Will I be able to retire in 11 years?

[newguy]

It is time for my annual review. My last review can be seen here viewtopic.php?f=30&t=33038

I am currently 44 years old and I am aiming to retire when I am 55. Here's my progress:-

Code: Select all

                                         | Feb-21      | Feb-22      | Feb-23     
Pension                                  | £246,000.00 | £264,590.00 | £280,112.00
Investment Trusts (ISA)                  |  £18,000.00 |  £28,086.00 |  £26,197.00
Savings                                  |  £15,000.00 |      £3,000 |      £3,350
Total                                    | £279,000.00 | £295,676.00 | £309,659.00
                                         |             |             |           
Difference from last period              |             |  £16,676.00 |  £13,983.00
Percentage difference from last period   |             |       5.98% |       4.73%
                                         |             |             |           
                                         |             |             |           
House                                    |             |             |           
House Price Valuation                    | £300,000.00 | £315,000.00 | £350,000.00
Outstanding Mortgage at October 2019     | £119,000.00 | £108,000.00 | £102,232.00
House Equity                             | £181,000.00 | £207,000.00 | £247,768.00
                                         |             |             |           
                                         |             |             |           
Pension Contributions over the last year |             |             |  £25,678.20
IT Contributions over the last year      |             |             |   £5,250.00
Total                                    |             |             |  £30,928.20
                                         |             |             |           
Age                                      |          42 |          43 |          44
Target Age for Retirement 55             |             |             |           
                                       


I hope my excel formulas are right!

I am going to take the house out of the equation and I've got to say its not been a great year. It would have been even worse if I had done this exercise in November or December. Although my funds (pension, investment trust and savings) have gone up by nearly £14K, I have paid in around £30,928.20 into my pot, meaning that I've lost around £16,945.20.

I am a high risk investor and I suppose I've got to be able to take the rough with the smooth, so hopefully this will just be a bump in the road.

So what have I been thinking about:-

I have been wondering a lot about whether a Vanguard FTSE Global All Cap fund would be better for me but looking at the FT site its only showing a 3.5% increase. I am maybe considering moving my investment trust (things like BG China, Edinburgh Worldwide, JPMorgan UK Smaller,Scottish Mortgage, Templeton Emerging Market and Worldwide Healthcare) into the vanguard fund, as I am beginning to think I may not be the best stock picker. My pension funds were selected by a professional pension chap.

In the last year I have really been putting money into the pension fund many for high rate tax relief. I am going to have to start thinking about lifetime ISA limits and increasing funds in the ISA to bridge the 55 to 57 gap. I think my plan is to continue for the next year firing as much money into the pension as possible.

I've also been thinking about downsizing the house. I live alone in a town house. The house is too big for me and the neighbours are a bit loud. I am very lucky to be in a position were my interest rate is still fixed for another 4 years at 2.49%. I think my plan is to probably move towards the end of the mortgage period fix. I would like to get a detached property and maybe take out 30 to 40K.

At this point I really can't see me being able to retire in 11 years. Hopefully next year is a lot better. I'll be honest I'm feeling a bit down after writing this out. Hopefully people can give me some words of encouragement.

Thanks guys
Newguy

[JohnB]

To assess whether you can retire, you need to quote your savings rate, and what prospects do you have to increase it through promotion, possible inheritance etc.

[moorfield]

I think you can do it.

Two suggestions:

1. Focus on being mortgage free wherever you live (either by downsizing or paying off current). This (I am beginning to appreciate) will help you relax and sleep.

2. Focus on the overall income your savings generate, not its fluctuations in value. eg. your ~£300k in a well diversified set of high yield ITs could easily be paying you 6% or £18k today, and extrapolate. Just keep reinvesting that income and you will double it in a decade, £36k. (but don''t forget inflation...)

[monabri]

You don't really give enough information (expenditure).

You mentioned you use Excel, I'd suggest setting up a spreadsheet like I suggested here;

viewtopic.php?p=563265#p563265


You say you're a high risk investor but then you are contemplating a change of strategy with a movement of funds into a World tracker. Based on current shareprices of SMT & EWI versus that of VWRL ( for example) , I would question the timing!

