Need a target amount to aim for

[anniesdad]

My situation ....

Me
age 46, married, 3 kids under 12

Assets
600k in equities mainly ISas
350k our home no mortgage
600k net equity in BTL (1.2M properties with 600k outstanding)
50k cash / other
£1.6m total

Income
BTL = 40k pa
PAYE from my Ltd co = £6k pa (property services)

Wife paye from my ltd co = £6k
PT job = £4k

I guess I'm semi retired at the mo. I do all the management and maintenance on my BTLs. Sometimes it's busy and sometimes quiet. I also do maintenance and odd jobs for other Landlords and householders but pick and choose somewhat. And I sometimes work as a labourer £10 per hour for a local builder and sometimes £12 per hour for local warehouse. It goes into the Ltd Co. I like to keep fit and enjoy being out in the open air. We live quite frugally I guess and rarely pay for much to be fixed - I diy it myself or sometimes barter my services in return.

I find I am able to contribute 15k+ most years in to my Isa. I no longer enjoy the BTL business as much as I did, it's becoming a chore and I now find that I'm much happier labouring for others especially as once I clock off that's me finished for the day and there's a bit of banter. And the physical work saves me going to the gym. My wife also enjoys her work for similar reasons.

My ISAs gained £70k in the 12 months post Brexit and I stuck in an extra 15k so it increased by almost 100k in one year. I've done this long enough to accept that there will be good years and bad years. My long term return on the isas is 8% pa. I want to increase my ISA value to a FIRE amount but I'm not sure what this is. sometimes I think I'm close and sometimes I feel more cautious.

So my rather long winded question is what target (for my ISA) should I be aiming for?

[tjh290633]

So my rather long winded question is what target (for my ISA) should I be aiming for?

I would phrase that in terms of how much income should my ISA provide?

Keep building a dividend income flow until you are at or above your target income. If you can go past that point, and can live on part of the income flow, reinvest the remainder, which will increase your protection against inflation.

TJH

[Alaric]

I would phrase that in terms of how much income should my ISA provide?

Also you need to consider how much income you would require. If your circumstances are that you could cut your expenditure at relatively short notice, a more aggressive target in terms of rate of return becomes possible. That will reduce the amount you would need to accumulate.

[JohnB]

I'd do a spending profile 1) school age children 2) university+ (will you contribute, or expect them to build up debt), 3) flown the nest 4) dotage. Then work back to an income profile allowing for tax, and pick a SWR like 3.5% to get capital required though equity/BTL.

Repeat for extravagant and frugal spending to give you a feel for your income ranges and then use one of the many stock market outcome historical predictors to decide the likelihood of each outcome. If equities match a 5% frugal, 80% normal, 15% extravagant chance of outcome over your timescale, is that a risk profile you can live with. If not, expect to have bonds and a lower SWR.

Do you have a plan to liquidate your BtL portfolio without being hit with capital gains tax?

Why don't you have a pension?

[anniesdad]

Do you have a plan to liquidate your BtL portfolio without being hit with capital gains tax?

Why don't you have a pension?

Thank you for help.

1. No. I'd love to liquidate the BTLs but I don't want to pay CGT. I guess this is the only reason I've still got it . I have sold the 2 that I lived in free of CGT.
2. We have a small pension value. Its maybe 50 of the 600 I said was mainly ISA. Reason is Equitable Life , and when I was 20 I saw my BTLs as my pension, and when I was 30 I saw ISAs as my pension.

[nmdhqbc]

Assets
600k in equities mainly ISas
350k our home no mortgage
600k net equity in BTL (1.2M properties with 600k outstanding)
50k cash / other
£1.6m total

Income
BTL = 40k pa
PAYE from my Ltd co = £6k pa (property services)

Wife paye from my ltd co = £6k
PT job = £4k

As others have said it's the income rather than the capital value that matters. 4% dividend yield with IT's/funds that you can expect to grow at least with inflation is not too far fetched. So lets crunch those numbers...

Keep your house, and say £40k cash for rainy day leaves you with 1.6m - 350k - 40k = £1.21m
Yield of 4% = £48400 a year + 1% savings account for the 40k = £400 so £48800 pa total
Compared to your current income of £56000pa. Not far off. Or maybe you currently spend less than this and have already hit your target.

Of course the selling of the property portfolio may result in capital gains tax and complicate things.

