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Am I as close as I think?

Including Financial Independence and Retiring Early (FIRE)
Frostyfred
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Re: Am I as close as I think?

#425073

Postby Frostyfred » July 5th, 2021, 8:23 pm

Very grateful for all the words of wisdom. This board does not disappoint. I hope it helps more than just little old me.

To clarify a few points for completeness, yes, there's a Mrs Frosty which is why we've got 100k in premium bonds. Accept entirely that this (and the cash) erodes steadily due to inflation. Point taken.

The £125k is in ISAs so there's tax sheltering there. If I invest more of the cash or bonds now then it'll need to be in a General Investment Account. Less tax friendly, but do you recommend that?

I've checked my state pension again and it says I'm due the full lot :shock:

My only quibble is what role the house plays. Some say it'll release money when we downsize (which is also my view) whereas others say not. The difference between the two dictates whether i can be FI or not (regardless whether I RE).

b0f77
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Re: Am I as close as I think?

#425090

Postby b0f77 » July 5th, 2021, 9:19 pm

You’ve had some good advice here. What I have done with a general investment account is invest excess cash released from unsheltered employment share benefits and bonuses into a GIA then roll 20k into an ISA each year (Bed and ISA), so you already have some investment growth hopefully before it goes into the ISA. You get £2k annual dividend allowance and £12k capital gains before tax is due. If you invest OEIC funds in a GIA, make it income units as they should give you a tax certificate for any dividends otherwise you will have to work out the internal dividends in accumulation units for tax purposes. If you buy bonds or REITs (property investments) taxation of income can be treated differently, so watch out for that if you open a GIA.

I would recommend working a couple of years part time to get used to the lower salary. I did this from 55 for 2 years, now stopped working at 57. In my early - mid 40s I had increased my pension salary sacrifice up to 30% and also had 8% from my employer so nearly 40% of gross salary going to the pension. With that and other savings from net pay I had about 60% savings rate so switching to 2 days part time was easy. It is not too late to increase your pension contributions if you can. I actually found I had good pension growth between 45 and 55 with the increased contributions too. I had also planned to go at 51 originally but life and interesting work happened and my investments grew some more. I cannot recommend more some frugality and saving to build up good retirement funds in advance if you can. I’m not even drawing down investments yet living on cash funds built up for pre-retirement, the idea being to burn down some of the cash before inflation does it.

monabri
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Re: Am I as close as I think?

#425091

Postby monabri » July 5th, 2021, 9:22 pm

Frostyfred wrote: If I invest more of the cash or bonds now then it'll need to be in a General Investment Account. Less tax friendly, but do you recommend that?


Well, you and Mrs F could both invest into a General Investment Account (that is, a non-ISA'ed account). Note, you can both individually earn/receive up to £2k in dividends each per annum without tax. So, £100k at 4% could give £4k in an income based fund - split 2 ways, keeps you "just" on the £2k individual limit |(so, do the maths to ensure you stay below). Of course, you might potentially invest in a non or low dividend paying fund with a view to growth and then could use your individual capital gains tax allowances at a later date (if you were to get lucky in your choice of investment).

Some brokers will then "transfer" your shares in the GIA into an ISA account for a nominal (low) cost (e.g interactive investor) when the next tax year comes around.

The downsides being that taxation might change and the £2k allowance is scrapped or reduced (it was briefly £5k per year per person)....and the usual risk that the investment does not perform well and your pot is reduced.


Frostyfred wrote:I've checked my state pension again and it says I'm due the full lot :shock:

Excellent ..and Mrs F's too?


edit: You might wish to ask on the Brokers Board as to whether your particular trading platform/broker does a bed & ISA service. You also need to be aware of risk of a broker "going under" - perhaps not from a loss of assets point of view but the very real risk that your funds are frozen whilst assets are transferred to a new broker (search "SVS Securities" & "monabri").

edit 2: see bOf77 comments about "R.E.I.T.s" in a GIA...I'd say, chose something else because of the potential tax implications.

kempiejon
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Re: Am I as close as I think?

#425114

Postby kempiejon » July 5th, 2021, 11:43 pm

Frostyfred wrote:Very grateful for all the words of wisdom. This board does not disappoint. I hope it helps more than just little old me.

To clarify a few points for completeness, yes, there's a Mrs Frosty which is why we've got 100k in premium bonds. Accept entirely that this (and the cash) erodes steadily due to inflation. Point taken.

The £125k is in ISAs so there's tax sheltering there. If I invest more of the cash or bonds now then it'll need to be in a General Investment Account. Less tax friendly, but do you recommend that?

I've checked my state pension again and it says I'm due the full lot :shock:

My only quibble is what role the house plays. Some say it'll release money when we downsize (which is also my view) whereas others say not. The difference between the two dictates whether i can be FI or not (regardless whether I RE).


