I thought I would start a thread for UK people to discuss the approaches and challenges of saving and investing for ERE in the UK.
Has anyone done a costed (fees and applicable taxation on returns) analysis for the UK?
Obviously we have the option of using tax free ISA wrappers for some investment but that only covers £10k per person per year. Other thoughts for most efficient investment vehicles during accumulation stage?
ERE In the UK
Good plan! There's various info on UK ERE scattered around the forum but not all in one place. I'm definitely interested in learning more about the practical side of UK investment.
Most of my savings are already in a cash ISA, and I understand that you can transfer money from a cash ISA into a stocks and shares ISA, which I plan to do once I've made my mind up on my investment plan (still very much doing my research!). 10K a year's going to be plenty for me for the next few years, but if I start earning a lot more then I'm not sure.
Apart from that there's pensions. Since they can't be accessed until age 55, they're not massively useful for ERE, but if your employer offers contributions then it's worth accepting since it's basically free money, and you can just see it as a wee bonus for when you do reach that age.
From my research, Interactive Investor seems like the best stocks and shares ISA provider, but if anyone knows others then it would be good to know.
For those interested in gold, I'm aware that certain gold coins are exempt from capital gains tax because they qualify as legal tender.
Anyway all this is just stuff I've read, I'll be keen to see contributions from people with some experience under their belt.
Plenty useful info on http://monevator.com/
Most of my savings are already in a cash ISA, and I understand that you can transfer money from a cash ISA into a stocks and shares ISA, which I plan to do once I've made my mind up on my investment plan (still very much doing my research!). 10K a year's going to be plenty for me for the next few years, but if I start earning a lot more then I'm not sure.
Apart from that there's pensions. Since they can't be accessed until age 55, they're not massively useful for ERE, but if your employer offers contributions then it's worth accepting since it's basically free money, and you can just see it as a wee bonus for when you do reach that age.
From my research, Interactive Investor seems like the best stocks and shares ISA provider, but if anyone knows others then it would be good to know.
For those interested in gold, I'm aware that certain gold coins are exempt from capital gains tax because they qualify as legal tender.
Anyway all this is just stuff I've read, I'll be keen to see contributions from people with some experience under their belt.
Plenty useful info on http://monevator.com/
Great idea for a UK thread jb, and welcome to the forum.
I don't have any great advice. I put the maximum £10,680pa into a Stocks and Shares ISA and don't have much more than that to invest.
NS&I offer tax free savings outside of ISAs, but they are not issuing any index linked savings certificates or fixed interest savings certificates at the moment.
The plan in my 20s was to build a portfolio of around 8 properties and retire on the rental income in my late 40s (I think everyone had this plan...) but managing a rental property in another city wasn't exactly passive income, I had bad luck with a tenant, and because of my partner's line of work we are probably going to have to move to a few different cities before he gets a permanent post. I know the figures would work, but I don't like the idea of having flats/ terraced houses in multiple cities, managed by letting companies.
I have a bit of money in a stakeholder pension, but I stopped paying into it after the increased the minimum age for withdrawal to 55 from 50. They are useful if you care about tax free returns and don't get panicky about your principal declining from other sources during ERE, because you know your pension will kick in before you have to think about going back to work.
I don't have any great advice. I put the maximum £10,680pa into a Stocks and Shares ISA and don't have much more than that to invest.
NS&I offer tax free savings outside of ISAs, but they are not issuing any index linked savings certificates or fixed interest savings certificates at the moment.
The plan in my 20s was to build a portfolio of around 8 properties and retire on the rental income in my late 40s (I think everyone had this plan...) but managing a rental property in another city wasn't exactly passive income, I had bad luck with a tenant, and because of my partner's line of work we are probably going to have to move to a few different cities before he gets a permanent post. I know the figures would work, but I don't like the idea of having flats/ terraced houses in multiple cities, managed by letting companies.
I have a bit of money in a stakeholder pension, but I stopped paying into it after the increased the minimum age for withdrawal to 55 from 50. They are useful if you care about tax free returns and don't get panicky about your principal declining from other sources during ERE, because you know your pension will kick in before you have to think about going back to work.
