How are your savings and investments allocated?

Alexland

Mr.Saver wrote: »

Pay more into pension now means you get the 20% tax now and you earn capital gains on the 20% too.

But then potentially pay tax on 75% of those additional contributions (and associated gains) when they are withdrawn in retirement assuming the state pension and matching contributions use up their personal allowance.

The lifetime ISA offers a 25% bonus (the same as 20% tax relief) but with no tax on withdrawal. As such a blend of matching employer pension contributions and LISA contributions may be more advantageous.

Alex

jonnygee2

The lifetime ISA offers a 25% bonus (the same as 20% tax relief) but with no tax on withdrawal. As such a blend of matching employer pension contributions and LISA contributions may be more advantageous.

My feeling is that there is only a narrow tax advantage to the LISA. But the disadvantages are that it is not protected in the same way, so you could be forced to withdraw in the case of bankruptcy or financial difficulty etc - also you could be tempted to withdraw in different situations too.

I like pensions because they are a locked box, protected by the law and inaccessible to us until close to the age of retirement.

A LISA might make a reasonable additional pot but I still think people should generally contribute to pensions as a priority.

MaxiRobriguez

You could take advantage of LISA S+S and put money into 5% bank accounts. I'd probably build up your instant access account too. Put more into pension when you break 40% tax barrier.

Sort of depends on your plans on where you want to live and current equity in house/what your LTV is. If you want to move and you have a high LTV at the moment, paying down mortgage is fine.

MaxiRobriguez

Also, this may help OP as we're sort of in similar circumstances ish...

Stats:
- 31 years old
- 50k salary
- Due to be married
- No kids
- No loans, credit cards, finance etc
- £140k outstanding mortgage which is c.£650 a month on 23 year repayment. House value is currently £225k ish.
- Pension is 10% matched, of which I have £35k in 95% equities.
- £100k in easy access bank due to a recent investment property sale, of which £20k will go into S+S ISA prior to new tax year (and sit in cash until until some sort of a bottom forms) and the rest will go on a offset remortgage.

After I pay off the wedding our excess cash is going to go into building S+S ISAs. I might sacrifice more salary into pension after tax year finishes (recent £5k pay rise).

We will probably look at moving house in 2-3 years time. We're hoping for house prices to fall given the excess cash we hold.

Mr.Saver

Alexland wrote: »

But then potentially pay tax on 75% of those additional contributions (and associated gains) when they are withdrawn in retirement assuming the state pension and matching contributions use up their personal allowance.

The lifetime ISA offers a 25% bonus (the same as 20% tax relief) but with no tax on withdrawal. As such a blend of matching employer pension contributions and LISA contributions may be more advantageous.

Alex

You are right, LISA is a good supplementary for pension. But the 4k/yr limit and lack of employer matching prevent it become the replacement.

After run out of the LISA allowance, pension is at least 5% better than S&S ISA if the only use of it is for retirement. Simple math shows that 75% taxed at 20% (basic rate) would be equivalent to 15% tax, this is 5% lower than the initial 20% tax relief. Saying "at least" is because the potential gains on the 20% tax relief and the tax free personal allowance.

BenjiCat_2

Thanks for all the replies, a lot to digest and research. I was under the impression it was a much of a muchness to the pension vs. S&S ISA as a basic rate tax payer, with the benefit of being able to access the S&S ISA if needed.

Checked my pension pot and it currently stands at a whopping £3,500, which is a bit of a wake up call.

LTV is currently at 69%, interest on mortgage is 1.7%. I would estimate we would be moving to something bigger in the next 5 - 8 years.

bostonerimus

No one's mentioned how much they spend? That's the most fundamental number for everyone and if you can reduce that number it's the most reliable gain you can get and can go into the pension or to pay down the mortgage

My numbers are roughly

age 57
annual spending $30k
retired, but still consulting half time
Own home and rental valued at around $1M
Drawdown pension and other investments mid -seven figures
DB Pension income $20k
Rental Income $20k
Consulting income $100k
Self Employed Pension contribution this year $50k
Other Investment contributions $60k

I could obviously spend way more than $30k per year, but I don't need to and that frugal approach has compounded down the years to put me in a secure retirement position.

aroominyork

bostonerimus wrote: »

No one's mentioned how much they spend? That's the most fundamental number for everyone and if you can reduce that number it's the most reliable gain you can get.

My numbers are roughly

age 57
annual spending $30k
retired, but still consulting part time
Own home and rental valued at around $1M
Drawdown pension and other investments mid -seven figures
DB Pension income $20k
Rental Income $20k
Consulting income $100k
Self Employed Pension contribution this year $50k
Other Investment contributions $60k

I could obviously spend way more than $30k per year, but I don't need to and that frugal approach has compounded down the years to put me in a secure retirement position.

Retired but still earning $100k pa. “Lord, what did I do wrong?”

bostonerimus

I was lucky enough to know an old colleague at MIT who has a small startup and needed some R&D and engineering work done. So I have one client and that could disappear at any time. It's not that good after taxes...as a self employed consultant I have to pay employee income tax and both employee and employer payroll taxes. My hourly rate is $100 which is the going rate, but about $30 of that goes on state and federal taxes so I'll have a big bill soon.

Prism

aroominyork wrote: »

Retired but still earning $100k pa. “Lord, what did I do wrong?”

I guess it also depends if this is company income or personal income after expenses and taxes. To earn that income for my business I could also work about 50% of the year, but I am not in a position to extract that into a pension tax free as its my only income.