Just a few thoughts - I see being mortgage free and able to liquidate some of that capital as a handy back stop and part of care planning but for now I leave it out of my sums - other than being rent/mortgage free means I do not need to earn that amount.
Have we mentioned SIPPS? You and Mrs Frosty can shelter an extra amount there. At your age 48 it's 7 years until you can access it so it does remove some flexibility but the further north of 50 the more attractive the option becomes, the 25% tax free might be an incentive? For unsheltered investments the Vanguard global ETF for example has a pretty slim income and has shown adequate growth. It took until last year to get income bearing investments sheltered since the reduction in tax free dividends but now low yield and regular capital gains harvesting keeps my tax bill zero.
I found keeping detailed spending records a useful exercise too so I know how much I spend on fun and costs of loving - I'm still working and like b0f77 max my pension contributions and keep a stingy eye on expenditure. I've probably been FI for a while now depending on how I cut my cloth but I want more and recon there's a few years work and with prevailing investment growth I can go part time or fun work into the later years.

wanderer
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Re: Am I as close as I think?

#425122

Postby wanderer » July 6th, 2021, 1:26 am

Frostyfred wrote:I've checked my state pension again and it says I'm due the full lot :shock:


I am the same age as you and also seem to be on course to get a full state pension entitlement in return for 29 years of contributions (including 2 while I was at sixth form.)

There must be something of a quirk in how people of our particular vintage were transferred into the new state pension arrangements. (It almost makes up for being on the wrong end of the cliff edge move to 57 as the SIPP retirement age!!)

Kantwebefriends
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Re: Am I as close as I think?

#425286

Postby Kantwebefriends » July 6th, 2021, 6:00 pm

If you have no bequest motive and the prospect of inflation worries you, you could make a mental note to consider buying an index-linked annuity at 55. Perhaps fewer people will be preaching about the "poor value" of annuities by then (though I doubt it; I suspect that the objection to them is visceral).

Mike88
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Re: Am I as close as I think?

#425312

Postby Mike88 » July 6th, 2021, 6:59 pm

My expenditure reduced markedly after I retired. No commuting costs, fewer meals out, no need for 2 cars and no drinks after work all add up to a considerable saving so my question is does the OP really need £45k a year in retirement especially since he owns his house outright?

swill453
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Re: Am I as close as I think?

#425347

Postby swill453 » July 6th, 2021, 8:39 pm

Mike88 wrote:My expenditure reduced markedly after I retired. No commuting costs, fewer meals out, no need for 2 cars and no drinks after work all add up to a considerable saving so my question is does the OP really need £45k a year in retirement especially since he owns his house outright?

Yes, agree with this. I retired in 2014 and set a budget of about £34K, based on in-work spending with rough estimates of what we'd spend more on and what we wouldn't need.

In the 7 years since, we've never spent more than £28K per year.

Scott.

xxd09
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Re: Am I as close as I think?

#425395

Postby xxd09 » July 6th, 2021, 11:58 pm

Just to be contrary
We spent as much in retirement as we did when working
Luckily had enough savings
More time -travelled the world -visiting the children etc
Covid has put a stop to going abroad so now U.K. travel only -boutique hotels and first class rail fares a substitute
Now getting old so no doubt will have to slow down soon
xxd09

Dod101
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Re: Am I as close as I think?

#425399

Postby Dod101 » July 7th, 2021, 12:25 am

I now live alone and get by on about £30,000 a year, without counting the cost of a long trip which I have done most winters. That of course can cost anything from about £3,000 to as much as I want.

I reckon that with a wife you probably need to budget for annual expenditure n the order of £35/40,000 per annum net. I do not stint but even so I am not a spendthrift.

Dod

tjh290633
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Re: Am I as close as I think?

#425469

Postby tjh290633 » July 7th, 2021, 10:41 am

It's a long time since I retired, but our most expensive year was 2018, which happened to be our Diamond Wedding, and we had a couple of celebration events and a long cruise. That year we spent about £30k, of the order of 30-40% more than a normal year. We still run two cars, and have so much clutter that downsizing would be too much trouble. That would have been a little bit more than our net taxable income for that year, compensated for by withdrawing dividends from my HYP. That being in an ISA, most of the income, if not all, gets reinvested.

TJH

monabri
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Re: Am I as close as I think?

#425530

Postby monabri » July 7th, 2021, 12:21 pm

I'm cautious, being newly retired, but I do keep tabs on our expenditure. I reckon that a tad over £21k a year is more than sufficient and it breaks down into £7k x 2 "spends" each for Mrs M and I and £7k to run a semi-det house. We definitely do not eat out or frequent pubs and we have no kids to plan for. Our joint income is comfortably higher than that amount and we have not yet reached SP age.

monabri (a.k.a. "Mr Micawber").

