'wildly Optimistic' Over-45S Think They'll Be Worth £500K Come Retirement - And Only Half Of That Will Be Down To Owning A House

[Mikhail Liebenstein]

<br />Well done Mike. I've always refused to pay top rate tax (VCT, SIPP contributions) but I begin to wonder whether I've been a mug paying ANY tax.<br /><br />I'm in a final salary scheme (sorry) but I have a SIPP as well so I could start loading it. I reckon I can live on £10k a year, I think I'll try it.<br />

<br /><br /><br /><br /><br /><br />It's the only way to go unless you own a company.  There are few tax breaks for employees.

I am in sales, and every now and then have a good year, so the SIPP is useful to avoid being fleeced.

Edited October 30, 2013 by Mikhail Liebenstein

[wish I could afford one]

Your pension pot (unless you are final salary, index linked) is at the mercy of fund managers' sticky fingers and incompetence, and the volatility of the stock market.

A recent R4 radio programme (In The City?) found thirteen different sets of hands taking a cut from your contributions before they start earning for you.

Around 35% + of your fund will go absent this way.

Don't trust pension funds, just look at the top guys salaries/bonuses and the huge office blocks we bought for them.

Why not just opt out of all of that.

I went my own way in 2007 and haven't looked back. My total expenses run to 0.35% per annum these days.

Financial Independence is just a combination of saving hard (=earnings - expenses) and investing wisely. On the saving hard front I've worked hard to increase earnings. At the other end of the scale I've worked hard to adjust my life to one based on frugality and lack of consumerism. It's done nothing but improve both my health and well being. On top of that I can now save 60% of my gross earnings (defined as my savings plus employer pension contributions)

On the investing wisely front it really need be no more than minimising expenses (direct shares, Vanguard funds, low cost ETF's etc) and taxes (ISA's, SIPP's, ILSC's). On top of that a balanced portfolio of differing assets that are rebalanced periodically. At an extreme you could make a good start with a single fund wrapped in a cost effective online ISA.

I've been at it since 2007. The below image shows the point where I took responsibility for my actions, starting educating myself and went DIY. At current rate I'll now retire before I'm 45. I am fully transparent about everything I'm doing on my site Retirement Investing Today. It's no great secret and certainly not rocket science.

[winkie]

Well done Mike. I've always refused to pay top rate tax (VCT, SIPP contributions) but I begin to wonder whether I've been a mug paying ANY tax.

I'm in a final salary scheme (sorry) but I have a SIPP as well so I could start loading it. I reckon I can live on £10k a year, I think I'll try it.

Not that difficult to live retired modestly on £10k a year if there is no other outstanding commitments or rent/mortgage to pay....but people thinking they can spend the equity in the house with an income of £10k are misleaded, unless they are that old and are prepared to give it away to the lenders to release the money tied up in it.

[honkydonkey]

Why not just opt out of all of that.

I went my own way in 2007 and haven't looked back. My total expenses run to 0.35% per annum these days.

Financial Independence is just a combination of saving hard (=earnings - expenses) and investing wisely. On the saving hard front I've worked hard to increase earnings. At the other end of the scale I've worked hard to adjust my life to one based on frugality and lack of consumerism. It's done nothing but improve both my health and well being. On top of that I can now save 60% of my gross earnings (defined as my savings plus employer pension contributions)

On the investing wisely front it really need be no more than minimising expenses (direct shares, Vanguard funds, low cost ETF's etc) and taxes (ISA's, SIPP's, ILSC's). On top of that a balanced portfolio of differing assets that are rebalanced periodically. At an extreme you could make a good start with a single fund wrapped in a cost effective online ISA.

I've been at it since 2007. The below image shows the point where I took responsibility for my actions, starting educating myself and went DIY. At current rate I'll now retire before I'm 45. I am fully transparent about everything I'm doing on my site Retirement Investing Today. It's no great secret and certainly not rocket science.

I did the same thing around the same time when I realised people work all their lives, then hand all that money to a stranger with no idea what they are doing with it. I now rent in Germany due to low cost and trade my slush fund. I can live comfortably and want for little on 12k a year now, rent 4.5k, food 2.4k, 5k on bills, car and whatever I want. I'm also increasing my earnings exponentially but will probably find it hard to adjust to having lots of disposable income. I was earning 45k in London before this and never had any money.

