FIREside Chats

Staffordia

@Suffolk_lass thank you. You are probably right that it will be months before you receive a reply.

edinburgher

@CCW007 - congrats - £10k+ is definitely walking around money

earthgirl2

Congratulations on the new job!

I had a free consultation with Vanguard to decide what to do with my FIRE plan and money. All of these points are based on me and my attitude to risk and my plans but some of the main points I noted were

• period of muted growth is expected for next 6-10 years
• anything that I need to take out in 6 years or before must be placed in low risk funds, with not much growth predicted
• over a 40 year investment, could predict 6% growth on my investment, but not that much for less than 40 years (my 6% interest prediction is unlikely and I have to recalculate my figures)
• for money I want to access in about 10 years, could predict 5% interest but the capital would have to be 100% at risk in equities (I'm not prepared to do this)
• She would suggest a split of 40% equities and 60 bonds, based on my risk tolerance.
• I need to spread my investments and wrappers to achieve maximum gain within my risk tolerance.
• Final suggestion was

1. look at target retirements funds for 2035 (when I am 55) decide if I want to invest this way and how much. Any ideas if these are any good? I feel like I could just use the LS 80/60/40/20 and sell my investments and buy more 20% more bonds every 2 years, and pay 1.1% less in fees? or maybe I have missed something.

2. fill this years isa allowance and next years isa allowance with life strategy 40/60 acc, 80/20 and 60/40. OH to do the same ( up to 40k each in 2 tax periods)

Note to self - don't discount normal savings accounts for some of the cash, especially if the stock market is approaching a low growth period.

3. Recalculate how much I need to save based on more conservative estimates of interest. Edit - calculators say I need to invest what I have saved - 74k, plus £400 month, at 4% to achieve £150k in 8.5 years.

4. recalculate how much money we will access from pensions/ earnings (up to 12.5k each) and how much we will access from isas each year in the future to not loose so much in tax.

hugheskevi

• for money I want to access in about 10 years, could predict 5% interest but the capital would have to be 100% at risk in equities (I'm not prepared to do this)
  

Brave to give a prediction of equity returns over a relatively short period. Note it is not interest but investment returns and dividends. Still some figure has to be used, and that is reasonable for an indicative amount but would need to be kept under careful review and corrected in line with actual experience as it becomes available.

• She would suggest a split of 40% equities and 60 bonds, based on my risk tolerance.

No mention of other diversifiers? Corporate property, gold, natural resources, those sort of things? Any mention of what type of bonds - gilts, AA rated, or high yield,,UK or overseas, index-linked?

• 1. look at target retirements funds for 2035 (when I am 55) decide if I want to invest this way and how much. Any ideas if these are any good? I feel like I could just use the LS 80/60/40/20 and sell my investments and buy more 20% more bonds every 2 years, and pay 1.1% less in fees? or maybe I have missed something.

Would this be for non-pension assets, as by then the minimum pension age will be 57? Nothing wrong with target date funds as long as they meet your investment needs, and no reason for them to cost so much as 1.1 percentage points more than other investment funds.

• 4. recalculate how much money we will access from pensions/ earnings (up to 12.5k each) and how much we will access from isas each year in the future to not loose so much in tax.

How are you planning to access pension? If you use UFPLS you can each draw £16,760 without paying income tax.

Your partner is very close to minimum pension age. How are you planning to optimise savings between you? Would it be preferable to prioritise pension contributions into his pensions given he can draw them much earlier than you can?

edinburgher

@earthgirl2 - I think you've maybe crossed a few wires there - unless my understanding of Vanguard's offerings is entirely incorrect. Quite possible, but I do take an interest and we use them for SIPPs/ISA/JISA.

You would be hard pressed to spend 1.1% on fees with Vanguard in total, never mind being able to save 1.1%! As I understand it, you have spoken to Vanguard and they have probably tried to tell you about their Advice offering. While this is all legit and above board, they will only advise you about the products they offer in relation to a single pension (don't think they've started "couples" planning, or allowing for different investing goals yet). This doesn't include corporate property, gold, natural resources etc. (as per hugheskevi's comments), as they don't offer those in the UK (no idea about the US). Their total fees are 0.79%, which covers a personal financial plan (updated annually), the platform fee for Vanguard and any fund costs as recommended in your plan. Which? wrote an article about it: https://www.which.co.uk/news/2021/04/vanguard-launches-financial-advice-service-with-0-79-fee-is-it-worth-it/

With the utmost respect to hugheskevi (who seems to know his onions), I don't think a potential portfolio of £150k supported by multiple DB pensions necessarily needs these. I see no reason why Vanguard's multi-fund offerings of equities and high quality bonds can't deliver your goals (which sound quite achievable).

I don't, however, see how an annual plan review for a short duration goal (less than a decade) that may simply say "continue to use a Target Retirement fund and add £x more a month based on growth to date" is worth 0.4% (it's 0.39% for the platform charge and the Target Retirement fund that Mrs E uses). The beauty of Vanguard is the simplicity of some of their products, are you willing to pay nearly £300/year (based on £74k) for basic hand holding and a little spreadsheeting/reporting that you could do yourself tolerably well)?

Ps. Final thought from me is that funds for Target Retirement funds and LifeStrategy funds are much the same. I believe target Retirement will do the "lifestyling" for you for perhaps an extra 0.01%. Quite possibly worth paying as this will be done mechanically and probably more efficiently than someone looking to do this themself.