Hariseldon58
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Re: Am I as close as I think?

#425670

Postby Hariseldon58 » July 7th, 2021, 7:53 pm

I retired at 49 (2007)with the equivalent in today’s money of about a million and with a spending target of about £40k in today’s money. It worked out, despite 2007-2009.

I found that spending varies considerably, some years substantially below the target income and other years far higher.

I think you need to save a bit more, the premium bonds I’d probably keep(at least some), opportunities arise…..

The biggest uncertainty is the future investment environment ( you might argue that’s always the case).

I had an unpleasant period in 2008/2009, where my retirement nest egg fell by about 50%, however this did provide investment opportunities and the subsequent years have provided, generally, very favourable investment returns.

Capital has more than doubled in real terms and my original 4% drawdown rate is clearly much lower or a higher income is possible.

The 4% ‘rule’ is probably not as secure as it was, yields from equities are far lower now than then, a previous poster suggested a million and my experience is consistent.

Whilst we could manage on £25k a year , £45k is more fun and if you enjoy travelling ( it will return) it’s easy to spend far more.

Good luck, your close and your at the stage where investment returns can be significant, outstripping your work earnings by a margin in a good year. Another few years can make a huge difference.

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Re: Am I as close as I think?

#425674

Postby xeny » July 7th, 2021, 8:00 pm

Frostyfred wrote:The £125k is in ISAs so there's tax sheltering there. If I invest more of the cash or bonds now then it'll need to be in a General Investment Account. Less tax friendly, but do you recommend that?


Rule of thumb I've seen is that if you're careful with CGT and dividend allowances you can run a GIA of about £100K without paying much tax. Obviously you want to be on top of harvesting CGT allowance each year, so invest cash into the GIA and sell from the GIA to use the ISA allowance each year and generate some CG to use the allowance.

For historical reasons I've got a bunch of National Savings certificates bought about a decade ago, which I consider my cash reserve, and accept the drag of holding the cash.

If they were still offering them, I'd probably have sold a significant fraction of them some years ago to make my portfolio heavier with risk assets (obviously keeping some amount as an emergency fund) with a view to only topping up again as the last step before retiring.

Carrying excess cash means some of your (hoped for) equity gains are simply going to offset inflation losses on that cash.

If you're out of ISA allowance, is there scope for upping pension contributions (ideally salary sacrificed to save NI) to get the money into a tax advantaged account and running down some of the cash to fund day to day living?

xxd09
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Re: Am I as close as I think?

#425689

Postby xxd09 » July 7th, 2021, 9:00 pm

Hariseldon
Not many of us could cope with a 50% drop in our investment savings!
You obviously have much more resilience than the average investor
Well done
xxd09

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Re: Am I as close as I think?

#425809

Postby TahiPanasDua » July 8th, 2021, 11:15 am

It is difficult to accurately estimate beyond basic survival just how much income you really need to live a happy life. However, the Covid fiasco has given us an unusual, though imperfect, insight into what is possible.

We keep a simple monthly spending log so have decent records. Upon reading this thread I checked and my flabber was gasted to see that in virus-free 2019 we spent £46k whereas in locked down 2020 we spent only £25k. The latter, however, includes voluntary monthly payments to adult family and friends of £7.5 meaning we only spend £17.5 on ourselves!!!! I would previously not have believed that we could survive so happily on so little. My sister survives on half that and she seems OK too.

TP2

kempiejon
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Re: Am I as close as I think?

#425837

Postby kempiejon » July 8th, 2021, 12:11 pm

xxd09 wrote:Hariseldon
Not many of us could cope with a 50% drop in our investment savings!
You obviously have much more resilience than the average investor
Well done
xxd09


I think investors need to be aware that we could see a 50% or more drop in our investments - obviously asset allocation, diversifaction and what not can go towards protecting from that. I've had some specific investments totally wiped out but across the whole of my investable funds I'm soldiering on.
One needs to be prepared to see large losses otherwise inveting in the stock market might not suit. Those people who sell after the crashes rather than buy demonstrate they do not have the constitution for volatile investments but by the time they've sold it's too late for them.

xxd09
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Re: Am I as close as I think?

#425854

Postby xxd09 » July 8th, 2021, 12:54 pm

I have had a 30/65/5-equities/bonds/cash portfolio for many years -tried and tested through 3-4 major downturns -let’s me sleep at night-my acid test!
Re expenditure we dropped from 75 to 50 due to covid-were doing a lot of foreign travel-no longer
All very personal decisions to each investor due to different circumstances
xxd09


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