48 year-old Brit wants to retire at 50

[Paulio]

I'm a Brit who has spent a lot of time in the US and earns the bulk of my income in US$, which is why I ended up on this site.

I have a wife and two boys (15 and 13).

I've always had my own business, but unfortunately I doubt I will be able to sell it. I do have quite a bit stashed away in my pension. Currently about £550,000, which at today's exchange rate is $880,000. I can't draw on that until I am 55.

I own my house in the UK, which is worth roughly $900,000. It was worth a lot more before the real estate crash.

I also own the office building where my little software business is based. That's worth about $350,000, but I do have a mortgage of about $150,000 still to pay on that.

In addition to the above I have about $600,000 sat in the business, but to get my hands on that I need to pay a whopping 50% tax here in the UK.

We also have various savings accounts with about another $50,000 in.

Problem is that I am getting tired of the responsibilities that come with running a business (staff, sales, admin, management, etc) and feel that I'd like to start a new period in my life where I focus on myself and my family rather than on work, work, work.

I've never been good with money so the thought of quitting work, and no longer earning money scares me. How will I manage for the remainder of my life on what I currently have?

[Purron]

A good place to start is looking at your current expenses. Once you have a handle on this, consider how much your expenses will be in retirement given your desired lifestyle plus funds for other things such as an education for your children.

You may also want to look at some retirement calculators. They were recently discussed here:

http://www.early-retirement.org/foru...tor-54487.html

[Alan]

Welcome to the site. I'm an ex-pat Brit from Co. Durham, and DW is from Manchester.

As Purron says, first thing you need to do is determine your expenses. To retire at 50 you need 5 years of expenses just to get you to 55 when you have access to your retirement savings.

I think the UK has some special rules on drawing down from personal pension savings so you need to understand what those are before you do anything with them. (I happened to hear on the BBC that this year the rules were changing)

[Paulio]

Quote:

Originally Posted by Alan Welcome to the site. I'm an ex-pat Brit from Co. Durham, and DW is from Manchester. As Purron says, first thing you need to do is determine your expenses. To retire at 50 you need 5 years of expenses just to get you to 55 when you have access to your retirement savings. I think the UK has some special rules on drawing down from personal pension savings so you need to understand what those are before you do anything with them. (I happened to hear on the BBC that this year the rules were changing)

I'm hoping to build up the money I need to survive from 50 to 55 over the next two years and from existing savings.

Thanks for the link to the pension changes. That could actually be good news as basically means that you're not forced into buying an annuity when you retire, but can use income draw-down instead.

The big question I need to answer now is how much our expenses will be. I've heard so many people say you don't need as much as you might think when you retire, but is that really the case?

[Alan]

Quote:

Originally Posted by Paulio The big question I need to answer now is how much our expenses will be. I've heard so many people say you don't need as much as you might think when you retire, but is that really the case?

In our case, definitely not, but the increased expenditure, certainly in the early days is planned for.

[Paulio]

Quote:

Originally Posted by Alan In our case, definitely not, but the increased expenditure, certainly in the early days is planned for.

That is a good point Alan.

I suppose with some careful thought I can plan pretty accurately for the next ten years. By then I'll be 60 and who knows what inflation will be or what the typical return on investments will be.

Can I ask why in the early days your expenses were not lower? Was it that once you were 'without job' you had so many exciting things to do Alan?

[Alan]

Quote:

Originally Posted by Paulio That is a good point Alan. I suppose with some careful thought I can plan pretty accurately for the next ten years. By then I'll be 60 and who knows what inflation will be or what the typical return on investments will be. Can I ask why in the early days your expenses were not lower? Was it that once you were 'without job' you had so many exciting things to do Alan?

Some of our expenses were lower, such as downsizing the house, selling one of our 2 cars, and various work related expenses such as commuting, lunches, etc.

Some expenses in retirement went up such as health insurance costs (you shouldn't have that issue ), but the big expense for us falls in the "having fun" category.