Retiring at 55....the backup of the state pension is a long way away if you don't plan.


Edit...you could build in moorfield's suggestions/strategy as one scenario and allow for inflation in a manner I suggested in post 563265. You could readily build up several scenarios in Excel.

[newguy]

To assess whether you can retire, you need to quote your savings rate, and what prospects do you have to increase it through promotion, possible inheritance etc.

Thanks JohnB

My current salary is £54,500 and there are no real promotional prospects.

I am currently saving £2700 into my pension funds and my intention is to continue doing this. I’ve been assuming a return of 4.5%

I’ve got no dependents and if I die with no assets I wouldn’t care. I might consider one of the plans where I could get value out of my house

EDIT: you also asked about possible inheritance. I am expecting a small inheritance at some point. Perhaps 30K to 50K.

[88V8]

At this point I really can't see me being able to retire in 11 years. Hopefully next year is a lot better. I'll be honest I'm feeling a bit down after writing this out. Hopefully people can give me some words of encouragement.

The last year in the market has been bumpy. Scottish Mortgage, oh dear. Still, eleven years is a long time and a lot can happen.
The pension cap... might vanish.

Leaving aside inflation... how much total income do you need or wish?

In four years where will mortgage rates be... no idea, albeit more than 2.49%.
Regards downsizing, the best time is when you retire as your house will have the maximum spare equity. Although that might mean leaving your local community which may or may not be a bad thing.

I would then assume a pot could be invested at 5% pre-tax, but what will Labour do to tax rates on 'unearned' income.

I think one way and another eleven years is too distant to agonise over. However, one thing you can do meanwhile is to become as self-sufficient as possible in DIY skills, as this will greatly reduce the cost of running a house. The less you need to spend, the smaller the necessary pot.

V8

[newguy]

I think you can do it.

Two suggestions:

1. Focus on being mortgage free wherever you live (either by downsizing or paying off current). This (I am beginning to appreciate) will help you relax and sleep.

2. Focus on the overall income your savings generate, not its fluctuations in value. eg. your ~£300k in a well diversified set of high yield ITs could easily be paying you 6% or £18k today, and extrapolate. Just keep reinvesting that income and you will double it in a decade, £36k. (but don''t forget inflation...)

Thank you Moorfield.

1. My plan at the moment is not to overpay the mortgage. Getting high rate tax relief on pension contributions is more of a priority. The downsizing plan and possible small future inheritance might pay it off quicker but I would hope to be mortgage free by 55. The mortgage rate is at 2.49% for another 4 years. Depending on what happens with interest rates when I need to get another deal my plan might change.
2. I think the types of things I am currently investing in is about growth. My plan would be to move to high yield ITs at the point of retirement

[monabri]

A £50k possible inheritance might very easily evaporate if the person needs to go into a care home at £1200/£1500 per week.

[newguy]

You don't really give enough information (expenditure).

You mentioned you use Excel, I'd suggest setting up a spreadsheet like I suggested here;

viewtopic.php?p=563265#p563265


You say you're a high risk investor but then you are contemplating a change of strategy with a movement of funds into a World tracker. Based on current shareprices of SMT & EWI versus that of VWRL ( for example) , I would question the timing!

Retiring at 55....the backup of the state pension is a long way away if you don't plan.


Edit...you could build in moorfield's suggestions/strategy as one scenario and allow for inflation in a manner I suggested in post 563265. You could readily build up several scenarios in Excel.

Thanks Monabri. After paying every additional penny I have towards my pension contribution. I am left with about £1900 net pay per month. There is nothing left at the end of the month. The mortgage cost is £717.74 per month.

