Starting my Plan - any advice?

FatherAbraham

LateStarter wrote: »

Yes it's the only pension I've got (the price of a misspent youth ) and it's defined contribution with Legal and General.

So it seems a Personal Pension/SIPP has an advantage. One of the reasons I'd consider an investment outside my company pension is that I'm becoming quite fed of of my current job. I've given myself a year to come to terms with the new management, and I'll look elsewhere if I convince myself the grass might be greener. Also I guess I feel more more comfortable that I could use different pots for different goals; so I could (for example) use the SIPP to cover the years before State Pension and let the company pension continue to grow if circumstances allow.

[Investment allocation discussion omitted]

Also, does it matter if I drop feed funds into this (300-400 a month) or put in a couple of thousand every 6 months?

Thanks again
LS

The reason why you must the company pension scheme for making contributions is because that's the only way to operate salary sacrifice. You can transfer funds to a personal pension later, but why would you bother? Charges on many modern Group Personal Pensions beat SIPP charges. If you only want teachers then you definitely don't need the full expense of a SIPP during your accumulation phase.

For salary exchange/sacrifice, you will need to be making regular payments via payroll, not periodic lump sums.

It is essential that you learn how National Insurance operates, if you don't want to throw the opportunities offered by salary sacrifice away.

FatherAbraham

LateStarter wrote: »

After getting bitten by the dream on Financial Freedom/Early Retirement over Christmas, I've come up with the beginnings of a plan I'd like some feedback on:

About me: Age 53, mortgage about paid off, salary approx £60k.
Current Pension: fund at £150k, employer contribution 5%, me 8% via salary sacrifice.
The goal is to retire in April 2029, 10 years seems a nice even number.

Steps I'm taking:

• Increase pension contribution to 24% to drop net salary under the 40% bracket for 2019/20
• Build up a cash pot to cover a year of expenses - about 22k
• Invest anything else I save in a ISA/SIPP?

Is there anything else I should be looking at? At my age does it matter if I use a SIPP or an ISA?

Thanks
LS

If your annual expenses are £22k, then you are not going to be able to retire in ten years by increasing your contribution rate to only 24%.

Stay away from ISAs, they are a National-Insurance trap for workers.

LateStarter

Spreadsheetman wrote: »

If you assume 2.5% inflation annually over the next 10 years then that compounds to 28% so the 13.5k would need to be 17.3k to keep the same purchasing power. That means that the pot will need to be correspondingly 28% larger to keep the withdrawal rate to 3% - i.e. 577k.

If you have a play with various compound interest savings calculators (or spreadsheet it) starting from 150k and reaching 577k after 10 years then at 5% growth (not unrealistic for an investment portfolio) you'd need to be contributing about 26k pa. (including employer contribution and tax uplift)

You'd then need to add the 8.5k SP equivalent (assuming 10.8k after 10 years inflation) to savings either inside or outside the pension to bridge the years to SP. Is your SP age 67 or 68? If you are retiring at 63 you'd have either 4 or 5 years to bridge, so you'd need another 44k or 55k saved - maybe another 3-3.5k pa contribution (assuming the same level of return as the main pension).

Can you make that level of pension contribution work?

Thanks very much for that; I've put an an inflation factor in my spreadsheet now, and adjusted the targets to suit. My SP retirement age is 67, so there would be 4 years of bridging - that's a separate plan, possibly involving the other SIPP I was considering (may just be an increase to pension contribution now), and about 6k per year I'm putting into Regular Savers.

I'm starting to get obsessive about the spreadsheet now; is that normal?

MallyGirl

Totally normal

Spreadsheetman

LateStarter wrote: »

....
I'm starting to get obsessive about the spreadsheet now; is that normal?

Completely!


Once you have worked out where you need to get to numbers-wise you can look at the most tax-efficient way of getting there & getting as much help from your employer as possible.

AlanP_2

LateStarter wrote: »

I'm starting to get obsessive about the spreadsheet now; is that normal?

Not according to my wife :rotfl:

Typical of those of us who use this forum regularly though.

Alexland

FatherAbraham wrote: »

You can transfer funds to a personal pension later, but why would you bother? Charges on many modern Group Personal Pensions beat SIPP charges. If you only want teachers then you definitely don't need the full expense of a SIPP during your accumulation phase.

But conversely many workplace pensions offer less choice and are higher costs than a SIPP. I couldn't have achieved my desired asset allocation or reduced my total cost of investing (platform+fund) to under 0.25% using just my workplace pension. It saves me over £1k pa against the scheme default strategy.

Alex

atush

you should definitely up your pension contribs- even above and beyond taking yourself out of HRTax. With Sal Sacrifice it is the way to go.

LateStarter

Alexland wrote: »

But conversely many workplace pensions offer less choice and are higher costs than a SIPP. I couldn't have achieved my desired asset allocation or reduced my total cost of investing (platform+fund) to under 0.25% using just my workplace pension. It saves me over £1k pa against the scheme default strategy.

Alex

I feel another spreadsheet coming on, and I need to see what alternate funds are available on L&G. Is it really possible to get the cost that low?

bostonerimus

Reduce your spending. If you spend 20k a year see if you can be happy on 15k