difficult to get the balance right ?

clean_cotton

Hi 

I just wondered whether others sometimes struggle to get the balance right when it comes to retirement planning? We are 35 and 40 (no kids), and have recently paid off our mortgage (small modest house in the midlands). My partner is a teacher and has been paying into that since day 1. The teachers pension has a scheme whereby you can purchase 'additional amounts', so we have just arranged to have an extra £5,000 per year in retirement, which costs us approximately £360 each month. I get a very basic pension contribution with work so have recently started to add £240 by direct debit to that, which gives a total monthly contribution, including everything, to £400 - the projected pot is about £100,000 at 61. 
We have also started to purchased bits of physical gold - not loads, but thought about maybe buying 50g each year over 18 years.

We want to retire in 18 years (or at least have the option) and we would have

1. My pension of £100,000
2.Teachers pension lump sum of £75,000
3.Teachers pension income of £16,000 PA
4. 18 x 50g of Gold (thought we could sell them each year for a holiday) 

Joint income right now (after pension contributions) is about £2,500 - but we have things like car loans to pay out. We are naturally good with money, direct debits are always kept to a minimum and do not waste money on tack. 

Is there an obvious flaw to the above plan that I am missing? Also, am I a fool to rely on a state pension ? I only ask because I keep reading that it might not be there when I retire. 

Because we do not have children, I dont like the idea of savings loads for retirement, and then leaving it all behind. 

crv1963

clean_cotton said:

Hi 

I just wondered whether others sometimes struggle to get the balance right when it comes to retirement planning? We are 35 and 40 (no kids), and have recently paid off our mortgage (small modest house in the midlands). My partner is a teacher and has been paying into that since day 1. The teachers pension has a scheme whereby you can purchase 'additional amounts', so we have just arranged to have an extra £5,000 per year in retirement, which costs us approximately £360 each month. I get a very basic pension contribution with work so have recently started to add £240 by direct debit to that, which gives a total monthly contribution, including everything, to £400 - the projected pot is about £100,000 at 61. 
We have also started to purchased bits of physical gold - not loads, but thought about maybe buying 50g each year over 18 years.

We want to retire in 18 years (or at least have the option) and we would have

1. My pension of £100,000
2.Teachers pension lump sum of £75,000
3.Teachers pension income of £16,000 PA
4. 18 x 50g of Gold (thought we could sell them each year for a holiday) 

Joint income right now (after pension contributions) is about £2,500 - but we have things like car loans to pay out. We are naturally good with money, direct debits are always kept to a minimum and do not waste money on tack. 

Is there an obvious flaw to the above plan that I am missing? Also, am I a fool to rely on a state pension ? I only ask because I keep reading that it might not be there when I retire. 

Because we do not have children, I dont like the idea of savings loads for retirement, and then leaving it all behind. 

There's nothing wrong with playing around with your figures, as long as you are willing to alter them as needed. I would suggest work backwards from your goal. You know when you want to retire and how much you currently will have. You need to decide what your retirement income needs are going to be- so a basic "must have", then a comfortable "would like" to the top end of "luxury income". If your figure fall short then either retire later or save more now. 

Also what sort of things will you do in retirement? That impacts on your figures- will you still run two cars? Will you travel more? How will you fund big ticket items such as boilers/ furniture/ carpets etc? Have an idea of what you are retiring to.

What happens when the first dies? Can the survivor manage on the income that they are left with? Is taking your pensions as tax efficient as possible?

Gold- great to have some easily converted back up- is it secure (from theft) and will it hold its' value- it is a volatile commodity.

 State Pension- who knows? Very unlikely to be abolished, is it likely to be offered at a later age 70, 75 or older? Possibly.- try looking at a few threads and good to be planning. Good luck.

clean_cotton

Thank you so much crv - I didn't think to actually do a back calculation, which having read your reply, makes complete sense. 

Linton

clean_cotton said:

......
Because we do not have children, I dont like the idea of savings loads for retirement, and then leaving it all behind. 

The important thing is to get the balance right between spending now and saving for the future.   A sensible balance would be to ensure that your standard of living now matches your planned level in retirement. If you are profligate now you will find retirement difficult.  If you scrimp and save too much now you may not know how to use your wealth in retirement constructively.

As to "leaving it all behind" when you die:  You will be dead and so won't know.  However even if you die unusually young your spouse may well not.  At least one of you is likely to live into your 90's and so I suggest you plan on an age at death of around 95.