[xxd09]

Just my thoughts as an old(76) -20 years retired
£100000 of investments would currently buy a safe £3000+ income per annum
How much are you going to need as an income ?
Ie maintaining an income of £54000 pa-your current income/expenditure would require a pot of £1800000!
No doubt you will spend less in retirement but may be not
Sums required to retire are large !
xxd09

[ursaminortaur]

It is time for my annual review. My last review can be seen here viewtopic.php?f=30&t=33038

I am currently 44 years old and I am aiming to retire when I am 55. Here's my progress:-

Code: Select all

                                         | Feb-21      | Feb-22      | Feb-23     
Pension                                  | £246,000.00 | £264,590.00 | £280,112.00
Investment Trusts (ISA)                  |  £18,000.00 |  £28,086.00 |  £26,197.00
Savings                                  |  £15,000.00 |      £3,000 |      £3,350
Total                                    | £279,000.00 | £295,676.00 | £309,659.00
                                         |             |             |           
Difference from last period              |             |  £16,676.00 |  £13,983.00
Percentage difference from last period   |             |       5.98% |       4.73%
                                         |             |             |           
                                         |             |             |           
House                                    |             |             |           
House Price Valuation                    | £300,000.00 | £315,000.00 | £350,000.00
Outstanding Mortgage at October 2019     | £119,000.00 | £108,000.00 | £102,232.00
House Equity                             | £181,000.00 | £207,000.00 | £247,768.00
                                         |             |             |           
                                         |             |             |           
Pension Contributions over the last year |             |             |  £25,678.20
IT Contributions over the last year      |             |             |   £5,250.00
Total                                    |             |             |  £30,928.20
                                         |             |             |           
Age                                      |          42 |          43 |          44
Target Age for Retirement 55             |             |             |           
                                       


I hope my excel formulas are right!

I am going to take the house out of the equation and I've got to say its not been a great year. It would have been even worse if I had done this exercise in November or December. Although my funds (pension, investment trust and savings) have gone up by nearly £14K, I have paid in around £30,928.20 into my pot, meaning that I've lost around £16,945.20.

I am a high risk investor and I suppose I've got to be able to take the rough with the smooth, so hopefully this will just be a bump in the road.

So what have I been thinking about:-

I have been wondering a lot about whether a Vanguard FTSE Global All Cap fund would be better for me but looking at the FT site its only showing a 3.5% increase. I am maybe considering moving my investment trust (things like BG China, Edinburgh Worldwide, JPMorgan UK Smaller,Scottish Mortgage, Templeton Emerging Market and Worldwide Healthcare) into the vanguard fund, as I am beginning to think I may not be the best stock picker. My pension funds were selected by a professional pension chap.

In the last year I have really been putting money into the pension fund many for high rate tax relief. I am going to have to start thinking about lifetime ISA limits and increasing funds in the ISA to bridge the 55 to 57 gap. I think my plan is to continue for the next year firing as much money into the pension as possible.

I've also been thinking about downsizing the house. I live alone in a town house. The house is too big for me and the neighbours are a bit loud. I am very lucky to be in a position were my interest rate is still fixed for another 4 years at 2.49%. I think my plan is to probably move towards the end of the mortgage period fix. I would like to get a detached property and maybe take out 30 to 40K.

At this point I really can't see me being able to retire in 11 years. Hopefully next year is a lot better. I'll be honest I'm feeling a bit down after writing this out. Hopefully people can give me some words of encouragement.

Thanks guys
Newguy

You will probably need enough in your ISA(s) and other savings to tide you over from 55 to 57 since the government are raising the age at which most people can access their pension in 2028.

https://adviser.royallondon.com/technical-central/pensions/benefit-options/increase-in-normal-minimum-pension-age-in-2028/


The normal minimum pension age is increasing for most individuals on 6 April 2028 to age 57. This change affects people born after 6 April 1971.
Key facts

Normal minimum pension age is increasing to 57 in 2028, at the same time the State Pension age is increasing to 67.
Government has not linked further increases to increases to State Pension age.
Some individuals will have a protected pension age of less than 57. This doesn’t need to be registered with HMRC.
Some pension schemes are exempt from the increase.
Protected pension ages are maintained on transfer, assuming the receiving scheme do this.
There’s no change to benefits paid on ground of ill-health.

The government originally announced their intention to increase the normal minimum pension age from age 55 to 57 from April 2028 back in July 2014. The legislation required to make the change was included in the Finance Act 2022.

Some individuals have a protected pension age in their pension scheme, which is the right to take benefits before age 57. Individuals don’t need to register this right with HMRC.
.
.
.
Are there any exemptions?