[Alaric]

2. We have a small pension value. Its maybe 50 of the 600 I said was mainly ISA.

You can manage a SIPP as essentially an ISA with different tax rules. You are limited as to how much you can put in, but you get tax relief or an at source addition and are potentially subject to tax when you take money out. With the new rules, you don't have to be concerned about annuities and can invest in the same stuff you put your ISA funds into.

[JNC3]

[Keep your house, and say £40k cash for rainy day leaves you with 1.6m - 350k - 40k = £1.21m
Yield of 4% = £48400 a year + 1% savings account for the 40k = £400 so £48800 pa total

What would be the best way of getting a yield of 4% from £1.21m ?

JNC

[BarrenWuffett]

I guess as a rough 'rule of thumb' you will need to multiply you average annual spend by 25. So if you will be spending say £40K p.a you would need a million which would generate this income with investments yielding 4% on average.

If you intend to continue working part time and receive an income then the figure would be less..maybe you are already there. However spending may increase if you are funding the kids through uni?

You may be interested in working through this post on DIY Investor which seems to cover some other angles

http://diyinvestoruk.blogspot.co.uk/201 ... igure.html

[BreakoutBoy]

[Keep your house, and say £40k cash for rainy day leaves you with 1.6m - 350k - 40k = £1.21m
Yield of 4% = £48400 a year + 1% savings account for the 40k = £400 so £48800 pa total

What would be the best way of getting a yield of 4% from £1.21m ?

JNC

City of London IT CTY.

3.9% yield, pretty bulletproof, with half a century of dividend increases behind it.

[TUK020]

Although you list income as 56k, you also state that you manage to stick 15k into ISAs most years, implying that your actual spend is just over 40k.

If you had a plan to gradually unload your BTL portfolio is a way that makes most of your CGT allowance, and use the proceeds to pay max into ISAs (20+20k) per year, pay into a SIPP and retire mortgage debt, you would probably be where you want to be in ISA income terms + SIPP for boost fund when it becomes accessible, by the time you are done with the BTL portfolio

[nmdhqbc]

What would be the best way of getting a yield of 4% from £1.21m ?

JNC

City of London IT CTY.

3.9% yield, pretty bulletproof, with half a century of dividend increases behind it.

Yep, CTY is exactly what I had in mind when I wrote my previous comment. In reality if it was me I'd probably aim for a lower yield but with more divi and cap growth prospects. I'm pondering a proposal for my mum below. I guess it would yield roughly 3% maybe. I was considering HFEL also which yields higher but I feel it's picking a location and I'd prefer the fund managers to choose where to invest.

18% CF Woodford Equity Income
18% CTY
18% Murray International Trust
18% Lowland
10% VMID - FTSE 250 tracker
9% Finsbury Growth & Income
9% BlackRock UK Smaller Companies

[StepOne]

What's your, and your wife's, state pension situation? It's worth finding out at https://www.gov.uk/check-state-pension. It could be worth 16k a year for the two of you, which is almost half of your current outgoings (56k income less 15k into ISA).

Then I'd make a spreadsheet showing the next 50 years in columns, with rows for income, and expenditure (split into mortgage, council tax, food, petrol, holidays, utilities, kids clothes, university fees, etc). A lot of it will be guesstimates, but it's worth doing, and if you update it in years to come it will get more realistic.

StepOne

[JohnB]

I'd not do a detailed spreadsheet, I always hate it when sites ask for that kind of breakdown, as I don't budget that way, I'd just look at the yearly numbers and mentally consider how many exceptional events their were.

You need to plan your tax position, and maximise use of the myriad allowances. Your big problem is the BTL, who's income is solidly taxed and with horrid CGT. Beware people who suggest income levels to match spending, and forget 5-10k tax takes.

As I've just found, next year £6k interest, £14k dividends would attract no tax, £8k interest, £18k dividends would be merely £300. £20k BtL income might attract £1.6k tax, £24k BtL £2.4k tax (you'd know these numbers better than me). It will take you a long time to fill your ISAs, but meanwhile equity is much better sheltered than property.

[StepOne]

I'd not do a detailed spreadsheet, I always hate it when sites ask for that kind of breakdown, as I don't budget that way, I'd just look at the yearly numbers and mentally consider how many exceptional events their were.

