Percentage of savings into my pension and isa

Twix70

I have searched the forums and found lots of useful information regarding both pensions and ISAs but not an exact answer to my query. I am 49 years old and have a small pension pot and a small amount in a stocks and shares ISA My aim for both is to save for retirement (naturally). I currently split what I save in the following manner, 80% into my SIPP, which is then added to by the government (I am self-employed), the other 20% goes into my ISA Is this a good percentage to build cash and a pension pot? I welcome any thoughts and ideas.

dunstonh

Is this a good percentage to build cash and a pension pot?

Insufficient information to go on.  However, there is no guide figure as everyone has different needs and tax positions amongst other things.  What the optimal ratio may be is a personal thing.

Twix70

My current pension pot is around 21k and my ISA pot is around 5k I have allocated a 1000 a month split 80/20 as outlined above. I don't intend to access the fund until 65 or so (subject to my health and business remaining good). I have a property which should provide around 10k in rent and I will receive a full state pension as things stand at the moment. Does this help? Many thanks!

green_man

Your tax position is important in determining how much is best put into your Pension.  If you are higher rate taxpayer the SIPP option has a large advantage , but at less flexibility.  If you aren’t a higher rate taxpayer the iSA approach still lags but not by much and could be outweighed by the ISA flexibility.  As stated above no hard and fast rules, circumstances! circumstances! but your approach above doesn’t seem  unreasonable.

dunstonh

My current pension pot is around 21k 

At age 49, that is extremely low.     A £1000pm contribution will go someway to improve matters and you may just catch up in time before you retire.

 I don't intend to access the fund until 65 or so 

How will you look to fund the gap until state pension age?   You may need more than £1000pm.

Twix70

green_man I am an ordinary rate tax payer
dunstonh I am not going to touch either the ISA or the SIPP until state retirement age. I have an online business which will hopefully continue to provide an income prior to retirement, it is very much a hands off business so may continue to provide an income in retirement. My rental property should also continue to provide an income, subject to the normal empty periods and maintenance costs etc
I just wondered if 80/20 seemed about right but of course I see that it would be completely down to the individuals circumstances. I also own the property I live in so no mortgage to pay!

MovingForwards

Have you worked out how much money you want each month, in your pocket, when you are retired?

When you know that figure, then it's easier to work out how much needs to be saved each month.

cfw1994

As you say, this kind of thing is entirely personal - on the face of it, 80:20 sounds reasonable...
....but if you aren't planning to take ANY from EITHER pot before pension age, then I'd be inclined to stack more in the pension - you get the government extra.
Remember they are both 'just' tax efficient 'vehicles' - it is up to you where the money in either is invested (broadly - of course each might have limited funds to consider).   With the extra Government help, if you are at high rate tax payer status, then it is a no-brainer to fill the pension first. 

Twix70

It may seem I am obsessed with percentages but ultimately MovingForwards I am working on 10K pa from the state pension (I appreciate that is more than the current amount and of course a lot could happen before I hit 67, the age it will become payable to me), 10k from my rented property pa and 10k pa from my pension pot so 33% from the 3 different sources.

AlanP_2

£10k from your pension / ISA in retirement implies building a pot of £280-300K at a 3/3.5% withdrawal rate once you start using it.

16 years from now at £1k per month = £192k plus your £21k = £213k.

Not sure if your £1k pm includes tax relief on the £800 going in to the pension so that could add 200 *12 *16 = £38,400 bringing you to ~ £250k total so possibly a bit short for your desired income although no allowance made in this for investment growth.

MovingForwards

Rough figures using a basic pension calculator.

Existing £21k pension
Need to put in £1600pm (that includes tax relief).

Gives £1021pm pension, £408,546 pot, £102,137 tax free. State pension is on top of that.

How does it fit with your 80%.