month.She has about 10 K worth of savings and from her employment a private Pension which holds about 50 K, in this we are not making any further contribution at this time. With this pension she has the option to start drawing it at age 50, but she gets better returns from age 55. An Annuity style offer she would get about 5 K a year or she can opt for a draw down style pension instead. We will decide on what she would like to do when she hits 50. She is currently only 32.
    She is now starting to earn better again, but still not perfect. 14 K a year on 30 hrs a week with a Pension contribution currently of 100 a month. Her pension Pot here is currently only at 500, so we are building. She is saving about 300 a month and has 4 K in Cash.

    I think that about covers it.
    • Terron
    • By Terron 6th Mar 19, 1:22 PM
    • 432 Posts
    • 426 Thanks
    Terron
    I work in todays values.


    Assuming your wife also has a state pension and is close to tour age that is 16k between you at 68. So you only need another 4k, which ~100k in a pension is likely to be enough to cover.
    Another 200k will cover you from 58 to 68 with likely some left over.
    60 in other savings will cover 55 to 58.
    That looks to be about half what you are looking at,


    If I were looking at BTK in your curcumstances I would use a limited company and either accumulate the profits to buy more properties (paying corporation tax) or pay directors's pension to yourself and your wife (paying no tax). BTL is working well for me, but it does require some administration even if. like me, you use an agent to manage the properties. It isn't for everyone.
    • VDOT47
    • By VDOT47 6th Mar 19, 1:41 PM
    • 251 Posts
    • 700 Thanks
    VDOT47
    MrSaving - you sound to be in a similar situation to me in terms of your ambitions for 55 and your projected annual expenditure (once mortgage free). Good luck!


    GallyGirl - I've just worked through your step by step post above - very useful and a better way of thinking about the 'Shortfall' than I had come up with myself. I have followed your steps (calculating only regular annual expenditure and a sensible annual amount for discretionary spending and holidays when doing step 1) on the assumption that 57 is still the age for pension release when (if) I get there and 68 for state pension. This has given me some interesting figures to consider. What of course it doesn't factor in are changes to those ages and additional 'one-off' or emergency expenditure, nor having a buffer and emergency fund beyond these figures in case of living longer than 20 years after SP age.


    For interest, my calculation is 24,000 p.a. regular expenses, assuming mortgage paid off, cars owned and no remaining credit card debt. So, gross, this is somewhere between 30k for one earner (ie. if the pension income all came through one person's pension pot) and 12k personal allowance for each of us if we can get the income more evenly split between us. Obviously this latter option is preferable.


    State Pension of 17000 (between me and my wife), so shortfall A would be anywhere from 7k x20 up to 13k x 20 = 140k to 260k


    Shortfall B (assuming retirement at 57) = between 24 - 30k x 11 = 264k - 330k


    Total Shortfall = c400k - 590k (and this assumes no other income from part-time work, my wife continuing her business etc between 57-68)


    So the target for us has to be to build up pension pots of c600k by age 57 (ideally fairly evenly split between us, so that drawdown can be done most tax efficiently) and also to have maybe 100k in cash ISAs for emergencies etc.


    MrSaving - sorry if the above has hijacked your thread, but hopefully my calculations above (which are pretty similar to what yours would be) will be helpful!
    Original Mortgage (Feb '17) 269,995
    Current Mortgage (08/04/19) 234,184
    End Date February 2040 Original End Date February 2042
    • michaels
    • By michaels 6th Mar 19, 2:40 PM
    • 22,411 Posts
    • 103,173 Thanks
    michaels
    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.
    Originally posted by Thrugelmir
    I am assuming OP figures are based on a gross return of 5% with 3% inflation - ie a real return of 2% pa - is this not a reasonable (conservative) figure to use for a S&S based pension investment?
    Cool heads and compromise
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