‘Can I be self-employed and retire early?’
sure what to aim for,” he said. “Ups and downs in my income mean it’s hard to know what I can save. I invest £200 in it each month but this could fall if I have a drought on the work front.”
While things are good Mr Dodsworth is also putting £400 each month into his stocks and shares Isa, where he has £33,000. Extra cash goes into a Lifetime Isa, now with £10,000.
As a new freelancer his tax bill is as yet uncertain, but he expects it to be at the basic rate of 20pc.
He said: “Once I know my taxes for the year in December I can make sure I have those funds and then see what I’m able to put into the Isa or Lisa before the tax year end in April.”
Sensibly, Mr Dodsworth has put £4,000 in a high-interest current account as a rainy-day fund to cover the family’s expenditure for around two months. He and his wife save in Isas for the children but he doesn’t have life cover or income protection.
Mr Dodsworth envisages a future that is modest but comfortable: “I’m not a big spender. My TV is from 2007 and I’m not likely to replace it until it burns out. There are a few minor improvements to make to the home, and later I’d like to replace the conservatory. We live near the Norfolk coast and spend family time on local day trips, so holidays abroad aren’t a big deal now but it would be nice to do one every couple of years.”
Andrew Pennie, of specialist adviser Intelligent Pensions:
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April Ritchie, of wealth manager Mattioli Woods:
Retiring early is a nice aspiration. Mr Dodsworth’s wife is still a member of the Local Government Pension Scheme (LGPS) so they should save via additional contributions to that rather than the Lisa, as it is more tax-efficient. This type of pension generally provides a guaranteed income at retirement, which is hard to find these days, and increases in line with the cost of living. As a former member of the LGPS, Mr Dodsworth also enjoys these benefits. If he transferred out he would lose valuable guarantees.
Mr Dodsworth should save as much as possible into his Sipp, putting £400 per month into this pension pot and £200 into his Isa. Tax relief on pension contributions means saving £400 would put £480 per month into the Sipp.
Freelancing as a photographer mixes work freedom with financial worry, writes ‘I’m confused with all the information about how much to squirrel away’
As he’s looking to retire in 22 years’ time, this would mean contributions of £126,720. Assuming 4pc growth, this would provide a fund of around £205,000 by age 60. Converted into an income of 5pc, it would provide around £10,000 a year. The family must decide if they could live on that.
Mr Dodsworth cannot use his Lisa to fund a first home purchase and must therefore hold it to age 60 to avoid any penalty and receive the Government’s 25pc bonus. In the meantime he could repay his home improvement loan by taking money out of his stocks and shares Isa, freeing up cash for extra contributions to help the family reach its financial goals.
Mr Dodsworth could pay off his mortgage by the time he turns 60. But as he’s self-employed and has a young family, he may want to consider a fixed-rate deal for the next few years. It’s not easy to achieve all your goals and objectives at once. Planning is essential to reduce that feeling of being twisted in the wind.