Are We Saving Enough?

Retireinten

I posted on here (different user name) four years ago with the idea of retiring at 55 on £30k net for a couple but with no actual plan to get there!

Following some feedback from the very knowledgeable people on this board, this idea has now turned into a fairly detailed plan.  Target income is now £36k net at 55 plus £75k-£100k lump sum.  Although we have gaps in our retirement savings we can comfortably afford to address these over the next 10 years and we are actively doing so. 


I would, however, appreciate some feedback on one aspect of our savings please! 

I have a longstanding DB but my husband is entirely reliant on his work DC for an income.  The plan is to drawdown from 57/58 (he's 44 now) the equivalent of his tax allowance plus 25% meaning he pays no tax.  I estimate this will give us £16.5k pa in todays money.

The plan is for him to do this until state pension 67/68, at which point he will reduce his drawdown by the value of his state pension. We are hoping there will be enough in his pot to drawdown around £3,500 pa into his early 80's, before the pot is exhausted. 

His current pot value is £133k, he's paying in £9k per annum (monthly sal sacrifice). Contributions to cease when he is 55.

My simple pension spreadsheet suggests we need around £230k to do this when we retire but I would like a contingency.  The aegon online projector states he will have around £260k if returns are at the mid point (assuming this is in today's money?) which gives us some contingency too. 

Do you think we are on track to achieve what we want from this without increasing contributions?  He's a basic rate taxpayer, paying in 23%. I would really appreciate any feedback.

Just for full disclosure, not concerned about income on death for either of us.  I have a healthy DB (£14.5k accrued at 60 and growing) which he will receive a widows pension, plus his state, residual drawdown, lump sum and possible equity of £250k if needed.

Thanks

Albermarle

I estimate this will give us £16.5k pa in todays money.
To be pedantic it is actually £16,666. 
The aegon online projector states he will have around £260k if returns are at the mid point (assuming this is in today's money?) which gives us some contingency too. 
These projections are normally in todays money, and tend to be a bit pessimistic.
However potential returns will depend to a  large extent on the investment portfolio as well as market trends . You do not mention how the DC pension is invested ?

Dazed_and_C0nfused

The plan is to drawdown from 57/58 (he's 44 now) the equivalent of his tax allowance plus 25% meaning he pays no tax.

To be even more pedantic it's his tax allowance plus 33.33%.

Thrugelmir

Retireinten said:

Do you think we are on track to achieve what we want from this without increasing contributions?  He's a basic rate taxpayer, paying in 23%. I would really appreciate any feedback.

Given the volatility in investment returns over the short term. I'd be contributing as much as possible as early as possible.  Far easier to ease off once the objective has been achieved with a margin of comfort. Than be chasing a moving target. 

Retireinten

Thanks for your feedback. No one is going 'oh no, you're way off the mark!' so that's a positive! 

The 'pedantic figures' are what I have included in my detailed spreadsheet😁

Thrugelmir - I agree. I'd much rather hit our retirement savings as hard as possible then take the foot of the gas the closer we get to retirement, knowing our figures are where we need them to be.  But with ten years to go we have several savings gaps we're addressing consecutively and there is only so much money to go around:

ISA savings - to fund years 55-58 plus a bit of top up to age 68.  We're saving £700 a month here. 

My private pension - I have a healthy DB from 60 (£14.5k plus £21k lump sum in the bag at 60 and growing) but this won't feed or entertain me during ages 57-60.  Got some serious catching up to do here. 

'Emergency/fun' lump sum money - We're at least £30k off the lump sum we want that isn't earmarked to be used as annual retirement income. 

We're plugging away at all this (saving between £2k and £2.8k a month to address the gaps), whilst renovating a house and preparing ourselves for expensive teenage years - cars, possibly uni, house deposits if its affordable!.  

I was thinking about starting LISAs for the children as they reach 18 (they're 15 and 12) and maxing these out for a house deposit for them until they reach 25, but this will again mean biding our time and continuing to drip feed our own retirement savings throughout this 10 year period... 

