Am I saving too much?

noalibi

Appreciate this may sound like a stupid question, but for many years I have been contributing to various company DC schemes and using the trick of increasing contributions whenever I've been lucky enough to have a pay rise (also encouraged the OH to do similar, but not to the same extent). Logic being it is easier to build up a decent point and slow down future contributions, than it would be to play catch-up with a smaller pot. Anyway, I'm now 48 with a total pot of £600k, OH 50 with total pot of £500k. Including employer contributions, I'm saving about £30k/year, OH £20k/year.

We don't have any other savings to speak of due to an offset mortgage with an outstanding balance of £300k that we hope to clear over the next 10-12 years. Our current combined net income is about £7k/month.

We would like to both retire at the same time, ideally between 7 years (my 55th) and 10 years (OH's 60th) time. Given we'd like to keep our joint retirement income similar to our current net income, are we on the right track? Do we need to be so aggressive with our pension saving and perhaps pay off the mortgage instead (or possibly other savings/investments)? Given the lower interest rates and the current tax advantage of pensions, not sure if this would be sensible.

bigadaj

Do you get 40% tax relief on your contributions, that's the main attraction of pensions for me.

If you carry on contributing at the current rate you may be breaching teh lifetime allowance before you retire dependent in growth rates.

Probably doesn't make sense to pay down your mortgage if you get a good rate which is presumably the case currently.

I'd want an emergency fund in this interest current accounts of a few tens of thousands and then contribute into isas for access and also for the opportunity for tax free income and growth in the way out, rather than in the way in with pensions.

To get £84k net for two people would mean a gross income of probably £120-130k, so there's a fair bit lf tax to pay. Also to generate that sustainably from a £2million pot (any more and you'd breach teh lifetime allowance as it currently stands) then that's quite a high withdrawal rate when you might want lower risk assets. There's of course no problem with taking on or maintaining higher risk investments in retirement, or indeed spending soem capital but it's a consideration.

You would be able to get 25% pcls when you crystallise the pensions, and this could be used to pay off a mortgage or generate further income, though for income you are limited to £15k rising to £20k per person into isas, so I'd maybe be thinking about filling isas sooner in the next few years even if pulling back from pension contributions.

Vct, venture capital trusts, might be worthy of consideration for you. They are classed as higher risk, but you get 30% tax relief as a flat rate, and all income paid out is tax free. They have to be held for five years to keep the tax relief, and your capital is at risk but it's another asset class, and my view is that given the crazy financial system currently I'm trying to keep my money spread across a range of investment. There's also p2p but that's not tax efficient currently until the if isas become more widespread if they're not ditched.

Linton

To clarify your current costs of living - are your spending £7K/month on day-to day living? If not how much are you spending? Or does this include your £50K/year savings? It is presumably the rate of spending that one would like to maintain.

ex-pat_scot

if you carry on as you are, then you will hit the £1m limit in around 5.5 years (assuming 4% net return and constant £30,000 pa contributions).
Your wife will hit the £1m limit in around 10 years time, using the same assumptions.


A combined pot of 2 x £1m, with no other income, would give 2 x £40,000 annual income, under a 4% safe withdrawal rate.
That would give you £68,000 net, or £5,700 per month.


That's not quite at the current level you have, but it's pretty decent!
It also does not take account of state pension income that will kick in later (67?)


A few things to consider:
1. do you want to retire at the same time?
2. do you and your wife salary sacrifice down to the higher rate tax threshold? I'm interested here, because if your wife, after pension contributions, is still a higher rate tax payer, then you could shift your strategy so that more contributions go into her pot (hers being lower and funded more slowly than your own).
3. I doubt very much whether the lifetime limit will survive the next 2 years, never mind 7-10. I hope that the Annual Allowance will in time be seen as sufficient. However I will adjust my plans when things change.
3. is your target £7,000 net per month in retirement? If so, then you will have to think about other sources of income - ISAs, BTL perhaps.
If your plan is to clear the mortgage by this point, then your target would be more like £5,750 (assuming £1250pm mortgage on £300,000 balance)
4. will you retire when you have sufficient funds, or at a specific point in time? Clearly your plan trajectory gets you perhaps beyond where a pension can take you
5. you still have £300,000 in an offset mortgage. Simplistically, that's £30,000 pa capital repayments for the next 10 years. Or you could use the PCLS (you will each have roughly £250,000 tax free lump sum at retirement, if your pots grow to £1m and the tax regime still allows it).


Personally, I'd still be throwing as much as I could at the pension, at least in the Higher Rate tax band and definitely if you are in the 62% punitive income band £100,000 - £130,000.

somethingcorporate

Look at your costs - you are paying a £300k mortgage from your £7k net income, ergo you won't need a £7k net income when you finish paying your mortgage.

You need to start at "the number" (i.e. what you will REALLY need/want when you retire) and work up from there.

You are in a superb position so well done