FIREside Chats

edinburgher

@South_coast - results were inconclusive here! I looked up YNAB and while spends have gone up, part of that is definitely me getting better at recording them 

Chiglepig

I've been intending to post since the thread started but life, stuff, procrastination!

•  Why am I investing? I was a saver, but got increasingly depressed and worried about diving interest rates, but there is also an 18 year difference between me and DH, if I wait until my state retirement age (67), DH will be 85 and we want to spend quality time together.

 

• How much do I think I'll need? A couple of years ago, I couldn't imagine needing less than we earned as two HR tax payers. I’m no longer paying any HR tax – thanks to covid and allegedly temporary voluntary severance of 0.2 of my contract, but adjusted to the lower wages relatively smoothly thanks to working from home.

So we’ve had a bit of a reset and more time to think, I don’t have a figure in mind, but the biggest light bulb moment was realising that once I do retire, I won’t need to factor in saving the way I do now. I’m trying to persuade my Mum about this; my parents ‘fired’ in 2004 (not that it was called that then) and covered themselves from investments and savings until 2010 when both of Dad’s pensions kicked in. But my Mum still insists on saving aggressively like she is building a fund, they live very frugally, my Dad would give the Wombles a run for their money, I want them to spend it!

 

• How am I going to get there? I've started investing in an S&S ISA, DH is now in charge of minimising outgoings, insurances etc, and we are also overpaying the mortgage. If we continue as we are we should be mortgage free in 2030, nine years early, but that is only based on current overpayments and doesn’t account for any lump sums, PB wins, or other nice surprises that may come our way (and because of the way I have budgeted we hopefully won’t need to reduce the Ops).

 

• How long do I have? I'm 49, and while I think I have been reasonably sensible, (had to dig myself out of significant debt when I left DDs father in 2005), I'm another cautious public servant. I've been in TP since 1999 and pretty much relied on that to give me a comfortable retirement without much thought. I was given the opportunity to transfer to USS quite early on and seriously considered it but decided against– rather pleased I stayed where I was. I need another eight years for full state pension, and have 15 years final salary with a normal retirement age of 60, then the rest in career average at nra 67 (although I haven’t done the McLoud judgement calcs yet). I’m aiming to be able to fully retire no later than 60, but would like to start looking now at how early I can push it.

 

Thanks @edinburgher for a really brilliant, thought-provoking, supportive thread (there so much snarky, judgey testosterone on the Savings and Investments section, I was afraid to post there).

ElmoR

Chiglepig said:

• I was given the opportunity to transfer to USS quite early on and seriously considered it but decided against– rather pleased I stayed where I was.
  

 

You are clearly a smart cookie!!

Cheery_Daff

Lovely to see so many other people joining in! Love this thread, I've learned so much already.

I've been talking to a pensions geezer at work today, checking the implications of dropping to four days. He was ever so helpful - in reality I don't think he told me anything that wasn't already on the TPS website, but having it explained so that I could ask questions was brilliant. 

I'd asked about making additional contributions in the future, and it seems I've got three options.

* faster accrual (currently 1/57th each year, but I can pay for 1/45th, 1/50th or 1/55th)
* additional pension, which i can buy in £250 bundles for either a lump sum or monthly amount over x years (which obviously works out more than lump in long run)
* buy out of up to three years of early pension reductions.

I've started sitting down with a pen and paper trying to work out which would be the best of these to do - any advice about where to start??

My inclination would be to start with buying out those extra three years - I'm definitely going to be retiring early, and my current NPA is 68 (which is 28 years away!!) Looks like the earliest age will be 57 by the time I get there (possibly 58), but if I could take it then and have an extra three years of reductions removed that sounds good.

Is there an easy way to work out which is the best order to do these things in, or is it simply a case of working out how much each benefit would cost per month/year, and how much I'd gain? (I do realise that sounds obvious but please do bear with me - understanding pensions for me is like wading through treacle but it's slowly becoming easier to understand!)

I'd been working on the rough assumption I'd lose £500 a month with me dropping a day - now I've worked it out properly with right tax code etc it's actually £479. I could buy out ONE year for £22 a month, taking my reduction at that point to £501, which is roughly what I thought it would be, so that might be worth doing at the same time as dropping a day??

Cheery_Daff

The other thing to consider of course is that I won't be taking this for  at least 17 years, and before that would like to have both paid off the mortgage, and retired at 50... so I may well be better throwing everything at the mortgage first, and then sorting out pension later?? Or a combination??

Chiglepig

I think that the faster accrual purchase becomes more expensive the closer you get to retirement, @Cheery_Daff (don't quote me, but I've wrestled with this one too) so I wouldn't postpone it. But do take proper professional advice.

Cheery_Daff

Thanks Chigle - all the calculators asked for date of birth, so I imagine they all get more expensive closer to retirement (makes sense really!)

jennystarpepper

Mr Pepper has been increasing his work pension.... let's call it Jenny prodding.... lol!

Last time he emailed XY or  Z at work and asked to increase, he was told, your contribution is at X %, are you sure you want to do that?  I don't understand why the company accountant would ask him that.... who knows?

Anyways, for those who are unsure if they can afford an increase, can I suggest just a 1% increase, after the tax is deducted it probably is much less than you thought, probably the cost of 1 shop bought lunch sandwich per week, ( filling and how hungry you are).

