FIREside Chats

South_coast

I haven't left, just not had anything useful to say for a while 🤣!

I can offer a comment on LISA's though, as I have a cash one. My reasons for opening it were that a) the 25% uplift made it the best return available on pure cash (I have several DC pensions and an S&S ISA, so wanted something in cash to complement my plans); and b) it will be tax-free at the point of withdrawal. I'm fortunate enough to be able to save more than the maximum £4k per year, so I benefit from the potential growth on the investments while also having guaranteed cash available

Retireinten

I think we're all knocking around, just a bit quiet, as this is more a marathon than a sprint, despite aiming for earlyish retirement

I would get an up to date statement for your nhs pensions, both what they are worth now (what you've already accrued) and what you could have if you worked to your planned retirement age. I'd also check out your state pensions to make sure you're on track.  This alone will get you around 19k for a couple so you're only looking for say another £5-7k per annum (depending on how much tax you will pay) to hit that £24k target.

You may be able to retire earlier depending on your figures. 

hugheskevi

Scrimps said:

Our mortgage should be paid off in 11 years, or 17 if we do decide to get the extension we keep changing our minds on.

You could plan to pay mortgage off from LISA or pension by putting the money that would have gone toward mortgage repayment into the LISA or pension, which is more tax-efficient than paying from taxed salary.

Though actually I opened a LISA just before I turned 40 as its seems a good deal to get another cash free lump sum when I turn 60 so my money goes in there.

**LISAs are unpopular, I would like to hear if theyre a bad option in my situation. If I can get the potential 80Kish entirely tax free at 60, it seems like a good option, especially if  am still working part time at that point - also could I then also cycle it into my pension and get more top up if Im not fully retired?**

LISAs are a good deal. They work out better than personal pension contributions for a basic rate taxpayer but not as good as a pension for a higher rate taxpayer.

The LISA along with SIPPs are helpfully quite flexible so can smooth total income prior to State Pension age by drawing on them more heavily in the period between retirement and State Pension age.

You could put the higher of £3,600 or your earnings into a pension at age 60. So yes, you can effectively cycle LISA into pension by putting earnings into pension and using LISA to fund everyday spending that salary would have been used for.

We would like to extend/buy a bigger pad but that would add years to our working lives and make FI further away- these are currently unanswered questions. 

Presumably you would then move to a smaller house once children move out and release some equity in the process, although moving is an expensive activity so the gains may be small.

As for retirement, it depends on what type of retirement we go for.  I would prefer to fully retire but feel happy knowing that once the mortgage is paid and investments where they need to be we could both work NHS band 2 jobs for 3 days a week and live a comfortable life without having to begin drawdown on investments.   

Remember that income up to £12,570 (after pension contributions) is free of income tax and much of it is also free of National Insurance (first £9,880), so there is a big benefit from earning up to about £13,500 p/a as it is barely taxed.

Husband just wants to stop work as soon as possible, doesn't really think about working beyond 58/60 - even very part time, though understands this may need to happen, he isn't planning on it and will look more closely when the time gets nearer. 

At age 60 you will be able to access all pensions as well as LISA without penalty, so have a good range of options. 

Working and earning £10,000 p/a would all be tax free so would be very worth-while until such time as taxable pension income is received.

Suffolk_lass

Just a few words of caution:

Ability to access all pensions at age 60 is based on current rules, and your scheme rules. It is possible that the government will raise state pension age or change the current rule that you can access your pension pot up to ten years earlier than that. There is a lot of chatter on the financial pages suggesting state pension age may be increased above 70, to "pay for COVID".

In my working life they have changed the number of contribution years you need for a full state pension three times (so far).

Also the state pension I am entitled to has been diminished by the treatment or SERPS (occupational pensions that encouraged employees to opt out so they and you paid a slightly lower NI contribution because your employer covered a number of what would have been state benefits) - this has retrospectively been applied to a two tier state pension - although this won't affect people in their forties (maybe fifties), it certainly affects many retiring since it was introduced with no grace period (and will impact me in two+ years time).

My State pension age was changed within ten years of me reaching it - I was planning for two years, but it was increased by six.

If you receive an occupational pension and remain below the tax threshold, be aware that the state pension may push you over the tax threshold and it will be taken from your occupational pension. You can plan to avoid this but be aware of recycling rules.

The points I am making show that the rules can change, and the ordinary person, however much planning they do, will have to take this into account. So over providing for yourselves as a bit of contingency is not a bad approach.

@Scrimps
On the subject of an extension, a well-insulated (sound-proofed?) garden room/building is much cheaper and not subject to planning consent if it is of "temporary construction" and within building regs and could provide the additional space you anticipate needing, without a large extension to your mortgage

Scrimps

Thanks all.  Its good to see we're not too far off track with our thinking.  I was wondering if I was missing something painfully obvious with the LISA, another reason for me opening one was that I hoped that if/when the pensions are fiddled with again I will at least have the option of a large lump sum at 60, my thinking that LISA are more likely to get left alone but youre right, it all gets played around with so much that it makes planning so much harder. 