[fluffy666]

I did the same thing around the same time when I realised people work all their lives, then hand all that money to a stranger with no idea what they are doing with it. I now rent in Germany due to low cost and trade my slush fund. I can live comfortably and want for little on 12k a year now, rent 4.5k, food 2.4k, 5k on bills, car and whatever I want. I'm also increasing my earnings exponentially but will probably find it hard to adjust to having lots of disposable income. I was earning 45k in London before this and never had any money.

Kids?

[honkydonkey]

Kids?

No commitments whatsoever, hence seizing the opportunity.

[19 year mortgage 8itch]

Why not just opt out of all of that.

I went my own way in 2007 and haven't looked back. My total expenses run to 0.35% per annum these days.

Financial Independence is just a combination of saving hard (=earnings - expenses) and investing wisely. On the saving hard front I've worked hard to increase earnings. At the other end of the scale I've worked hard to adjust my life to one based on frugality and lack of consumerism. It's done nothing but improve both my health and well being. On top of that I can now save 60% of my gross earnings (defined as my savings plus employer pension contributions)

On the investing wisely front it really need be no more than minimising expenses (direct shares, Vanguard funds, low cost ETF's etc) and taxes (ISA's, SIPP's, ILSC's). On top of that a balanced portfolio of differing assets that are rebalanced periodically. At an extreme you could make a good start with a single fund wrapped in a cost effective online ISA.

I've been at it since 2007. The below image shows the point where I took responsibility for my actions, starting educating myself and went DIY. At current rate I'll now retire before I'm 45. I am fully transparent about everything I'm doing on my site Retirement Investing Today. It's no great secret and certainly not rocket science.

When you talk about family on your blog, do you have your own children? Raised from birth?

When you talk about increasing your income? What does this mean? Working harder? Adding services to your "offering"? Re-training?

[crashmonitor]

Why not just opt out of all of that.

I went my own way in 2007 and haven't looked back. My total expenses run to 0.35% per annum these days.

Financial Independence is just a combination of saving hard (=earnings - expenses) and investing wisely. On the saving hard front I've worked hard to increase earnings. At the other end of the scale I've worked hard to adjust my life to one based on frugality and lack of consumerism. It's done nothing but improve both my health and well being. On top of that I can now save 60% of my gross earnings (defined as my savings plus employer pension contributions)

On the investing wisely front it really need be no more than minimising expenses (direct shares, Vanguard funds, low cost ETF's etc) and taxes (ISA's, SIPP's, ILSC's). On top of that a balanced portfolio of differing assets that are rebalanced periodically. At an extreme you could make a good start with a single fund wrapped in a cost effective online ISA.

I've been at it since 2007. The below image shows the point where I took responsibility for my actions, starting educating myself and went DIY. At current rate I'll now retire before I'm 45. I am fully transparent about everything I'm doing on my site Retirement Investing Today. It's no great secret and certainly not rocket science.

My income went pear shaped years ago, I just about earn enough to pay my way and leave the investments untouched.

So forgetting income I adjust my equity (unmortgaged property (half share with partner)/savings) by RPI to compare with where I was in 2006. Except it got a bit depressing and I have switched to CPI to give myself the illusion the pot was maintained at 2006 levels. Well if the Government can do it.

Edited October 31, 2013 by crashmonitor

[wish I could afford one]

When you talk about family on your blog, do you have your own children? Raised from birth?

Hi 7 Year Itch

On my site I don’t reveal a lot of detail about myself, including information about children, for a couple of reasons:

1. It’s not relevant. The way my site is structured is that I show financially what tools and techniques I am using (including some that don’t work as they are just as important) plus describe why I have used those. I then live those tools/techniques and detail how they are financially affecting me over a period of time. I never say you can retire in 10 years or should use a SWR of 4% or should use this SIPP or … What I do say at the end of every post is to DYOR. Clearly if someone has kids then in addition to the miracle associated with them there is a cost. For those with kids then maybe retirement is 15 years instead of 10 years or maybe it’s 10 years with the giving up of the motorbike habit or … I don’t actually know nor try and know every permutation and combination but what I do know is that every single life out there is different and none of them are easy. The saying goes “Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime.” The financial industry on the whole is trying to keep you within the first half as they then control you. On my site I’m one of a very few UK sites who is publically trying to solve the second half by first learning how to catch fish for myself and then showing readers how I catch fish (or missed the fish).