Yes, traditional pensions saving is far and away the most tax efficient thing I could do as I'm a 40% taxpayer and I could also save a fair bit of employers NI contributions as my scheme is essentially a salary sacrifice from gross pay. The problem is only 25% can be taken as a tax free chunk and only at age 55.
Obviously I will be maxing out ISA allowances but the conundrum is which sorts of investments to target outside of them.
Obviously I will be maxing out ISA allowances but the conundrum is which sorts of investments to target outside of them.
Isle of Man and Jersey are Channel Islands and have separate legal status. To take advantage of them (e.g. via blind trusts) is a) difficult and expensive, b) hard to route pretax work income through without attracting attention from the tax man.
There are various high profile prosecutions for tax evasion in progress at the moment for schemes using IoM trusts used by people in my line of work (software contracting).
There are various high profile prosecutions for tax evasion in progress at the moment for schemes using IoM trusts used by people in my line of work (software contracting).
Although the UK is often thought of as having an astronomically high cost of living, I find things there to be quite cheap. For example, 6 organic eggs cost around £1.30 tax included. In the US, it's around $2.00 often plus tax. A box of Tetley's tea with 240 tea bags cost £8.00 (now half off at Somerfield's). In the US, you're looking at over $20 for the cheapest box of tea with 240 tea bags. Also, the British do not have to worry about buying their own health insurance after they quit their jobs as Americans have to. Health insurance premiums are expensive in themselves and usually only cover 80% of medical costs depending on the plan. Housing isn't too bad in certain parts of the UK. You can find lots of studios and 1 bedrooms for rent in the £400 pcm range and rooms for less, which is comparable to many parts of the US (even cheaper than many parts). Also, the median individual income in the UK is ~ £18,000 while in the US it's $26,000 (a difference of 36%) after taxes, but the cost of things are correspondingly cheaper in the UK. In the end, the average British is in a better position for ER than the average American.
I'm looking to ERE in the UK too.
I think it's important to note that we have a progressive tax system, as follows:
(2011/2012)
The first £7,475 income is taxed at 0%
Also, if bank savings income is your only source of income, your first £2,560 is at 10%, if £35k then it is 20%.
So if you are retiring and planning a post retirement income of say £18k, then your tax will be relatively minimal.
On a different note, I'd be interested in what your opinions are on State pensions. In order to qualify for a state pension, you need 30 years of qualifying years of paying National Insurance. As you will not have this, will you be voluntarily paying to ensure you do get the state pension? Running through the governments profiler, the earliest I can claim is in 2054! (I'll be 68).
I agree with some points of jzt83 though, we do have a relatively cheap cost of living - however our energy prices seem incredibly expensive. Paying £50 per month for a one bed studio - is it that much in America?
I think it's important to note that we have a progressive tax system, as follows:
(2011/2012)
The first £7,475 income is taxed at 0%
Also, if bank savings income is your only source of income, your first £2,560 is at 10%, if £35k then it is 20%.
So if you are retiring and planning a post retirement income of say £18k, then your tax will be relatively minimal.
On a different note, I'd be interested in what your opinions are on State pensions. In order to qualify for a state pension, you need 30 years of qualifying years of paying National Insurance. As you will not have this, will you be voluntarily paying to ensure you do get the state pension? Running through the governments profiler, the earliest I can claim is in 2054! (I'll be 68).
I agree with some points of jzt83 though, we do have a relatively cheap cost of living - however our energy prices seem incredibly expensive. Paying £50 per month for a one bed studio - is it that much in America?
I agree that not having to pay for health insurance is a big help with early retirement but I'm not sure that the UK is particularly cheap place to live. What do UK posters think of the Joseph Rowntree Foundation's claim that a single person needs a minimum annual income of £15,000 to live comfortably?
http://www.jrf.org.uk/publications/mini ... rd-uk-2011
Assuming a 4% withdrawal rate, this would require £375,000. As Shandi76 mentioned ISAs, I did a quick calculation using the FV function in Excel: if you were just using your annual ISA allowance (currently £10,680) and you assume a return of 5%, you could get to right amount in around 21 years.
