What number are you aiming for - solely DC pot

cfw1994

Filo25 said:

Started taking pensions seriously belatedly about 3 years ago at the age of 45 at which stage I had £210k in a DC pot (not lucky enough to have a DB pension anywhere).

Been lucky enough to have a few payrises since then which have enabled me to put more in the pension, and have taken a more active interest in asset allocation myself, rather than just sitting in the default work fund although the AA may become a factor going forwards.

So am now sitting at about £400k at 48, which still leaves my ideal target of hitting about £1m at current prices by my early 60's looking possible (my wife is unlikely to have a large pension pot, so mine will have to do most of the heavy lifting in retirement), but I think on balance probably unlikely.

I have had to deal with a significant COVID paycut this year and that will roll into next year (assuming I keep my job at all), and I suspect at some stage higher rate tax relief on pension contributions will either go or be significantly curtailed, and the tax environment in general is likely to be more negative in the aftermath of COVID.

I can hardly complain though I would have been able to acheive it a lot more easily had I started taking pensions more seriously earlier, and I'm under no delusions that I'm in a much better position than most people I know on DC schemes in real life.

Doubled your pot in about 3 years: that is pretty decent!   Keep that up and you will do well.  Remember the “power of compounding” will naturally mean savings (should!) gently “hockey stick up” towards the latter part of your “accumulation” phase!

On your wife not having much of a pot: we are in a similar position.  Don’t know about yours: mine has non-paying “caring” duties so no salary, but remember you can always pay £2,880 into a pension (£3,600 with tax relief) every year. 

Always worth building up a fund for a partner (wish we had thought that through a few more years back than we did!) just to be able to make use of their allowance when drawing down in the future.  

Slightly less relevant if the main earner is a high rate taxpayer, getting more favourable relief on the way in, I guess...

Linton

Deleted_User said:

Mistermeaner said:

You don’t give up, I’ll give you that.  To answer your questions:
- I don’t know when I will retire from my job. As soon as I get bored.
- My farming income does not stop when I retire from engineering/management. Its going up every year from 0 four years ago. There is honey, duck eggs and trees (nursery). And I am investing in setting up a craft meadery. 

- You forgot to count DB income. 

- Yes, I am still investing into my liquid and farming assets.
- Nobody needs the same income in retirement as before retirement to keep the lifestyle.  Nobody. That’s a crazy assumption. Like as of next year I no longer have to pay for my kids’ education and that’s just one issue with your assumption. And by the way, my marginal tax rate is over 50% right now. It will be down to around 30% with the possibility of income sharing the second I retire. 

Hi mordko 

Thanks - you're proving my point 

You are clearly in an excellent position : not only do you earn well you are well diversified and have a clear understanding of tax etc and you also have a plan ; recognising that your income requitements will drop as expenditure calls away 

You have and are continuing to invest and appear to have very little debt

The original point of discussion was about whether having a number to aim for : e.g. A plan was relevant - I say it is , you i believe were saying it's not and advocating amore laissez faire approach : despite in actual fact it turns out doing the exact opposite with your own affairs 

A plan is relevant. A good plan has an objective: I do not want to die poor. A good plan has a strategy: maximize savings while living a decent life, remove unnecessary expenditure, stay invested, minimize investment costs, etc.  Note how all of these are things you can control. Hoping for a number by a date is only really meaningful within a couple of years of leaving work. But we are going in circles.

For a meaningful plan you need numbers.  How much expenditure do you need for "a decent life".  At what date do you want to retire? Only then can you begin to get the right balance between expenditure now, expenditure in the future, and the number of years you need to be in work.

Of course in the early years your estimates and assumptions will prove to be incorrect, but over time as these are updated the plan will approach reality, and at every stage in the process you are making financial decisions on the best information you have available.

pensionpawn

cfw1994 said:

Filo25 said:

Started taking pensions seriously belatedly about 3 years ago at the age of 45 at which stage I had £210k in a DC pot (not lucky enough to have a DB pension anywhere).

Been lucky enough to have a few payrises since then which have enabled me to put more in the pension, and have taken a more active interest in asset allocation myself, rather than just sitting in the default work fund although the AA may become a factor going forwards.

So am now sitting at about £400k at 48, which still leaves my ideal target of hitting about £1m at current prices by my early 60's looking possible (my wife is unlikely to have a large pension pot, so mine will have to do most of the heavy lifting in retirement), but I think on balance probably unlikely.

