How much money do you need to retire

[bored]

Very interesting thought. Not sure whether IR will have any problem with the idea of company not trading for years but still remaining active. Essentially the company will be used as a pension pot with all the money invested in high interest accounts/shares etc. Do you then become an investment company?

Another problem is the NI of course. When you take money out of a conventional annuity there is no NI. May be paying dividends instead of salary is the way to go

You can't pay dividends when the company has no profits

[kingshuk]

You can't pay dividends when the company has no profits

Yes, but the company will have profit from the lump sum deposited in those high interest accounts.

[IR35 Avoider]

You can't pay dividends when the company has no profits

All the money kept in the company will be profits from earlier years. You don't have to pay dividends in the same year you make the profit.

[IR35 Avoider]

PS -

I'm thinking more like £5,000 as a monthly semi-retirement fund. I know it's not easy but I'm giving myself a bit of time... maybe another 10 years or so. £3,000 is probably more realistic. But then again, I don't plan to completely retire - just "choose" to work. And I also have an expensive wife/family to take care of.

£5000 x 12 = 60K per year you think you need. Let's assume this is pre-tax. Apply 25x rule and you need 1.5 million. I was going to say allow 300K for a house, but give your expensive tastes let's say it's 500K, somewhere in the world where that actually buys a lot.

So you need 2 million.

Assuming you want to spend 60K a year while you are saving, if you earn roughly 140K per year and can save 60K after tax, and make 5% a year real return on your investments (the upper limit of what is possible at the moment) it's going to take you 20 years of earning over 140K a year to reach your target.

I think you're giving yourself a bit of a mountain to climb.

I have a Quicken file that shows where every penny I've spent since 1st January 1995 went. That's how I know that with the mortgage paid off, 15K (after tax) will do me.

It would be interesting to compare budgets, and see what it is that requires you to spend four times as much per month as I do. It probably helps that I have an inexpensive wife and no children.

[Diver]

You need 22 Houses leased out at an average of £550 a month (at todays rates) and no mortgage or loan outlay.

[thunderlizard]

I had an alternative idea for a pension, how about this (don't flame me if it's wrong or sh*t, it's just an idea I had)...

Instead of paying big money out your limited co. and thus incurring tax on it etc, why not just build up say £250k-500k (as discussed above) in the business account, on this basis you can then pay yourself a salary out of the company funds utilizing your annual personal allowance in the process every year...

I think you have just invented the Company Pension Scheme. Well it worked for Siemens when they invented it in 1872 (isn't Google great?) and lots of companies since (barring a few disastrous investment decisions and embezzlements), so best of luck.

[chris79]

I think you have just invented the Company Pension Scheme. Well it worked for Siemens when they invented it in 1872 (isn't Google great?) and lots of companies since (barring a few disastrous investment decisions and embezzlements), so best of luck.

lol, yeah but my disclaimer did say "no flaming me for my idea" hah!... I think looking from a small business / contractor viewpoint is it maybe an idea which is never even considered by many people? In comparison to the other options (which I've not yet fully explored), it certainly seems like a workable option to fund a good retirement... wondering if there's any government small print out there stopping this type of operation though.

[ChimpMaster]

You need 22 Houses leased out at an average of £550 a month (at todays rates) and no mortgage or loan outlay.

Eh?

[ChimpMaster]

£5000 x 12 = 60K per year you think you need. Let's assume this is pre-tax. Apply 25x rule and you need 1.5 million. I was going to say allow 300K for a house, but give your expensive tastes let's say it's 500K, somewhere in the world where that actually buys a lot.

So you need 2 million.

The house you live in is not an asset - it is a cost center. As asset is that which produces income after costs have been taken out. Having your own house may be a necessity, but it is not an asset I would put towards my cashflow projections, because I will not be selling it or renting it out for income.

Assuming you want to spend 60K a year while you are saving, if you earn roughly 140K per year and can save 60K after tax, and make 5% a year real return on your investments (the upper limit of what is possible at the moment) it's going to take you 20 years of earning over 140K a year to reach your target.

I try to spend as little as possible now - with the support of my wife. I probably go through about £20k a year on everything ex-tax (bills etc right down to eating out and holidays). Like I said, £5k is the upper target, and it would be nice to have it. £3k is likely and will do for the interim. You have to aim high.

You need to consider the effect of compounding in your calculations. In addition, look at the option of re-investing positive cashflow from one asset into another one. For example, imagine you had 2 BTL properties, with 1 completely mortgage-free due to your hard work. You could use the rental income from that house to pay off the mortgage on the other one, in addition to your own payments. Continue onto next property or into another asset class. Long term, this works great.

I have a Quicken file that shows where every penny I've spent since 1st January 1995 went. That's how I know that with the mortgage paid off, 15K (after tax) will do me.

It would be interesting to compare budgets, and see what it is that requires you to spend four times as much per month as I do. It probably helps that I have an inexpensive wife and no children.

I keep general income/cost cashflow records rather than exact expenditure. More of a balance sheet per say.

Kids can be expensive, and worth every penny of it. Currently they are young but as they get older, schooling fees, clothes, cars, Uni etc will need to be accounted for.

I will also be supporting my parents to some extent because they have done so much (and still do) for me.

Please don't get me wrong here. I'm neither a great investor nor a continuous high earner. In fact I have lost a lot over poor gambles in the past, but I'm trying to learn.

And indeed, there was a time when I also thought that £15,000 was enough.

[BlasterBates]

Forget it, unless you're really wealthy I don't see how you can retire at 35, the problem is the sums may just add up and you may be fine for 10 years, but what seems like a lot of money now will seem like peanuts in 20 years. The problem is it isn't just inflation, average salaries rise quite a bit faster than inflation. Once you get past 50 it gets a lot easier, providing you've been saving. Parttime work would be feasible though at least you can easily go fulltime if your finances don't work.