Trying to sort it in Scotland

[Elantan]

Hey all,

I'm working my way through life and slowly learning the lessons that come with age.

I'm 42 married to a 47 year old man we have one child (23) that is an independent mortgage owner in his own right.

We are looking to retire early ( the current UK age is 67/68 it is likely to go up to 70) approx 62 for hubby and 57 for me.

Hubby has a pension with work, that will pay quite well so that is one aspect of our plan covered.

My pension however is not too great, i have £40k saved into various pension pots most of which is self invested ( with the obvious tax relief) i am saving £500 a month currently and am not looking for a huge pension, just enough to bounce below the tax threshold. I am also looking to have money in an ISA to help top up the money i make.

Our state pensions will pay approx £7.5k a year so i have ( currently) £2.5k yearly pension to find, i know that that will obviously increase as i head towards retirement.

Hubby earns ok money £25k and i earn £6k student bursary and £2.5k in wages from a part time job i work around my studies.

So current situation is this, Hubby pays into his works pension and we are not saving anything to add to this as we are trying to get some pension for myself, my pension is currently £40k but i am so far putting £500 a month into it ( not sure how long i will continue to manage this for as i am currently studying to be a student nurse) i am investing my money in the Vanguard 80% acc fund as i am going for a slower safer build of pension as i dont feel i know enough to be risking money.

We have a home with a smallish mortgage (£26k) which we are paying a bit more off each month ( £250) so hopefully the mortgage will be cleared in 3 years then we intend on putting some of that money into savings for early retirement.

Any questions feel free to ask and i will answer if i can

I'm hoping to learn a lot as i go along our journey and welcome any advice available ...

[Texas Proud]

Welcome to the board...


Congrats on your progress so far... I know that the system is different over there so I cannot give you any good advice on what to do... hope someone will be able to do it...

My only comment about Glasgow is funny to me... not trying to be rude, so hope you do not take it that way... When one of my sisters came to the UK to visit me when I was working there we went to Edinburgh... one day we decided to take a half day trip to Glasgow since it would not cost us anything... We walked around the town and enjoyed a museum and art gallery.... When we go back to the train station some guy started to talk to us... his accent was so strong I could not understand a word... I know he was speaking English, but for the life of me I could not comprehend... at the end of a sentence he said 'Jerry Springer' and started to laugh... both my sister and I started to laugh... he seemed happy and walked away... both of us just looked at each other and asked if we understood what he said....

[Elantan]

Thanks for the welcome

Not insulted even slightly

That happens more than you can ever imagine lol ... I live near Glasgow and struggle to understand people sometimes ... Edinburgh is a much prettier city than Glasgow, but Glasgow is where it's all happening ... if ever your back spend a few days there and people watch, you will learn so much oh and go to Glencoe its our kinda Grand canyon, no where near as big obviously but a very pretty site non the less ( just like the GC is)

[NanoSour]

Welcome Elantan.

A big piece of your ER plan is missing and that is your annual expenses. What are they? It's difficult to evaluate a plan without knowing your estimate on this.

Having said that, my back of the napkin evaluation shows you are looking to replace approximately 23K annually. This number is your current income minus 9K for savings and mortgage which you will no long have in retirement. I can also assume that your tax burden will be significantly reduced in retirement, but I'm not familiar with the tax code of the UK. If its anything close the US code, there are way less taxes to be paid once you stop earning income.

With your current assets of 40K and monthly additions for the next 10 years, you should be looking at having somewhere in the neighborhood of 175-195K saved. I got this number from a basic savings calculator at a 6.5% nominal return. To attain this, I would keep all your savings in a simplified Vanguard Target Retirement fund such as VTTVX with a 2025 target.

This 180K should throw off about 12K annually and together with your 7.5K pension will be about 19.5K to spend. Looks doable for a couple entering into their 60s.

The numbers show you have a pretty good roadmap set out before you. Keep it simple and stay the course.

