On The Right Track?

[LiveNotWork]

Hi All,

Been lurking a while and finally decided to register to get some confidence i'm on the right track for FI as soon as possible

I'm mid 30's and putting £1k per month into a Vanguard stocks and shares ISA, which is currently sat at a value of about £50k. Fully invested in a variety of ETFs, about 70% USA SP500, the rest spread around.

I have £25k tied up in a separate buy-to-let property which generates me £400 per month in my pocket.

Aiming to quit work and have an income of £2k per month in my pocket.

I have a spreadsheet showing i can achieve what i want at about the age of 50, drawing the income from the stocks and shares ISA pot until 65-ish when i then access my pension pot.

Thoughts?

[monabri]

£2k / month sounds great..in 2023. However 20 years from now, it most likely won't provide you with the lifestyle you want ( unless you are thinking " minimum").

£ 23k pa. supposedly is a 'moderate' lifestyle but that's in today's money.

https://www.retirementlivingstandards.org.uk/

Keep saving..get lucky ( you might benefit from some inheritances for instance).

[JohnB]

Pension access age is 55 (nominally 10 years below state pension age, but they've hard-coded it, and its not rise as SPA). No idea what it will be in 30 years time.

You need to explain your pension strategy.

[genou]

Pension access age is 55 (nominally 10 years below state pension age, but they've hard-coded it, and its not rise as SPA). No idea what it will be in 30 years time.

That's changing to SRA-10 ( so currently 57 ) from April 2028.

[LiveNotWork]

Pension access age is 55 (nominally 10 years below state pension age, but they've hard-coded it, and its not rise as SPA). No idea what it will be in 30 years time.

You need to explain your pension strategy.

Just a plan to not touch it before I need to at the moment. Why access it if I’m getting what I need from the SAS pot?

[DrFfybes]

I'd do an X-ray of your ETFs to see how much overlap there is, and if a bit of shuffling could save you fees.

Any reason you're going for ISA rather than some into a SIPP? Keep the SIPP to a sensible level and you'll get the govt contribution and still be able to take most if not all of it back tax free.

Also at 0.15% (?) the Vanguard fees are very low, on £50k that's only £75pa, but as your pot grows you might want to look at a fixed fee platform.

Paul

[tjh290633]

If we ignore inflation, you are saving £12k per year, and for £2k per month you need about £600k capital yielding 4%. The capital that you are saving ought to be able to compound at about 7% on average. If you increase your savings by more than inflation, that will also help.

I reckon about 30 years, but you may have other sources of income, like your BTL property, which could reduce that to maybe 20 years.

What you invest in also matters. The US orientation will probably help.

TJH

[moorfield]

Hi All,

Been lurking a while and finally decided to register to get some confidence i'm on the right track for FI as soon as possible

I'm mid 30's and putting £1k per month into a Vanguard stocks and shares ISA, which is currently sat at a value of about £50k. Fully invested in a variety of ETFs, about 70% USA SP500, the rest spread around.

I have £25k tied up in a separate buy-to-let property which generates me £400 per month in my pocket.

Aiming to quit work and have an income of £2k per month in my pocket.

I have a spreadsheet showing i can achieve what i want at about the age of 50, drawing the income from the stocks and shares ISA pot until 65-ish when i then access my pension pot.

Thoughts?

Well done on thinking so far ahead, you're on the right track already. You clearly have a good idea of what you have now, what you can afford to save, what income you want in the future, and when. The piece of the puzzle that may be missing is an income growth rate that can be achieved, for example through the combined effect of dividend increases, cuts, reinvestment and capital contributions. Once you have that, you have everything you need to plug and play with the Excel finance functions (eg. PMT) to wargame different scenarios.

Fortunately we have some very useful empirical data on LF that can help, see here - well worth a read. Note, this is not to suggest you follow the HYP strategy, rather my own suggestion would be to consider a small portfolio of income oriented ITs and just keep reinvesting for 20 years. Play around with +7.2%pa (aka. doubling your income in a decade) and see what that does to your future projections?

I started thinking similarly in my mid 30's. My objective then was to build a retirement income exceeding the higher rate income tax threshold, and I sketched out an annual income target growing at that rate. At 50, I have just achieved that, and now it's just more reinvesting still for the next 5-7 years. My principal focus has always been on actual vs. target income. I've not been too precious about portfolio implementation, because I believe most (equity) income reinvestment strategies folk follow will coalesce into a narrow range, 8-10% say - although I am feeling now that a small portfolio of income oriented ITs (less volatile income flows than HYP) is what I am most comfortable with.

[Itsallaguess]

I'm mid 30's and putting £1k per month into a Vanguard stocks and shares ISA, which is currently sat at a value of about £50k. Fully invested in a variety of ETFs, about 70% USA SP500, the rest spread around.

I have £25k tied up in a separate buy-to-let property which generates me £400 per month in my pocket.

Aiming to quit work and have an income of £2k per month in my pocket.

I have a spreadsheet showing I can achieve what I want at about the age of 50, drawing the income from the stocks and shares ISA pot until 65-ish when I then access my pension pot.

Thoughts?

It sounds like you've got a good handle on where you're at and where you're heading, but one very important and potentially highly-influential aspect that's not covered on these boards often enough is to never forget that one of the biggest potential drivers to future investment growth that you've got is the human-capital that you look at in the mirror every morning.

Don't restrict yourself to just calculating 'output' figures, and remember that everything you do going forwards can be beneficially improved if you're able to improve some of the *input* figures over the long periods of time that you've still got ahead of you in employment...

Look for ways to improve your position at work at the earliest opportunity, and if you're able to benefit from increasing wages, then make sure that whilst you also get to enjoy *some* of those improvements, you're also able to ratchet up some of the long-term *inputs* into your post-work investment plans from any beneficial gains over future years, and benefit from the long-term compounding of those increased *inputs*, as well as the investment *outputs* that you've already got a good handle on...

