Musings by the FIRE-side

Dizee123

Another option if you wish to keep the same salary and work 4 days a week is to explore the possibility of working compressed hours.  I work 4 x 9.25 hour days and then have a 3 day weekend.  I've done this for the past 10 years and find that the 3 day shutdown gives my brain some welcome decompression time before Monday comes around again.  I just need to educate my project team members not to schedule important events for Fridays, and it all works quite well.  I also have the ability to flex the non-working day which has allowed me to take relatives to hospital appointments, arrange work on the house and just generally achieve a better work/life balance.  This has allowed me to keep on track for leaving my stressful project management job next year, have the summer off, and then look for a non-stressful part-time job after that until pension kicks in at 60.   Without this I feel that I might have had some form of breakdown in my early 50s due to my increasing inability to handle work stresses as well as I get older which would have derailed my early escape plan.  Just a thought, although I appreciate that not all jobs or employers offer such flexibility.

atush

I agree, we really need to know your age.

Apart from that, do maximize your pension as you are a HRTaxpayer.  Use carry forward if you have unused allowances from previous years.  As every 100 you put in is only going to cost you 60.

Then, your spouse.  I realize they are home with the kids, but do you contribute for her?  Ie use her 2880/3600 annual pension allowance?  Do you clam marriage allowance to reduce your tax paid?

NedS

atush said:

Apart from that, do maximize your pension as you are a HRTaxpayer.  Use carry forward if you have unused allowances from previous years.  As every 100 you put in is only going to cost you 60.

And if you can reduce your taxable earnings enough, you may also be able to reduce or avoid the High Income Child Benefit Tax Charge giving you even more incentive / savings:

https://www.gov.uk/child-benefit-tax-charge

chile_paul2

atush said:

I agree, we really need to know your age.

Apart from that, do maximize your pension as you are a HRTaxpayer.  Use carry forward if you have unused allowances from previous years.  As every 100 you put in is only going to cost you 60.

Then, your spouse.  I realize they are home with the kids, but do you contribute for her?  Ie use her 2880/3600 annual pension allowance?  Do you clam marriage allowance to reduce your tax paid?

Sorry, yes I realised that I'd missed out this crucial information but I haven't been able to update the opening post. I don't think I've posted enough times.
So, to answer your question, I'm 42 and my wife is 39 - so I have plenty of working years ahead of me, should I choose to continue.
On my pension, yes I paid in >£40k last year (using carried forward allowance from the previous year) to minimize tax and it also brought me down to a sufficient level such that we didn't have to pay back child benefit. This year I'm only paying in sufficient contributions to maximise the company contribution (6% / 10%) because I was concerned that I was growing my pension at the expense of my S&S ISA, and it would be the ISA that would be needed to bridge any gap to the period when I can drawdown from my pension.
I also do contribute into my wife's pension, paying in £210 a month, so £2440. I didn't think marriage allowance would make a difference for somebody on my current level of salary? Or are you thinking it would make a difference if I was going to drop to 4 days a week?

claire111

As an alternative to going down to 4 days a week could you consider taking extra (unpaid) annual leave ? A good proper two week break, 4 times a year can make a huge difference...

Sea_Shell

claire111 said:

As an alternative to going down to 4 days a week could you consider taking extra (unpaid) annual leave ? A good proper two week break, 4 times a year can make a huge difference...

365 days unpaid leave....sound like a plan!!

michaels

chile_paul2 said:

atush said:

I agree, we really need to know your age.

Apart from that, do maximize your pension as you are a HRTaxpayer.  Use carry forward if you have unused allowances from previous years.  As every 100 you put in is only going to cost you 60.

Then, your spouse.  I realize they are home with the kids, but do you contribute for her?  Ie use her 2880/3600 annual pension allowance?  Do you clam marriage allowance to reduce your tax paid?