While we are healthy we plan to experience living in different places, including doing fun stuff while there.


Last year was our first year of retirement and we :

• Rented a house in Colorado for a month, plus took a few days driving there and back. While there we did fun stuff like zip-lining, rafting, 4-wheel drive tours and driving to good places to go hiking.
• Went to England for 10 weeks and visited a few places, including staying in university dorms at York, London (LSE) and Exeter.
• Drove up to Canada (Ontario) taking several days each way, and stayed for 3 weeks.

This year we are planning a 6 month stay in England, leasing a house and using it as a base for lots of short breaks away, plus entertaining visitors.

Next year we are in the process of arranging a multi-month house swap with some cousins of DW who have visited us here in Texas. (They live in Ipswich, Queensland).


Hope this helps

[Paulio]

Wow! It sounds you are having a great time Alan and definitely making the most of your ER. Good on you.

The idea of a house swap sounds excellent. When we've retired we'll swap you our lovely house in Yorkshire for a month or two

[Alan]

Quote:

Originally Posted by Paulio The idea of a house swap sounds excellent. When we've retired we'll swap you our lovely house in Yorkshire for a month or two

That sounds great, we love Yorkshire. We sold a house in Guisborough, Cleveland, in 1985 and became friends with the folks that bought the house. We had planned a house with them once we'd all retired but unbelievably they split up about 5 years ago

So now we are having to find a house in Guisborough to lease.

[nun]

As Alan akreday knows Im from N. Yorks too. It sounds like you have a great base for ER. Have you considered the rental income you can get from your office building? Also how are you investing your non pesion after tax funds. You might want to look into the Couch Portfolio investing methods on bogleheads.org

[Paulio]

Quote:

Originally Posted by nun As Alan akreday knows Im from N. Yorks too. It sounds like you have a great base for ER. Have you considered the rental income you can get from your office building? Also how are you investing your non pesion after tax funds. You might want to look into the Couch Portfolio investing methods on bogleheads.org

North Yorkshire. Now there's a beautiful retirement spot

In the current climate the going rental for the office building would be about 15k GBP (about $24k) so it would certainly be a big help. We also have a lovely apartment in Spain we could rent out, but I figured if we were retired my wife and I would spent a lot more time there.

I'm going to go checkout the Couch Portfolio method right now. Thanks for that tip Nun.

[nun]

Quote:

Originally Posted by Paulio North Yorkshire. Now there's a beautiful retirement spot In the current climate the going rental for the office building would be about 15k GBP (about $24k) so it would certainly be a big help. We also have a lovely apartment in Spain we could rent out, but I figured if we were retired my wife and I would spent a lot more time there. I'm going to go checkout the Couch Portfolio method right now. Thanks for that tip Nun.

That pension looks very good, what type is it? Company, personal or stakeholder. I'd carefully research the fees you are paying and investment and tax free lump sum options you have. It might be a good idea use some of it to buy an annuity that along with the rental income will give you a guaranteed base. Also you said you earned most of your money in the US. So that begs the question of whether you have US accounts and also whether you have paid FICA and are eligible for US Social Security

The UK investment fee structure is far more expensive than the low cost funds that many on this board use with US companies like Vanguard and Fidelity so be careful there. You sound like an investment managers dream with all that money just waiting to be managed, for a fee of course. FYI Fidelity does have a UK operation and their moneybuilder tracker funds have expense ratios like 0.3%.

Finally you are in a very good place. You have far more than most people retire on in the US. No medical insurance to worry about, this is a big factor for ER in the USA as we have to pay it ourselves until the subsidized government Medicare program kicks in at 65, and the cost of university for your children will be tiny compared to the cost in the US. You have a lot of money tied up in real estate and once the kids are gone I'd look at downsizing and simplifying your living circumstances to tap some of your equity and who needs a big house anyway. When I return to N. Yorks I'm planning on finding a 2 bed stone built house. For between 200k or 300k pounds there are some really nice properties.