Our own human capital is often the single biggest investment-driver that we've got available to us over the long-term.

Value it, and nurture it. Use it early and use it well...

Cheers,

Itsallaguess

[Adamski]

Second that, you want to put in a SIPP, not an ISA.

You put £100 in a SIPP, govt adds £25. It's a no brainer. Sounds like your on right track though

[moorfield]

Second that, you want to put in a SIPP, not an ISA.

You put £100 in a SIPP, govt adds £25. It's a no brainer. Sounds like your on right track though

Wrong way round! The govt doesn't add it, rather it doesn't take away what you earned in the first place. (Although it will take some of it away, eventually.)

But if the OP is targeting FI from 50 specifically then no a SIPP delays that until at least 57.

However this where (ballpark) extrapolations can be so useful - factoring in tax reliefs it is quite possible reinvested income could double again in that additional 7 years inside a SIPP.

[LiveNotWork]

Had never really looked at SIPP's, and whilst it looks like a good deal it's the inability to access it until 57 that puts me off. I have a good workplace pension that i'm building for that age point.

I'm trying to use the SAS ISA to build a pot I can access at any time to start reducing my work ASAP. Definitely open to a part time job to tide me over around the target age as well. Freedom from the 9-5 is what drives me

[kempiejon]

Had never really looked at SIPP's, and whilst it looks like a good deal it's the inability to access it until 57 that puts me off. I have a good workplace pension that i'm building for that age point.

I'm trying to use the SAS ISA to build a pot I can access at any time to start reducing my work ASAP. Definitely open to a part time job to tide me over around the target age as well. Freedom from the 9-5 is what drives me

If you can fill your ISA each year and have a lump of emergency cash and you start questioning where you can pop excess cash might be when you look at extras into your pension. If you have a mortgage perhaps overpaying that would be more satisfying than adding to a SIPP you cannot access until 57. I guess the nearer one gets to 57 then more money could be directed to the SIPP. With a bit or wrangling I found the tax advantage of a SIPP very useful but I had done the hard work with my ISA for the first part of my retirement planning.

I have freed myself from 9-5 several times in my working career, don't just consider it an end of working life objective. I didn't take work too seriously in my 20s and often took a few months off or dropped down to part time, I gave up fulltime work again for a few of years in my 30s and in my 40s. If you want to reduce the 9-5 grind retirement isn't the only option.

[Hariseldon58]

Good luck with the investing, just keep doing it is my advice, month in, month out.

Good advice to develop your skills to maximise income.

If you’re a higher rate tax payer then SIPPs are a no brainer, for me ISA’s were the way to go , no income tax since going FIRE 16+ years ago….

I started with 2k in 1990 and £200 pcm and went FIRE in 2007. As time goes by the savings rate increases and my experience was an annual return of around 12% over that period.

There are ups and downs along the way , markets fell heavily 2000-2003 and this provides opportunities.

[tjh290633]

Back in my day, the equivalent of the SIPP was the Free Standing Additional Voluntary Contributions (FSAVC). I used to contribute once a year the income which would have suffered the higher rate of tax, then 40%. There was no alternative to buying an annuity, but I was able to take the maximum allowable tax free lump sum from that pot.

Nowadays a SIPP is the obvious solution to the higher rate tax problem, even moreso if you are into the band above £100k where you lose your personal allowance.

TJH

[vand]

I have a Googlesheet that knocked up to visualize where your portfolio currently is and how it will eventually grow towards being able to sustain you based on the 4% rule

https://docs.google.com/spreadsheets/d/ ... sp=sharing

Of course it won't play out exactly that way but it keep can give you rough idea how much closer you will will be moving each year on average

[vand]

Just done my back of a packet of fags calculation on OP's initial numbers, and.. well, yes you are "on the right track", but not really getting ahead enough to be on target to retire by your desired age of 50.

All numbers and growth rates are expressed in real terms...

You don't give specific age, but let's say you are 35 - that leave you with:

15 year timeline
600k desired pot
50k current pot size

With £12k new inflows each year, even if you can achieve 7% return (quite optimistic imo), you will not reach 600k for another 19 years or so. If you assume a more conservative 5% growth rate it increases to 22 years.

Now I have not included the income from the BTL in this, but maybe if that replaces 1/4 of the income desired income we can reduce the desired pot size by 25% and then the timelines becomes 16-18 years.

The trouble is that you want early retirement, but haven't really saved enough up to this point to make that easily achievable with your current pot size and ongoing contributions.

You still have time to improve things but I would say that currently you are where you should be for "normal" 65ish retirement, not really ahead of the curve for a very early retirement like you want. You'd really need to be contributing more like 20k/yr to build you pot up quicker (maybe you can do that in a SIPP as you aren't really on course for to need an ISA at 50 anyway).

[LiveNotWork]

Out of interest where does the £600k pot size come from?

I've been aiming for a ~£300k pot in my SAS by age ~50, then (worst case) just draining that down to zero at ~£25k per year. By which time i'd then access my pension.

[xxd09]

Fabulous sums needed for a reasonable income
£100000 of a 60/40 stocks and bonds portfolio generates a “safe “ £3000+ pa
That’s before tax!
xxd09

[tjh290633]

Fabulous sums needed for a reasonable income
£100000 of a 60/40 stocks and bonds portfolio generates a “safe “ £3000+ pa
That’s before tax!
xxd09

All the more reason to use a tax shelter like an ISA. Your 3% is a bit pessimistic when an all share portfolio could well provide up to 5% from dividends., and growing most of the time. 4% withdrawal would still leave some scope for reinvestment to provide still more income.

TJH