Happy Holidays,

Nano

[Alan]

Welcome to the site. We stayed with friends in Ayr last July and with them took a train into Glasgow for the day and loved it. We'd only ever driven through Glasgow so didn't appreciate how nice the town center is. DW's sister has lived just outside of Edinburgh for over 20 years so we have seen a lot more of Edinburgh, although we have stayed in the beautiful Glencoe on one of our driving trips through Scotland.

It sounds like you are on a good course towards ER and I thought I'd mention a few things for the benefit of our mostly US and Canadian members.

An ISA is a bit like a ROTH in that after-tax money is invested, grows tax free and is free from tax when it is withdrawn. Unlike a ROTH the money can be withdrawn without penalty at any time because it is a vehicle to encourage saving, and not just for retirement.

There is no "married filing jointly" when it comes to taxes, each person has their own personal tax free deduction (currently a little over 10,000 GBP) and one of the spouses gets to have a tax credit to reduce their tax bill. Obviously it is usually the higher paid spouse who elects to have the credit.

For most tax payers there are no itemized deductions so no additional tax breaks for mortgage interest, charitable giving etc, and there is a generous tax free sum when it comes to capital gains, plus stock dividends also get very favorable tax treatment, so investment in the securities can be lucrative although fees to brokerages are much higher than in the USA.

I mention the above to explain why the OP has the emphasis of getting her income up to maximize her tax free allowance, and is also reducing her mortgage, which is unlikely to be a fixed rate mortgage common in the USA, so getting the principal down while rates are low is usually a good strategy in the UK.

[REWahoo]

Thank you Alan for the explanation and clarification.

[Elantan]

Quote:

Originally Posted by NanoSour Welcome Elantan. A big piece of your ER plan is missing and that is your annual expenses. What are they? It's difficult to evaluate a plan without knowing your estimate on this. Having said that, my back of the napkin evaluation shows you are looking to replace approximately 23K annually. This number is your current income minus 9K for savings and mortgage which you will no long have in retirement. I can also assume that your tax burden will be significantly reduced in retirement, but I'm not familiar with the tax code of the UK. If its anything close the US code, there are way less taxes to be paid once you stop earning income. With your current assets of 40K and monthly additions for the next 10 years, you should be looking at having somewhere in the neighborhood of 175-195K saved. I got this number from a basic savings calculator at a 6.5% nominal return. To attain this, I would keep all your savings in a simplified Vanguard Target Retirement fund such as VTTVX with a 2025 target. This 180K should throw off about 12K annually and together with your 7.5K pension will be about 19.5K to spend. Looks doable for a couple entering into their 60s. The numbers show you have a pretty good roadmap set out before you. Keep it simple and stay the course. Happy Holidays, Nano

you are totally right the big piece of the puzzle that is missing is the expenses, and we are struggling to work that out as well, i start keeping diaries and ledgers ( never have figured out how to work excell) then it all goes to pot, i know we havnt gotten into any debt for a wee while so i can assume we are living within our means, i know that we are frugal and watch the pennies, not spending money willy nilly ... but as for how much per year we spend ... i honestly cant say ... and i know i need to work it out,

we will save £1050 a month on mortgage payments, £70 a month on insurance and £40 a month on endowment payments when we are mortgage free so i know we will have a wee bit to spare atleast ... we are planning on saving most of that toward ER but also enjoying ourselves a wee bit more.

i am not sure if we can access that particular type of vanguard ( VTTVX) as vanguard are relatively new to our fund market.

