Achieving FIRE what to do 49-55..?

[buyhighselllow]

Hi
I'm looking at trying to retire from a stressful profession ASAP, but realistically I think I have to bat on at least 5 1/2 years til 55. At that point my pension , in theory would be £16k. There would be a lump sum of about £35K. This is not set in tablets of stone but at present is a reasonably accurate. I need to generate about another 8K a year to be reasonably comfortable between 55-67 (SPA) but I'm quite happy to consider the prospect of low stress part time work at 55 as I will be 2-3 yrs short of full NI contributions at that point.. as long as I have enough freedom for my hobbies and interests.

Currently I have around £125K split between Trackers c60% P2P 15% and cash ( in various accounts earning 1.5-5%, I've the 5% options ).

I think I can manage about £800 per month addition to my pot.Of the £800, £200 goes into trackers each month, mainly UK All share and US, a little into a global.I'm mortgage free, but have stoozed about 20K to boost the cash savings side and hoping to keep that rolling around at 0% for the next 5 years whilst the cash grows and the minimum payments clear most of it off.

I'm reluctant to get any further into P2P and thinking Investment trusts are the maybe something I should be looking at for the growth I need. I would welcome some general advice and observations, I have absolutely no background in finance and have muddled my way to where I'm at thus far, and have no real idea if I'm doing "the right things" or if my dreams are realistic..

[JohnB]

Have you read books Lars Kroijer's Investing Demystified and Tim Hale's Smarter Investing. That will give you a clearer idea whether you think you have an edge in using ITs rather than trackers. I never felt I had.

I think 15% P2P is enough too.

Are you putting the money into a SIPP or ISA?

[tjh290633]

You are looking at income, so I think that you are right to be looking at Investment Trusts. There is such a wide variety that you need to choose carefully. Some have been raising their dividends for decades, while also providing capital growth. Some have a wide geographical spread, while others concentrate on the UK and some may include other types of security than equities.

I am not an admirer of tracker funds because they can do no better than that. Likewise you need a rising income, at least keeping pace with inflation, which neither fixed interest securites nor cash will do.

TJH

[buyhighselllow]

Trackers are in an ISA but cash is not..I am no longer a higher rate tax payer and just scrape under £1000 in interest each year, I put as much of the cash and P2P in my wife's name who earns under the basic tax allowance.

[JohnB]

Why don't you and your wife have SIPPs in addition to your work pensions? They fit your timescales, and you would get the tax relief.

At the moment you want total return, so picking ITs for their income properties doesn't matter, as its all recycled.

[buyhighselllow]

Why don't you and your wife have SIPPs in addition to your work pensions? They fit your timescales, and you would get the tax relief.

At the moment you want total return, so picking ITs for their income properties doesn't matter, as its all recycled.

Probably a combination of ignorance and being so indoctrinated in the Pension scheme I've contributed to for 29 years..I always felt traditionally that pensions were just one part of a portfolio, and personal pensions were , at least historically, a bit restrictive ( and I didn't need a public sector and private pension ) ..as I said, I've muddled my way this far but very open to suggestion !..I used to do the fool many years ago, and didn't even know the Lemon Fool had evolved to replace the old Fool !

[buyhighselllow]

Forgot to mention, as part of my total, I have about 8K in various shares via Halifax ( including decent Dividend payers Like BAT, Severn Trent etc, div reinvested ) ..

[JohnB]

If your pension at 55 is £16k, you will be basic rate taxpayer in retirement, so the basic tax relief you get now will be clawed back then, and you only benefit from the 25% lump sum. A SIPP will cost £100-£200 per year to run, so the £2500 tax relief * 0.25 - 200 may make the whole exercise marginal.

But the situation might be different for your wife. If she isn't paying tax now, will her pension be over £12k when she starts to get it? If not, do the SIPP in her name. The odd think about pension tax relief is its not based on the tax you pay, but purely the sum put in. So if she earns £11k and puts £10k into a SIPP, she gets £2500 in tax relief even though she has paid no tax!

[JohnB]

shares have to be sold, because only cash can be put in ISAs/SIPPs. I'd sell piddly small holdings to just get rid of the admin burden of all those annual reports/dividend statements, but their is no tax reason, as the £2k dividend allowance will cover them.

[buyhighselllow]

But the situation might be different for your wife. If she isn't paying tax now, will her pension be over £12k when she starts to get it? If not, do the SIPP in her name. The odd think about pension tax relief is its not based on the tax you pay, but purely the sum put in. So if she earns £11k and puts £10k into a SIPP, she gets £2500 in tax relief even though she has paid no tax!