Yes, there are. Members of uniformed service pension schemes are not affected by the increase, this includes:

the naval, military or air forces of the Crown (including members of any reserve force)
a police force other than the Civil Nuclear Constabulary
firefighters

Also, there are no changes for individuals who already have an existing 6 April 2006 protected pension age of 55 or lower. Their protection is similar but not identical to the protection described in this article. This is on a plan-by-plan basis and may not apply to all their benefits. There is more information on this in our taking benefits article.

[kempiejon]

Thanks for sharing, it's good to have a long term plan, I'm hopefully towards the end of my planned exit from employment that I formulated in about 2003.
My retirement plan was redirected when I was made redundant, I'd been investing for a decade at the time and building an income stream. I took stock of my career, my investments and the income generated. Using a spreadsheet and a bank account analysing software I itemised and categorised my spending, Knowing what my expenses were, what spending was essential and discretional and extrapolating that into a lifestyle when not earning. I also saw I could cut my spending, which meant that I didn't need to go back to full time employment in a hurry so I took a year to work part time, do some volunteering and pick up some hobbies. I'm back at the grind stone again but have improved my work life balance.

1. My plan at the moment is not to overpay the mortgage. Getting high rate tax relief on pension contributions is more of a priority. The downsizing plan and possible small future inheritance might pay it off quicker but I would hope to be mortgage free by 55. The mortgage rate is at 2.49% for another 4 years. Depending on what happens with interest rates when I need to get another deal my plan might change.
2. I think the types of things I am currently investing in is about growth. My plan would be to move to high yield ITs at the point of retirement

It's a popular theme to pay off the mortgage. The mental freedom cited as a good reason. Personally my mortgage rate is lower than my investing return and that'd be without taking tax relief on pension investments. I put the full amount into my pension each year; my cash and ISAs could clear the mortgage but I prefer to keep my and the banks money working for me.

I have income investments, I do harvest growth too. Keeping track of my investment is easy enough, itemising the spending seemed harder. When I was first building my investment pot I used to mentally tick off the bills my dividend income would cover. Car tax, council tax, energy bills, TV licence, a holiday etc.
If you're good at growth why would you choose to "try" income for the first time when you retire? Selling a profit is a perfectly good strategy and with a decade in front of you you'll have seen how much you can harvest from your pot to fund your retirement. Using my capital gains allowance and dividend income tax has forced my hand to sell unsheltered holdings to move to the ISA each year. Changes has forced my investing hand a couple of times. Perhaps though you could begin to look at some income trusts rather than swapping all in at 55?

[Boots]

My current salary is £54,500 and there are no real promotional prospects.

I am currently saving £2700 into my pension funds and my intention is to continue doing this. I’ve been assuming a return of 4.5%

I assume you mean paying £2700 per month into your pension? That seems to fit with the numbers in your original post.

If so, that means you are living on a post-pension contribution gross of £32k pa. That would seem to suggest at a safe withdrawal rate of 4% (highly debatable, I know) that you would need a portfolio of about £800k.

So, are you there - no. Are you on track - yes.

I watched a very good series of YouTube videos from Lar Krojer on building a financial model. The model is a probabilistic, or stochastic, model. The process of building it will probably tell you more about the answer to your question than the result from the model - but both are hugely useful.

[kempiejon]

o, are you there - no. Are you on track - yes.

I watched a very good series of YouTube videos from Lar Krojer on building a financial model. The model is a probabilistic, or stochastic, model. The process of building it will probably tell you more about the answer to your question than the result from the model - but both are hugely useful.

Ah that reminds me it's a while since I've seen mention of https://firecalc.com/ I have spent many happy hours sticking numbers and tweaking scenarios on firecalc. I'll make a cuppa and see if I still like the outcomes.

[DrFfybes]

My current salary is £54,500 and there are no real promotional prospects.

I am currently saving £2700 into my pension funds and my intention is to continue doing this. I’ve been assuming a return of 4.5%

I’ve got no dependents and if I die with no assets I wouldn’t care.

Whilst the tax top up in the pension is nice, you'll only be getting basic rate relief on the bulk of it, and probably paying tax on the income when you take it out (unless it is Salary Sacrifice and you are saving NI).

