Onwards to freedom!

edinburgher

I am going to ignore the whole crystal ball bit there because (as you've pointed out often enough), nobody has one

£175k is quite lacking in any statistical import, it's just the figure I spitballed that we'll have in 10 years assuming 27% contributions + existing monies. Call it a guess.

At that point, we'll be faced with the rather more challenging challenge of bridging the gap between 50 and 5x, which is where ISAs come in. I haven't really been able to come up with an affordable model where we aren't skint for these 8 years, but end up far better off come 58/65/68

I thought you were paid HR tax? Also, don't you get sal sac benefits for extra contributions? 99.9% sure I already asked this, but can't find where.

SuperSecretSquirrel

Thanks for the explanation ed

I've paid HR Tax in one single year of my working life, back when my side hustles were going great guns. Sadly no longer the case, but it's not so bad really. I could earn more at the cost of family time, but that's not a sacrifice I'm willing to make

You are correct on the pension contribution salary sacrifice. That's another entry in the pro pension column, reduced NI and SL payments.

edinburgher

Indeed, those savings are what make it so blimmin' good when trying to invest for the future. Like yourself, I struggle to get motivated about other options because I can't down what is in effect something like 33% free money (if you can get it tax free at the other end).

I suppose the risks are a) political risk (i.e. moved goalposts), b) not having enough elsewhere to bridge the gap and c) the eventual benefits of the xx% 'free' money being reduced because we're unable to structure withdrawals in such a way that tax can be avoided (but hey, that's a nice problem to have)

SuperSecretSquirrel

Problem "a" is absolutely my biggest issue with pensions. I hate that it is totally out of my hands. So is "c", but that is a far lesser concern. Provided " a" and "c" remained constant, calculating an accessible target to mitigate "b" would be fairly trivial.

Of course this is all built on myriad assumptions based on historical performance. If the flexible variables in "a" and "c" bother me, what hope have I of dealing with unprecedented ZIP, and unknown future levels of inflation? The models are based on history, but new records are created all the time!

I have early retirement as a goal, but rather perversely am reassured that it is so far in the future that the minutiae are irrelevant right now i.e. a problem for another day/year/decade. Right now that target of 25x annual spends to achieve a 4% SWR is reassuringly simple. Of course I'm not advocating zero planning, more heading in the right direction for now and fine tuning the detail later on.

I suppose the only real concern when paying too much into pensions and not enough into flexible accounts is you overshoot the point at which you could retire - net worth is sufficient, but not enough cash to get you to pension age. That just means a little more time working, which sucks, but also more money in retirement, which does not suck. I guess its very similar in effect to "one more year syndrome", just the cause is very different...

edinburgher

I suppose the only real concern when paying too much into pensions and not enough into flexible accounts is you overshoot the point at which you could retire - net worth is sufficient, but not enough cash to get you to pension age. That just means a little more time working, which sucks, but also more money in retirement, which does not suck. I guess its very similar in effect to "one more year syndrome", just the cause is very different...

Just came up with a possible solution for people with a mortgage - take the biggest possible mortgage you can for the longest period. This would allow you to a) possibly free up equity and b) reduce your monthly payment substantially. Like equity release but without the 7.5% interest rate

SuperSecretSquirrel

MFiT4 Update #3:

Mortgage: -£27,057.25 (Quarterly progress £2,102.36)
Tax: -£490.83 (Quarterly regression £183.75)
Cash: £46,087.30 (Quarterly progress £1,645.62)
S&S: £11,831.80 (Quarterly progress £1,763.00)
MN+: £30,371.02 (Quarterly progress £5,327.23)

Another good quarter

We need to average £3,772.25 per quarter to meet our final target. So far we're doing great, but we always expected it to be quite easy at the start, and that it would get more challenging over time...

Happily, we were right Our second child is due in February We have another year(ish) of statutory maternity leave on the horizon, and beyond that more childcare expense or a drop to single income. Never have I been happier with the prospect of being short of cash

edinburgher

Congratulations - you're a braver man than me! :j

SuperSecretSquirrel

Thanks ed

NorthernMonkey1

Cost of not repaying?

I've just read through some bits of this thread. I know that no one wants to pay ERCs, but have you compared the cost of paying ERCs vs keeping the mortgage.

If youre paying 5.29%, and you're only getting 2% interest on cash, then the cost of avoiding the ERC is 3.29%. If the ERC is half the interest rate, at 2.65%, then the cost of avoiding the ERC is greater than the ERC.

It might be worth shovelling a few more options into a spreadsheet to work out the least bad approach to paying stuff off

SuperSecretSquirrel

Hi NorthernMonkey 5.29% mortgage rate, ERC is now 5% (it reduces by 1% each September until end of fixed period in 2020), achieving 3%+ on cash savings at the moment. Paying the ERCs is not the smart choice for us right now. Not to say I'm not tempted every now and then, but my sensible side soon catches up You're right though, for some people paying the ERC is the best move, it's always worth running the numbers to check!