Last but not least tax. I don't know anything about business taxation in the UK, but my approach is to minimize my need for income in retirement. So I advise ERing debt free, ie no mortgages and making big capital purchases like new house and cars with cash if you can. I intend to stay in the UK 20% tax bracket which should be easy for me as a single guy.

[Paulio]

Quote:

Originally Posted by nun That pension looks very good, what type is it? Company, personal or stakeholder. I'd carefully research the fees you are paying and investment and tax free lump sum options you have. It might be a good idea use some of it to buy an annuity that along with the rental income will give you a guaranteed base. Also you said you earned most of your money in the US. So that begs the question of whether you have US accounts and also whether you have paid FICA and are eligible for US Social Security The UK investment fee structure is far more expensive than the low cost funds that many on this board use with US companies like Vanguard and Fidelity so be careful there. You sound like an investment managers dream with all that money just waiting to be managed, for a fee of course. FYI Fidelity does have a UK operation and their moneybuilder tracker funds have expense ratios like 0.3%. Finally you are in a very good place. You have far more than most people retire on in the US. No medical insurance to worry about, this is a big factor for ER in the USA as we have to pay it ourselves until the subsidized government Medicare program kicks in at 65, and the cost of university for your children will be tiny compared to the cost in the US. You have a lot of money tied up in real estate and once the kids are gone I'd look at downsizing and simplifying your living circumstances to tap some of your equity and who needs a big house anyway. When I return to N. Yorks I'm planning on finding a 2 bed stone built house. For between 200k or 300k pounds there are some really nice properties. Last but not least tax. I don't know anything about business taxation in the UK, but my approach is to minimize my need for income in retirement. So I advise ERing debt free, ie no mortgages and making big capital purchases like new house and cars with cash if you can. I intend to stay in the UK 20% tax bracket which should be easy for me as a single guy.

The money is in a SIPP, which stands for Self Inverted Personal Pension I think. It is basically a wrapper that the money is held in as a pension (so I get the tax benefits), but I can then do whatever I like with the money in terms of where I want to invest it.

I do have a bank account in the USA, and that has money going into it each month, but I pay all my taxes over here in the UK, which is a shame as UK tax are at their highest level for decades. It's pretty much 50% of whatever you earn once you're above a certain threshold.

I've noticed from other posts on this wonderful forum that the fees charged here in the UK are massive in comparison to the likes of Vanguard. I'm going to have a word with my Financial Adviser about this as it may be worth looking at putting some of the dollar money currently in the US into funds with Vanguard, but I don't know the tax implications.

Your comments on being debt free and minimizing tax are great advice Nun. I will aim to do exactly that. At the moment we just have the one relatively small mortgage on the office building, and I will try to keep it that way now as I move into my ER countdown :-)

I REALLY appreciate the feedback and help that people give on this forum. I am so glad I discovered it, as it is really motivating me to get a plan in place.

Thanks again!

[REWahoo]

Quote:

Originally Posted by Paulio The money is in a SIPP, which stands for Self Inverted Personal Pension I think.

I think it's actually Self Invested Personal Pension. Of course if you're upside down in your return, your description is probably more accurate.

[BigNick]

If you own your house outright (no mortgage), there's a nice source of capital right there if you and family are prepared to downsize, or move to a cheaper part of the country.

Currently your total portfolio, including the half of the value of the business which the tax man would leave you, seems to be around $2.3m, of which almost half is in either residential or commercial property. That seems like a fairly skewed asset allocation.

Nick (UK citizen, haven't lived there for 30 years, currently in France)

[nun]

Quote:

Originally Posted by Paulio I've noticed from other posts on this wonderful forum that the fees charged here in the UK are massive in comparison to the likes of Vanguard. I'm going to have a word with my Financial Adviser about this as it may be worth looking at putting some of the dollar money currently in the US into funds with Vanguard, but I don't know the tax implications.