What do you think? Is the JRF's number way too high? Am I making some false assumptions?
http://www.jrf.org.uk/publications/mini ... rd-uk-2011
Assuming a 4% withdrawal rate, this would require £375,000. As Shandi76 mentioned ISAs, I did a quick calculation using the FV function in Excel: if you were just using your annual ISA allowance (currently £10,680) and you assume a return of 5%, you could get to right amount in around 21 years.
What do you think? Is the JRF's number way too high? Am I making some false assumptions?
@ jzt83
Current exchange rate is 1 pound for $1.57 US
1.30 pounds becomes $2.05
8.00 pounds becomes $12.56 (and I pay $3.99 or 2.54 pounds for a full kilo of a very good green tea from China and Tetley was $3.59 dollars or 2.28 pounds for a box of 100 bags at one of our more expensive groceries not on sale.)
400 pcm becomes $628 for a studio apartment...about equal price here
It seems to me once the exhcange rate is taken into effect prices are somewhat the same and maybe cheaper in the US...and we DON'T have an exhorbitant VAT on everything.
Current exchange rate is 1 pound for $1.57 US
1.30 pounds becomes $2.05
8.00 pounds becomes $12.56 (and I pay $3.99 or 2.54 pounds for a full kilo of a very good green tea from China and Tetley was $3.59 dollars or 2.28 pounds for a box of 100 bags at one of our more expensive groceries not on sale.)
400 pcm becomes $628 for a studio apartment...about equal price here
It seems to me once the exhcange rate is taken into effect prices are somewhat the same and maybe cheaper in the US...and we DON'T have an exhorbitant VAT on everything.
Rosin,
The path to Early Retirement does not lie in ISA's alone. The UK has other options to put your money in.
For a start, we have NS&I which regularly issue index linked / inflation linked tax free savings certificates, of which each person in your household can buy £15,000 worth of them.
I think we also have one of the most rewarding banking systems in the world, which if you set up correctly, can add £100's to your back pocket every year (for instance, my bank and Credit card pay ME £120 per annum, my current account gave me £100 for opening and 8% savings rate).
I'd agree slightly on the £15k for London, sure. But to live anywhere else in the country, I think £12k is enough. Also, note that your calculation & assumptions were incorrect.
Linking back to the original article, the £15k required to live is before tax - however cash in an ISA is tax free. So you would only need around £12k after tax, so you'd probably only need closer to £300k in there.
Another assumption the study makes is that this is a working persons minimal amount. Someone retired has a different lifestyle and costs as a full time worker. For example, as an employee, I currently have to pay for work clothes, transport to and from work, lunch, convinient dinner (sometimes I get home 10pm and have to settle for a takeaway etc). In essence, by being employed, there is less time available to save money, and also make money. Even in retirement, I'd highly recommend earning £6k per annum as your first £6k or so you earn is tax free.
So putting those numbers through my mental calcs now, you need £12k, but will be working part time for £6k, so £6k remaining = £150k. I intend to semi retire before fully retiring.
I don't think ERE is straight forward in the UK, however with a bit of planning I think there are many ways you can look at it.
The path to Early Retirement does not lie in ISA's alone. The UK has other options to put your money in.
For a start, we have NS&I which regularly issue index linked / inflation linked tax free savings certificates, of which each person in your household can buy £15,000 worth of them.
I think we also have one of the most rewarding banking systems in the world, which if you set up correctly, can add £100's to your back pocket every year (for instance, my bank and Credit card pay ME £120 per annum, my current account gave me £100 for opening and 8% savings rate).
I'd agree slightly on the £15k for London, sure. But to live anywhere else in the country, I think £12k is enough. Also, note that your calculation & assumptions were incorrect.
Linking back to the original article, the £15k required to live is before tax - however cash in an ISA is tax free. So you would only need around £12k after tax, so you'd probably only need closer to £300k in there.
Another assumption the study makes is that this is a working persons minimal amount. Someone retired has a different lifestyle and costs as a full time worker. For example, as an employee, I currently have to pay for work clothes, transport to and from work, lunch, convinient dinner (sometimes I get home 10pm and have to settle for a takeaway etc). In essence, by being employed, there is less time available to save money, and also make money. Even in retirement, I'd highly recommend earning £6k per annum as your first £6k or so you earn is tax free.
