Retirement Plan - currently aged 31 years old - Thoughts?

ian1246

Hi Guys.
            Just would like to hear your thoughts regarding planning for retirement - I've never really done a plan before to try and plan for retirement, so the below is the "first draft". 

I'm 31 years old. Wife is 28 years old.

Pensions:

Me - 2015 Police Care Scheme. In current value, assuming I retire at 60 & no promotions, it will be worth £23,801 per year - £1,628 take home, in current value (inflation linked increases each year).

Wife: Has accumulated around £1000 a year in a deferred teaching Pension which can be taken at national retirement age (68) & currently contributes £170 a month into a NEST (currently High Risk Fund) Pension, alongside the minimum employer contributions (Nursery). Current Value - £5500(ish).

Plan:

- May 2049: Both Retire (Me - 60. Wife - 58). Rely on Police Pension (£1628 Per month current value) & top up this amount utilising funds from my Lisa - £1000 per month in current value (Around £1823 per month May 2049 value, assuming 2% inflation per year).

- January 2052: Wife Turns 60 - My LISA will be depleted, so now switch to hers, topping up Police Pension with £1000 per month Current Value (£1926 January 2052 Value)

- May 2057: I turn 68 - access to State Pension (£674 per month).. Reduce Wife's LISA top up to £500 per month Current Value (£1068 May 2057 Value)

- January 2060: Wife turns 68 - her state pension replaces her £500 Current Value LISA top-up contributions.

Objective: Ensure a Minimum of £2600 (2020 Value) Per Month Retirement Income by the above plan.

Estimated Figures:

- My LISA: Will need to fund 32months of Drawdown from May 2049- current 2020 Value £1000 per month. Assuming 2% inflation per year & 7% investment growth (5% after inflation) until May 2039, when I'll switch it to a safer investment & stop contributing (Government bonus ceases at age 50), so say a 3% Investment growth (1% after Inflation), I've worked out the LISA will need to have £70,772 in it by May 2049, which will then fund the drawdown until January 2052 (Assuming an even safer 1.5% Investment growth from the point of drawdown in May 2049, with 2% inflation, meaning the final - January 2052 - month's withdrawal would be £1926 to off-set inflation).

- Wife's LISA: Will need to fund 65 Months of Drawdown from January 2052 at current 2020 Value £1000 per month & 31 Months from May 2057 of current 2020 Value £500 per month. Assuming the same as above - 7% Investment Growth, 2% yearly inflation, stopping contributing at age 50 (no more government bonus) and switching to a safer fund generating 3% investment growth for the last 10 years before drawdown, then only 1.5% growth during drawdown - it would mean by December 2051 the LISA will need to have £159,544 in it, in order to fund the required drawdown until January 2060.

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Does the above sound vaguely on target in terms of planning for retirement? Am I missing anything obvious? 

If the above is viable, it means I then have some figures for the LISA Pots which I can then work back from to work out the necessary funding for them to meet the target - the idea being to balance adequately investing for the future, whilst balancing it against living life currently.

In terms of Wife's NEST Pension - the plan would be to not initially access it - since when I die or end up in a care home, it would then replace my lost pension (albeit if I die, wife would get 50% of it), ensuring she has a reasonable quality of life. In the event of her death - the pot would come to me, allowing her lost state pension contributions to be replaced.

Rough figures for her NEST Pension, assuming 7% investment growth up until January 2050 (Wife Turns 58), when we would then switch it to a safer pot generating maybe 3% investment growth, and increasing her monthly contributions by £5 every April (to offset estimated 2% yearly inflation growth i.e. maintaining her £170 monthly contribution in real-value), her Pension would be worth around £546,742 by January 2060.

Worst case scenario and she has to start drawing that pension down from January 2060 (68 years old), drawing a 2020 Value of £750 per month (£1,695 January 2060 Value) and assuming a 1.5% investment return & continued 2% inflation growth (increasing monthly drawdown to offset inflation), the pot would run out in February 2085 - just after she turns 94 years old.

