Pensions Planning: The NUMBER

crv1963

Collyflower1 wrote: »

Is this the number to aim for before state pension or including it?

Our number is simply our income need to provide what we need, we are saving a SIPP amount to draw down to zero tax effectively (0%) between when we retire and when my wife SP starts.

Or when my SP starts if we find we spend more at an earlier stage as my SP starts 3.5 years before my wifes.

If things remain broadly as they are now we should actually have more income at SPA than when we start retirement- one of the flaws in our planning for retirement at a later stage. Those that plan earlier could most likely organise/ save enough to have a steady or constant income amount throughout retiement.

We are simply happy that we discovered this forum and gained enough knowledge and advice to plan for ourselves more effectively within our means. I suspect had we done this at an earlier stage in life we'd have sorted so that we retired earlier than our present target date.

MallyGirl

Same here - in terms of totals we could retire now but too much is in pensions and too little is in ISAs so we have to keep going till we hit 55 at least (3 years). In fact we will probably work till DD graduates a year or 2 later but we can review that and change our minds.

Anonymous101

MallyGirl wrote: »

Same here - in terms of totals we could retire now but too much is in pensions and too little is in ISAs so we have to keep going till we hit 55 at least (3 years). In fact we will probably work till DD graduates a year or 2 later but we can review that and change our minds.

Interested if you foresaw this and carried on as you were, happy to continue working for the 3 year min, or if in hindsight you feel that you should have cut back on the pension saving a little earlier and focused on ISA's.


The reason for the question is that I'm currently over committing to the pension with the intention of cutting this right back when I calculate I'll have sufficient invested. At that point I'll begin taxing the income tax hit and contributing further towards ISAs.

MallyGirl

Anonymous101 wrote: »

Interested if you foresaw this and carried on as you were, happy to continue working for the 3 year min, or if in hindsight you feel that you should have cut back on the pension saving a little earlier and focused on ISA's.

The reason for the question is that I'm currently over committing to the pension with the intention of cutting this right back when I calculate I'll have sufficient invested. At that point I'll begin taking the income tax hit and contributing further towards ISAs.

I didn't have the lightbulb moment till I was about 49. Since then I have ramped up to contributing 50% of salary (plus employer 10%) to pension via sal sac which hits the sweet spot of just under the £40k limit but also making me a BR tax payer. Due to DD moving to a fee paying school for 6th form this has led to the mortgage climbing quite a bit (the joys of an offset/fully flexible mortgage which outweigh the not so great rate). This is temporary higher expenditure and my spreadsheet has us paying it all back off by the time we are 58 (end date on mortgage). If not there will be the PCLS.
I will keep on focusing on the pension for now as OH is not ready to retire, whatever the numbers might say. I might reduce my hours later or move to an employer without sal sac (and the flexibility to change the payments every month if I want to). The rules and limits on pensions may change. I do put some in the ISAs too so that we can smooth the tax bill in retirement.
In some ways I wish I had 'got it' earlier but actually I am happy with the approach I am taking now. I couldn't do it without the offset mortgage though.

cloud_dog

MallyGirl wrote: »

In some ways I wish I had 'got it' earlier...

Whilst I considered myself quite clued up on finances etc, I didn't 'get it' until a couple / three years ago (later than MG )

We have switched our mortgage investment payments (ISA) in to pension contributions (in addition to additional contributions, currently at approx 20% of gross salary) as I am a 40% tax payer and benefit from SS, and am able to keep below the overall £50k limit so as to gain full child benefit.

Anonymous101

I think the best route for everyone will be slightly differnet depending on circumstance and the tools available to you. The offset mortgage route something which I haven't really considered but it might be worth looking into for future. I currently have 3 years of a low fixed rate deal to run and I'm not overpaying at all.


I had the lightbulb moment about 3-4 years ago at around 35 years old. Which I still don't consider particularly early but I know its much earlier than most start to think about these things. Until that point I had been saving a 12-15% into pensions through SS but my lifestyle, although effecient (no consumer debt), wasn't geared towards early retirement. I somehow didn't realise it was possible for me.


