Hello,
I'd appreciate some advice.
I have a plan to reach financial independence by age 42 (10 years from now), at which point I plan to move somewhere beautiful (probably Devon). I've chosen this particular date primarily because this is when my daughter will turn 12 and will start secondary school, so it is a natural point to move. Obviously, I've also selected it because it is (or so I thought) viable at a push.
Being a software engineer and mathematician, I've built a highly sophisticated spreadsheet that takes many things into account, including tax, state pension, private pension, inflation etc. I've always been someone who is ridiculously frugal, but I've never been much interested in investing. Until now, I've just been overpaying my mortgage with a vengeance. However, now that I have my spreadsheet and am taking this more seriously, it's become abundantly clear how important getting proper returns on savings will be to my plans. The issue is that I'm having real doubts about the returns people claim are possible.
What data can I look at to give me confidence that investing is going to pay off?
I've looked at 20+ years of data from the dow jones, FTSE 100 and a few other indexes and I'm not at all convinced by what I see. However, it's entirely possible that I'm not "getting" it. I'm the first to admit that I'm generally ignorant about investing, so may just need to improve my knowledge. Any particularly good sources?
My plans require my savings to grow by, on average, 5% per year.
To make it more concrete, assuming 5% savings growth over the next 10 years, and 2.8% pension growth, I'll have:
- £550,000 pension pot
- £300,000 in savings
- my current house, fully paid off, currently worth ~420k
I plan to buy a house costing ~100k more than my current house, so I'll actually be left with 200k in savings. This runs out at age 52, but I had planned to bridge the gap to age 55 by releasing equity in the house or possibly by working a little.
A few other scenarios:
If I don't invest and make nothing on the savings, it runs out at age 48.
If I make 7% on average per year, I get pretty close to age 55.
If I lose 3% per year, the whole thing probably loses it's viability entirely.
...And then I read this that potentially blows a massive hole in my plans:
https://www.telegraph.co.uk/finance/personalfinance/special-reports/11537512/Cash-in-your-pension-at-55-You-may-have-to-wait-till-70.htmlBasically, it suggests that private pension age in the UK could shift as much as 12 years for people my age. Hitting this age will release between £150,000 and £200,000 in a tax-free lump sum, and my FIRE master plan depends upon bridging a few years (possibly by releasing equity in my house) and then paying this off upon receiving the lump sum.
It's tempting to pay less into my pension, put it into savings and hope for 7+% returns to keep the plan alive; however, it seems crazy to throw away the insane amount of tax relief I get due to my salary sacrifice pension contributions.
Another option is to delay my great escape by a couple of years.. but then I miss the critical age for my daughter. One of the main reasons I'd like to make the move and give up work at this time is to be able to be a much more meaningful part of my daughter's life before she's too old and too cool to have me around.
Maybe I should just make the move, even if it only means 5 years of independence... but then I may feel that "running out of money" is looming over me all the time and I may be kicking myself for not just spending a couple more years in my highly paid job which would have given me a lifetime of financial security.
Thoughts?
I suppose the reality is that I will just have to wait and see what happens, and make the decision closer to the time based upon the facts then.