Hopefully though, it wouldn't be needed until much later after January 2060!

In terms of living costs - setting aside mortgage payments & pension/savings etc... - our current outgoings are less than £1,356 per month, which gives us a good quality of life in terms of disposable income, savings for gifts, eating out etc... & also includes additional expenses such as commute costs & unison membership, contact lenses etc... - which would not be necessary when retired - so £2600 a month is a good desirable income for us.

JoeCrystal

ian1246 said:

Pensions:
Me - 2015 Police Care Scheme. In current value, assuming I retire at 60 & no promotions, it will be worth £23,801 per year - £1,628 take home, in current value (inflation linked increases each year).

You should not assume that by the time you retire. Have you consider that if you want to retire at eight years before your default retirement age aka 68, you will see your pension actuarially reduced. And frankly, such a generous pension scheme will not last that long so expect to have your police pension provision reduced in its generosity in the next reforms and your SPA increased. I am older than you, and I am expecting my SPA to be 70 instead of 68 since we are all living longer. Still, it gives you some idea on what you can expect but should not count on it until you are much close to the age you consider retiring. 

Overall, I think your planning is overly complicated at your stage of life. You will have many unexpected events occurring that may derail your plans (So many potential issues). The pension laws are likely to be quite different in thirty years. Look how different it was in pension landscape back in the 1990s! Just focusing on improving your retirement provision much as you can with a reasonable cost and do not worry about it much yet. You already got a pretty good pension provision already.

cfw1994

A mildly harsh yet undeniably accurate summary there.
Family, life, governments....so many things can get in the way!  

Sounds to me like you have decent careers.....at your age, I would be (& was, so many years ago!!) concentrate on enjoying life (Covid-permitting!).  If you have excess monies, keep stashing away to ISA....my only advice being that with such a long lead time, S&S low cost trackers would be my general choice.

enthusiasticsaver

I think it is a good starter plan but given you are 30 years away from retirement things could change. Overpaying into your pension is sensible and having an investment plan by way of Lisa to cover the early years is a good idea. 

You don't mention a mortgage or children. Do you have either? 

cfw1994

enthusiasticsaver said:

I think it is a good starter plan but given you are 30 years away from retirement things could change. Overpaying into your pension is sensible and having an investment plan by way of Lisa to cover the early years is a good idea. 

You don't mention a mortgage or children. Do you have either? 

I assume you meant ISA, not LISA?  

You can pay in up to the age of 50, but can’t access a LISA until you are 60....whereas your pension can be accessed from 55-57.   Of course future governments might change this....

Perhaps you meant between 60 and state pension?

LISA can be a bonus 60+ pension if it isn’t used for a first home purchase....but ISAs can help bridge the gap between an earlier retirement and any (state or other) pension.
& yes, if it wasn’t for those pesky kids, I’d have retired about 20 years ago 😂

Retireinten

Firstly well done for giving this so much thought at your relatively young age.  I didn't start to seriously plan out our retirement until I turned 40 five years ago.
Definitely check out the value of your police pension after actuarial reduction at 60 if you are not quoting the reduced amount here. I'm long standing LGPS and my ideal retirement date is 10 years from now - and I am extra cautious with my retirement planning, which uses the LGPS pension I have accrued to date, less actuarial reduction at 60 (I will be funding 55-60 through ISAs/private pensions). If I were to lose my job tomorrow and never work in local government again this would not affect my retirement plans... I'm not suggesting you go this far (many councils are using what little is left in reserves to fund COVID19, so there will definitely be heavy job losses in this sector).  The key is to create a plan and review it regularly and definitely when something fundamental changes, such as a change to SPA, a life event that impacts your ability to save or the police pension is reviewed. 
I also tend to do my retirement planning in 'today's money' but ensure each retirement income stream is 'inflation proof' as its just easier to understand. Not for everyone maybe but I can relate to the figures far more this way.
I think many on here are right. You're in a great scheme which may or may not change over the next 29 years. There are lots of unknowns which you simply can't plan for. So I would work out how much you can throw into your Lisa's whilst living a little - do that for now and review your pension savings regularly. 
It's also worth looking at your work pension schemes - do any of them offer a means to salary sacrifice into your pensions? This will save you NI so a better deal over Lisa's. 

hugheskevi

Retireinten said:

Definitely check out the value of your police pension after actuarial reduction at 60 if you are not quoting the reduced amount here...It's also worth looking at your work pension schemes - do any of them offer a means to salary sacrifice into your pensions? This will save you NI so a better deal over Lisa's.