You may not want to die leaving excess wealth, however living with insufficient would be far worse.  As you have no children you may wish to set up your wills so that most of your estate goes to charities after the second death.  That would give any excess wealth some purpose.

Albermarle

Also, am I a fool to rely on a state pension ? I only ask because I keep reading that it might not be there when I retire. 

Do you ever think that a government will abolish the state pension, when by doing this they would guarantee being heavily defeated at the next election and probably the next few elections after that. Remember it is older people who vote the most.

Even in this current crisis any talk of even reducing the guaranteed state pension increases is quickly extinguished by the PM.

the projected pot is about £100,000 at 61. 

These projections tend to be rather pessimistic and it will be £100,000 in todays money , so will actually be a lot more than £100k in reality , although things will cost more to buy as well.

Also the performance of a pension is dependent on the funds invested in within it . The correct choice of funds ( and a small amount of luck ) could probably significantly increase the final figure . Have you looked what your pension money is invested in ?

I get a very basic pension contribution with work so have recently started to add £240 by direct debit to that, 

Why do you do it that way instead of just increasing your contributions via your salary ? Also does your company operate a salary sacrifice system for pension contributions ? 

hugheskevi

clean_cotton said:

2.Teachers pension lump sum of £75,000

Is this assuming commutation at 12:1 at age 58? If so, that is a very questionable thing to do.

clean_cotton

Thanks for your comments guys - really appreciate your time. 

Linton - I agree, I think maybe I should focus less on not trying to leave stuff behind. There are a few charities which I support, and believe it or not, we don't have a will sorted. So I might actually look into where I would want our estate to go, maybe having that in place will help. 

Albermarle - I dont know where the pension is invested. It is with the 'Peoples Pension' and I just put the retirement age down and I think they do the rest. I thought the pension company would automatically invest my money for me? The reason why I pay by direct debit is because I am in-between jobs at the minute. Once I know the new set up, I will look and see what option I have there, although its a small business so I doubt its anything decent. 

hugheskevi - I used the calculator on the teachers pension website?


I have recently realised just how difficult retirement planning is. I am useless with stocks and shares or the market and understanding growth. I doubt that I will end up making the best decisions. But thought maybe I can't go much wrong with us placing extra money into the teachers pension and a little in a private pension (the one I have with work).

zagubov

That lump sum looks very generous.
If your lump sum was £50,000 your wife may get more like £18k  per year. Taxed obviously, but rising with inflation.
You might want to check on this.

Anonymous101

clean_cotton said:

I have recently realised just how difficult retirement planning is. I am useless with stocks and shares or the market and understanding growth. I doubt that I will end up making the best decisions. But thought maybe I can't go much wrong with us placing extra money into the teachers pension and a little in a private pension (the one I have with work).

I'd suggest you do some reading on the FIRE movement, particularly The Escape Artist and Monevator blogs. You may or ay not be interested in the desire to retire early (I am) but I also find the way they explain investing, investment vehicles, stock markets etc to be particularly good. They have a skill at re-framing an often overly complex concept.

crv1963

clean_cotton said:

I have recently realised just how difficult retirement planning is. I am useless with stocks and shares or the market and understanding growth. I doubt that I will end up making the best decisions. But thought maybe I can't go much wrong with us placing extra money into the teachers pension and a little in a private pension (the one I have with work).

It is daunting but you've started looking at it so you're in a better position than most!

A will- has to be a priority over any further spending IMHO. Especially as your original post says partner not husband and you own a house. Get a couple of quotes for cost from local solicitors rather pay slightly more and be assured that it is as you wish, get mirror wills as these are probably the most common and cheapest.

Find out what funds that you're investing in- I'm no expert but try to look at completing an investment risk survey on-line to see where you sit in terms of low, medium or high- a good hint would be to not be investing at your age in the safest products as you need growth, have a read around the threads, ask questions and get a little bit of clarity on what is riskiest and what product you currently invest is on a risk scale.

Albermarle

I dont know where the pension is invested. It is with the 'Peoples Pension' and I just put the retirement age down and I think they do the rest. I thought the pension company would automatically invest my money for me?

If you make no positive choices the Peoples Pension automatically invests your money in their Balanced Fund

However there are approx. 10 alternatives available that you can change to online if you want to .

I am useless with stocks and shares or the market and understanding growth. I doubt that I will end up making the best decisions. 

Before you follow the advice above , you might be better to read up some more basic stuff>

https://www.moneyadviceservice.org.uk/en/categories/saving-and-investing

https://www.moneyadviceservice.org.uk/en/categories/pensions-and-retirement

https://www.moneysavingexpert.com/investments/