2. The internet is a ‘dangerous’ place. I reveal enough to get the message/view across but not enough to be identified.

Your question does however make a very important point which doesn’t just cover children. In life we have choices and children are a choice. However with those choices come consequences. If you have kids then you get massive benefits but you also get some negatives. One of those is that they cost some money to raise. What I have a problem with is people who choose and then use that choice as an excuse (act like a victim) for why they didn’t or worse can’t succeed in life. It can be buying vs renting, kids (inc number of) vs no kids, small house vs large, university vs non-university, rob the bank or don’t rob the bank … You need to make the choice having assessed the envisaged consequences in advance and then manage the consequences including minimising the negatives. If you blame others or the system then you are a lost cause and will never succeed. You become fantastic cannon fodder for the mainstream media and millions of marketing people out there trying to sell you stuff including a lifestyle.

When you talk about increasing your income? What does this mean? Working harder? Adding services to your "offering"? Re-training?

This post is probably a good one to read how I’ve improved earnings. Off the cuff some of the things I’ve done are:

1. Work hard including long hours.

2. Chose a qualification that I would both enjoy but which offered decent job prospects. Then stay current through training.

3. Do whatever needs doing. If that’s cleaning the toilets in the morning and then attending a meeting with the CEO in the afternoon then so be it. I was once told that to be successful required only 1% inspiration but 99% perspiration.

4. Looking around my peers and always identifying ways I can stay in the top 10% of that peer group

5. Live a long way from family to maximise salary for my chosen profession

6. Commute a long way so that my better half can also maximise earnings

None of it is easy. But you also don’t get a real terms pay increase of X times by sitting on your hands and doing nothing. I’m also not saying readershave to do this to be successful. Again it’s all a choice. I choose to do the above which when combined with spending less and investing wisely will have me retiring before I’m 45. Somebody else might choose to do none of the above. That’s ok but they also shouldn’t expect to retire before the government tells them they can. Somebody else might choose to not earn more but work to spend less and invest wisely. They’ll probably be somewhere in between 45 and the government defined age.

[wish I could afford one]

My income went pear shaped years ago, I just about earn enough to pay my way and leave the investments untouched.

So forgetting income I adjust my equity (unmortgaged property (half share with partner)/savings) by RPI to compare with where I was in 2006. Except it got a bit depressing and I have switched to CPI to give myself the illusion the pot was maintained at 2006 levels. Well if the Government can do it.

Why can't you retrain? Why can't you develop a side income to supplement the pear shaped one? Why can't you find an employer who will value you more?

Flip the coin. Why can't you spend less?

[Democorruptcy]

I did the same thing around the same time when I realised people work all their lives, then hand all that money to a stranger with no idea what they are doing with it. I now rent in Germany due to low cost and trade my slush fund. I can live comfortably and want for little on 12k a year now, rent 4.5k, food 2.4k, 5k on bills, car and whatever I want. I'm also increasing my earnings exponentially but will probably find it hard to adjust to having lots of disposable income. I was earning 45k in London before this and never had any money.

Can I come and look over your shoulder?

I'll pay for some rent and food while I'm there.

[houses-do-my-head-in]

Assuming a 3% return (which seems reasonable in real terms ), £250k is £220 a month every month from age 20 to 65. Do you think most 45 year old have done that?

ahh the price of a sov i am sticking under the floorboards every month. how anyone in their right minds would put 1 penny into a pension i really do not understand. 4% annuity? complete joke. i would want 10% minimum or would rather save it "off the grid", plead poverty.

afterall, if you have something they know about you get nothing, have nothing and you get something.

