Advice on Timing

LateStarter

As I'm heartily fed up of working, I'm trying to plan my way out (please don't suggest death). I'm 53, hoping to retire by 62/63, which seems a long time away. I'd like to have maybe 3 years of cash available then (maybe 75k), so I'm not forced to draw down from the pension if it's going through a bad patch.


So here's my question - now that I've got a year of emergency cash, does it make sense to throw every extra penny into the pension, at least for the next couple of years, to get the best chance for growth? I could then save more cash in the years closer to retirement to build up the cash pot. What do you think?

Triumph13

As regards timing, all the research says that it's better to invest early, but I'm sure you'll have some people advise you, quite reasonably, that market valuations are high at the moment and to hold off. On average the mantra is 'time in the market not timing the market', but we are never in average times.
There is a bigger point about whether 3 years' spending is the 'right' amount to hold as a buffer against downturns which will also get conflicting answers as it can be quite a drag on returns.
You pays your money and you takes your choice I'm afraid. If 3 years' buffer is what it takes to help you sleep at night then that is probably more important that trying to maximise your returns. Would hedging your bets and building both the pension and the cash in tandem 'feel' better?

shinytop

Whether you keep it in cash or investments, the more important question is whether to put it in a pension or not. Even if you keep it in cash, the tax breaks mean available mean you're likely to be better off putting it in your pension, especially if you are a higher rate taxpayer and/or can contribute by salary sacrifice. That's what I did/am doing in the run up to retirement and it's working very well for me.

crv1963

LateStarter wrote: »

As I'm heartily fed up of working, I'm trying to plan my way out (please don't suggest death). I'm 53, hoping to retire by 62/63, which seems a long time away. I'd like to have maybe 3 years of cash available then (maybe 75k), so I'm not forced to draw down from the pension if it's going through a bad patch.


So here's my question - now that I've got a year of emergency cash, does it make sense to throw every extra penny into the pension, at least for the next couple of years, to get the best chance for growth? I could then save more cash in the years closer to retirement to build up the cash pot. What do you think?

It all depends on attitude to risk. Then there's the topic of where to keep the cash in case of a crash. Is your years worth of cash working or losing value to inflation?

My attitude to the cash reserve is to place it somewhere it works- my thoughts are we need a couple of months cash reserve, can use credit cards in an emergency- liquidating other assets such as Premium Bonds, National Savings to pay the bill when it comes in.

Currently we are putting money into Mrs CRV pension- the uplift is worth having. But you also need to think about how you will withdraw the savings.

pensionpawn

Dump all you spare income into your pension and use whatever proportion of your TFLS at the appropriate time to supplement your cash reserves. I would keep the cash in a staggered array of 3 - 5 year cash ISAs which will allow you to A. keep track with / minimise loss against inflation, B. access your cash in contiguous financial years. That said three years of cash would for me be a minimum of £37k5 which is a lot of money, and potentially a high proportion of your pension pot(s) to cap to zero growth (more likely very slow depreciation). I'm the same age as you and am doing all I can to be fiscally independent by 57, having also had enough of the lunacy of the surrounding work environment (although I actually enjoy, more or less, what I do). What about the option of part time work to bolster cash if the markets deteriorate for any period of time?

cloud_dog

LateStarter wrote: »

As I'm heartily fed up of working, I'm trying to plan my way out (please don't suggest death). I'm 53, hoping to retire by 62/63, which seems a long time away. I'd like to have maybe 3 years of cash available then (maybe 75k), so I'm not forced to draw down from the pension if it's going through a bad patch.


So here's my question - now that I've got a year of emergency cash, does it make sense to throw every extra penny into the pension, at least for the next couple of years, to get the best chance for growth? I could then save more cash in the years closer to retirement to build up the cash pot. What do you think?

I'm in a similar boat, insofar as I identified (perhaps a little late in the day) that what I didn't have was flexibility regarding retirement. I have a good DB scheme which kicks in at 65 and my SPA is 67.

Due to me being:

1. Too old for a LISA
2. A HRT payer
3. My company using Salary Sacrifice

I have opted to make additional contributions in to a DC AVC pot. I have a few years less than the 10 years you indicate but I am hedging my bets. I am placing 25% of my contributions in to a cash equivalent fund (I am somewhat limited to available funds), and the rest in to an international fund.

I would like to draw on this pot from 60, and the intention is that this pot would fund the gap between early retirement and 65.

I would usually invest all the money but with my contributions only costing me 58% of the actual contribution I'm happy to leave some in a cash equivalent fund and to suffer some inflation erosion.

bluenose1

cloud_dog wrote: »

I'm in a similar boat, insofar as I identified (perhaps a little late in the day) that what I didn't have was flexibility regarding retirement. I have a good DB scheme which kicks in at 65 and my SPA is 67.

When I have crunched the numbers I have decided to take my DB scheme pension at 55 as wont be financially worse off until mid 70s.
From when SP starts at 67 I will have a good income, so to me worth it to retire 5 years early, rather than hold out with the related stress of working etc.
Lovely thought going 5 years earlier than expected.

LateStarter

Thanks for the comments all. The idea of using the TFLS as the 'interim' cash to get to SP age is an interesting one; I certainly wasn't planning to crystallise/withdraw that much so I'll have to re-do the figures (I feel another spreadsheet coming on)



I've salary-sacrificed so that none of my income falls in the 40% bracket, and I'm feeding £550 pm into 5% regular savers. My initial question was because I was wondering what to do with those pots when they mature. My company is both unwilling and incapable of getting ad-hoc requests right, so I've started a SIPP to put and extra income/savings into.



Shinytop, have I understood you right? Can you really just put cash into a pension SIPP, leave it uninvested, AND get the government top-up?

LateStarter

pensionpawn wrote: »

Dump all you spare income into your pension and use whatever proportion of your TFLS at the appropriate time to supplement your cash reserves. I would keep the cash in a staggered array of 3 - 5 year cash ISAs which will allow you to A. keep track with / minimise loss against inflation, B. access your cash in contiguous financial years. That said three years of cash would for me be a minimum of £37k5 which is a lot of money, and potentially a high proportion of your pension pot(s) to cap to zero growth (more likely very slow depreciation). I'm the same age as you and am doing all I can to be fiscally independent by 57, having also had enough of the lunacy of the surrounding work environment (although I actually enjoy, more or less, what I do). What about the option of part time work to bolster cash if the markets deteriorate for any period of time?

Part time work is definitely an option, I'm on a decent wage now but certainly not enjoying it as much. If I could get the pension pot big enough (ha!), I really consider a lower paid/part time job to keep me occupied for a few years.

bluenose1

Could you not put more into your work pension? You cannot beat the benefit of salary sacrifice.

LateStarter

bluenose1 wrote: »

Could you not put more into your work pension? You cannot beat the benefit of salary sacrifice.

You are right, if course, but at the moment I'm in a running battle with both HR and Finance, as my previous request to raise the salary sacrifice percentage went unactioned for the 1st month, without even a "sorry". My latest request has found the one accountant who can't do maths, who says HR sent him the wrong figures, who claim they didn't. Bluntly I'm tired of dealing with them.