No, she works part time in the NHS, and even tho she wants work til about 60, her NHS pension will only be about 3-4K

[JohnB]

Bingo. Just make sure the combined SIPP and NHS pension contributions don't exceed her salary

[kempiejon]

Bingo. Just make sure the combined SIPP and NHS pension contributions don't exceed her salary

Aye that's the tax bit sorted and efficient but I'd that add a SIPP isn't an investment nice though the 20% is.
I like the idea of income investment trusts and a global bent for the OP. I'd move out of cash once about 2/3 years of expected expenses is achieved, the balance equities and global and income ITs are a good option.
My FIRE planning started with an analysis of my costs and that gave me a baseline income to work towards, By the looks of the OP the baseline might well be covered come 55.

[seekingbalance]

I took FIRE at 52 after 7 years of planning, so have been in exactly your position. I just turned 55 and have started receiving my pension, albeit like yours it is heavily reduced, due to being so early. But it is a good backstop to my share and savings portfolios and enabled me to be a bit more adventurous.

While you are still headed for retirement I would suggest a mix of growth and rising income ITs and keep up with the trackers, as while it is possible to beat a tracker, over time it is not so easy and most don’t. Will you pick the ones that do?

Fees on the Vanguard S&P 500 ETF are only 0.07%, which is about 1/10th of the average fees on ITs. It yields 1.5% so you even get some dividend reinvestment.

Personally I have gone for a mix of growth giving way to more HYP, Income Investment Trusts and Global or US trackers - I am not a big fan of UK and would certainly look to get more diversification in the lead up to and aftermath of Brexit.

But while yield is good when you need the income, don’t chase too high a yield at the start. I would suggest, as TJH says, to look for rising income, and dependability over higher yield. That said, I do have both types!

At the core of portfolio I have Vanguard World and Vanguard World High Yield, plus Vanguard S&P 500 as trackers. These have brought good growth, and a yield too, around 2.5% aggregate.

Second I have gone for a HYP of the usual suspects - Shell, BP, BATS, Imperial Brands, Vodafone, HSBA, Unilever, Diageo, Aviva, Legal and General, BHP Billiton, Persimmon, some property REITs, among others. Yield on these is 5.2% and they have given me good growth over the last 9 years also. I manage this lot like TJH though, this is not a non tinker HYP (so, not a “real” HYP by PYAD’s rules, but that’s fine by me). I top up, reinvest the dividends and sell cutters, sometimes even trading out of a big riser into a better yielder.

Third leg is income ITs, some of which are technically Growth and Income. City of London (CTY) is a big favourite on here, and I have that, but I have found City of London Investment Group (CLIG) to be better, with higher dividends and better growth. Henderson Far East (HFEL), Merchants (MRCH), City Merchants High Yield (CMHY) and some others combine to give me a yield of around 4.5% and some good growth over the last 10 years. All these have done me well when building and now when needing income (but note points below about how I spend my income). In this group I also have some fixed interest bought in headier times -LLPC, SAN, BOI, BBYB -all delivering 100%+ growth and in the order of 10% yield on purchase prices, around 5.5% now. You may be too late to the party for these types of returns for this asset class, but I do feel fixed interest does have a place, for ballast. Watch out for IPOs for new debt from decent companies at 5% or so, as long as they are fairly short maturity, say 7 or so years.

Finally I still have growth, both shares and ITs, and for you this may be something to still keep a focus on. Which growth shares? Hard to say now. I have focused on big tech - Apple, Amazon, Google, Microsoft, Facebook (but sadly never Netflix!) IQE, Accesso and ITs such as Scottish Mortgage, Finsbury Growth and Income, Edinburgh, Scottish American, Lindsell Train and also The Fundsmith fund. Stock picking is hard, and I had many disasters, so eventually decided to just ride the tech wave with the already established big boys, and rely on fund managers to pick for me for the rest. All have been spectacular, but the ITs and fund have been the more sensible ride, though the US growth shares have done amazingly well. Will they be for the next 7 years? No idea, and the market is surely due a fall. I am due a CGT sale of my US shares soon, and will probably reinvest via a tech stock ETF rather than buy back into them after the 30 days.

Final point on spending the income. I, like you, have retained a large cash portfolio, stoozed into slightly better and/or longer durations to get at least the very best I can get. In this area I am indeed losing to inflation. But I lack TJH’s balls, so prefer to keep the ballast that cash affords me. I have 3 years worth of spend reserves, some easy access, most in 1 or 2 year fixes, and I move easy access funds often (for example into Coventry 1.39% just this week, from Ulster Bank 1.25%. Quick to do, no cost, and gains a few quid. And I use this cash for spending, so far not withdrawing any income from my share portfolios (as much in ISAs as possible, plus SIPPs, though these SIPPs are only filled with 40% money, I don’t bother with 20% money as there is little net gain and it is potentially too far into the future to be worth it for me).

When I need income to top up my cash buffer I will sell or start withdrawals, prioritising non-ISA funds, as these are the most valuable, especially from next year when dividends will be taxed above £2k income.

Sorry for the long ramble, but I hope the above helps with some thoughts. The past, as they say, is no guide to the future. But it is the only guide we have! The above worked for me.