So putting those numbers through my mental calcs now, you need £12k, but will be working part time for £6k, so £6k remaining = £150k. I intend to semi retire before fully retiring.
I don't think ERE is straight forward in the UK, however with a bit of planning I think there are many ways you can look at it.
rymanani,
Thank you for your reply. You are, of course, right that early retirement does not need to rely solely on ISAs. The NS&I index-linked certificates are a very useful tool which I've used myself when available. Let's hope that they remain linked to RPI rather the CPI in the future. I suppose I was taking a pessimistic and simplistic approach to getting to the JRF suggested income.
Regarding the suggested figure itself, you are entirely right that I was missing the key phrase "before tax". £12000 sounds about right, although, as a single person I need to think about this further as some costs such accommodation are perhaps greater for someone on their own e.g. a couple can share a one-bedroom flat. (Before anyone points it out, yes I know you could consider house sharing or being a lodger but such solutions become less and less appealing to me the older I get.)
Thank you for your reply. You are, of course, right that early retirement does not need to rely solely on ISAs. The NS&I index-linked certificates are a very useful tool which I've used myself when available. Let's hope that they remain linked to RPI rather the CPI in the future. I suppose I was taking a pessimistic and simplistic approach to getting to the JRF suggested income.
Regarding the suggested figure itself, you are entirely right that I was missing the key phrase "before tax". £12000 sounds about right, although, as a single person I need to think about this further as some costs such accommodation are perhaps greater for someone on their own e.g. a couple can share a one-bedroom flat. (Before anyone points it out, yes I know you could consider house sharing or being a lodger but such solutions become less and less appealing to me the older I get.)
True, some costs are more for one person on their own - however you also have the flexibility of choosing whatever would suit you. If you only see yourself living in a one bedroom flat / apartment, then it will be very expensive.
One of the more radical ways is to buy a plot of land, get planning permission (easier said than done as you may need to apply for a change of use for the land) and put a Yurt there - if one acre of land = approx £5k, the Yurt an additional say £5k, you are investing £10k (equivalent to just £500 of income at a generous 5%) for your accommodation. Then there's the electricity generators needing to be bought, rainfall gathering etc. However you could also grow your own food, with a long term goal of being completely self sufficient.
Long term, I'd love to do this. However balancing realism with fantasy is one of the things I've struggled with in ERE - I love the idea in theory, however will I ever cancel my lease and make the move? Its a big jump!
I'd certainly consider some of the alternatives to housing; living in an RV like Jacob, a yurt, a log cabin (can even be bought from Tesco now!), a garage (confession: when I first moved to London, I did consider this! For £50 a month, seemed a lot better than the £500 I did end up paying (plus bills, Council Tax etc!)).
One of the more radical ways is to buy a plot of land, get planning permission (easier said than done as you may need to apply for a change of use for the land) and put a Yurt there - if one acre of land = approx £5k, the Yurt an additional say £5k, you are investing £10k (equivalent to just £500 of income at a generous 5%) for your accommodation. Then there's the electricity generators needing to be bought, rainfall gathering etc. However you could also grow your own food, with a long term goal of being completely self sufficient.
Long term, I'd love to do this. However balancing realism with fantasy is one of the things I've struggled with in ERE - I love the idea in theory, however will I ever cancel my lease and make the move? Its a big jump!
I'd certainly consider some of the alternatives to housing; living in an RV like Jacob, a yurt, a log cabin (can even be bought from Tesco now!), a garage (confession: when I first moved to London, I did consider this! For £50 a month, seemed a lot better than the £500 I did end up paying (plus bills, Council Tax etc!)).
You could add living on water (houseboat etc) to your list of unconventional dwelling options. I used to have a colleague who lived on a narrow boat that he owned. Being mortgage-free meant that he was able to leave behind a job that he found increasingly stressful. On the other hand, I remember he was concerned about how well the arrangement would work when he got older and less nimble. He was looking for a position as a lock keeper - without success - the last I heard.