Sorry, yes I realised that I'd missed out this crucial information but I haven't been able to update the opening post. I don't think I've posted enough times.
So, to answer your question, I'm 42 and my wife is 39 - so I have plenty of working years ahead of me, should I choose to continue.
On my pension, yes I paid in >£40k last year (using carried forward allowance from the previous year) to minimize tax and it also brought me down to a sufficient level such that we didn't have to pay back child benefit. This year I'm only paying in sufficient contributions to maximise the company contribution (6% / 10%) because I was concerned that I was growing my pension at the expense of my S&S ISA, and it would be the ISA that would be needed to bridge any gap to the period when I can drawdown from my pension.
I also do contribute into my wife's pension, paying in £210 a month, so £2440. I didn't think marriage allowance would make a difference for somebody on my current level of salary? Or are you thinking it would make a difference if I was going to drop to 4 days a week?

There is always  talk (so far just talk) of pension allowances being made less generous so it might make sense to max out pension and carry forward now and then do the isas later.  But no one knows really.  I have switched to an IO mortgage so I can max pension now as mortgage rates fixed below 2% nominal should be beaten by savings over any medium/long term period.

Alexland

chile_paul2 said:

This year I'm only paying in sufficient contributions to maximise the company contribution (6% / 10%) because I was concerned that I was growing my pension at the expense of my S&S ISA, and it would be the ISA that would be needed to bridge any gap to the period when I can drawdown from my pension.

We are slightly younger and changed to flexible working following the birth of our first about 4 years ago. It was strange at first taking a pay cut and not going into the office every day but after a while we found people understood our working pattern. It might be harder to justify (to ourselves and peers) once the youngest is in school but that is still a few years away. I wouldn't really want to go back to a 5 day week.

We have been salary sacrificing everything above the personal allowance for my wife and the higher rate tax threshold for me so overall making around 50% pension contribution, 25% S&S LISA/ISA contribution leaving 25% (plus child benefit) for living costs including mortgage. We have always made healthy pension contributions so the account valuations are now at the point where any further contributions are just derisking early retirement at 58. The ISAs and LISAs are earmarked to help the kids with university and house deposits and have now hit their contribution targets too. In my modeling I assume 2% pa growth above inflation/fees.

I share the concern that we are growing our pensions (and LISAs) at the expense of making the most of our S&S ISAs to retire before age 58. We seem to have settled on around £2k per month ISA contributions (£24k pa - £8k LISAs and £16k S&S ISAs) which is £16k less than the allowance.

The S&S ISAs are generating good dividend income now so it would be tempting to do something with borrowing against the value of the house (only 20% LTV from previous mistake of overpaying too much) to use the full ISA allowance each tax year and then pay back when either inheritance or the tax free lump sum becomes available.

In the short term while we are on a fixed mortgage deal I could use cruddy cash ISAs to offset 0% credit cards to build up ISA allowance but I am starting to think ahead on what to do next with the mortgage in a few years time. It might be hard to find a lender willing to advance additional borrowing on an IO basis at an attractive rate to fill ISA allowances...

Anyway those are my musings - no idea if you would find them in any way useful!

hugheskevi

Clearly, whilst we still have a mortgage, that is an active choice to keep it (on a low interest rate) whilst keeping money invested in our S&S ISA in the expectation that it will grow at a higher rate than the interest we’re paying on the mortgage. 

Or plan to pay it off from pension to be more tax-efficient. Depending on your repayment strategy, that might reduce your concerns about locking up funds until 57 too perhaps (also, at your age, you also have to assume minimum pension age will be at least 58, ten years prior to State Pension age).

I've only been with this company for 3 years and have been maximising pension contributions, including AVC's of £40k last year. I've actually stepped back my contributions (although still at the point where I'm getting the maximum company contribution) because I was worried about investing in my pension at the expense of the S&S ISA would be the ISA that would be needed to bridge any gap to the period when I can drawdown from my pension.

Personally I invested as much as possible into pensions as soon as possible, even borrowing on 0% credit cards to take as much advantage as possible. This rapidly led to my pension assets being much higher than other assets, and that will remain the case well into my retirement.

I viewed it as exploiting tax incentives to sort out my post 58 period of life, and years between early retirement and 58 when I can benefit from little or no incentive would be funded last. These years can be funded easily enough from saving after pensions are sorted and beyond having a cushion of funds available for unforeseen circumstances I didn't see any benefit in building up reserves without any incentives. Whereas pensions came with very good tax incentives and not using the full limit was a permanent loss.