It can be done with just a few lines - just split out the things where there will be changes - e.g. 'mortgage' will be an outgoing until it is paid off then go to zero. Car expenses might also drop with retiral if, for example you go from 2 cars to one. School/University fees are another biggie that only impact a small number of years. Most of the other stuff could just be lumped into a single line 'other spending' and then assume it remains flat.

[JohnB]

Just don't forget the big expenses when detailing the small ones. Weddings, new roofs, new hips etc tend to be excluded by such regular expense calculations when spun over decades

[Aprilfool62]

Also as others have said - kids get more expensive in their teens and beyond. My daughter who is on an apprenticeship (so I'm basically still funding her) has learned to drive after countless lessons and I got her a car for her birthday. I will do the same for my son who has just finished uni. It might help to have a figure in mind for each child and then the rest can be yours. As for how much - its personal choice. I like holidays and nice restaurants which is why I'm still working albeit part time. If it was me - I wouldnt target an amount as you say you live frugally. Perhaps say you'll keep doing this for another 4 years till you get to 50. By then, Brexit will have happened and hopefully whatever is going to happen economically will have happened (the dreaded correction), and you will have amassed more investments. You could re-assess then.

[JNC3]

City of London IT CTY.

Would it be safer to use a basket of investment trusts such as Gadge Global income portfolio, Luni's B7 or B8 or John Barons income portfolio to produce the income instead of City of London IT on its own?

JNC

[DiamondEcho]

I'd not do a detailed spreadsheet, I always hate it when sites ask for that kind of breakdown, as I don't budget that way, I'd just look at the yearly numbers and mentally consider how many exceptional events their were.

Playing devil's advocate, but if you can't bear dealing with that process today, how can you hope to frame tomorrow?
I used the planning tool on MoneySavingExpert http://www.moneysavingexpert.com/bankin ... t-planning

I found it akin to being stripped of all my financial clothes, hopes and unsubstantiated presumptions. A very stark reality perhaps lay ahead, did I want to know it, or did I not want to get a black and white answer? So I began the process in trepidation fearing the worst. The first thing was that it approached things in a very granular level, which helped build up to the whole. It also included many things I perhaps wouldn't have even thought of, so that alone was useful. But perhaps the greatest thing was it required me to give consideration, more than I'd previously done, for what kind of overall lifestyle I wished to pursue and fund at the point of retirement. That was perhaps the most thought provoking element of the whole exercise. How many foreign holidays a year, long haul, w/e breaks etc? What car/s, and how often might you wish to replace them? Going out to restaurants? Utility bills etc. Children, dependents, heirs?

Once you reasonably know what you need as a retirement income, then you are hopefully well positioned to determine the capital pot and return thereon required to generate it. I'm glad I went through it, I found it illuminating etc. In fact so much so that I vowed to return to the spreadsheet every couple of years and refine the perceived outcome required as I approach that point more closely. I will no longer be nervous about going back and repeating the exercise, as I found it that useful.

[anniesdad]

I just want to say thanks for all the comments.

My State Pension forecast is £8k pa but not payable for 21 years at 67. I started full time work at 16, but missed 5 years contributions when I went self employed. I need to contribute for another 9 years. I believe my wife's is similar but cant get logged in at the mo.

Today I have bought £10k of City Of London and set this to pay out income to my current account. I'm going to use this as a test (more for my reassurance than anything else). It's very similar to a lot of my other investments, High yielding FTSE100 shares like Shell and Glaxo. However I've only ever held Unit Trusts (OEICs) and never held Investment Trusts.

Yes we live quite frugally. We have no mortgage and no borrowing other than the BTLs. We drive to South France each summer and try and grab a cheap self catering ski holiday in the winter. Our bikes are all second hand rust buckets but I like fixing them up and I enjoy doing the London to Brighton faster than the carbon Fibre machines costing 20 times what mine cost. I have a gym in my garage using an assortment of abandoned and rusty gear. I guess we shun the designer labels and expensive memberships and go for the scruffier but more practical alternatives - its quite satisfying - for me anyway. We seem to get by on £40k pa but as we still enjoy PT work we don't need to replace all of this income.

I think I always had a target amount to reach 1 million in ISA's / Pensions just because this was a round figure. I'm now thinking £750k is adequate (it's a reassurance thing again, I want to exceed minimum target amount and a nice round number gives me a target to work to). 3 more years of contributions and a growth rate of 7% means I'm there by 50 (in 4 years time).

Thanks everyone - its helped me lots just talking about it as it makes me think.