Pps. Final final thought - why would you mix 3 different LifeStrategy funds in your ISAs?

hugheskevi

edinburgher said:

With the utmost respect to hugheskevi (who seems to know his onions), I don't think a potential portfolio of £150k supported by multiple DB pensions necessarily needs these. I see no reason why Vanguard's multi-fund offerings of equities and high quality bonds can't deliver your goals (which sound quite achievable).

I agree they are not necessarily needed.

The bigger issue is around 'bonds.' With very low but increasing interest rates and higher inflation, bonds are not necessarily the safe-haven they were in the past. Therefore it is important to understand what you are buying into exactly within the 'bonds' category. Diversity can come from the quality-rating of the bond, the geographical location of the bond, any index linking, and so forth.

Further diversity can come from holding diversifiers. These can be all within a single fund and do not have to be expensive, eg, Legal and General's multi-asset fund holds 14.6% alternatives consisting of real estate, infrastructure, private equity, and timberland at a cost of 0.27% (not recommending this fund, just using it for illustration).

No one investment fund is necessarily better than another, and there may be a preference to keep things simple and not go into much detail about the investment holding which is fair enough, but the merits (or otherwise) of these sort of considerations would ideally be considered to decide what may be optimal for an individual, particularly as funds get larger (they aren't a concern for small funds).

D123456789

Hello everyone, I have read the whole thread to try and learn.  I have really been focussing / procrastinating(!) about paying off mortgage as my next goal but now I wonder if I should be investing as well / instead. 

I have been paying into nhs pension, but have worked abroad for a year, travelled for a year, funded my own degree whilst doing agency work for a couple of years, and since returning to work after maternity leave have reduced my hours, so for 3.5 years have been part time. So I think I have 16 years full time pension contributions. 

I wonder if my best move would be to buy some “extra years” of nhs pension to make up for when I haven’t paid into it. Not sure if I have phrased this correctly? is this an obvious best choice? I looked into it a few years back but did nothing about it. 

Or if I should be looking to invest in Stocks and shares ISA or SIPP. Or should I just put extra money into mortgage repayment….. 


I think that paying into something is better than nothing but I could perhaps make some better choices?

hugheskevi

D123456789 said:

I wonder if my best move would be to buy some “extra years” of nhs pension to make up for when I haven’t paid into it.

How you got to your current position isn't relevant, so there being years in the past when you did not pay into a pension is not a reason to contribute more.

You should be considering what you need in retirement, what you already have accrued, and what you will accrue in future to determine whether there is a need to contribute more.

I wonder if my best move would be to buy some “extra years” of nhs pension to make up for when I haven’t paid into it. Not sure if I have phrased this correctly? is this an obvious best choice? I looked into it a few years back but did nothing about it. 

The phrasing you need is "Additional Pension" or "Added Pension" (they mean the same thing) - added years closed many years ago and is related to the former final salary pensions.

You have a number of ways to increase your NHS pension should you wish, which are detailed at this link. The main two options are Additional Pension or ERRBO, which are essentially very similar things although they appear different. These are great if you conclude you need more retirement income.

Or if I should be looking to invest in Stocks and shares ISA or SIPP. Or should I just put extra money into mortgage repayment…..

A stocks and shares ISA doesn't have great tax incentives like the pension, but leaves you with access to the investment should you want it.

A SIPP gives similar tax advantages to NHS pension purchase, but is a lot more flexible. This is both good and bad - it means you can draw from it in retirement however you wish, so perhaps taking more early in retirement to smooth income before State Pension starts if you retire before State Pension age. But there are no guarantees, so if you want a guaranteed income in retirement it is likely NHS Additional Pension or ERRBO would be better.

I think that paying into something is better than nothing but I could perhaps make some better choices?

Each product has strengths and weaknesses, and often having a mix of everything is a good outcome.

Overpaying a mortgage has no investment risk and gives peace of mind, but there are no tax incentives and the return is guaranteed to be poor (as it is effectively the interest rate of the mortgage)

S+S ISA has no tax incentives, but gives access to investment and should have a higher rate of return (depending on how you invest). You could even combine S+S ISA with SIPP to get best of both worlds - saving into an S+S ISA, then later putting money from salary into SIPP and drawing down the S+S ISA, thus having both access to funds and getting tax advantages, but that is perhaps starting to get a bit more complicated.

A SIPP has tax incentives, but no access to investment, should have a higher rate of return than overpaying mortgage (depending on how you invest), and gives flexibility in how you take the funds once you have reached minimum pension age (probably 57 for you). But it isn't good at providing a guaranteed income, which can only be done via an annuity which is expensive, especially for inflation protection.

NHS Additonal Pension or ERRBO has tax incentives, no access to investment, a rate of return of around CPI+2.4% (the discount rate used in calculations), gives guaranteed income in retirement but has very little flexibility in how you can choose to receive it.

So your plan should take into account the strengths and weaknesses above, combined with your ambitions around when you retire and how much income you need, to determine what is invested where, and how much.

edinburgher

@D123456789 - I think you might get more ideas with a few figures 

earthgirl2

D123456789 I'm too much of a novice to help, but the people here are amazing!

Thank you so much for your time hugh and Ed, and great advice and pointers
I can't pay more into OH's pension
I will look into UFPLS
I will look into Multi asset funds as they sound interesting.
Ed there's the number dyslexia thing - 0.01%. = 1.1% in my head  sorry! In which case, the Target retirement funds look a good option for me - less scope for me to mess up!

The advisor told me to not put all my money into vanguard LS 80 within the isas, bearing in mind there could be 40k going in quite soon. She said put some at 80 - high risk, some at 60 - medium and some at 40 - low risk, less growth. I opened it this way - just with £1 in each fund. What are your thoughts?

Thanks so much, really appreciated.