Do you want a makeover of your telegraph money? Submit your application here or via the form at the bottom of the page
Michael Baldwin, 43, dreams of retiring early, learning Spanish and enjoying the sun in Tenerife.
As an IT manager, he wants to be mortgage-free at 49, reduce his hours to four days a week at 50, and retire at 55.
Mr Baldwin, from Kendall, Cumbria, earns £60,000 a year and has a pension of £184,000.
When he retires, he wants to ensure that he and his wife have a comfortable income of around £30,000 a year.
“My biggest goal is to make sure I can retire as early as possible and have a decent pension,” he said.
He and his wife have savings of £20,000, and two shares of Isas with £5,000 and £4,000 respectively. He adds £100 a month to the Isas.
Mr Baldwin pays 10 per cent of his salary into his company pension, worth £40,000, with his employer contributing 6 per cent. His employer is about to introduce a wage offering scheme and he wants advice on whether he should participate.
That would mean that he surrenders part of his salary and does not have to pay national insurance contributions on that part. The company would take the money it saved on those national insurance contributions and put it into the pension.
He plans to use the money in his Isas to pay off his mortgage when his fixed-rate contract expires in 2027. He still has £58,000 to pay, with monthly payments of £703. He overpays €147 each month.
His wife is unable to work following a stroke so will not add anything to her pension, which is worth around £9,000.
They have a second home which they rent out through a limited company for around £750 a month. The mortgage costs £350 per month and is interest-only for a further four years. They want to use the income to buy a holiday home abroad in 10 years to use and rent out while in the UK.
If that becomes unrealistic, they can sell.
Lisa Caplan, Director of Financial Planning at OneStep, Charles Stanley
My first impression of Mr. Baldwin’s dream is that it is an extremely ambitious dream. It will be unfeasible at the moment, but we can provide some helpful tips to improve his situation and bring him closer to his goal.
An important thing to note is that Mr. Baldwin will not be able to dispose of his pension until he is 57. This means he will have a significant gap to fill when he retires with his existing savings.
His Isas may be worth £13,217 when he is 55 with current contributions and average investment growth.
He can only contribute to one share and shares of Isa within a given tax year.
They may need to start topping up their savings with withdrawals from their business, but they’ll need to keep an eye on tax rates as the dividend payout has recently fallen to £2,000 and will fall further.
This means Mr Baldwin and his wife can each take £2,000 from their business this tax year without paying tax. This drops to £1,000 next tax year and then just £500 in the 2024-25 tax year. Something to consider.
It’s difficult to make exact calculations for salary sacrifice schemes and any national insurance added by Mr. Baldwin’s employer, but this is certainly generous and will make a big difference to his overall retirement pot.
He will have to make his pension last long from the moment he starts drawing on it.
Excluding his employer’s extra contributions based on National Insurance savings, his pension could be worth around £350,000 when he’s 58.
This pot alone will not be able to support him and his wife for long.
To give an idea of annuity rates, at age 65, an annuity that is not linked to inflation but offers a 50 percent partner’s pension could yield about 7.2 percent of the pension pot as income.
Mr. Baldwin has not mentioned his state pension here, which will be very helpful.
This could earn him and his wife an extra £10,000 a year, provided each of them has the full 35 years of national insurance contributions.
It is unlikely, however, that Mr. Baldwin will have the full years’ worth of work, like his wife. They should each check their state pension forecast via gov.co.uk and may want to top up by purchasing additional years.
Mortgage rates have risen over the past year and there is a risk that their repayments will become unaffordable, although it’s difficult to comment without the details.
The rental income will be used to cover the initial income shortfall when Mr. Baldwin retires.
Mr Baldwin’s potential thought of £30,000 a year doesn’t sound reasonable in the current circumstances and doubts his target is achievable without changes.
Megan Rimmer, Licensed Financial Advisor, Quilter
Mr Baldwin has a clear goal in mind: to retire at the age of 55 with an income of £30,000 a year.
It is commendable that he has already determined how much he will need per year, as this gives us a solid starting point.
Joining his employer’s wage sacrifice scheme is an excellent idea, as it allows him to benefit from both his own and his employer’s savings, increasing his annual pension contributions.
However, reaching his desired retirement income of £30,000 a year at age 55 could prove challenging.
Based on the ONS life expectancy calculator, Mr. Baldwin’s life expectancy is 84 years. If he retires at 55, he will need £30,000 a year for the next 29 years, making a total pension pot of £870,000.
This figure does not take into account inflation or investment growth or fluctuations. Given his current retirement savings, he is still a long way from reaching this goal.
The sale of Mr. Baldwin’s second property may be necessary to increase their retirement capital. However, this may conflict with their plans to buy a property abroad in ten years’ time.
Their existing pension income is limited, with just £750 a month from the rental property, which Mr Baldwin does not want to use, and the mortgage further reduces net income.
To reach their desired £30,000 a year, they would need a net income of £2,500 a month.
It is crucial to investigate whether Mr. Baldwin and his wife are entitled to a state pension. Mr. Baldwin may be eligible, but his wife’s eligibility is uncertain as she has not worked for some time.
Completing a BR19 form could clarify this.
Saving regularly is vital, and Mr. Baldwin should continue to save as much as possible each year.
Although his wife is not working and has no relevant income in the UK, she can still contribute £3,600 gross to her pension. She would pay £2,880 net and receive £720 in tax relief.
While Mr Baldwin’s dream of retiring at 50 on £30,000 a year may be ambitious, it’s not impossible.
Exploring all available avenues, such as qualifying for state pensions, maximizing pension contributions and possibly selling their second property, can improve their chances of achieving their desired retirement income.
Do you want a makeover of your telegraph money? Here’s how to sign up.