Post 2015 Police pensions have a Normal Pension Age of 60 when retiring from active service (and a deferred pension age of State Pension age). Salary Sacrifice is not offered by any of the main public sector pension schemes.

Thrugelmir

A 5% growth rate is an aggressive objective. Besides inflation you need also to allow for fees. Nor is the growth rate likely to be linear. If only mapping out the future were that easy. 

georgehere

I don't know, but the advice I have seen seems to say use up your savings allowance on pensions first before considering LISAs or ISAs and only consider LISAs if you are a higher rate tax payer (otherwise just ISAs). Currently that would mean ensuring that you are at £40k each going into pensions before anything else.
Agree, aim to take work and State pensions at 'retirement age' (68-70) to avoid actuarial reductions. Hopefully the other pensions will be accessible legally at about SP age minus 10 years (58 - 60). You will need to live off the other pensions for 10 years and have in place sufficient emergency funds in place from (58-60).
In your retired monthly expenditure plan make sure you have a notion of taxes, SIPP fees and an allowance for continuing savings per month.

steampowered

That all sounds extremely sensible to me, and puts you way ahead of most people your age, well done.

There are a few unknowns and variables which may impact things. For example LISAs probably won't exist any more when you come to retire; who knows what will happen to the state retirement age and state pension; these days lots of people move down to part time work when they reach retirement age rather than going straight from full time work to retirement.

But, you can't really predict all that, as it's too far off in the future. All you can do is make decent pension contributions while you are young; which you are doing.

ian1246

Thanks for the thoughtful replies guys - lots of food for thought!  I will try and address the various points.

JoeCrystal said:

ian1246 said:

Pensions:
Me - 2015 Police Care Scheme. In current value, assuming I retire at 60 & no promotions, it will be worth £23,801 per year - £1,628 take home, in current value (inflation linked increases each year).

You should not assume that by the time you retire. Have you consider that if you want to retire at eight years before your default retirement age aka 68, you will see your pension actuarially reduced. And frankly, such a generous pension scheme will not last that long so expect to have your police pension provision reduced in its generosity in the next reforms and your SPA increased. I am older than you, and I am expecting my SPA to be 70 instead of 68 since we are all living longer. Still, it gives you some idea on what you can expect but should not count on it until you are much close to the age you consider retiring. 

Overall, I think your planning is overly complicated at your stage of life. You will have many unexpected events occurring that may derail your plans (So many potential issues). The pension laws are likely to be quite different in thirty years. Look how different it was in pension landscape back in the 1990s! Just focusing on improving your retirement provision much as you can with a reasonable cost and do not worry about it much yet. You already got a pretty good pension provision already.

You raise some valid points in terms of pension laws and the pension schemes themselves being likely to change. Its worth noting the default pension age for the Police Scheme is 60 - you can take it as early as 55, but would then have a reduction. Likewise - you can retire after 60 now (previously you had to retire by 60), and will gain significant advantages by doing so.

The Police Scheme itself is different to other Government schemes - Police contribute far higher % (14%) compared to other government schemes and realistically, the retirement age can't be pushed much higher than it currently is due to the limitations of the role. It is possible it may change before my retirement, though its worth noting the government changes in 2010 went a long way to making it more viable in the long-term.

