Good pension for my age?

enthusiasticsaver

How big your pot needs to be depends on what level of income you will need in retirement and when you want to retire. Presumably your SPA is 68 and you are tying in your mortgage end date which does not necessarily need to be the same as retirement date. Some openly encourage investing in your pension rather than overpay the mortgage as interest rates are low mainly due to long term investment returns and the tax relief. However investment growth is never guaranteed so we did both.

Realistically though you have at least 20 years before you can retire so maybe annually just check on what sort of income you will need and match it with your pension forecasts. Presumably your pension is D.C. so at the moment most work on 4% per annum drawdown but that depends on wha5 othe4 sources of income you will have. £86k at your age is good I would say.

chelseablue

My Dad has always said the same 2 things to me about finance; start paying into your company pension as soon as you can and always have a repayment mortgage

Anonymous101

chelseablue wrote: »

My Dad has always said the same 2 things to me about finance; start paying into your company pension as soon as you can and always have a repayment mortgage

That's good advice.


To progress from that slightly I'd say that front loading your pension wherever possible is a good strategy. Firstly you'll benefit from the tax relief but secondly and most importantly the effects of compound interest over time really are remarkable! By investing earlier the amount you'll save over a lifetime will be vast.

westv

Anonymous101 wrote: »

All down to the time linkage I'd say. Investing monies you would have used for overpayments is fine IMO but having a fixed end date for repayment of the capital such as an endowment or interest only mortgage doesn't make good sense to me.


Ideally investing in the stock market needs to be open ended to a degree. You need to mitigate the risk that the market falls before your end date... ideally by not having one.

An IO mortgage implies repayment of capital at a fixed time in the future.

Anonymous101

westv wrote: »

An IO mortgage implies repayment of capital at a fixed time in the future.

I agree. The danger I was pointing out is that if you have the strategy of refinancing and not repaying than loans may not be readily available at a future point.

Bemma

My Dad has always said the same 2 things to me about finance; start paying into your company pension as soon as you can and always have a repayment mortgage
Originally posted by chelseablue
”

That's good advice.

That's certainly good advice, but depending on your circumstances, you can do a lot better!

Mortgage (over)payments come from net salary. Pension payments usually from gross salary.

For example, from my gross salary, I loose:
Tax: 40%
NI: 2%
Higher Income Child Benefit Charge: 18% (2 children, it would be more with more kids)

So combined that's 60%.

My pension scheme is salary sacrifice, so if I have £400 spare cash (net), if I sacrificed that I would get £1000 into my pension.

So with my spare cash I can either:
1. Over pay my mortgage by £400
2. Sacrifice the equivalent salary and put £1000 in my pension (that's 2.5 times as much)

The cherry on the cake is that my company also pay 7% of employer NI contributions on top of that too.
So as JameSD mentioned above, for me it's optimal to pay as little as possible to my mortgage and maximise what I pay into my pension. This means zero capital repayments to my mortgage for as long as I can.

jamesd

westv wrote: »

Aren't interest only domestic mortgages rarer than hen's teeth?

[STRIKE]I don't know of any currently available. The longest possible term is next best.[/STRIKE]Not according to Which?

westv wrote: »

And I'm not sure I'd trust the stock market to fund my mortgage. Yes, you are likely to do well but it isn't guaranteed. Isn't that partly why endowments failed?

Endowments normally succeeded, partly because of guarantees. Where they failed it was a combination of four things:

1. high investment growth assumptions
2. low monthly contributions because of 1
3. lack of monitoring
4. ignoring the gain from 25 years of lower payments

It's not guaranteed but doing it today:

a. there's the immediate gain from the pension tax relief
b. the whole mortgage capital payment plus desired pension contributions is the sort of monthly contribution that might be suggested
c. while 55 is the earliest age, unlike endowments there's no single maturity date issue. You can just start making payments whenever conditions are good, suspend when bad, pay out of bonds, not equities and adjust the investment mixture as desired payment years approach

Historically, it'd never come close to failing but that's still not a guarantee.

Good candidates include people like me with a very high savings ratio and perhaps early retirement objective that creates large margins.

Now retired, my investments are worth more than nine times the mortgage. I'm quite likely to choose equity release or a new mortgage over repaying because of the likely beneficial effect during retirement.

jamesd

Anonymous101 wrote: »

All down to the time linkage I'd say. Investing monies you would have used for overpayments is fine IMO but having a fixed end date for repayment of the capital such as an endowment or interest only mortgage doesn't make good sense to me.

Ideally investing in the stock market needs to be open ended to a degree. You need to mitigate the risk that the market falls before your end date... ideally by not having one.

The product has an end date but there's no compulsion to disinvest on that date. You can and should consider:

1. a term much longer than the target you have
2. staged repayments
3. putting repayment money into lower volatility investments, perhaps some of your normal bond percentage
4. changing to a new maturity product well before the end
5. not repaying but using equity release to maximise retirement spending, see Wade Pfau's work on this

mark55man

westv wrote: »

Aren't interest only domestic mortgages rarer than hen's teeth?
And I'm not sure I'd trust the stock market to fund my mortgage. Yes, you are likely to do well but it isn't guaranteed. Isn't that partly why endowments failed?

Failed is an interesting word. I think they didn't do as fantastically super as the marketing promised, and I think they were devised by the financial industry to pay much of the growth as commission and then fees. However the poor implementation of one scheme does not mean jamesd is wrong to state average returns from a prudent low fee investment won't do a lot better over the long term.

I have two pots a blended DC scheme with my employer invested in a diversified balanced global portfolio This has returned 8% per annum over 8 years, and if I hadn't boycotted the states in 2016 because of my distaste for Trump I would have done a lot better. The second pot is invested in a small number of speculative stocks which breaks all the rules and has been up and down like the Assyrian empire. That too has returned 6% over the period

So although you are right to be cautious you are wrong to avoid together as mainly cash savings will lose out to inflation. And property has not always returned positive returns

Oliver1191

It seems as though most people on here are clapping your progress (and i'm not saying it hasn't been a lot of hard work getting there).

However, most people compare your figure with the majority of the population who pay little or no attention to this sort of issue.

Don't compare yourself with people who have made little or no progress with their pensions! You'll always be in a better position - it doesn't mean your position is any good.

The comment about FIRE are correct. Learn about this. Find out what your costs are and how much you need to achieve the 4% rule. Do you want a lean, moderate or fat FIRE?

Open a sipp, lisa and isa...contribute to these heavily...