Housing is the issue that I wrestle with the most in regard to ER. I live in a small one bedroom flat which essentially consists of two rooms and a bathroom. Is it enough? Sometimes. Generally, I don't need any more space but there are times when I wish I had a separate kitchen to cut out the noise of the washing machine and dryer - it's hard to enjoy a concert on Radio 3 with with all that racket. I generally retire to the bedroom. I also wish I had a second bedroom for a home office and somewhere to play music. Of course, it would be good to live somewhere detached so I don't have to worry about disturbing the neighbours when I'm playing. And so on. It's very easy to keep inflating one's wants.
I suppose I'm still trying to work what constitutes enough for comfort rather than merely being endurable without drifting into some sense of entitlement which would lead to resentment and/or frustration.
Perhaps the issue of housing costs are the UK equivalent of the US medical insurance costs? A systemic problem that is difficult to solve?
Housing is the issue that I wrestle with the most in regard to ER. I live in a small one bedroom flat which essentially consists of two rooms and a bathroom. Is it enough? Sometimes. Generally, I don't need any more space but there are times when I wish I had a separate kitchen to cut out the noise of the washing machine and dryer - it's hard to enjoy a concert on Radio 3 with with all that racket. I generally retire to the bedroom. I also wish I had a second bedroom for a home office and somewhere to play music. Of course, it would be good to live somewhere detached so I don't have to worry about disturbing the neighbours when I'm playing. And so on. It's very easy to keep inflating one's wants.
I suppose I'm still trying to work what constitutes enough for comfort rather than merely being endurable without drifting into some sense of entitlement which would lead to resentment and/or frustration.
Perhaps the issue of housing costs are the UK equivalent of the US medical insurance costs? A systemic problem that is difficult to solve?
''Perhaps the issue of housing costs are the UK equivalent of the US medical insurance costs? A systemic problem that is difficult to solve?''
I think one possible solution is to move to a very remote part of the UK with much cheaper housing prices, such as the Scottish Highlands and Islands.
Seems you can purchase a rural building plot with full planning permission, several acres of land and stunning views for as little as £30 000 in some places:
http://www.primelocation.com/uk-propert ... 999000167/
Even in less remote areas, 2 bed houses can be got for as little as £75 000
At the other end of the scale, heres a 365 acre farm with a 3 bedroom farm house and its own island for £525 000, about what you'd pay for a semi in much of London:
http://www.primelocation.com/uk-propert ... 999000353/
I think one possible solution is to move to a very remote part of the UK with much cheaper housing prices, such as the Scottish Highlands and Islands.
Seems you can purchase a rural building plot with full planning permission, several acres of land and stunning views for as little as £30 000 in some places:
http://www.primelocation.com/uk-propert ... 999000167/
Even in less remote areas, 2 bed houses can be got for as little as £75 000
At the other end of the scale, heres a 365 acre farm with a 3 bedroom farm house and its own island for £525 000, about what you'd pay for a semi in much of London:
http://www.primelocation.com/uk-propert ... 999000353/
Gosh, that takes me back to that trip I took to the Isle of Skye about 25 years ago (when there was no bridge, just a ferry). It was a wonderful place -- I believe they filmed a lot of the movie "Highlander" near there. But then again, it was the summertime. I doubt its so pleasant in the winter when its dark most the time.
Living on a houseboat is certainly an interesting one, though I've looked into the costs, and after the residential mooring costs, can be quite expensive - although I haven't fully looked into it, there seemed to be a lot of costs after purchase.
http://www.livingonboats.co.uk/articles ... -on-a-boat
£3k (£250 per month) mooring fees, plus cost of boat, licence costs - actually cheaper than I thought, and something I'll definitely look into.
Agreed with your point about a small one bedroom flat Rosin, I'm currently in the same situation. We have no problem with the washer & dryer, we have a Hotpoint "Super Silent" machine - it is brilliant. I sometimes forget its on - not sure how much it is but definitely worth it! (essential with Economy 7 tariff as well, which gives cheap electricity during the night).
However, I'd much rather have a detached place - like you said about the noise, it would be good to not worry about neighbours.
