31 - On The Right Track?

dmc88

Hi

Have been looking seriously into retirement planning in the last few months and want to make sure I'm on the right track. I think I'm a bit behind where I ought to be but better late than never. I'm just turning 31, wife will be 31 soon, we have 2 young children (5 + 3).

I'm full time, £45k gross, 5% EE + 5% ER workplace pension (no salsac option), £200/m student loan deducted on PAYE, ~£16k left on it.
Wife is part time, £10k gross max, legal minimum workplace pension. Unlikely to rise until youngest is at school full time, and even then probably not by much to enable flexibility around school holidays etc

£145k mortgage, fixed for another 4 years at 2.35% with 24 year term. 78% LTV, currently overpaying £180 a month
£1.5k on 0% credit card, will be cleared by end of promo period
No other debts
Long time MSE'r so day to day bills are under control - based on padded budget could theoretically save £800 / most months (

£13k cash ISA @ ~2.25%
£7k emergency cash fund in various 1.5% current accounts
£2k in P2P
£2.5k in S&S ISAs
£16k Aviva stakeholder pension (75% Blackrock 60:40 Global Index Tracker 25% Fixed Interest) - dormant pot for now
£13k Moneyfarm SIPP on risk profile 6 (highest) - 68% Developed Market Equities 4% Emerging, 28% Bonds - dormant pot for now
Just changed jobs so current workplace scheme documentation hasn't come through yet but assume I'll be able to choose a risk profile
Struggling to get the importance of this across to the wife at the moment so no info to hand for hers

I'm unlikely to become HR in the near future, but am of course aiming that way in the next 5 years! I think from the reading I've been doing that even as a BR, given low interest rates on the debt, I would be better off creaming what I can from the pension relief while it's still available in my SIPP (or the other 2 pots) whilst maintaining the emergency cash / house renovation funds. The sticking block for me is should I really be aiming for an LTV sweet spot of 60% before diverting into pension to help guard against future interest rate rises?

Or of course, what else am I missing?

Cheers

ian1246

Just a thought regarding Emergency Cash Fund: Have you looked at Nationwide Current Account for its 5% Interest on up to £2500? They also have a linked 12month Regular Saver (5%, £250 per Month). HSBC also have a linked 12month Regular Saver as well (5%, £250 per Month).

If your wife is paying into a Workplace Pension Scheme, is it NEST? If so, it might be worth looking at the different fund options. The default fund they put people's savings into has a 5year foundation period where growth is.... mediocre at best, they have a couple of other better options (She can set you up to have access to her account and manage it for her). If it is NEST You can also set up a direct debit to put in additional contributions into her pension if you so choose, alongside her normal employment contributions.

Fatbritabroad

Firstly congrats on taking the time to look at this and you're not too late at 31. I spend alot of time trying to get work colleagues interested in stuff like this to no avail. Also think you're doing well with the saving etc with two young children and minimal second income so don't be too hard on yourself . My general non pension saving is an area I'm working on now

Personally I've always prioritised pension saving over a mortgage (i had a pension before I had a mortgage) though I did always overpay on the mortgage too . That's not to say that's right but I had a fear of being poor in old age so wanted to build a sum up quickly that I could relax a bit (for me that was 100k).

I understand your reasoning re the ltv but for me i look at multiple of salary. At 145k it's 3x which is not excessive so I would concentrate on putting more in your pension now as i would say pension is lower than it should be. You've got a decent ltv where negative equity shouldn't be an issue. Putting more in your pension now Gives more time for compound interest to do the work later .
I'm 38 on a higher salary than you but six years ago had a lower salary than you and have for the majority of my life put in 10% and now 12% into my pension excluding employers contribution. This will allow me to reduce this if need be when partner and I have children and she goes part time maybe or at least doesn't work for a bit this year safe in the knowledge I have a decent sum that will continue to compound with less going into it.

Maybe reduce the mortgage overpayment to say 80 and put the other 100 in your pension (worth 120 maybe more if your employer gives you some of the tax and ni savings too like mine does)

That said it does depend on what you want to live on. A simple rule of thumb is work out what you want to spend each year and x by 25. That gives you a number to aim for for retirement. Then use a compound interest calculator with say a 5% rate of return (stock market average after inflation though I just use 5% to be Conservative) see whether you're on track and adjust accordingly

https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php

Dazed_and_confused

I'm full time, £45k gross, 5% EE + 5% ER workplace pension (no salsac option), £200/m student loan deducted on PAYE, ~£16k left on it.
Wife is part time, £10k gross max, legal minimum workplace pension. Unlikely to rise until youngest is at school full time, and even then probably not by much to enable flexibility around school holidays etc

It depends to a certain degree where you are resident for tax purposes but if it's not Scotland has your wife considered applying for Marriage Allowance?