[19 year mortgage 8itch]

Hi 7 Year Itch

On my site I don’t reveal a lot of detail about myself, including information about children, for a couple of reasons:

1. It’s not relevant. The way my site is structured is that I show financially what tools and techniques I am using (including some that don’t work as they are just as important) plus describe why I have used those. I then live those tools/techniques and detail how they are financially affecting me over a period of time. I never say you can retire in 10 years or should use a SWR of 4% or should use this SIPP or … What I do say at the end of every post is to DYOR. Clearly if someone has kids then in addition to the miracle associated with them there is a cost. For those with kids then maybe retirement is 15 years instead of 10 years or maybe it’s 10 years with the giving up of the motorbike habit or … I don’t actually know nor try and know every permutation and combination but what I do know is that every single life out there is different and none of them are easy. The saying goes “Give a man a fish, and you feed him for a day; show him how to catch fish, and you feed him for a lifetime.” The financial industry on the whole is trying to keep you within the first half as they then control you. On my site I’m one of a very few UK sites who is publically trying to solve the second half by first learning how to catch fish for myself and then showing readers how I catch fish (or missed the fish).

2. The internet is a ‘dangerous’ place. I reveal enough to get the message/view across but not enough to be identified.

Your question does however make a very important point which doesn’t just cover children. In life we have choices and children are a choice. However with those choices come consequences. If you have kids then you get massive benefits but you also get some negatives. One of those is that they cost some money to raise. What I have a problem with is people who choose and then use that choice as an excuse (act like a victim) for why they didn’t or worse can’t succeed in life. It can be buying vs renting, kids (inc number of) vs no kids, small house vs large, university vs non-university, rob the bank or don’t rob the bank … You need to make the choice having assessed the envisaged consequences in advance and then manage the consequences including minimising the negatives. If you blame others or the system then you are a lost cause and will never succeed. You become fantastic cannon fodder for the mainstream media and millions of marketing people out there trying to sell you stuff including a lifestyle.

This post is probably a good one to read how I’ve improved earnings. Off the cuff some of the things I’ve done are:

1. Work hard including long hours.

2. Chose a qualification that I would both enjoy but which offered decent job prospects. Then stay current through training.

3. Do whatever needs doing. If that’s cleaning the toilets in the morning and then attending a meeting with the CEO in the afternoon then so be it. I was once told that to be successful required only 1% inspiration but 99% perspiration.

4. Looking around my peers and always identifying ways I can stay in the top 10% of that peer group

5. Live a long way from family to maximise salary for my chosen profession

6. Commute a long way so that my better half can also maximise earnings

None of it is easy. But you also don’t get a real terms pay increase of X times by sitting on your hands and doing nothing. I’m also not saying readershave to do this to be successful. Again it’s all a choice. I choose to do the above which when combined with spending less and investing wisely will have me retiring before I’m 45. Somebody else might choose to do none of the above. That’s ok but they also shouldn’t expect to retire before the government tells them they can. Somebody else might choose to not earn more but work to spend less and invest wisely. They’ll probably be somewhere in between 45 and the government defined age.

I ask because I do think its important. Obviously children cost money but the issue is one of priorities and something I'll admit I can't quite settle on.

For instance, your reduce spending mantra. There's only so many times you can walk to the park. Eventually there needs to be the trip to legoland. Ditto anything, how do you balance between today and tomorrow? Is it selfish to raise kids with more than 1 eye fixed on your own early retirement, potentially at their expense? Not something I can yet get clear in my own head.

As for the second bit, yes you make choices, some harder than others and some not for me.

[crashmonitor]

Present mean wealth for 55-64 year old households is £416,000......so maybe they are in the ballpark. Residing in that unmodernised slum in Cambridge mortgage free (on concurrent thread) nearly gets you there after all.

http://www.nestpensions.org.uk/schemeweb/NestWeb/includes/public/docs/Cox-Private-pension-wealth,PDF.pdf

This is living the retirement dream on 500k........

http://www.rightmove.co.uk/property-for-sale/property-41460220.html

Edited November 1, 2013 by crashmonitor

[zugzwang]

Present mean wealth for 55-64 year old households is £416,000......so maybe they are in the ballpark. Residing in that unmodernised slum in Cambridge mortgage free (on concurrent thread) nearly gets you there after all.

http://www.nestpensi...-wealth,PDF.pdf

This is living the retirement dream on 500k........

http://www.rightmove...y-41460220.html

Let the good times roll!

[cybernoid]

Why can't you retrain? Why can't you develop a side income to supplement the pear shaped one? Why can't you find an employer who will value you more?

Flip the coin. Why can't you spend less?

