when is enough, enough? long term planning

Albermarle

As I understood the charge is basically 55% of anything above the allowance so even with 40% income tax it's better to take the cash in pocket rather than in the pension isn't it ? (

Although already explained by TN184, I will just elaborate .
If you take the pension above LTA as income and if you gained 40% tax relief on contributions and if you only pay 20% income tax on the way out, you have not lost or gained . If there were also employer contributions then you are ahead.

SmashedAvacado

I know this is a pensions thread, but i almost think there should be (if there is i havent found it) a section for people that are retiring from the proper high income job and going into lifestyle businesses / employment using partly private income and partly earned income (from non rat race type jobs) to continue a good lifestyle.

I am 44 this year and planning to give up huge income for something along these lines as i never see my kids and the job causes me severe stress and anxiety. Enough is enough when you are confident enough to know you can house, clothe, feed yourself and keep yourself warm. Beyond that, its risk and reward.

SouthLondonUser

OP, what's your job? In your post it seems you assume you'll keep the same job and salary till retirement. If you can pull it off, well done, but it depends. If you are in a very stable job (e.g. NHS doctor) it's certainly feasible; if you are a middle manager in the private sector, sadly, less so: many people in those jobs are more likely to see their income decrease rather than increase after they reach 45 or so: they be made redundant because they're seen as too expensive, resort to consulting, etc.

ex-pat_scot_2

Several questions at play here, beyond the headline "number?"

1. what is the tax efficient strategy and amount to save.
if you are in the marginal 62% (+er contribs) salary band between £100k and £125k, then pension contributions, even above LTA, is still beneficial. If you take out as salary, then its 62% relief (+ers NI + ers contribs) vs 40% tax on the way out, and IHT free as a savings pot.

2. makes sense to have as much going into spouse as possible.

3. (L)ISA also a useful tool, to fund your early years (pre 57 or pension access age) reuqirement.

4. work, stress, income.
This is where it becomes tricky, or at least many-dimensional.
Only you can tell what is bearable and desirable for your workload, time away and with the family, stress, culture etc.
I yearn (in a "grass is greener" fashion) for the simple life, as an example: I could switch from current situation (earning £125k gross, with £40k total pension contributions PA and around £10k pa costs of living away from home) to a simpler life, without any detriment to the monthly pay packet, by taking a home-based / nearby role at £65k pa, or even lower if I could persuade Mrs XPS to earn more.
You might take a similar view at some point; that your pension saving is sufficient and therefore you can "downsize" your life without any downsize in day to day income.
(your figures may vary a little but the sentiment and progressive tax system we have will probably give you very similar outcomes).
My current lifestyle gets me £5200 monthly, ie £4200 after the "staying away in London" costs. We could get close to that with one (or two) easier local jobs, but would not have the £40,000 annual contributions to the pot.

There's also the pace question. Michaels has a different part-time approach, stretching the goal / date but allowing a gentler pace and taking advantage of the lower tax bands. You might be able to accommodate this approach now or gradually, within your line of work.

MaxiRobriguez

LTA will increase and pension sacrifice tax bonus for higher rate payers may be cut to standard rate over the next few years.

I'd keep pumping money into your DC. If you approach LTA later on, you can always convert your investment holdings into cash to avoid going over the limit.

If you approach that timeframe over the next few years then you can always divert your money into a S+S ISA and build that up for a period of time which could be used to bridge the gap from any early retirement until when you are able to access the DC.

MarkCarnage

I'd keep pumping money into your DC. If you approach LTA later on, you can always convert your investment holdings into cash to avoid going over the limit.

Why would you want to do that? Surely you are still better off paying some tax on a higher value than trying to keep below the threshold, pay no tax but have a lower portfolio value? Keeping it lower by withdrawing it, is probably a more sensible strategy, though only one for the age 75 test.

enthusiasticsaver

I would work out how much you will need in retirement. You are a high earner (not modest IMHO) and most high earners also spend a lot although you seem to be very prudent in investing £50k a year.

Do you have a mortgage or other debt and when will that be repaid?

Certainly continue to pay as much as possible into your wifes SIPP. Is she transferring 10% of her PA to you?

Continue to pay into stocks and shares ISAs. As you have kids do you intend saving for university costs/ help with house deposits etc?

As to the work/life balance it is difficult to say without knowing more but you should consider the following.

I am not sure how long your wife has been a SAHM but this will affect both her ability to get a job and her earning power. Being out of a job market for a long time never looks good to employers.

If your job is stressful/long hours then going part time if you are able to or going into lower paid but less stressful employment may help.

I think the LTA will be a huge problem for lots of people in years to come and presumably it will be raised each year so may not be a problem by the time you get to retirement age. Just update your cashflow forecast and pension predictions each year so you keep track of where you are.

Alexland

enthusiasticsaver wrote: »

Certainly continue to pay as much as possible into your wifes SIPP. Is she transferring 10% of her PA to you?

Sadly marriage allowance isn't available if one of you is a high earner.

enthusiasticsaver wrote: »

I think the LTA will be a huge problem for lots of people in years to come and presumably it will be raised each year so may not be a problem by the time you get to retirement age.

LTA has been increased for inflation in recent years but with long term returns hopefully above inflation the existing contributions are using a higher proportion each year.

Alex

NedS

SmashedAvacado wrote: »

I know this is a pensions thread, but i almost think there should be (if there is i havent found it) a section for people that are retiring from the proper high income job and going into lifestyle businesses / employment using partly private income and partly earned income (from non rat race type jobs) to continue a good lifestyle.

I am 44 this year and planning to give up huge income for something along these lines as i never see my kids and the job causes me severe stress and anxiety. Enough is enough when you are confident enough to know you can house, clothe, feed yourself and keep yourself warm. Beyond that, its risk and reward.

FIEW = Financially Independent, Enjoying Work?

Alexland

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