Even with your taxable interest it looks like your income is low enough that you won't be paying higher rate tax so if her salary (possibly less than 10k taxable if it's a net pay pension scheme) and any bits of interest is her only taxable income she may be able to apply and you, as a couple, would benefit overall.

This could free up a little bit extra for your pension or savings?

Passiveincome

Agree with the comments so far.

Put the numbers into a compound interest calculator to see if this meets your retirement target. Maybe use some of the retirement calculators.

Think the percentage into pension your is good, however on the low side. Most financial advisers suggest the percentage should be half your age. I.e. 31/2= 15.5%. Wouldn't get too hung up on the percentage into your pension though. With any salary increase, I typically put that little more into my pension.

Agree the marriage tax allowance is worth looking into. Great article on MSE: marriage-tax-allowance (won't let me put a url)

Think the emergency fund should be suffice. The other piece of advice is to keep a monthly budget and be aware of lifestyle creep (I.e. keeping up with the Jones').

Another thing to consider is, are you looking at the retirement number to see if there is a chance of retiring early? Or retire at 68 for state pension. Maybe worth thinking about how to build a side income. It is important to live life and spend time with family though!

dmc88

Hi

Thanks everyone.

I've already used the Nationwide £5k 5% offer and am currently building the HSBC one, 2 months in on that. Forgot about it in all honesty! Is Nationwide like Sky, once you've had the account closed for a few months you can reapply as a new ish customer?

She is NEST I believe but her contributions at the moment are peanuts so any tweaking to hers will hardly be worth the time. She will have a pot worth £10k I would think that is worth looking at, but as I say getting her to look at it with me is easier than rewiring your house wearing boxing gloves. I am going to try again though!

I've looked at the 25x rule, my current post retirement expenses plan, in today's money, is £25k with a few costs in there overegged and a 10% overrider/extra buffer applied to all spending. I've got joint state pension income budgeted as 12k, can't remember my basis for hers not being full, but that would leave us requiring a minimum of £325k.

My thoughts before the OP were splitting the mortgage over payment and contribution would be a safe option, although not exactly optimised.

We have been taking advantage of the marriage tax allowance since its inception.

All the reading I've done on risk levels says I should be at the highest risk I can stomach for now, given that I am 30 years from retiring. Am I better off leaving my pensions split like they currently are or should I be consolidating further. Is there any problem, apart from administration, of my pensions being split out, can I contribute to all of them in the same year, so if I wanted to split my monthly cont evenly between Aviva/Money farm I don't want to fall foul of some tax law?

One final question, apart from the issue of trust, of which there is no issue, would it be at all more beneficial (either financially or in the case of death) to build my wife's retirement savings up instead of my own?

Many thanks

Fatbritabroad

It can be helpful to build your wife's retirement savings as well as you can then take advantage of both personal allowance (12500 each this year) both dividend allowances (4k this year) both cgt allowances (11,500) etc etc. Its possible for a couple to withdraw a huge amount (i think over 60k) tsx free by utilising these allowances
I'm not ready to do this yet with my partner but you could do it at a later stage by taking your 25% and funding your partners pension while they are working still. Will consider it in a few years as I'm likely to be touching the lta at some point

Fatbritabroad

Sorry 4k total for dividend allowance 2k each. My bad

Passiveincome

With switching accounts, worth having a read about it in the forums. Can obviously have many and benefit from all of the deals. Find metro bank is good for opening accounts and can switch from there. Can open an account with metro and have a new debit card within an hour.

In terms of contributing to pension, believe the annual limit is 40k. Worth double checking. Should not be an issue putting money into both.

With moneyfarm, worth being aware if the fees associated. Cheaper to look into index trackers etc, however personal choice. Regarding risk levels, I'm 30 and on the similar chain of thought. High risk and later in life turning down the risk and consider moving a larger proportion into fixed income (e.g. bonds). For high risk, maybe look at emerging markets and a bit of exposure to crypto. Depends on your appetite and do your research. There are good sources/ videos about building your portfolio.

Can't see issues with building wife's retirement. Obviously maybe check with a financial adviser to ensure you are reaping all the tax advantages and you have a will.

Mnd

Yes, consider increasing your wifes pension contributions.try to get her to see the importance of this. I know 30 years seems a long time but it goes past so quickly ( a year today I will be an OAP, where did that time go..)
She should build up a fund so that she can stop working but still have funds available