I’m 37 and mortgagefree: when can I retire?

There might be no mortgage, but is early retirement affordable? By Amelia Murray

As the father of two young sons, Jeff Massey wants to retire as soon as possible to spend more time at home. He needs enough income to look after his family until his sons are able to support themselves and wants to cover any future “financial disasters”.

This is Mr Massey’s goal: his wife, Hannah, 36 is in no rush to quit her part-time job as a software developer.

After years of working hard to pay off the mortgage, the Masseys now own their £300,000 three bedroom semi-detached Cambridgeshire home outright. This gives far more financial flexibility.

Mr Massey, 37, earns £42,500 as a trust and grant manager at a charity and Mrs Massey sits in the middle of the basic-rate tax bracket. Mr Massey contributes 10pc to a workplace pension which is matched by his employer.

He has a small personal pension pot of £11,000, invested in a FTSE tracker fund. Luckily he has another, final salary pension from a 10-year career in the public sector which will pay £6,000 a year at retirement age.

Mr Massey describes himself as a “good saver” and tries to put away at least £1,500 a month on top of his pension contributions.

He takes risks where he understands them and has £17,000 in a stocks and shares Isa invested in Greggs, BP, Poundland and Tesco – companies he is “familiar with”.

Mr Massey also has £20,000 split between two cash Isas, and £30,000 invested through peer-to-peer lending platform RateSetter, which yields 6pc.

The Masseys expect childcare costs to rise. Daniel, who is three, goes to a nursery that charges £220 a month. This is covered by the Childcare Voucher Scheme through Mrs Massey’s employer.

When Jack, who is six months, starts nursery in September, Mr Massey estimates the cost for both boys will increase to about £700 a month. Mr Massey’s primary goal of retiring early to spend more time with his family is unrealistic.

If he doubles his pension contributions he would stand a better chance of retiring at age 55 and sustaining his income through retirement.

However, this is based on him remaining invested in retirement, which is something he may not be willing to do.

Mr Massey needs to check the scheme retirement age on his final salary scheme; this will typically be 60 or 65. He could access this early, if the scheme rules permit, but it would come at a significant reduction in income.

Schemes typically reduce the income offered by around 0.5pc for each month before the scheme retirement age, this could mean reduction of 30pc if he retires at age 55 and the scheme retirement age is 60.

Mr Massey’s retirement planning is complicated by the fact that his pensions will likely kick in at different stages.

If he is comfortable with a drawdown solution, where you keep money invested into retirement and take income from those investments, he will be drawing proportionally more income in the early years

Mr Massey’s goals of retiring early to spend time with his sons are unrealistic

before his final salary and state pension are paid to him.

Mr Massey should concentrate the bulk of his pension savings into shares-based investments as, realistically, retirement is at least 18 years away.

While a pension is a great way for him to save for retirement his current approach has the following drawbacks. Mr Massey would like to spend more time with his family but the earliest he can access his pension is currently 55, at this point Jack will be 18 and Daniel will be 24.

Mr Massey will get tax relief on the contributions he makes at his marginal rate of income tax, this is 20pc.

Any growth within the pension is also tax exempt.

When Mr Massey looks to drawdown on his pension, 75pc of it will be taxed at his marginal rate of income tax. As he is only getting 20pc relief on contributions at present, his pension savings are to some extent merely tax deferred.

Mr Massey should make regular contributions to a stocks and shares Isa alongside regular pension contributions.

While there is no tax relief on any contributions, there is no tax on growth and no tax on exit. Isas can be drawn upon at any age.

Mr Massey should also look at a range of life and health insurances.

Jeff Massey with wife Hannah and their two boys: Daniel, three, and Jack, six months

Dividend power Jay Aston