Investing in US based funds isn't a great idea for you. Vanguard US etc probably won't do business with you unless you have a US address or are a US citizen. Also HMRC taxes capital gains from US based funds as ordinary income for tax payers who are resident and domiciled in the UK. However, Vanguard is in the UK
https://www.vanguard.co.uk/uk/portal...-uk---home.jsp

but min investment is 100k pounds. Still might be an option for you. Also does your financial advisor work on commission from sale of financial products or do you pay him/her a set fee? Generally this board has a dim view of advisors, but if you pay them directly so their advise is unbiased they can be a good resource

I'd look closely at your SIPP and understand the fees of your trustee and your investment options and then apply your favourite flavour of investing strategy...my approach is low cost indexing as promoted by John Bogle who started Vanguard.

Finally I assume you're maxing out your ISA

[Paulio]

Quote:

Originally Posted by REWahoo I think it's actually Self Invested Personal Pension. Of course if you're upside down in your return, your description is probably more accurate.

lol!

I think you're right. Maybe that's where I've been going wrong. I need to be investing not 'inverting' my pension

[Paulio]

Quote:

Originally Posted by nun Investing in US based funds isn't a great idea for you. However, Vanguard is in the UK https://www.vanguard.co.uk/uk/portal...-uk---home.jsp I'd look closely at your SIPP and understand the fees of your trustee and your investment options and then apply your favourite flavour of investing strategy...my approach is low cost indexing as promoted by John Bogle who started Vanguard. Finally I assume you're maxing out your ISA

I do need to look closely at all the fees and clarify with my adviser exactly how he structures his fees. I did think I'd got him onto a fixed fee a few years ago, but then it seems to have drifted as he has added new policies, etc.

I made a bad mistake with ISAs over last few years. I though my wife was looking after them, but it turned out she was only doing cash ISAs as she is VERY risk averse. A few weeks back we invested in this years allocation of ISAs for both of us, and I'll do the same again in April.

As for the SIPP I am hopeless. 90% of it is sat in cash, which I would imagine is a silly position for me to be in.

[nun]

Quote:

Originally Posted by Paulio I do need to look closely at all the fees and clarify with my adviser exactly how he structures his fees. I did think I'd got him onto a fixed fee a few years ago, but then it seems to have drifted as he has added new policies, etc. I made a bad mistake with ISAs over last few years. I though my wife was looking after them, but it turned out she was only doing cash ISAs as she is VERY risk averse. A few weeks back we invested in this years allocation of ISAs for both of us, and I'll do the same again in April. As for the SIPP I am hopeless. 90% of it is sat in cash, which I would imagine is a silly position for me to be in.

I worry a bit about your vagueness about what your advisor is doing....I'd get onto that immediately. I'm sure everyone is cringing a bit at your comments, what are these "policies" he's adding?

There's nothing wrong with a cash ISA or the SIPP being in cash either. You've obviously been saving at a big rate and if you have enough in the account to support you then you don't really need the risk of equities. Being in cash means you didn't get hammered by the recession. However, it might be a good idea to diversify a bit into some equities and Gilts just to give you a bit more return/risk as long as you maintain enough cash/fixed income to be comfortable.

[Paulio]

Quote:

Originally Posted by nun I worry a bit about your vagueness about what your advisor is doing.... There's nothing wrong with a cash ISA or the SIPP being in cash either. You've obviously been saving at a big rate and if you have enough in the account to support you then you don't really need the risk of equities.

The advisor is a good guy, aren't they *grin*, but there is definitely a vagueness on fees, and I do need to get that clarified, you're absolutely right Nun.

I'm glad you didn't shoot me down for having 90% of the funds sat in cash. I have certainly slept well at night knowing I'm not going down when the markets do.

I just figured that after reading some of the information on the forum and some of the links people have shared (including the Bogle stuff) I should possibly be a little more proactive in trying to help it grow. I'm just pretty risk averse, and my wife is unbelievably so.

I think one of the great things this forum is giving me is perspective and motivation. Both of which were much needed

Thanks again.