Having said that, if I went full scale early retirement, I think I’ll be bored fairly quickly – so instead I’ve been considering talking to my employer about reducing my hours to 4 days a week. That would keep me interested in work, whilst still allowing me to spend more time with my family and explore some of my other interests outside of work. Other options that I’ve considered are to take a sabbatical for 6 or 12 months, or leave my current employer and take contract opportunities for 6 or 9 months at a time with long, extended breaks. However my current thinking is that the safe option is to reduce hours and would be easy to reverse in time if it isn’t working for me.

I took two spells of unpaid paid early in my career, to go traveling. Definitely the right decisions, I did one for 12 months and one for 18 months. I was very ready to come back to work after each trip - the time away was amazing but there is a limit after which things become less enjoyable.

I considered a 3 or 4 day week, but my experience with colleagues who have done that is that they tend to work much the same amount of work, just over 4 days. Also, they usually took Friday as their none-working day, and that became a very quiet day for those who do work it as a result. I'd prefer to move to a condensed working hour arrangement than work 4 days a week.

Something else you could perhaps consider is taking a period such as December-June off on a sabbatical every couple of years. This can avoid higher rate tax in every year timed optimally, especially when accompanied with appropriate pension contributions.

Of course that’s not what society expects of you is it, and I imagine work will be really shocked if I suggest it? It seems to be a bit of a taboo for men, dare I say it, to suggest that any of us might not want to work 5 days a week?

Where I work it would be utterly routine, particularly for fathers of young children.

Work actually want me to take a promotion at the minute and do even more – and you know what, part of me is tempted by that – the increased status, feeling ‘wanted’ and ‘needed’, having more influence, the promise of more money to accumulate even if I haven’t got anything to spend it on, the ‘what if’ I need that money in the future.

About 8 years ago I calculated what the effect of pursuing promotion would be on my forecast retirement date. I worked out that I could remain at the same level for 11.5 years, or work at the next level up for 10 years. There would have been a significant increase in responsibility, and it just wasn't worth it.

I do occasionally wonder about that, and suffer from the illusion of status-concerns you mention above. Personally I started my own company to assuage those concerns.

Carefully work out the net-of-tax implications, both in financial terms and in terms of the impact on planned retirement date. One of the main issues for me was that I was already contributing to pensions at the level of the Annual Allowance so would have faced a 42% tax rate on all extra income. You look like potentially suffering a 42% rate plus loss of Child Benefit.

What do you think? Have I massively over-estimated the health of my portfolio? Do I need to keep my nose to the grind stone for the next 10/15/20 years? Am I mad to be considering turning down a promotion and a potential salary of £110k / £120k?

Definitely not mad to turn down a promotion - personally I would never work in a role that I was unhappy in, so unless I was convinced I wanted that work I wouldn't pursue promotion. I've found job change to be more generated by 'push' factors than 'pull' factors after I reached a certain level where I had the luxury of not really having much need for a higher salary.

For those of you who have taken the step of stepping back hours, how has it gone? Did it make a difference to you? What about the option of sabbaticals or contracting to give a better work / life balance? Do you think I’d be better going full speed for the next 5 /6 / 7 years to hit a safe number before jacking it all in?

I effectively took a step back by not pressing on with promotion, staying in the same role and hence increasingly knowing more and more about it and so it becoming easier. I have questioned that decision several times over the last decade, but each time concluded it was absolutely the right decision. A key point for me is that when I consider the things I am most proud of achieving and have most enjoyed, not a single one is employment-related.

I really question "going full-speed" unless you love the job. Carefully consider the return of the extra bit in terms of the effect it has on retirement date and make sure it is worth it.

chile_paul2

claire111 said:

As an alternative to going down to 4 days a week could you consider taking extra (unpaid) annual leave ? A good proper two week break, 4 times a year can make a huge difference...

It's an interesting suggestion and I can see for some people who are looking to switch off from the stress of work that would be a real benefit, however in the areas that I want a better work / life balance I think I'm looking for something that is more regular - being able to see my parents once a month, doing more regular activities with the kids like just doing the school run, taking them off for a bike ride after school some afternoons etc 
I also expect that work would be less willing to consider this than dropping down to 4 days a week - the irregular nature of taking relatively large amounts of time out makes it harder to maintain cover on major projects, when compared to a regular and understood working pattern?