As you are not worried about IHT I would put more focus on ISAs and less into pensions. One is taxed on the way out, one on the way in.

1. My plan at the moment is not to overpay the mortgage. Getting high rate tax relief on pension contributions is more of a priority.

You only paid £6k off your capital this year, compared to nearly double that previously. Did you remortgage for a longer term or something, because at this rate you'll still have debt in 11 years.The big thing for us being able to save was when the mortgage was gone, a huge psychological boost of knowing your money was yours do do what you want with, but others perfer to invest the equity elsewhere, your risk profile is higher than ours, but you need a plan to get rid of the debt at some point.

Basic steps are...
1) work out how much you will need to live on. Not "how much you spend now", the 2 figures might be quite different.
2) multiply that by 25 and save that amount from your takehome (either in ISA so income is tax free, or SIPP so tax reclaimed covers later deductions).
3) have 12 months' spend as cash.
4) (optional but very much preferable) Have no debt at retirement.

Other things as you approach the time is consider part time working, see how much the extra free time affects your spend, you might find working 2 days just to cover your needs is preferable to going cold turkey, and allows your investments to build a better buffer.

Oh, and at 44, you are just 2 years older than MrsF was when we married. A lot can change in 11 years, ask Glynn Wolfe. Joan Collins tended to marry every 11 years or so the first 4 times

I have paid in around £30,928.20 into my pot, meaning that I've lost around £16,945.20.

I am a high risk investor [...] My pension funds were selected by a professional pension chap.

Ouch. High Risk does not mean high return, especially in the sort of downturn we look to be entering. But your strategy is a topic for another board.

Paul

[nmdhqbc]

I've got to say its not been a great year. It would have been even worse if I had done this exercise in November or December. Although my funds (pension, investment trust and savings) have gone up by nearly £14K, I have paid in around £30,928.20 into my pot, meaning that I've lost around £16,945.20.

well you don't plan to retire for 11 years so i'd say that it has been a good year. the cash you've invested got in at lower prices. the high inflation is not good though. that's will be locked in forever and is much more important than temporary declining markets.

as others have mentioned the vital info missing from the original post was your expected expenditure in retirement. impossible to assess anything without that. you later said that excluding pension contributions and mortgage you spend £1900 a month. i'm guessing you mention that as a guide to what you might spend in retirement. so based on your portfolio value of £309659 that's a (1900*12)/309658 = 7.36% withdrawal rate if you were to retire today. this calculation could be something you might like to monitor over time to track your progress.

that whole concept of a withdrawal rate bring up the question of what strategy do you want to take with investments in retirement and what metric to use to determine when you can retire. an income strategy where you can retire when the income meets your spending may be more predictable being able to see the steady increase in income until you reach the goal. but a total return "4% rule" may get better results. where you wait for the spending to be 4% of the portfolio. then withdraw 4% year one then adjust for inflation thereafter. i'm sure there's plenty of good content out there on these topics and i'm no expert.

[newguy]

I thought it would be a good idea to actually dig into my pension fund.

Code: Select all

Pension Info                                       |         |            |             |                      |             
                                                   | Charges | Risk Level | Feb-23      |  1 Year Performance  |  Percentage 
St Vanguard FTSE Developed World ex UK Pension Fd  |  1.017% |          6 |  £55,856.40 |                0.93% |        19.94%
St Vanguard FTSE UK All Share Index Pension Fund   |  1.017% |          6 |  £41,513.32 |                4.07% |        14.82%
SL iShares Emerging Markets Equity Index PN Fd     |  1.204% |          7 |  £22,931.37 |               -2.69% |         8.19%
SL Ballie Gifford Managed Pension Funds            |  1.314% |          5 |  £84,732.15 |               -9.62% |        30.25%
SL Fidelity Global Special Situations Pension      |  2.164% |          7 |  £49,448.09 |               -2.66% |        17.65%
SL Fidelity Special Situations Pension Fund        |  2.154% |          7 |  £25,631.10 |                2.71% |         9.15%
                                                   |         | Total      | £280,112.43 |                      |       100.00%
                                                   |         |            |             |                      |             
Tracker Funds                                      |  42.95% |            |             |                      |             
Managed Funds                                      |  57.05% |            |             |                      |             
                                                   |         |            |             |                      |             
                                                   |         |            |             |                      |             
Medium Risk Funds (5)                              |  30.25% |            |             |                      |             
High Risk Funds (6 and over)                       |  69.75% |            |             |                      |             
                                                 


This has been very interesting. If I am honest I wasn't expecting the tracker funds to be nearly 43% of the pension fund. Nearly 70% of the fund is investested in high risk funds with a 6 or 7 rating.

