Pension/Cash Balance

[Deleted User]

We're finally at the next stage of our retirement plan once a loan is paid in full on the 27th of this month.

We have already spoken to our FA and the first thing we have arranged is to increase our pension contributions and doing this in October after our wee holiday. We will also be making over payments to our mortgage and hoping to be mortgage free in 4/5 years.

We are also aiming to save £500 per month in cash but I forgot to ask our FA what would be a reasonable amount of cash to have readily available at retirement time. Does anybody have any thoughts? It's just that I truly believe in not having all your eggs in one basket so definitely want to have cash in the plan.

Thank you in advance.
PB

Wentthedaywell?

I've been asking myself the same question.

For me, I've concluded it is 5 years' of take home pay. That's not cash in a current account of course; it'll be in various savings including a cautious S&S ISA. This amount also includes the lump sum form my pension. But I reckon that money on top of my final salary pension, plus proceeds from possible downsizing, should let my get nice hols, new car etc.

I arrived at that sum pragmatically, knowing how long I can work for and how much I can save if I really pull my belt in these last few years. I really wish I'd started serious saving far earlier, but my mortgage slowed me down.

[Deleted User]

Thank you for your thoughts and quick response. I hadn't thought of it in terms of take home pay; I shall do that. I'm just off to work soon but shall look forward to putting different figures in to the spreadsheet tonight and hopefully come up with a number. I may not reach the number (best laid plans etc) but you've got to have it there to aim for!

atush

I think for now, you need to have 6 months spending in cash. Later, just before retirement you can either build up or sell investments to get up to 2-3 years of income in cash.

This is to make sure you dont have to sell investments at a bad time. If times are good, save up the income to either spend or save to replace the cash you are spending.

by income, I mean the income you will have determined you require each year to cover your costs incl holidays and gifts.

jackyann

I was told by a Financial Advisor that 20-30k is a good nest egg. I took that as a base.
Up to a point it depends on your pension income. If you have a good enough income for holidays and occasional repairs etc. then they don't need covering from your savings. However, I know some people who live on a small pension day-to-day and dip into savings for a new washing machine etc.

I did put aside money for important family occasions as I very much wanted to have enough for good wedding / new baby gifts. That is very personal.

xylophone

Had you thought of opening a TSB Classic Plus each and a joint account?

You could build your first £6000 of savings at reasonable interest.

Are you using the best current account for your needs?

http://www.moneysavingexpert.com/banking/compare-best-bank-accounts

Loughton_Monkey

As a 'seasoned early retiree' [almost 10 years now] I am not sure you are asking the right questions.

For most people, at the day of retirement, they will potentially have a mixture of:

1. Final Salary Pension Scheme(s).
2. Pension 'pot(s)'.
3. Cash in Cash ISA.
4. Cash in S&S ISA
5. Cash in other (taxable) accounts.
6. Cash in other investments.
7. House Equity.
8. The entitlement to a state pension at the appropriate age.

Item 1 (if exist) and item 8 typically will give you a stable reliable income, plus an up-front tax free lump sum (if FS scheme) [which will need to be put somewhere].

Item 2 is very similar to item 4, except that the pension pot was slightly more tax-efficient when you were funding it. With the new rules, withdrawing money from the pot is almost totally flexible but with tax implications.

Item 7 is usually only relevant if you can/will downsize, although once you have paid off the mortgage, living rent-free is a bonus.

So armed with all this information (unique to yourself - no two people are the same) you can work out (a) what 'stable' income stream you will get, and (b) how much you expect to be spending every month/year. Assuming that (b) > (a) you will need to find the excess from items 2-6 above.

I think the key question first of all it what proportion of assets under your control (i.e. items 2 - 6) should be in 'cash' rather than 'investments'. And furthermore, of the investments, what sort of risk profile to follow when choosing funds? There is no easy answer to this. We are all different. Personally I started off with an aspiration for 40% of my cash in equities, and 60% in cash. Given the derisory interest rates of late, I have swerved significantly into a rather higher equities proportion. For the extra, I tried to use 'cash equivalent' equities [my own term] and am quite happy with the 15% annual return from 'absolute' funds like City Financial.

The remainder of planning revolves around use of wife (if exist) to mitigate tax (if possible). Plus a general eye on the tax implication of drawing down pension income, or saving in no-ISA accounts.

In a nutshell, the amount of 'ready cash' I need to keep is about 25th on my list of concerns. Sometimes (like now for instance) I am sailing very close to the wind in 'cash availablity'. I have oodles of cash altogether (so not pleading poverty) but very little is freely 'available'. I don't wish to cash in any equities. I have cash in fixed rate bonds, granny bonds, and cash ISA's. But I am having to wait until next month (when a bond matures) to fill up our cash ISA's for this year.

You should find that creating, and maintaining, your own spreadsheet will guide you to the optimum 'home' for your cash - getting the best return consistent with your attitude to risk - while ensuring that day to day cash flow is managed perfectly.

steveedward_2

It will be better advised by your FA. Because his advice will be accurate and to the point.

atush

Our advice is accurate and to the point.

FA's, not being INDEPENDANT will be looking to see what they can earn for themselves and their company/bank instead of what is best for you.

If you want advice, use an IFA.

[Deleted User]

xylophone wrote: »

Had you thought of opening a TSB Classic Plus each and a joint account?

You could build your first £6000 of savings at reasonable interest.

Are you using the best current account for your needs?

http://www.moneysavingexpert.com/banking/compare-best-bank-accounts

Hi, yes at the moment we have £14k in 2 TSB, 1 Lloyds and a Santander account.

xylophone

Then it would make sense to build up your cash savings in the Santander, moving on to opening sole Santander Accounts as well?