Its worth noting that against the risks of the scheme being overhauled and reduced benefits, I haven't factored in future promotion(s) into my plan - there are lots of opportunity to move up the ranks (I m planning to do my Sgt exams in March 2021), which would then mean additional pension accrual opportunities, hopefully at least allowing me to somewhat off-set future changes coming up. In terms of benefits accrued thus far - So far I've contributed nearly 6 years into the scheme, with another 29 years to go.

cfw1994 said:

A mildly harsh yet undeniably accurate summary there.
Family, life, governments....so many things can get in the way!  

Sounds to me like you have decent careers.....at your age, I would be (& was, so many years ago!!) concentrate on enjoying life (Covid-permitting!).  If you have excess monies, keep stashing away to ISA....my only advice being that with such a long lead time, S&S low cost trackers would be my general choice.

Absolutely - which is why I have tried to draw up a plan now, the idea being a vague sense of direction/plan now to identify the costs involved of planning for retirement, will allow them to be budgeted for over a longer time frame,  reducing the pressure/costs involved at any one point and allowing us a good lifestyle throughout - especially with compounding & Stocks & Shares ISA's :-) 

enthusiasticsaver said:

I think it is a good starter plan but given you are 30 years away from retirement things could change. Overpaying into your pension is sensible and having an investment plan by way of Lisa to cover the early years is a good idea. 

You don't mention a mortgage or children. Do you have either? 

Agreed. I'm hoping by planning early, we can come up with a retirement plan which can be funded in a sustainable way which doesn't heavily compromise existing life-style. Should things then change, we would hopefully have the ability/capacity to adapt to any negative changes.

We do have a mortgage - currently £577 fixed till October 2020 (5 year fix). 20 years left to run after that, being paid off October 2040 when I am 51 & Wife is 48 years old. We do plan to move in the future, but hopefully any future mortgage would be paid off by the time I turn 60!

In terms of children - we are trying to start a family currently. The plan currently is to fund each of our LISA's by £333 per month (alongside my Police Pension Contributions & Wife's £170 NEST Pension Contributions) until we have children - then reduce the amount going into my LISA to £75 per month & her LISA contributions to £150 per month, which would hopefully be sustainable in the long run with the added costs of children & Wife working part-time (Lost earnings off-set in part by my being due to go to pay-point 6 next month and then hitting the final pay-point July 2021, so £10,000 pay rise over the nextf 13months... provided government doesn't freeze public sector pay!!!!)

.Retireinten said:

Firstly well done for giving this so much thought at your relatively young age.  I didn't start to seriously plan out our retirement until I turned 40 five years ago.
Definitely check out the value of your police pension after actuarial reduction at 60 if you are not quoting the reduced amount here. I'm long standing LGPS and my ideal retirement date is 10 years from now - and I am extra cautious with my retirement planning, which uses the LGPS pension I have accrued to date, less actuarial reduction at 60 (I will be funding 55-60 through ISAs/private pensions). If I were to lose my job tomorrow and never work in local government again this would not affect my retirement plans... I'm not suggesting you go this far (many councils are using what little is left in reserves to fund COVID19, so there will definitely be heavy job losses in this sector).  The key is to create a plan and review it regularly and definitely when something fundamental changes, such as a change to SPA, a life event that impacts your ability to save or the police pension is reviewed. 
I also tend to do my retirement planning in 'today's money' but ensure each retirement income stream is 'inflation proof' as its just easier to understand. Not for everyone maybe but I can relate to the figures far more this way.
I think many on here are right. You're in a great scheme which may or may not change over the next 29 years. There are lots of unknowns which you simply can't plan for. So I would work out how much you can throw into your Lisa's whilst living a little - do that for now and review your pension savings regularly. 
It's also worth looking at your work pension schemes - do any of them offer a means to salary sacrifice into your pensions? This will save you NI so a better deal over Lisa's. 

Thanks - I've done a fair bit of reading over the years on this forum into pensions and investments. In the last 18-24months, we ve had various costs which we've had to meet, plus building a good sized emergency fund. We're now at the point where we can hopefully start to bring additional £££'s to bare for the future.

I completely understand your points - I'm hoping by starting early, we'll be able to put aside more £££'s for retirement than we otherwise would be able to, which means should life-events get in the way, or my pension be heavily reduced, we will be better placed to respond to the change and compensate, so that our retirement is not too badly damaged.