I have had to deal with a significant COVID paycut this year and that will roll into next year (assuming I keep my job at all), and I suspect at some stage higher rate tax relief on pension contributions will either go or be significantly curtailed, and the tax environment in general is likely to be more negative in the aftermath of COVID.

I can hardly complain though I would have been able to acheive it a lot more easily had I started taking pensions more seriously earlier, and I'm under no delusions that I'm in a much better position than most people I know on DC schemes in real life.

Doubled your pot in about 3 years: that is pretty decent!   Keep that up and you will do well.  Remember the “power of compounding” will naturally mean savings (should!) gently “hockey stick up” towards the latter part of your “accumulation” phase!

On your wife not having much of a pot: we are in a similar position.  Don’t know about yours: mine has non-paying “caring” duties so no salary, but remember you can always pay £2,880 (£3,600 with tax relief) every year. 

Always worth building up a fund for a partner (wish we had thought that through a few more years back than we did!) just to be able to make use of their allowance when drawing down in the future.  

Slightly less relevant if the main earner is a high rate taxpayer, getting more favourable relief on the way in, I guess...

I also noticed that the wife's pension was woefully (partially due to 10 year maternity break and not knowing about the £3600 allowance) underfunded and have been playing catch up over the last 7 years by starting a SIPP (not soon enough) 2.75 years ago to bolster her company scheme (which at 10% employer contribution, is very good). It was like a kick in the twins when I realised that there was a second tax free allowance going begging and we weren't doing much about it. So once I can access my TFLS she'll be dumping (down to minimum wage) the maximum into her pension as the plan is to retire on a drawdown of two personal allowances as a bare minimum. Don't forget you can move 10% of your wife's (or vice versa) tax allowance to yourself.

With regards to hitting an LTA pot at 55 that could be achieved by throwing £100 a month (net) into your pension from 23, rising by around 11% a year with an average fund growth rate of around 8%. However, as posted previously by many, life has a way of throwing mines and hurdles in the way of most plans. I've drummed into my kids that they should get that pension started as early as possible. My youngest is off to uni soon, after taking a (fortunate) gap year, and through two years of supermarket jobs already has £2k in her pension 

[Deleted User]

Linton said:

Deleted_User said:

Mistermeaner said:

You don’t give up, I’ll give you that.  To answer your questions:
- I don’t know when I will retire from my job. As soon as I get bored.
- My farming income does not stop when I retire from engineering/management. Its going up every year from 0 four years ago. There is honey, duck eggs and trees (nursery). And I am investing in setting up a craft meadery. 

- You forgot to count DB income. 

- Yes, I am still investing into my liquid and farming assets.
- Nobody needs the same income in retirement as before retirement to keep the lifestyle.  Nobody. That’s a crazy assumption. Like as of next year I no longer have to pay for my kids’ education and that’s just one issue with your assumption. And by the way, my marginal tax rate is over 50% right now. It will be down to around 30% with the possibility of income sharing the second I retire. 

Hi mordko 

Thanks - you're proving my point 

You are clearly in an excellent position : not only do you earn well you are well diversified and have a clear understanding of tax etc and you also have a plan ; recognising that your income requitements will drop as expenditure calls away 

You have and are continuing to invest and appear to have very little debt

The original point of discussion was about whether having a number to aim for : e.g. A plan was relevant - I say it is , you i believe were saying it's not and advocating amore laissez faire approach : despite in actual fact it turns out doing the exact opposite with your own affairs 

A plan is relevant. A good plan has an objective: I do not want to die poor. A good plan has a strategy: maximize savings while living a decent life, remove unnecessary expenditure, stay invested, minimize investment costs, etc.  Note how all of these are things you can control. Hoping for a number by a date is only really meaningful within a couple of years of leaving work. But we are going in circles.

For a meaningful plan you need numbers.  How much expenditure do you need for "a decent life".  At what date do you want to retire? Only then can you begin to get the right balance between expenditure now, expenditure in the future, and the number of years you need to be in work.

Of course in the early years your estimates and assumptions will prove to be incorrect, but over time as these are updated the plan will approach reality, and at every stage in the process you are making financial decisions on the best information you have available.

Yes to numbers - a budget, specific rules for investment to remove human emotion from investing, numbers for rebalancing, etc. 

No to retirement date. That should be flexible in early years, nor should it be the focus. Young people dreaming of retirement are focusing on the wrong thing and hurting their financial health in the process.  Retirement should be “when I have enough to retire safely and no longer enjoy the work”.  Returns are unpredictable and same goes for health, nature of ones work, cost of living etc. Putting hopes into “a plan” does not make it “meaningful”

Filo25

cfw1994 said:

Filo25 said:

Started taking pensions seriously belatedly about 3 years ago at the age of 45 at which stage I had £210k in a DC pot (not lucky enough to have a DB pension anywhere).