I think people make the decision to work for longer in order to spend for longer. You can retire early having reduced your outgoings, but what do you retire to? Of course many enjoyable things cost little money but personally I enjoy those that do cost money a whole lot more.

For me finding that balance is about earning what I want in order to live how I want by working in ways that mean *most* of the time I don't really feel like it is work.

There is pleasure in being industrious I find, if your output results in something there is a sense of achievement. I enjoy much of my work. There is necessary drudge to it as well but that just comes with it and it is worth putting up with that for the gain of mostly enjoying it.

I wonder sometimes about people looking forward to retirement, what will they do when they get there. Reminds me of a dog that finally catches the car its been chasing.

Heres an essay I found interesting - http://paulgraham.com/love.html

A quote:

How much are you supposed to like what you do? Unless you know that, you don't know when to stop searching. And if, like most people, you underestimate it, you'll tend to stop searching too early. You'll end up doing something chosen for you by your parents, or the desire to make money, or prestige—or sheer inertia.

Here's an upper bound: Do what you love doesn't mean, do what you would like to do most this second. Even Einstein probably had moments when he wanted to have a cup of coffee, but told himself he ought to finish what he was working on first.

It used to perplex me when I read about people who liked what they did so much that there was nothing they'd rather do. There didn't seem to be any sort of work I liked that much. If I had a choice of (a) spending the next hour working on something or ( be teleported to Rome and spend the next hour wandering about, was there any sort of work I'd prefer? Honestly, no.

But the fact is, almost anyone would rather, at any given moment, float about in the Carribbean, or have sex, or eat some delicious food, than work on hard problems. The rule about doing what you love assumes a certain length of time. It doesn't mean, do what will make you happiest this second, but what will make you happiest over some longer period, like a week or a month.

Unproductive pleasures pall eventually. After a while you get tired of lying on the beach. If you want to stay happy, you have to do something.

As a lower bound, you have to like your work more than any unproductive pleasure. You have to like what you do enough that the concept of "spare time" seems mistaken. Which is not to say you have to spend all your time working. You can only work so much before you get tired and start to screw up. Then you want to do something else—even something mindless. But you don't regard this time as the prize and the time you spend working as the pain you endure to earn it.

I put the lower bound there for practical reasons. If your work is not your favorite thing to do, you'll have terrible problems with procrastination. You'll have to force yourself to work, and when you resort to that the results are distinctly inferior.

[justthisbloke]

I ask because I do think its important. Obviously children cost money but the issue is one of priorities and something I'll admit I can't quite settle on.

For instance, your reduce spending mantra. There's only so many times you can walk to the park. Eventually there needs to be the trip to legoland. Ditto anything, how do you balance between today and tomorrow? Is it selfish to raise kids with more than 1 eye fixed on your own early retirement, potentially at their expense? Not something I can yet get clear in my own head.

As for the second bit, yes you make choices, some harder than others and some not for me.

I've had children hanging around for years - but have never felt the need to go to Legoland, Alton Towers, etc. While children do incur costs, they don't need to be high and certainly don't need to include consumerist ephemera. Our eldest is 17 and is not yet bored of walks on the beach. They even contribute a little; I've not spent a penny on biscuits or cakes since they learned to bake aged about 5. I've got cupboards full of jam they've made from blackberries and apples they've collected.

"Early retirement" is the wrong term; "financial independence" is better - and it's as much a philosophy of life as it is an accumulation of wealth. In my case, while having children may have slowed the accumulation a little[1], it's not hindered living the philosophy. Teaching my children to aspire to independence has been part of it.

[1] Or, quite a lot, I suppose. We need a bigger house than if we were childless and we pay to send them away to boarding school.

[porca misèria]

"When 2,000 over-45s people were asked if their property would make up more

than 50% of their assets when they retired, the overwhelming majority (89%)

said no. Given that the average property is worth £245,495, this suggests

that they expected to be worth a minimum of £490,990 when they retire."

Thanks for posting that. Gives us an alternative to the HPC norm of arguing over a strawman.

No, it suggests no such thing to me. Quite apart from the bogus extrapolation from a suspect "average" house price to a pot size, it also leaves us the obvious suspicion that most respondents excluded their own home from their assets in answering the question.

After all, both HMRC and the DSS exclude peoples own homes from calculations of their assets. Why should anyone do otherwise when asked such a question? The 11% were either pedants or landlords!

