Hope is not an Effective Financial Strategy

shangaijimmy

Thanks suffolk i am subscribed. It was an indication of how I'd neglected my diary more than anything.

I was delighted to see that we are in the green on the MFiT - T5 challenge...nicely at 8.79%. A good start to a big target and long may that continue.

Only a few days left to accounts posting and it looks like we'll have another month of £700+ OP's. I've also had a check on pensions which have had a good month and our ISA which has done well too, so should have a good networth accumulation. April marks the end of the payment for my car (borrowed from savings), so I will divert that cash into a "next car fund". The intention is for mine to last another 8 years and i should have enough cash saved for the next car after 2 years anyway, but its always a dual fund as Mrs SJ's car will need replacing about 2 yrs before mine.

DS2 football cancelled this morning withe the current weather so i can have a lazy spell on the couch with tea and toast! Pooch has spotted the rain and is hiding from me as well, so he obviously doesn't fancy it either! I have some weeding and pruning that i was hoping to do today but looking at the forecast that may well be at late afternoon job now. We also need a trip to a bed warehouse to look for a high sleeper bed for DS2. Both boys rooms are being decorated at the end of the month and DS2 really needs some new furniture.

shangaijimmy

Well the wind did not relent all day yesterday. Managed to get pooch out for a short toilet trip but we got saturated and he wasn't impressed. The weeding is untouched and no doubt ready for another explosion after all the drinks yesterday. I'm working all day today so it won't get done till next weekend now! At least we spent no money yesterday...

shangaijimmy

Start of a new month, which means spreadsheet updating! Already done this with my morning brew and I will report later this morning with progress. I've spent the last few days on pension research. Not research for products but research for greater understanding. This was prompted by the increase in auto enrolment contributions, and is at the same time as the point in our MFW journey that some of our focus starts to move towards pre-retirement funding and pensions. So i have some updates and actions on this front to explain as well.

All very productive...I think...!!

Suffolk_lass

I read loads of stuff about pensions to improve my understanding - I wish I had done it at your age. Do ask if you think I may know - I will certainly say if I don't as I am not qualified to advise - I am just your average Jo(anna) a bit further on and older than you

- The pensions part of the forum is good to silently read - there are a few, shall we say, extremely assertive or supercilious posters over there who prefer showing how clever they are to helping new posters but it is great for finding out stuff as a silent reader (imho). There is a chap called xylophone who posts really useful links and some quite sophisticated approaches using pension payments to reduce their immediate tax liabilities (great for FIRE, not great for lifetime pension pot size).

shangaijimmy

Thanks Suffolk. I also have the added advantage that my sister is some kind of financial advisor and her speciality is pensions for people with very extremely obscenely and absurdly wealthy pots! But like us all on here its not enough to ask her what to do..i need to why and how it will benefit etc... So i prefer to educate myself first and then check whether i am right!

shangaijimmy

So then i may as well tackle pension progression first, and tell a nice little tale (I'm in work but with little to do until lunchtime other than key holder type duties for workmen).

I have paid into a pension since starting work as a lifeguard when i was 19. That was only part time job whilst at Uni and lasted 4 yrs but there is a few thousand frozen in a policy, and you never know i may return to council employment as a school care taker as my pre retirement job!

After 4 yrs doing that i got a proper job, but sadly my firm weren't enough to provide a company pension (we actually operate somewhere between a small loss and a small gain every year). So i started a private pension and have paid that ever since. Now i can't confess to know what percentage of income i paid in the first 10 yrs but i have steadily increased to 20% over the last 7yrs which is where I am now.

Since auto enrolment i have now have 2 pots running. Remembering that out firm will only contribute the legal minimum there hasn't been too much activity until this month where it increases to 8%. So i am just in the process of combining the two pots and have requested salary sacrifice from my firm for the amount that i used to pay into the private scheme to benefit from reduced NI contributions - I'm waiting to hear on this one from accounts department but not expecting a prompt response!!

Research done around fees, types of investments, level of risk, time out from retirement etc... and all checked with sis, who agrees with my plan.

So feeling fairly smug with myself!.

That then led me onto Mrs SJ's pension. She has paid in to a fantastic huge company scheme from the age of 19. So we've just made a slight adjustment by throwing in an extra £60 a month as AVC. We'll do this for the next 5-6yrs and add 50% of any payrises to this. Once the mortgage is gone we will then max her AVC contributions.

