3 Years Maxing for Comfortable 30+ year retirement

Anonymous101

resk wrote: »

I've seen this mentioned by a few people. Does anyone know how this would be implemented in cases where the additional employee contributions are deducted from one's pay prior to tax? Currently I do pretty much what the OP is considering - my gross pay is approx 80K per year but I put 35K directly into my pension pot to minimise tax (employer puts in around 5K). The tax relief is automatic - there's no need for me to claim anything back from HMRC at the end of the year or suchlike. If they reduced the relief to 20%, how would this be done? I suppose they'd just hit you with an annual bill, or alternatively block employers from deducting contributions before tax.


The possibility of the relief being reduced makes me even more convinced that I'm doing the sensible thing - take the full relief while it's available!

I've considered this myself and came to a similar conclusion. I'd think that there would have to be some additional tax bill for salary sacrifice contributions. Either through the tax code or at the end of the year.

I can't see this happening too soon but best make hay while its still here. I've a feeling it'll happen eventually.

jamesd

michaels wrote: »

Correct me if I am wrong, but I assume VCT purchases whilst helping mitigate income tax, will not result in any change to my income when assessed for tax credits entitlement? Thus for the moment I will carry on using pensions but if I end up getting assessed under universal credit rules then it may be time to explore this option.

Right, have to use pension contributions for that. VCTs can have a really interesting role for basic rate income, since there's a 10% tax gain as well as 20% tax saving.

Alexland

OP needs to consider inflation as a constant 5pc after fees and inflation is very unlikely. Probably safer to consider the 164k pot to be worth around 300k at 60.

We have done something similar and have pots totalling 270k at an average age of 34 and expect this to be worth 450k in todays money at 60 so are still saving hard for early retirement!

timthebin

RickyB2000 wrote: »

One other thing to consider is the LTA. You will only have £360k headroom (assuming LTA increases the same as your assumed rate of inflation). Will your paying in min to get employer contributions for the rest of your working life risk pushing you over the £1million Mark?

The LTA is yet another interesting point. As I type the limit is indeed £1m... however from the tax year 2018/19 this will rise with CPI - which looking at the last 20 years or so averages around 2%.

This means that if the LTA rises with CPI over the next 25 years (my earliest target retirement date) then the LTA should be around £1,648,035 by then - so I assume I should target that amount rather than £1m.

Your thoughts are welcome.

timthebin

michaels wrote: »

This lets you get really creative, salary sacrifice down to minimum wage .

Are you able to explain how you calculate minimum wage as it's not as easy as it first appears...

For example, I am contracted to 9-5 mon-fri with a 1 hour (assume unpaid) lunch break. As minimum wage is £7.50 for me - I would calculate £7.50 x 7 hours x 20 working days = £1,050.

However different months have different working days due to how the weekends / bank holidays fall. So is the figure of £1,050 acceptable for all months?

jamesd

No, it's a required hourly rate. Easier to hit as a percentage of pay because that automatically adjusts up and down as the number of hours of work does.

RickyB2000

timthebin wrote: »

The LTA is yet another interesting point. As I type the limit is indeed £1m... however from the tax year 2018/19 this will rise with CPI - which looking at the last 20 years or so averages around 2%.

This means that if the LTA rises with CPI over the next 25 years (my earliest target retirement date) then the LTA should be around £1,648,035 by then - so I assume I should target that amount rather than £1m.

Your thoughts are welcome.

I thought your £640k was already inflation adjusted? If it is, then you would compare £640k to £1m (both will actually be a lot higher, but this is the value in today's money). If it wasn't inflation adjusted, then yes, you would compare £640k to £1.6m.

timthebin

RickyB2000 wrote: »

I thought your £640k was already inflation adjusted? If it is, then you would compare £640k to £1m (both will actually be a lot higher, but this is the value in today's money). If it wasn't inflation adjusted, then yes, you would compare £640k to £1.6m.

You are quite correct, the original growth assumption was inflation adjusted - thanks