Our system used to be set up so that when in retirement the tax allowance was slightly higher, however, WM ( Westminster) have in the last few years been slowly reducing that gap so i think our tax burden will be the same, however, we stop paying NI ( national insurance) when we reach retirement age so that will be a saving atleast

With the money i will have in my pension i intend on taking the 25% tax free allowance ( not sure if the USA have this facility) which i was hoping to use to plug some of the gap between early retirement and the state pension kicking in

thank you for highlighting the expenditure, i will have discussions with mr el on how we can tackle this huge issue we have

[Elantan]

Quote:

Originally Posted by Alan Welcome to the site. We stayed with friends in Ayr last July and with them took a train into Glasgow for the day and loved it. We'd only ever driven through Glasgow so didn't appreciate how nice the town center is. DW's sister has lived just outside of Edinburgh for over 20 years so we have seen a lot more of Edinburgh, although we have stayed in the beautiful Glencoe on one of our driving trips through Scotland. It sounds like you are on a good course towards ER and I thought I'd mention a few things for the benefit of our mostly US and Canadian members. An ISA is a bit like a ROTH in that after-tax money is invested, grows tax free and is free from tax when it is withdrawn. Unlike a ROTH the money can be withdrawn without penalty at any time because it is a vehicle to encourage saving, and not just for retirement. There is no "married filing jointly" when it comes to taxes, each person has their own personal tax free deduction (currently a little over 10,000 GBP) and one of the spouses gets to have a tax credit to reduce their tax bill. Obviously it is usually the higher paid spouse who elects to have the credit. For most tax payers there are no itemized deductions so no additional tax breaks for mortgage interest, charitable giving etc, and there is a generous tax free sum when it comes to capital gains, plus stock dividends also get very favorable tax treatment, so investment in the securities can be lucrative although fees to brokerages are much higher than in the USA. I mention the above to explain why the OP has the emphasis of getting her income up to maximize her tax free allowance, and is also reducing her mortgage, which is unlikely to be a fixed rate mortgage common in the USA, so getting the principal down while rates are low is usually a good strategy in the UK.

Thanks for this as i dont understand the differences between the two systems myself, i see things like 401k and get all confused a ROTH is just a whole other language to me

our mortgage is on a fixed rate though one part if 4.69% the other 3.29% so we sadly never got any of the benefit of the 0.5% interest freeze we currently pay the £250 a month extra to the 4.69% portion. i look at it as getting 4.69% after tax in interest by a different means

Can you explain a wee bit further what you mean by " and one of the spouses gets to have a tax credit to reduce their tax bill. Obviously it is usually the higher paid spouse who elects to have the credit" as i dont understand this both my husband and myself just get the 1000L tax code, i know that WM intend on allowing one partner to have up to £1000 of their partners tax relief starting from April next year but as income tax will hopefully soon be a devolved power to Holyrood i am unsure if this will help us or not so will have to wait and see.

[Alan]

Quote:

Originally Posted by Elantan Thanks for this as i dont understand the differences between the two systems myself, i see things like 401k and get all confused a ROTH is just a whole other language to me our mortgage is on a fixed rate though one part if 4.69% the other 3.29% so we sadly never got any of the benefit of the 0.5% interest freeze we currently pay the £250 a month extra to the 4.69% portion. i look at it as getting 4.69% after tax in interest by a different means Can you explain a wee bit further what you mean by " and one of the spouses gets to have a tax credit to reduce their tax bill. Obviously it is usually the higher paid spouse who elects to have the credit" as i dont understand this both my husband and myself just get the 1000L tax code, i know that WM intend on allowing one partner to have up to £1000 of their partners tax relief starting from April next year but as income tax will hopefully soon be a devolved power to Holyrood i am unsure if this will help us or not so will have to wait and see.

My bad, I believe I was thinking about the £1000 allowance that either spouse can choose and which the higher earning spouse usually chooses as they are sometimes in a higher tax band.

Your mortgage rates don't seem too bad but as you say, a secure return of 4.6% after tax is hard to beat. IRA,'s, ROTHs, 401k's and the like in the USA are ways of saving money for retirement and there are usually penalties for making withdrawals before age 59.5. They are roughly equivalent to SIPP's in the UK.

For the US readers, NI contributions are the equivalent of FICA or "payroll taxes" in the US which also stop once you stop working. I also think

[Elantan]

Thanks for this, it really helps to understand the two systems

[Alan]

Quote:

Originally Posted by Elantan Thanks for this, it really helps to understand the two systems

I'm helping myself as well, as we plan on moving back in 2016. The more I try and learn the differences the better.