My biggest % loser was my biggest managed fund - Ballie Gifford Managed Pension fund. And the fund that provided the best yearly performance was a vanguard tracker.

[newguy]

At this point I really can't see me being able to retire in 11 years. Hopefully next year is a lot better. I'll be honest I'm feeling a bit down after writing this out. Hopefully people can give me some words of encouragement.

The last year in the market has been bumpy. Scottish Mortgage, oh dear. Still, eleven years is a long time and a lot can happen.
The pension cap... might vanish.

Leaving aside inflation... how much total income do you need or wish?

In four years where will mortgage rates be... no idea, albeit more than 2.49%.
Regards downsizing, the best time is when you retire as your house will have the maximum spare equity. Although that might mean leaving your local community which may or may not be a bad thing.

I would then assume a pot could be invested at 5% pre-tax, but what will Labour do to tax rates on 'unearned' income.

I think one way and another eleven years is too distant to agonise over. However, one thing you can do meanwhile is to become as self-sufficient as possible in DIY skills, as this will greatly reduce the cost of running a house. The less you need to spend, the smaller the necessary pot.

V8

Hi 88V8 and xxd09

I am currently very frugal. I own an old 1998 MX5 and I am not paying monthly car leasing or going on very expensive holidays. I would like to spend a bit more in retirement. I think I could manage easily on £25K but lets say £30K as I intend to enjoy myself more. The mortgage payment will go on more holidays and newer cars.

When I got the initial mortgage I took out a 10 year fix because I thought mortgage rates were ridiculously low and couldn't go on like this for long. The mortgage broker seem a bit surprised at my decision, so I do expect to be paying more in 4 years time.

To be able to downsize and get equity out, I will have to move areas and I might even consider moving abroad but lets not overcomplicated things here.

[newguy]

My current salary is £54,500 and there are no real promotional prospects.

I am currently saving £2700 into my pension funds and my intention is to continue doing this. I’ve been assuming a return of 4.5%

I assume you mean paying £2700 per month into your pension? That seems to fit with the numbers in your original post.

If so, that means you are living on a post-pension contribution gross of £32k pa. That would seem to suggest at a safe withdrawal rate of 4% (highly debatable, I know) that you would need a portfolio of about £800k.

So, are you there - no. Are you on track - yes.

I watched a very good series of YouTube videos from Lar Krojer on building a financial model. The model is a probabilistic, or stochastic, model. The process of building it will probably tell you more about the answer to your question than the result from the model - but both are hugely useful.

Hi Boots Yes sorry your right £2700 per month into my pension. Although that £2700 per month figure does include a 10% pension contribution from my employer and is done through a salary scractice scheme which means I also benefit from NI savings, etc

Thanks. Having looked at my figures. I use YNAB to track all my expenses, in retirement I would be looking for a yearly figure of between £25 and £30K, as I would want to enjoy myself more!

[newguy]

o, are you there - no. Are you on track - yes.

I watched a very good series of YouTube videos from Lar Krojer on building a financial model. The model is a probabilistic, or stochastic, model. The process of building it will probably tell you more about the answer to your question than the result from the model - but both are hugely useful.

Ah that reminds me it's a while since I've seen mention of https://firecalc.com/ I have spent many happy hours sticking numbers and tweaking scenarios on firecalc. I'll make a cuppa and see if I still like the outcomes.

I used EvolveMyReitiremement last year and that suggested that "10,000 Monte Carlo trials were run with this strategy, in 1.0% of which money ran out before the last member died. This represents a 99.0% success rate." Although I've not run it this year and that doesn't take account of the poor returns this year and the likely increased inflation rates over the next few years