[19 year mortgage 8itch]

I've had children hanging around for years - but have never felt the need to go to Legoland, Alton Towers, etc. While children do incur costs, they don't need to be high and certainly don't need to include consumerist ephemera. Our eldest is 17 and is not yet bored of walks on the beach. They even contribute a little; I've not spent a penny on biscuits or cakes since they learned to bake aged about 5. I've got cupboards full of jam they've made from blackberries and apples they've collected.

"Early retirement" is the wrong term; "financial independence" is better - and it's as much a philosophy of life as it is an accumulation of wealth. In my case, while having children may have slowed the accumulation a little[1], it's not hindered living the philosophy. Teaching my children to aspire to independence has been part of it.

[1] Or, quite a lot, I suppose. We need a bigger house than if we were childless and we pay to send them away to boarding school.

I'm not sure you're in a position to say that yet. Each child is like a prototype and there's plenty of scope for things not turn out as you plan.

[Brendan110_0]

They must have surveyed a rich bunch, average pension pots total £30,000 on retirement!

[crashmonitor]

They must have surveyed a rich bunch, average pension pots total £30,000 on retirement!

I think they are including the fantasy wealth in housing.

[justthisbloke]

I'm not sure you're in a position to say that yet. Each child is like a prototype and there's plenty of scope for things not turn out as you plan.

Well, when it comes to children, it's probably best not to have plans on their behalf. Hopes - yes. But not plans. And my hopes are fairly modest for them. I hope they'll turn out to be virtuous and independent and, maybe, good company and entertaining.

[Ash4781]

The company is hawking an equity release product. Here's their press release for this 'research':

http://www.partnership.co.uk/press/2013/October/MOST-OVER-45S-EXPECT-TO-RETIRE-WITH-ALMOST-HALF-A--MILLION-IN-ASSETS/

I'm sure like me you can spot some teensy-weensy problems with their methodology (if you're charitable enough to call it that):

"When 2,000 over-45s people were asked if their property would make up more

than 50% of their assets when they retired, the overwhelming majority (89%)

said no. Given that the average property is worth £245,495, this suggests

that they expected to be worth a minimum of £490,990 when they retire."

+1. One can even get an annuity quote there and then from the DM article. I can't be bothered to read the 'article'.

Edited November 2, 2013 by Ash4781

[wish I could afford one]

I ask because I do think its important. Obviously children cost money but the issue is one of priorities and something I'll admit I can't quite settle on.

I agree that children are a very serious decision. Frankly, I'm sometimes amazed at the number of people who just have kids without even considering the cost and then expect other people to help them pay for them (child tax credits etc). Whenever I've run these sort of numbers I personally expect nobody but myself to pay for them.

For instance, your reduce spending mantra. There's only so many times you can walk to the park. Eventually there needs to be the trip to legoland. Ditto anything, how do you balance between today and tomorrow? Is it selfish to raise kids with more than 1 eye fixed on your own early retirement, potentially at their expense? Not something I can yet get clear in my own head.

I'm not for a minute saying Legoland is off limits. It just needs to be in moderation if you're not earning like Roman Ambrovich ensuring you keep one eye on the future as well one on today.

Balancing between today and tomorrow has actually been surprisingly easy from a spending less perspective. What I've personally found is that extraction from consumerism along with embracing limited frugality has resulted in my lifestyle and health (in addition to big improvements in financial security) actually improving for the better. I believe everybody could adopt some of this and see nothing but benefits.

I'll agree some of my methods on the earning more side do take real effort. I honestly do have very limited time to myself, other than earning, from Monday to Friday.

[wish I could afford one]

I wonder sometimes about people looking forward to retirement, what will they do when they get there. Reminds me of a dog that finally catches the car its been chasing.

...

Hi cybernoid

Don't get me wrong I'm not looking forward to retirement. When I say retirement I am actually chasing financial independence or work becoming optional. I do not for a minute think I will go from my current life to one filled with day time TV, bingo and cruises. Instead I can see myself pursuing other interests which may or may not earn initially (or even earn well as I do today) without any risk to whether or not I can pay the bills.

I know I am naturally quite ambitious and hard working. So who knows by taking this risk in my early 40's my life could even become better than it is today...