Been lucky enough to have a few payrises since then which have enabled me to put more in the pension, and have taken a more active interest in asset allocation myself, rather than just sitting in the default work fund although the AA may become a factor going forwards.

So am now sitting at about £400k at 48, which still leaves my ideal target of hitting about £1m at current prices by my early 60's looking possible (my wife is unlikely to have a large pension pot, so mine will have to do most of the heavy lifting in retirement), but I think on balance probably unlikely.

I have had to deal with a significant COVID paycut this year and that will roll into next year (assuming I keep my job at all), and I suspect at some stage higher rate tax relief on pension contributions will either go or be significantly curtailed, and the tax environment in general is likely to be more negative in the aftermath of COVID.

I can hardly complain though I would have been able to acheive it a lot more easily had I started taking pensions more seriously earlier, and I'm under no delusions that I'm in a much better position than most people I know on DC schemes in real life.

Doubled your pot in about 3 years: that is pretty decent!   Keep that up and you will do well.  Remember the “power of compounding” will naturally mean savings (should!) gently “hockey stick up” towards the latter part of your “accumulation” phase!

On your wife not having much of a pot: we are in a similar position.  Don’t know about yours: mine has non-paying “caring” duties so no salary, but remember you can always pay £2,880 into a pension (£3,600 with tax relief) every year. 

Always worth building up a fund for a partner (wish we had thought that through a few more years back than we did!) just to be able to make use of their allowance when drawing down in the future.  

Slightly less relevant if the main earner is a high rate taxpayer, getting more favourable relief on the way in, I guess...

My wife had actually just started to put contributions in over the last year or so but then lost her contract client when COVID hit, she has about £48k in total at the age of 40

Since then she has managed to replace that contract with other contracts at lower rates, but she has held off on pensions since then, as given she is a contractor she doesn't have much security and the sector I work in is basically wiped out until we get a vaccine.

So we have been focussed on building up cash reserves in case the worst happens from an employment point of view, would like to get the emergency fund as high as possible until I can see an end in sight for COVID (which is basically going to be however long it takes to get everyone vaccinated)

LHW99

Filo25 said:

cfw1994 said:

Filo25 said:

Started taking pensions seriously belatedly about 3 years ago at the age of 45 at which stage I had £210k in a DC pot (not lucky enough to have a DB pension anywhere).

Been lucky enough to have a few payrises since then which have enabled me to put more in the pension, and have taken a more active interest in asset allocation myself, rather than just sitting in the default work fund although the AA may become a factor going forwards.

So am now sitting at about £400k at 48, which still leaves my ideal target of hitting about £1m at current prices by my early 60's looking possible (my wife is unlikely to have a large pension pot, so mine will have to do most of the heavy lifting in retirement), but I think on balance probably unlikely.

I have had to deal with a significant COVID paycut this year and that will roll into next year (assuming I keep my job at all), and I suspect at some stage higher rate tax relief on pension contributions will either go or be significantly curtailed, and the tax environment in general is likely to be more negative in the aftermath of COVID.

I can hardly complain though I would have been able to acheive it a lot more easily had I started taking pensions more seriously earlier, and I'm under no delusions that I'm in a much better position than most people I know on DC schemes in real life.

Doubled your pot in about 3 years: that is pretty decent!   Keep that up and you will do well.  Remember the “power of compounding” will naturally mean savings (should!) gently “hockey stick up” towards the latter part of your “accumulation” phase!

On your wife not having much of a pot: we are in a similar position.  Don’t know about yours: mine has non-paying “caring” duties so no salary, but remember you can always pay £2,880 into a pension (£3,600 with tax relief) every year. 

Always worth building up a fund for a partner (wish we had thought that through a few more years back than we did!) just to be able to make use of their allowance when drawing down in the future.  

Slightly less relevant if the main earner is a high rate taxpayer, getting more favourable relief on the way in, I guess...

My wife had actually just started to put contributions in over the last year or so but then lost her contract client when COVID hit, she has about £48k in total at the age of 40

Since then she has managed to replace that contract with other contracts at lower rates, but she has held off on pensions since then, as given she is a contractor she doesn't have much security and the sector I work in is basically wiped out until we get a vaccine.

So we have been focussed on building up cash reserves in case the worst happens from an employment point of view, would like to get the emergency fund as high as possible until I can see an end in sight for COVID (which is basically going to be however long it takes to get everyone vaccinated)

I + OH had something similar that lasted about 15 years, when making any savings (never mind investments) was impossible. Life happens.