So overall we are well planned for age 68 onwards... And once this mortgage has gone we can start to make plans for investments to bring that 68 age forward as much as we can. I've made a small start in this regard with the reduced amount our mortgage fix has reduced us by. I have a side hustle about to start that i will chuck any earnings from into this, we always plan to downsize and take some equity for this and we both intend to reduce to part time at some point.

So we're in good shape all round. We have made a good start with the little things we have done for the first 20yrs of our working lives, and with another 15-20 years of discipline and no little good fortune we should be able to enjoy retirement until out backs (and Mrs SJ Gin liver) give out!

shangaijimmy

Favourite time of the month - accounts posting. As i mentioned a few posts earlier I may have been a bit tough on our monthly budget, but it does mean we've had a great month :T

Monthly Figures

• Closing Balance - £82,267.97
• Total OP's - £698.41
• Monthly Net Reduction - £1,088.66
• % Challenge Remaining - 60.49%
• LTV - 37.23%

Length of Diary Key Figures - 50 Months

• Total Reduction - £53,731.73
• Monthly Ave Reduction - £1,074.63
• Total OP's - £29,696.02
• Monthly Ave OP's - £593.62

shangaijimmy

The £70k's are in sight...

Suffolk_lass

Re pension - I hope you don't mind me commenting...

I presume you have taken advice on moving your private pension into your occupational pension. I used to think this was best but DH's DC personal pension is going to pay for the gap between him stopping work this summer and being able to draw his state pension in five years time after that. It depends on the income I think - Mrs SJ's may be FS or Av Salary based, which provides greater assurance - not so yours though.

Also, are you sure about AVCs? are you confident that the scheme is sound, productive and has reasonable costs? The benefit is that the contributions are taken from salary and therefore the tax relief is applied then, rather than you having to apply for it. Personally, being your average financial control freak, I would stick with a SIPP and choose from a number of diversified funds to focus initially on growth (assumes you are 15 years or so out from FIRE - I would go for combination growth and income if this is more like 8 years), moving towards income as I got towards my stop-work date. You can claim back the tax relief on those SIPP contributions (and pop the tax rebates into your ISA!).

You need to look at how you will fund the gap between your earnings stopping and your pension income starting (broadly speaking, this is the emphasis of your occupational pensions) and the savings you will need to cover the gap between stopping work and drawing your pensions.

You will also need to consider making NI contributions in those gap years to make sure you are going to get a full state pension, when it comes to it. The State Pension Forecast tool on Gov.uk is predicated on you working and completing full contribution years up to the April before you reach SPA. It is 35 years currently (changed with coalition government from 30) and since April 2019 if you make voluntary contributions for any of the previous 6 years (max you can go back) you now pay at the 2019-20 rate, not the prevailing rate for the year you are making up. Currently Class 2 Contributions still exist and are much cheaper than Class 3 (£2.50 vs £15 per week, I believe) - but you will need to check this out when you get closer and make sure you satisfy this in the most effective way. PT School caretaker might do it, making Class 1 PAYE contributions.

To cover this gap you can either save more or take pensions earlier. If the latter, they are permanently (actuarially) reduced but there is trade off in receiving the pension income for longer - and many occupational schemes reduce lump sums by less on taking it early than they do on the income part.

If the former - savings - this is where having control of your funds helps you. You could plan to each take your tax free allowance from your ISA (if you are under 55) or your SIPP, spread across the years that you will no longer be earning - although you can take 25% as a tax free lump sum, you are taxed at your normal tax rate (could be zero if you are not working) on the rest. We are going to do that starting in 20-21 with DH's DC pot - we already have the 25% TFLS (it was a mortgage OP) - the rest will come across the intervening tax years where he (already over normal pension age for his occupational scheme) has an income (his occupational pension) below his personal allowance tax threshold (£12,500 in 19-20).

I certainly agree that your little LA Lifeguard pension should stay as it is. These are actually index-linked if the accrual has stopped. The original scheme would have had better benefits than the current LA Pension scheme - so if you do end your days as a LA employee (PT Lifeguard?) do look carefully at what the cost vs benefit might be. 4 years of a FS DB pension that has been frozen and index-linked for 30 years is going to do better for you than absorbing four years on that salary into the new career average scheme.

Really well done for having done so much already. Your other readers would do well to pay attention (I wish we had).

chumpy45

Figures looking fab, well done team SJ :T