We have quite a good life-style. Both of us are fairly frugal, but do still treat ourselves and have a balanced lifestyle - we just try to be moderate and balanced. Previous-pay rises, rather than leading to "Life-style Bloat", have gone towards generally essential "Fixed" Costs (I.e. Wedding, Boiler replacement, new 2nd-hand car, building a reasonable emergency fund etc...), or been saved.

The plan is certainly to keep pension savings under review - I just need a rough idea on what to aim for so that I can see how we are progressing! Salary sacrifice sadly is not an option for either of us (Wife is virtually minimum wage & no option for Police). Worth baring in mind in the future though!

Thrugelmir said:

A 5% growth rate is an aggressive objective. Besides inflation you need also to allow for fees. Nor is the growth rate likely to be linear. If only mapping out the future were that easy. 

Thanks for the reply - what is a reasonable objective? I've heard generally the stock-market has returned around an 8-10% average over the last 30-40years? What would be a reasonable realistic average growth rate on which to plan?

georgehere said:

I don't know, but the advice I have seen seems to say use up your savings allowance on pensions first before considering LISAs or ISAs and only consider LISAs if you are a higher rate tax payer (otherwise just ISAs). Currently that would mean ensuring that you are at £40k each going into pensions before anything else.
Agree, aim to take work and State pensions at 'retirement age' (68-70) to avoid actuarial reductions. Hopefully the other pensions will be accessible legally at about SP age minus 10 years (58 - 60). You will need to live off the other pensions for 10 years and have in place sufficient emergency funds in place from (58-60).
In your retired monthly expenditure plan make sure you have a notion of taxes, SIPP fees and an allowance for continuing savings per month.

I'm not sure I follow? My understanding is Pension is absolutely key in order to gain employer contributions or salary sacrifice- but after which LISA & Pensions are equally matched in terms of Bonus (25%) available. For Higher Rate Tax-Payers, Pensions then beat LISA's due to being able to claim 40% Tax Rebate, whereas LISA's are capped at £4000 per year & 25% Government Bonus - against this, LISA's are tax-free on withdrawal vs. the pensions initial 25% & then subsequent yearly taxable amounts?
I might be misunderstanding that though!

In terms of Pension Access - Police Pension Default Age is 60 years old (No Actuarial Reduction) & NEST will be 10 years before state pension (although don't plan to touch that initially!). The LISA's would be to provide the additional income from the age of 60 until state pension age. 

The last point about taxes, SIPP Fee's & continued savings are definitely worth looking more into - thanks :-) 

steampowered said:

That all sounds extremely sensible to me, and puts you way ahead of most people your age, well done.

There are a few unknowns and variables which may impact things. For example LISAs probably won't exist any more when you come to retire; who knows what will happen to the state retirement age and state pension; these days lots of people move down to part time work when they reach retirement age rather than going straight from full time work to retirement.

But, you can't really predict all that, as it's too far off in the future. All you can do is make decent pension contributions while you are young; which you are doing.

Thanks - my mind set is essentially that neither me or my wife are ever going earn huge amounts of £££ - but if we are sensible and properly plan and budget in life, what we do earn will hopefully be enough to provide ourselves and future children (hopefully!) a good life-style, whilst also allowing us to properly fund our future pension provisions - hopefully with some spare £££ capacity to meet life-events or changes.

I'm also keenly aware that now that we ve got our emergency fund sorted, covered various "fixed" costs over the last 18-24months (New 2nd hand car, wedding, boiler, house decorating etc..), that now - until we have children - is when we will have the most disposable income probably until we retire. The amount we will hopefully be able to afford to put aside for the future in the coming months could well equal what will take us years in the future once we have children with the additional costs involved & Wife working part time!

I just don't want to waste that opportunity - I toyed with overpaying the mortgage (We would like to eventually upgrade in the future so would prefer to have increased equity), but pension provision seems the better option overall!