If you then can manage after say 6 months, maybe try another 1%, it works for us and it is not a huge loss if you, slowly, slowly.... monkey.

Don't forget, if you do run into serious hardship, you could always ask payroll to decrease your contribution for a short while, just until you are back on your feet.  

I also increase pension contributions at pay increase time or if tax rates change,  you then won't miss it so much.

Hope I'm not telling granny how to suck eggs, after talking to a few friends, some do not realise how much 1% can increase FIRE expectations. 

It all helps. 

Suffolk_lass

@Cheery_Daff there are things I think you should consider here and which works for you (or others) will depend on many personal factors:


You have not mentioned but if you drop to four days, your accrual rate (the amount your pension increases each year) will normally be 80% - you could look to address this by increasing your percentage contribution from salary (the faster accrual option)

When you say "buy out up to three years of early pension reductions" I am not sure what you mean but I presume this refers to compensating for some of the percentage by which your pension would be reduced if you take it earlier than the scheme's NPA (normal pension age) - normally this is an actuarial reduction of approximately 5% per year of your benefits - so if you were to start taking it ten years early (most schemes this is the earliest scheme minimum pension age) then you are looking at a 50% reduction - various schemes have different rules for lump sums and surviver benefits that are different but I don't know about the Teachers' Pension Scheme. 

On that theme, many colleagues had done the maths to go at 57 on a 60 NPA scheme to maximise the early benefits while minimising the reduction (and I suspect, achieve 40 years in the scheme where they joined straight from school).

My DH was a teacher and we did put a lump sum into his to boost his basic pension (and surviver benefits by half) - he has been retired 18 months now and we still cannot determine whether he is receiving this because they were so late doing his paperwork, have never provided a proper statement of benefits and keep changing (I mean month by month) the amount he receives - they are woeful at replying (he says) but not sure if some of this is his loathing of admin (why I do most of it). He cannot find any mention of it on his "account" on their website - It should be a good option if you have a windfall but our experience is a total lack of transparency.

We concentrated on making sure we had savings outside our occupational pensions to cover the gap between stopping work and taking pensions with an acceptance that our capital reserves would deplete during this time because our income from capital would not cover our expenses. In the end we both worked up to and a little past our schemes' NPA to be sure, but we were way later than you when we started planning seriously. We are using his DC pension pot, drawing down some each year while he is below the tax threshold too.

Several of my colleagues have semi-retired, taking a percentage of their pension and working a shorter week - two things here,

• first you do not have to wait until NPA to do this (a civil service test case in the naughties resulted in changes to the rules but they are often not well flagged up in DB scheme literature) just that scheme's minimum pension age (and for some there is a reserved right to a set age) 
• the second part is that you are not allowed to make more doing this (pension + salary) than your full time salary would have been. Although the bit taken early is reduced (as above), you are still paying in with your remaining salary so could boost up your benefits by paying extra. One colleague did this and paid off his mortgage, freeing up salary to save more quickly too - so you could explore dropping to 1-2 days a week (assuming employer content for this) instead of a cut off. 
• - Just re-read you plan to go by 50 with MPA of 57/8 - might not work for you but might for others

Cheery_Daff

Suffolk_lass said:

@Cheery_Daff there are things I think you should consider here and which works for you (or others) will depend on many personal factors:


You have not mentioned but if you drop to four days, your accrual rate (the amount your pension increases each year) will normally be 80% - you could look to address this by increasing your percentage contribution from salary (the faster accrual option)

When you say "buy out up to three years of early pension reductions" I am not sure what you mean but I presume this refers to compensating for some of the percentage by which your pension would be reduced if you take it earlier than the scheme's NPA (normal pension age) - normally this is an actuarial reduction of approximately 5% per year of your benefits - so if you were to start taking it ten years early (most schemes this is the earliest scheme minimum pension age) then you are looking at a 50% reduction - various schemes have different rules for lump sums and surviver benefits that are different but I don't know about the Teachers' Pension Scheme. 

Thanks, this is all really helpful  

Yes, the accrual rate will drop - still 1/57th, but 1/57th of my actual salary (which will, of course, be 80%). I'll work out what the accrual rate is in numbers now, and see what faster accrual rate I'd need to make up for it (and whether I'd want to do that immediately or work towards it). 

And yes, you're right about compensating for some of the percentage which the pension would be reduced by if I take it early. TPS says 

'For members retiring early from active service, the standard reduction of 3% a year applies for a maximum of 3 years between age 65 and a member’s normal pension age. However, members do have the option to pay contributions to buy out the standard reduction (“buy-out election”) for a period of up to 3 years.'

This is what I'd be aiming to do. I've not yet worked out the reduction for the rest of the years (age 57 or 58 to 65) - they seem to have tables of factors so you can do your own calculations and I haven't read through it all properly to pick the right one yet (and as tempted as I am to do it now,  I could do with doing some actual work so I've got a job to retire from in a few years!)  

We'll definitely need to make sure we have savings to tide us over for the period after I retire but before I can claim the pension, although Mr Cheery will have both work and state pensions by that point, so it won't be an extortionate amount. In reality, I might get there and find it's pretty easy to carry on, especially if I'm working part time - if I'm happy to, then of course I'll do that. At this point 10 more years seems enough, but when I get there it might feel quite differently!