We dont currently have any investments outside of our LISA/SIPPS and I dont think its likely, for the next 10 years or so that we will. We'll see how the next 10 years goes and if theyre at a good level we may be able to turn off pension contributions and start ISA's. If that enabled us to stop work earlier we would be very happy,  I used to plan on an aggressive saving strategy but realised we would just be giving up all fun in the meantime so had to dial it back.

We repeatedly consider investing more and putting the mortgage on the max term allowed, but its the mortgage that feels more psychologically pressing and a barrier to just swanning off and doing what we want.  I have read about the maths of investing over paying off the mortgage, then I read 'monevator.com/sequence-of-returns-risk' and it put a bit more fear into me.  I would rather get the mortgage really low/paid off, though my investments are nearly 100% equities.  That balance seems to allow me to sleep at night.  I would like to put more into investing but that currently is roughly our maximum, if we get extra, it will again likely go toward the mortgage

I double checked my state pension because I remember briefly being contracted out of SERPS in my first job,  I was only there for a year and otherwise have worked every year since turning 18, same for my husband, we're both on track.  Alas I left that first job for a small payrise, but didnt realise until I got there that then pension wasnt open to people under 25,  I lost 6 years of generous financial services pension by staying it that job, given how much more I was able to accrue in the 5 years before left banking and joined the NHS - that might be one of the biggest financial mistakes I made.  That and spending aged 18 to 30ish in the pub and living on credit cards!

The NHS pension will not be a great amount but will be plenty with the state pension, both will be unavailable until 68 (im betting on 70) so our focus is the 10 year bridge between the two.  Taking the NHS pensions much earlier seems very expensive but once we get closer to the date it may look like a good option.  Neither of us are at risk of hitting the lifetime allowance or becoming higher rate taxpayers (though nearly when I took the secondment) so I think the tax on the way out will be our main liability. I would love to max out my LISA for this reason but it just doesnt currently seem possible.  As you said, our low expense lifestyle is quite an asset here (in my head only once the mortgage is paid off).

I set up money dashboard yesterday to see if we were leaking money anywhere, but we do seem we have hit that boring phase of: everything is buttoned up pretty tight, we just have to leave it to do its thing and occaisionally review to see if a course correction is needed.  Not sure what else to do with it now so thank you for reading and responding to my musings.

@Suffolk_lass regarding the garden room,  youre right, that is something I have thought before also.  I do wonder in many years time  if I have enough room to even fit a small granny annexe/dwelling on our corner plot garden. Im not convinced there is enough room but lots of people are building houses and plots the size of a postage stamp here at the moment.

 I do like the idea of a small, efficient dwelling for me and husband, kids toys take up our living space despite aspiring to minimalism and I sometimes dream of having a small space, with just what we need and no more. Though we hope to need mountain bikes, surfboards and kayaks well into retirement as these are the main reason we want to give up work so would need to build something for them also

If not then maybe a social garden room we can kick the boys and their friends out to would be good

Retireinten

I think its worth tracking the values of your NHS pensions as they are an incredibly valuable asset and may well be worth more than you realise.

I'm in the LGPS scheme and like you will have scope to take this at 67/68 ish or earlier (currently as early as 55) if I can stomach the acturial reduction. Plan is to take this at 60 at the moment as some of my pension is paid in full at this point and it gives me more than I need in terms of annual income. Leave it to a later age and I would have to save more to fund those years (or work longer) just to generate a higher income than I need later in life.  It's about finding the balance that is right for you. 

Scrimps

YOure right, Ill look again at the numbers, but think I recall it wasnt going to be anything great.  We're both in the nhs pension, and think that will take us from 68 on in relative comfort, possibly earlier depending on how things look at the time. The index linking and security associated is very useful. We're likely to stay in the NHS, I am having diffculties working in the organisation (so complex! and funny politics compared to banking) but the benefits are particularly useful, e.g I intend (and am approved) to buy another 2 weeks holiday this year, it gets bought after the pension gets taken out so wont affect pension accrual and is almost equivalent to dropping a day each week.

Also, the team I am currently in makes flexible working very doable - the value of which I saw, but  underestimated before I went into a senior manager post and the family got covid one after another, the nursery had to close due to an outbreak and our contingency childcare was unable to work.  I hope the lesson is learned and I wont undervalue the flexibility I have again.

I seem to find that, because I am so far from retirement, forecasts can be a little tricky,  I did find a scottish NHS calculator for the 2015 CARE scheme which demonstrated we should be fine...from 68ish. One thing I havent looked into enough or taken any advice on is the availability/value of AVC's.  ERBO did seem expensive for the gain though it was a guaranteed income rather than relying on markets. I am back at work next week and will dig out the figures and if its OK, post them up here to check.

earthgirl2

Ed, thank you so much for this.
SC pointed me to here. I am very late to this, I've had my head in the sand! I am really grateful and I'm in a very fortunate position, but I don't have a clue. Any advice about what I should / could do really welcome

Why am I investing?  I am 41 and want the option to semi retire at 50. If I don't like my job, or want to work part time. I'd like to fully retire at 60. OH is 12 years older than me, and we don't think we should wait for me to retire at state pension age, which will likely be 70 for me - he will be 82.