[Ally]

Welcome, Elantan! It's nice to meet someone from Scotland. My son-in-law's family came from Canada, but before that, Scotland. My grandmother's family was also originally from Scotland.

[Accidental Retiree]

Quote:

Originally Posted by Elantan Thanks for the welcome Not insulted even slightly That happens more than you can ever imagine lol ... I live near Glasgow and struggle to understand people sometimes ... Edinburgh is a much prettier city than Glasgow, but Glasgow is where it's all happening ... if ever your back spend a few days there and people watch, you will learn so much oh and go to Glencoe its our kinda Grand canyon, no where near as big obviously but a very pretty site non the less ( just like the GC is)

I visited Glasgow a couple of times. I loved it and had the best hangover of my life at Loch Lomond.

I was younger then. :-)

I will be back there in Fall 2015 and can hardly wait to hear those Glaswegians once more.

Welcome to the Board.

[Elantan]

Ach maybe we can meet up

Thanks everyone for the warm welcome

Have been thinking of ways in which i can get the whole spending diary sorted... something that will last and show the true amount of money that we spend.

Am working tomorrow and Sunday for 13 hours each day (unpaid... part of my training) so wont get much time to sort things out before monday but will have a wee think atleast

[Elantan]

Quote:

Originally Posted by Alan I'm helping myself as well, as we plan on moving back in 2016. The more I try and learn the differences the better.

Which part of the UK are you planning on moving back to? i ask as Scottish tax etc may be different from the rest of the UK shortly

[Accidental Retiree]

Quote:

Originally Posted by Elantan Ach maybe we can meet up Thanks everyone for the warm welcome

I would love to meet up. I have met 2 other forum members for coffee-- Rosie and GardenFun -- who *may* vouch for me. :-)

I will be in touch as plans firm up.

[Texas Proud]

Quote:

Originally Posted by Alan My bad, I believe I was thinking about the £1000 allowance that either spouse can choose and which the higher earning spouse usually chooses as they are sometimes in a higher tax band. Your mortgage rates don't seem too bad but as you say, a secure return of 4.6% after tax is hard to beat. IRA,'s, ROTHs, 401k's and the like in the USA are ways of saving money for retirement and there are usually penalties for making withdrawals before age 59.5. They are roughly equivalent to SIPP's in the UK. For the US readers, NI contributions are the equivalent of FICA or "payroll taxes" in the US which also stop once you stop working. I also think

If it is a tax credit it should not matter who takes it.... a credit is a dollar for dollar offset... (unless of course it is a non-refundable credit and you need to pay enough in to get the whole thing).... now, if it is a deduction... then the higher tax rate is the person who should take it...

[Alan]

Quote:

Originally Posted by Texas Proud If it is a tax credit it should not matter who takes it.... a credit is a dollar for dollar offset... (unless of course it is a non-refundable credit and you need to pay enough in to get the whole thing).... now, if it is a deduction... then the higher tax rate is the person who should take it...

As I confirmed above it is a deduction that either spouse can transfer to the other.

[Alan]

Quote:

Originally Posted by Elantan Which part of the UK are you planning on moving back to? i ask as Scottish tax etc may be different from the rest of the UK shortly

We'll be moving back to N. Yorkshire, and yes, it will be interesting to see how the tax rates will change once Scotland starts raising its own taxes.

Back in the 80's we lived and worked in Dumfries and hadn't realized until then quite how many laws were different between the 2 countries. For example buying and selling houses cross border meant employing lawyers in both countries. This last couple of years I've been listening to the weekly Moneybox podcasts on the BBC and many weeks they have an expert from Scotland as many financial issues such as Estate law (wills), student loans, consumer protections etc are different in Scotland.

[Elantan]

Quote:

Originally Posted by Accidental Retiree I would love to meet up. I have met 2 other forum members for coffee-- Rosie and GardenFun -- who *may* vouch for me. :-) I will be in touch as plans firm up.

please do