Since then I've racheted up earnings and reduced expenditure allowing me to now forecast I'll contribute close to the annual pensions allowance for the first time this tax year. If I continue as I am there will be a point at which I'll have to reduce this back down to a more normal amount or I'll have a huge proportion of my net worth tied up in pensions so I'll have to work until I can access that and/or I'll far exceed the LTA. So I'm thinking that around my mid 40's the best option will be to start paying the 40% tax and investing more into ISA's until I've had enough of working so full on.

cloud_dog

Anonymous101 wrote: »

Since then I've racheted up earnings and reduced expenditure allowing me to now forecast I'll contribute close to the annual pensions allowance for the first time this tax year. If I continue as I am there will be a point at which I'll have to reduce this back down to a more normal amount or I'll have a huge proportion of my net worth tied up in pensions so I'll have to work until I can access that and/or I'll far exceed the LTA. So I'm thinking that around my mid 40's the best option will be to start paying the 40% tax and investing more into ISA's until I've had enough of working so full on.

Whilst the age restriction for a LISA (at 60) might not suit your plans it would at least offer you the option of gaining the 25% government uplift so, you may want to consider using this in addition to a ISA and your existing pension plans.

Anonymous101

cloud_dog wrote: »

Whilst the age restriction for a LISA (at 60) might not suit your plans it would at least offer you the option of gaining the 25% government uplift so, you may want to consider using this in addition to a ISA and your existing pension plans.

True and perhaps its worth looking at. Certainly filling the pension bucket first is the most efficient but once that's taken care of then the LISA is next up. However as you say the access can be an issue. Perhaps I'll look at putting a proportion into one once I get close to having sufficient in the ISA to bridge a decade or so of much lower income prior to pension access. Mrs. Anon. is a BR tax payer and so far we've focused on her investing into a S&S ISA but a LISA may be a good vehicle for her too.


This is all very early planning as its around 10 years in the future but when viewed as 10 separate opportunities for allocation (tax years) then it feels like there's much less room for manoeuvre!

crv1963

Anonymous101 wrote: »

Mrs. Anon. is a BR tax payer and so far we've focused on her investing into a S&S ISA but a LISA may be a good vehicle for her too.


This is all very early planning as its around 10 years in the future but when viewed as 10 separate opportunities for allocation (tax years) then it feels like there's much less room for manoeuvre!

I think it useful to have a spread of "pots" earmarked for different timings/ purposes also as a safety net against rule changes. We're also concentrating on Mrs CRV although a BR taxpayer now with me just into HR tax when we come to draw down the pensions she will hopefully stay as a none taxpayer (at least until I kick the bucket) with me always being a BR taxpayer.

We are trying to plan to get as much joint retirement income as tax efficiently as possible, plan to keep around 3 months expenditure as cash savings, emergency fund as Premium Bonds and money for "big ticket items" in ISAs and if we are fortunate enough to have more income than we need to keep adding to a SIPP to pass on outside of our estate/ pay for old age or meet health needs/ make needed adjustments.

Anonymous101

crv1963 wrote: »

I think it useful to have a spread of "pots" earmarked for different timings/ purposes also as a safety net against rule changes. We're also concentrating on Mrs CRV although a BR taxpayer now with me just into HR tax when we come to draw down the pensions she will hopefully stay as a none taxpayer (at least until I kick the bucket) with me always being a BR taxpayer.

We are trying to plan to get as much joint retirement income as tax efficiently as possible, plan to keep around 3 months expenditure as cash savings, emergency fund as Premium Bonds and money for "big ticket items" in ISAs and if we are fortunate enough to have more income than we need to keep adding to a SIPP to pass on outside of our estate/ pay for old age or meet health needs/ make needed adjustments.

I agree, at the moment we just have Pensions, ISA's and a small amount of cash plus our primary residence. I certainly think its worth looking at diversifying as you say rule changes etc are a very real risk, certainly over longer periods. Its likely that it'll be 20 years until I can touch my pension savings and longer for Mrs Anons. So spreading risk of rule changes and institutional failure really should be considered more.


3 months cash may or may not be a sufficient amount to mitigate market fluctuations IMO of course that does depend on your situation. If you're a pension is DB then its fine. If you're drawing down on a DC pot as I will be then I'd be more inclined to keep a number of years in cash.


It sounds like we're in similar positions regarding our and our partners incomes, current and forecast tax brackets etc. I've been thinking recently about how Mrs. Anon and I can make our investing and forecast drawdown more tax efficient. Have you made any specific plans to try and do this yourself?