How much do I think I'll need? I struggle to pin this down. I used to spend practically nothing. I now spend approx £2k per month for a family of 4. I think we could survive without the boys here on about £1.2k per month for the 2 adults, but I don't know when they will be leaving. This would be my comfortable level.
 I also LOVE to travel. I could easily spend and extra 1k a month travelling. This would be my luxury level of retirement.
 So if I take the x25 calculation, it would be

Comfortable -£15k per year,  covered by OH's pension. 
Luxury -  £26,400 k per year, minus 15k from OHs pension minus 6k from passive income and part time work= £5400 x 25 = £135k

The flaw I can see with this are OH passing away and me not having nearly as much pension income. We have life insurance until pension age, but not beyond.

• How am I going to get there?

I am risk averse. I paid off the mortgage yesterday. House value of £390k today and would look to downsize when our 2 boys leave home. I have 84k savings (some 36k destined for children's uni/house/car) which I know I need to 'do something with'   I am ashamed to say apart from 12k in a s&s isa, the rest is only earning between 2.75 % and 1%. Much less than inflation.  Head totally in the sand here.

Our pensions -
2028 15k annually OH pension 1 deferred final salary - I will be 49, OH 60
2036 10k annually  OH pension 2 - state pension - I will be 57, OH 68
2040 5k annually my pension 1 deferred final salary (plus 14k lump sum)-  I will be 60, OH 72
2049 15k annually my pension 2  CARE pension- I will be 69, OH will be 81 (or, as he puts it, probably dead!).

How long do I have? I'm 41 and my children will both be 18 by 2032. I would like to semi retire around then - so 8-10 years. I like a challenge!!

Imposter syndrome.  I just feel like I don't know what I am doing with money! I want to create great memories with the kids in the next 10 years, and I want to keep giving to charities. I don't want lack of effort and knowledge to be the reason I can't retire when OH has, and even more so if I'm stuck in a job I don't like. I also feel like OH and I might only have another 30 years together - maybe less who knows - I can't work for all of that!

 I love my job at the moment but it's quite niche, and if I am moved back to being a mainstream teacher when I am older, I'm not sure how it would go.

So do I pay more into my CARE pension? Doesn't this just mean I get more money later, when I really want it sooner? I can buy years and start at 65 apparently, but still too late for me.

Do I pay more into the s&s ISA - I currently invest in a vanguard life strategyy 80/20 accumulative fund. Do I need different funds? 

Is a 6% interest rate achieveable? I am risk averse!

I used a calculator to help me work out what I need to do to earn the Luxury Retirement
https://www.thecalculatorsite.com/finance/calculators/compoundinterestcalculator.php
If I assume a return of 6% and deposit my lump sump now, using my 13k lump sum towards the boys uni and topping up with another 23k, I would need to pay in £160 per month on top of my lump sum for 10 years. This would be easy - I currently save £400 per month.

This assumes I have passive and active income of £500 per month until I am 60, at which point my first pension kicks in.

Do I open a SIPP with Vanguard? perhaps one that is tailored to paying out early?
Do I rely on the house value? 
There are other things I probably don't know about.

Any advice greatly appreciated.

edinburgher

Well done on getting the mortgage paid off

A few thoughts and questions to get you started:

1. Would you get any sort of survivor's pension or lump sum paid by OH's deferred FS pension should the worst happen?
   
2. I think your dates have got a little scrambled (OH seems to age -8 years between 2027 and 2029)
3. You have plenty of money which could be invested in ISAs and SIPPs
4. I wouldn't personally be paying any more into a CARE pension if I thought I might be semi-retiring at 50. I don't know what your terms are, but in the LGPS 55 is the earliest you can draw a DB pension. I would be focusing on SIPPs
5. Re. what you invest in and what you expect it to return - have you ever taken a proper risk tolerance test? 80% equities sounds quite high for someone who describes themselves as risk averse! Your fund could well give you 6% growth, but growth is a funny thing. Some years you might get -2%, others you might get +20%, it's not always very linear. FWIW, the expectation seems to be that the next 10 years will not be like the last 10 and that growth rates will fall to pay off the Covid hangover
6. I've nothing but positive things to say about the Vanguard SIPP. There are definitely cheaper SIPPs out there for people with large sums to invest, but it's a skoosh to use, affordable and Vanguard tick my box for trust
   

earthgirl2

Thanks Ed. It was you that nudged me with the Vanguard s&s isa many, many moons ago. If not for you, I'd probably have money stuffed under the mattress! We have had great returns from this fund.  I also like vanguard for it's low fees and I trust them to stay low. I have a consultation booked with a vanguard advisor on Friday - that person is so lucky   

So - I don't know about survivor pension - I'll pick a good time to ask!
I think I possibly have number dyslexia, so I just save and earn as much as I can and hope for the best. 
Thanks for confirming what I thought with the CARE pension
ISA and SIPP for me.
I think I can take the SIPP from my tutoring earnings, which would mean lower payment on my self assessment tax return.