El_Torro

Retireinten said:

I was thinking about starting LISAs for the children as they reach 18 (they're 15 and 12) and maxing these out for a house deposit for them until they reach 25, but this will again mean biding our time and continuing to drip feed our own retirement savings throughout this 10 year period... 

Not a bad idea, especially if you were planning to help your kids with their house deposits anyway. My only concern would be that the LISA will be in their name, so they might decide to cash it in (with a penalty) and blow the money on a big holiday, nice car, etc...  You'll know better than us how big a risk that is.

Retireinten

El_Torro... I have thought about them blowing it all.  We will have to make the decision nearer the time but they know we won't start save for them if they are not helping themselves get on in life (working hard at college, part time job, career path of some description).  


Also thought about them buying with a partner, the relationship ending after a couple of years and ex partner waltzing off with half our hard earned deposit, so we would need to help them protect it at least while they are unmarried.. 

Ideally I would like to buy them their first car and give them £30-£40k towards a deposit each if I can. If the government can give me some of that then that would be a massive help. Obviously this depends on our jobs and our health but this decision alone will add a good three years to our retirement date. I don't think I could retire at 52 knowing I could work a bit longer and help my children get a good start in life though. 

The other option may be to take 25% of husbands pension as a lump sum and use this to fund their deposits but that's around 13 years away... Daughter would be 28, son 25 so we may miss the deposit window given their ages!  But in this day and age who knows when they will be in a position to buy. Could also take it from ISA savings and replenish this with the pension lump sum.  I can save into AVCs and take this as a tax free lumpsum at 60 also. I'm not doing this yet because I have no need for any more savings from 60 onwards. And I'm pushing for this to go sal sacrifice, once this is in place I may have to rethink things. 

Albermarle

One point maybe missing here is that when he retires and say the pot is £260K ( as Aegon projected ) he will be only taking £16666 pa from it, so there should be plenty of scope for more investment growth over the following few years , even if it is only 1 or 2 % above inflation.
The investment portfolio's performance in the DC between now and the next 20 years will have a significant effect on the money you can take from it .

Retireinten

Yes, good point. I tend to err on the side of caution so want to be certain we have enough in the pot plus contingency. Any growth is a bonus!

One good thing about posting on here is it's made me challenge my own plans.  I've calculated I need around £85k in an ISA to fund years 55-57 plus some top up income to 67/68.  £35k of this £85k is earmarked for top up income for years 60-67.  This amount reduces the longer I stay in the LGPS scheme but for now I'm aiming for a total ISA savings pot of £85k.  It's just occurred to me that I should be aiming to save that £35k via the AVC route to save tax.  I can then access this tax free at 60 as part of my lump sum. I am also aiming to get the scheme converted to salary sacrifice by this time next year, so a further NI saving there. 

Husband is a passive supporter of all this early retirement nonsense (he would love to retire but much prefers someone else to do all the thinking to make it happen!). However he has been quite vocal in not wanting to lock any more money into pensions.  I think we're cash heavy (£50k) at the moment, it's sat there 'just in case',  covid has made us both a bit nervous, but we are at a point where we should be able to divert our monthly cash savings into something else. 

Someone asked what husbands DC is invested in.  I think it's the default lifestyle fund... I expect we need to take some advice on this given he wants to access it as a drawdown in 12/13 years tiem, as this will presumably start mover into less risky investments soon.  

DT2001

You look on track with your OH’s DC.
A couple of thoughts:-
Could you take your DB pension earlier? I was thinking it would give you more flexibility for helping your children. Assuming a 15% reduction it would give you 12k+ p.a. From 57 so you have £36k ‘free’ in your ISA. The pension would all be tax free as under your personal allowance as assume you’re funding from ISA’s.
If this is an option, again assuming you both get full SP, at SPA you’d have about £31k p.a. from ‘guaranteed’ sources so only need a small top up from SIPP/ISA’s.

Funding children is. real unknown. We have 4 whom we were expecting to go to Uni, luckily with help from a grandparent. Then eldest went into apprenticeship, 2nd to Uni in France (€170 p.a.), 3rd will go and 4th same age as your youngest. So our ‘costs’ fell and time to invest lengthened.