Drop LISA in favour of ISA

Dh6

Evening all,

Our goal is to retire early and we’ve recently started to save heavily to achieve this. We can’t currently allocate any further funds to our saving as we would still like to enjoy life with holidays, young kids etc. I’m 33 my wife is 31.

According to my calculations using a 2% above inflation return we have more than enough in our pensions. 

We’ve also started a LISA each.  Upon reflection, the accessibility at 60 is a big problem. I’ve calculated that we should be able to retire around 52 years old ( my wife 50 ) If we drop the LISA and instead invest more in our current S&S ISA. 

The other option is to continue to investing LISA but that would push our retirement date back to around 55 but with 10k more to spend per year between 60 and 70.

What would you do?

many thanks DH

hugheskevi

I face similar issues. My conclusion is that the tail of tax-incentives shouldn't wag the investment-dog. If you have calculated the amount you need for the period between 60-70, then additional income beyond that is of little value aside from future inheritance to children. So although income would be higher, it is unnecessary income and comes at the cost of resources where they are needed. If an investment does not meet your goal, it is not a suitable investment.

Having said that, tax-incentives are significant and should be exploited wherever possible. So my first thought would be if I could move liabilities into the period where LISAs and pensions could be used to meet them. For example, could a mortgage be paid off using pension/LISA funds - that could increase the amount which could efficiently be used from those vehicles and free up resources for the period earlier in life where additional resources are valuble.

Presumably you are planning to use pensions from age 58 (the likely minimum pension age), LISAs from age 60 and State Pension from age 68 (likely State Pension age).

I am rather surprised you already have more than enough in pensions at the age of 31 - that suggests your target future income could be rather low.

Alistair31

Dh6 said:

I’m 33 my wife is 31.

 we have more than enough in our pensions. 

lucky you

Dh6

No, sorry,  I’ll try and explain a little better!

My calculations suggest we “should” have enough in our pensions when we arrive at pensionable age if we continue saving at our current rates ( we’re self employed with SIPP's, no DC or DB ) we certainly don’t have enough in there now!

My issue Is that we’re going to have around 150% of our target income (which is 32k PA) between 60 and 70 and not enough during our 50’s to retire early. 

Instead of paying monies into our Lisa’s we could direct the funds instead to our S and S ISA to bridge the gap between early retirement and accessing our SIPP’s at 58-60. 

I think that would probably be a better balance for us but I was hoping for other people’s opinions as not using my LISA allowance feels like I’m throwing away “free” money.

Thanks 

Albermarle

we’re self employed with SIPP's, no DC or DB 

Just to be pedantic a SIPP is a DC pension . 

As far as your plans go , you are maybe planning too exactly, too far ahead. Life can bring unexpected events and you may well have to alter your plans at some point .

Dh6

Point taken but I feel there must be some consideration and planning towards the distant future. This time last year I had no pension, no LISA and no savings buffer. 

My figures aren’t exact, they are essentially a pessimistic (hopefully) guess. 

JustAnotherSaver

Jeez. I started about 10 years ago at the age of 27-28 and I certainly won’t have more than enough. 

Well done you. Especially when you’ve only made moves within the past 12 months. 

Dh6

They’re only projected figures but I think I’m on the right track.

Id be interested to know how much your saving per month and what you’re invested in if you are able to tell me?

 Kind regards DH

JustAnotherSaver

Dh6 said:

They’re only projected figures but I think I’m on the right track.

Id be interested to know how much your saving per month and what you’re invested in if you are able to tell me?

 Kind regards DH

Who me?

Yeah i don't mind. I'm not one of these uppity people who wont answer something as simple as that.

I started when i was about 27/28, i can't remember now. A very lowly sum of £100pm so not much at all. Probably generates the response of "well of course then...". Yeah i knew i wasn't going to retire any time soon when i was doing that. Thing is, i was also saving for a house & wanted to put as much in as i could. Some would say i shouldn't have put aside for retirement but i had the viewpoint of if i didn't start then with SOMETHING then when would i start? My wife also paid in £100pm so jointly we were at £200pm.

It stayed like that for some time actually. I bought my house when i was 29/30 but we had all manner of trouble to begin with that came out of nowhere really. Maybe we were too green, maybe we were unlucky. Whatever it was it doesn't matter because bottom line is we had to find £10k-£12k for repairs that we didn't really have for repairs. We got lucky along the road and money that should've been for enjoyment had to go on the house but due to all that the increase in monthly subscriptions couldn't go up. We couldn't afford to do so.

I forget at which point we increased to a joint £350pm. Certainly at least January 2018 as my spreadsheet details that but i didn't have it as detailed in 2017 so i couldn't honestly tell you.

I am wanting to increase it further but it's whether we can afford to do so and still have cash aside. It's avoiding the situation of - i'd like [holiday/new TV/fridge/washing machine/roof repair etc] and being like yeah i can afford that - in 10 years time.

I'm also not sure what i was earning back then which makes all the difference. From reading on these forums, while there's people who earn like myself and also people who earn less, i think there's many people (perhaps even the majority??) who earn a really nice wedge. It obviously allows you certain things. A pint of milk costs the same for a minimum wage earner as it does a higher rate tax payer but they're likely to be affording different amounts of spare cash out of their pay packet.

From memory i was around £18k back then, my wife around £14k-£16k. I think she's about £18k-£19k now whereas last year i was £27k.

The house issues right after we bought it though were a big set back, probably the main reason why we're not further along. Put us back a good few years i'd say.

In all this i don't factor in the workplace pension for either of us as this to me is bonus money. The minimum amount has gone in throughout and started whenever it got rolled out. 2016?

steampowered

Are you a higher rate tax payer? If so, it would make sense to focus on pension contributions rather than a Lifetime ISA or S&S ISA.

From a pure investment returns perspective, it would make sense to focus on the Lifetime ISA / pension now, and focus on the S&S ISA later. That's because you'll get investment returns on the government bonus / tax relief.

In reality though, if you are a basic rate tax payer and given you are satisfied with your pension situation, I would probably focus on maxing out the S&S ISA. It just gives you more flexibility. If in 20 years time you decide that you want to move to a bigger house or you want to go on big holidays or pay your childrens' house deposits - a S&S ISA gives you the flexibility to do that.

Dh6

I appreciate your response Justanothersaver, a lot of what you say I can relate to!

Im not a higher rate tax payer and I wouldn’t have the funds to
max out the ISA annually. We currently have direct debits to pay in £6k PA with the intention of investing and spare cash we have during the year.