Chenda, that island looks amazing! Where I'll get half a million from, I don't know - but if I did - I'd certainly buy!! (although it may be a bit too much land!).
Ideally, I'd love a large piece of land 2- 10 acres, with some woodland area, and a river / stream close by
Scotland is pretty cold though!
http://www.livingonboats.co.uk/articles ... -on-a-boat
£3k (£250 per month) mooring fees, plus cost of boat, licence costs - actually cheaper than I thought, and something I'll definitely look into.
Agreed with your point about a small one bedroom flat Rosin, I'm currently in the same situation. We have no problem with the washer & dryer, we have a Hotpoint "Super Silent" machine - it is brilliant. I sometimes forget its on - not sure how much it is but definitely worth it! (essential with Economy 7 tariff as well, which gives cheap electricity during the night).
However, I'd much rather have a detached place - like you said about the noise, it would be good to not worry about neighbours.
Chenda, that island looks amazing! Where I'll get half a million from, I don't know - but if I did - I'd certainly buy!! (although it may be a bit too much land!).
Ideally, I'd love a large piece of land 2- 10 acres, with some woodland area, and a river / stream close by
Scotland is pretty cold though!
Chenda
I've visited Scotland a few times and have done some walking on Skye, so I have a slight knowledge of the Highlands. I'm sure I'd enjoy an extended summer break up there but the long dark winters would get me down. Employment opportunities would also probably be limited if extra funds were needed at some point.
I'm also not that keen on the self-sufficiency idea as part of ER. It seems like swapping paid work for unpaid work. Perhaps I over estimate the effort required to grow your own food to make a significant contribution to cost savings. Of course, if you enjoy that kind of thing, then it's at least partly recreation and not work.
It's moot anyway as I'm years away from ER.
For a towny like me, I think I'm going to have to leave the "road less travelled" solutions to others and instead try to find somewhere small in a town that mets my needs. I have wondered about the practicalities of finding a piece of land that isn't suitable for a full-sized dwelling (and hence unattractive to developers and most self-builders) and building my own modest dwelling. A one bedroom bungalow perhaps. (A little voice in my head is shouting No! Please, no! I'm too young for a bungalow!)
I've visited Scotland a few times and have done some walking on Skye, so I have a slight knowledge of the Highlands. I'm sure I'd enjoy an extended summer break up there but the long dark winters would get me down. Employment opportunities would also probably be limited if extra funds were needed at some point.
I'm also not that keen on the self-sufficiency idea as part of ER. It seems like swapping paid work for unpaid work. Perhaps I over estimate the effort required to grow your own food to make a significant contribution to cost savings. Of course, if you enjoy that kind of thing, then it's at least partly recreation and not work.
It's moot anyway as I'm years away from ER.
For a towny like me, I think I'm going to have to leave the "road less travelled" solutions to others and instead try to find somewhere small in a town that mets my needs. I have wondered about the practicalities of finding a piece of land that isn't suitable for a full-sized dwelling (and hence unattractive to developers and most self-builders) and building my own modest dwelling. A one bedroom bungalow perhaps. (A little voice in my head is shouting No! Please, no! I'm too young for a bungalow!)
@ Rosin yes its not the best location if you still need to do some work, although I've been looking into some sort of holiday letting business as a semi-ERE option, think there are potentially some good returns to be had, though of course its not work free.
I not too keen on relying on subsistance growing for ERE either, though growing high-value cash crops (like gourmet mushrooms) might make a relatively low maintenance business.
Its not easy to find small sites with potential for planning permission, its very much a case of identifying parcels of land yourself on maps, then stricking an option agreement with the landowner to purchase at an agreed price - conditional on planning permission been granted. Theres no reason it can't be done though - commercial developers do this all the time.
I not too keen on relying on subsistance growing for ERE either, though growing high-value cash crops (like gourmet mushrooms) might make a relatively low maintenance business.
Its not easy to find small sites with potential for planning permission, its very much a case of identifying parcels of land yourself on maps, then stricking an option agreement with the landowner to purchase at an agreed price - conditional on planning permission been granted. Theres no reason it can't be done though - commercial developers do this all the time.