However that £48k she has now will be compounding, and will be worth much more in 20 years, hopefully, than it is now, and will form a base once things improve and you can start putting money in again.

Linton

Deleted_User said:

Linton said:

Deleted_User said:

Mistermeaner said:

You don’t give up, I’ll give you that.  To answer your questions:
- I don’t know when I will retire from my job. As soon as I get bored.
- My farming income does not stop when I retire from engineering/management. Its going up every year from 0 four years ago. There is honey, duck eggs and trees (nursery). And I am investing in setting up a craft meadery. 

- You forgot to count DB income. 

- Yes, I am still investing into my liquid and farming assets.
- Nobody needs the same income in retirement as before retirement to keep the lifestyle.  Nobody. That’s a crazy assumption. Like as of next year I no longer have to pay for my kids’ education and that’s just one issue with your assumption. And by the way, my marginal tax rate is over 50% right now. It will be down to around 30% with the possibility of income sharing the second I retire. 

Hi mordko 

Thanks - you're proving my point 

You are clearly in an excellent position : not only do you earn well you are well diversified and have a clear understanding of tax etc and you also have a plan ; recognising that your income requitements will drop as expenditure calls away 

You have and are continuing to invest and appear to have very little debt

The original point of discussion was about whether having a number to aim for : e.g. A plan was relevant - I say it is , you i believe were saying it's not and advocating amore laissez faire approach : despite in actual fact it turns out doing the exact opposite with your own affairs 

A plan is relevant. A good plan has an objective: I do not want to die poor. A good plan has a strategy: maximize savings while living a decent life, remove unnecessary expenditure, stay invested, minimize investment costs, etc.  Note how all of these are things you can control. Hoping for a number by a date is only really meaningful within a couple of years of leaving work. But we are going in circles.

For a meaningful plan you need numbers.  How much expenditure do you need for "a decent life".  At what date do you want to retire? Only then can you begin to get the right balance between expenditure now, expenditure in the future, and the number of years you need to be in work.

Of course in the early years your estimates and assumptions will prove to be incorrect, but over time as these are updated the plan will approach reality, and at every stage in the process you are making financial decisions on the best information you have available.

Yes to numbers - a budget, specific rules for investment to remove human emotion from investing, numbers for rebalancing, etc. 

No to retirement date. That should be flexible in early years, nor should it be the focus. Young people dreaming of retirement are focusing on the wrong thing and hurting their financial health in the process.  Retirement should be “when I have enough to retire safely and no longer enjoy the work”.  Returns are unpredictable and same goes for health, nature of ones work, cost of living etc. Putting hopes into “a plan” does not make it “meaningful”

Disagree.  The important thing is that at all times you have a compatible expenditure pre-retirement (and therefore savings rate), expenditure post retirement and retirement date.  These are not cast in stone and can be changed at any time, but must be compatible.   That gives you the option to chose rationally between the three variables and act accordingly.  Each of these variables may be of primary importance to different people.

Some people for example may find work so unpleasant that they are prepared to reduce expenditure pre retirement and/or expenditure post retirement to achieve an earlier retirement date - think FIRE.  Conversely people may enjoy work so much that they are happy to work longer and enjoy higher expenditure now and/or in the future.  Others may find a particular level of expenditure the primary driver and be prepared to work for however long it takes to achieve it.  Finally some may have other commitments for their money pre-retirement and be prepared to sacrifice whatever is required to meet them.

The plan is meaningful given assumptions which may or may not pan out.  However, as time passes reality makes those assumptions decreasingly important in the end result and experience can lead to more realistic assumptions.

Dandytf

@Linton
Explain FIRE please, in terms of potential early retirement.
t.i.a.

Linton

Dandytf said:

@Linton
Explain FIRE please, in terms of potential early retirement.
t.i.a.

Financial Independence Retire Early - its a US movement based on taking extreme measures to gain financial independence as early as possible.  
https://en.wikipedia.org/wiki/FIRE_movement
https://www.mrmoneymustache.com/

barnstar2077

The concept of FIRE is very interesting.  At one end of the spectrum you may have a young couple who live in a van, make their own clothes and survive on next to nothing so they can cram everything they make into investments, so they can stop paid work in their thirties and spend their days making art out of driftwood for fun.  At the other end could be a forty something year old who has paid off their mortgage and knows that if they live on half of their salary they will probably only have to work less than half the number of years than they would have had to otherwise until they can access their pension.