FIREside Chats

LadyWithAPlan

@hugheskevi this is so inspiring. Looks like a wonderful trip and fabulous forward plans!

powerspowers

powerspowers said:

powerspowers said:

AVC snapshot for the end of the year
start date - feb 2019
contributions £1650
plan value £2022 as of 29/12/21
22 years to go 🤨 

And for the end of 2022…
contributions £3554
plan value £3802
At least 21 years to go. 

Just keep plodding. With my higher contributions now it should be double by this time next year, still feels a long slog though 😬

2024 update 13/03/24
contributions £7634
plan value £8367
20 years to go! 

Carrying on at this rate gives me an estimated pot in todays prices between 98k and £200k at age 58. This is on top of my LGPS pension and the hope is to plug the gap between retiring at 58 and state pension topping up from 68.

I’ve done some modelling and we’re more on track now than we were, although that assumes we both keeping earning and paying in at the same rates. There’s so much that can change so I’m just going to keep paying in and assess as we go. 

savingholmes

Sounds like you are doing brilliantly. 

CCW007

I’ve done some modelling and we’re more on track now than we were, although that assumes we both keeping earning and paying in at the same rates. There’s so much that can change so I’m just going to keep paying in and assess as we go. 

This statement so resonates with me!

South_coast

What's the general consensus on "lifestyling" within pensions, especially when looking to retire early? With the performance of bonds over the last few years, the idea of moving a greater proportion of them into your pot in an effort to de-risk it seems like a bit of a joke. I have 4 DC pensions now, one (the current one) I *think* I have just opted out of the lifestyling altogether by changing my investments out of the lifestyle strategy, the others start to lifestyle at 5, 10, and 15 (!) years before retirement. If you want to hold out for maximum possible (I know not guaranteed!) growth, do you just set your retirement age as the highest possible, so you only get a few years into it by the time you start taking money out 🤔?

hugheskevi

Asset allocation in the lead up to retirement has been made more complicated by pensions freedoms. There are a few paths individuals commonly follow, but many defaults will seek to try and balance between what would be appropriate to keep options open for all of them. Some providers will have investments that cater to one specific plan that individuals can switch to.

• Full encashment - moving to 100% cash would be the classical way to de-risk this for retirement
• Drawdown (up front 25% tax free) - the pension might last a very long time, so de-risking might be 25% cash but for the remaining 75% a more aggressive investment allocation would be appropriate, with some of this being in less volatile assets where you would expect to use it in the next 10 years
• UFPLS - the pension might last a very long time so a much more aggressive investment allocation would be appropriate
• Annuity - moving to 25% cash and 75% bonds would derisk this for retirement

And of course there can be mixes within this, eg, using Drawdown or UFPLS up to age 75 then annuitising

It comes down to matching investments with the profile of use. If using UFPLS or drawdown, everything in the planned drawdown profile beyond about 10 years can be aggressively invested. The drawdown profile should take into account things like State Pension coming into payment. 

There has been much more growth of multi-asset funds, going beyond the traditional equity/bonds/cash mix. It looks like private equity is set to play a greater role in the future too.

Just because bonds have done badly doesn't mean to avoid them, indeed, almost the opposite applies - previously they had very little upside but a lot of downside.

Lifestyling arrangements will vary by provider, including how long in advance of target age lifestyling starts - it could be 5 years or it could be much higher. But if wanting 100% equity then probably switching funds will be appropriate unless that is the default arrangement.

If using the pension in whole or part as an inheritance vehicle, there is a good argument for a far more aggressive investment strategy, as presumably, it contains more resources than you ever intend to draw yourself.

South_coast

Hi hugheskevi, thanks for the detailed response - which I confess I have read through about 4 times now and only about half has made sense 🤦‍♀️!

I think I am generally ticked off with bonds at the moment due to my S&S ISA, where I have about 10% in an inflation-linked UK gilts fund, which I thought would be a useful hedge against volatility. I got a bit red = buy overexcited when they tumbled in late 2022/early 2023, but it is still way down - currently about -11% on what I paid, as opposed to +13% on the global tracker that the rest is in. I haven't sold and reinvested in the global tracker (yet), but I'm starting to consider whether moving a token amount like £10 a week might make me feel better about it, while at the same time being small enough to be negligible in terms of crystallising the loss. 

With regard to the pensions, current thinking is that I'll start to access them as soon as I'm able (57 at the moment), leaving the larger ones alone and invested until I've exhausted the smaller ones. Slightly complicated by the fact I'm set to have about £90k available in a cash LISA when I reach 60, so I would pause any withdrawals for a few years while I drain that. I'd hoped to avoid paying income tax in retirement, but with the way the state pension has increased that's not going to be feasible, as it would leave me taking pennies from the pensions. It feels like I'm going to have too much in pension/LISA, but not until much later, so stopping the LISA in favour of the S&S could be an option - though the guaranteed 25% uplift from the Govt is hard to ignore. Inheritance-wise, I don't have any children, so happy to die with zero. My niece will get my flat if I still have it by then, but she's not my child so I feel no obligation there. Anything else will probably go to charity. 

hugheskevi

South_coast said:

With regard to the pensions, current thinking is that I'll start to access them as soon as I'm able (57 at the moment), leaving the larger ones alone and invested until I've exhausted the smaller ones. Slightly complicated by the fact I'm set to have about £90k available in a cash LISA when I reach 60, so I would pause any withdrawals for a few years while I drain that. I'd hoped to avoid paying income tax in retirement, but with the way the state pension has increased that's not going to be feasible, as it would leave me taking pennies from the pensions

Wouldn't you continue the pension withdrawals up to the tax-free amount (£16,760 p/a if using UFPLS with standard tax coding) and put the money into an ISA rather than pausing withdrawals once the LISA is accessible? That would enable greater extraction at a favourable tax rate.

Suffolk_lass

@South_coast my husband stopped work at 60 and ten months and we have been drawing down a portion of his DC pension each year. Although we took the full 25% at a good point in terms of market value (and while he was still working; to pay down our remaining mortgage) he drew 25% of the remainder each of the four whole tax years after he stopped work so that he took full advantage of his £12,500-ish annual personal tax allowance. So he actually paid a very small amount of tax on this draw-down.

We are fortunate that our occupational pensions both retained a normal scheme pension age of 60 so there was no actuarial reduction in these, but even so, with indexation of former schemes, an actuarial reduction for going before the scheme normal pension age meant it was worth considering from about 3 years out from that date, in terms of benefits received early versus what you are losing.

Two more things. Make sure you have paid the (right type) required number of years to your National Insurance Record - prior to 2016 any contribution years in an occupational scheme that opted you out of SERPS (as it used to be called) count only for the Basic, not the new state pension. It is well worth making up the extra years if you need them.

Thing two, health issues can strike at any time and so doing lots of active things like long distance travel, early in your retirement is a good thing. There also comes a point when energy levels begin to drop too. I am noticing that my full day's gardening is split into three 2-hour chunks now, and not all of these three slots involve crouching or kneeling. I think the pandemic really impacted levels of activity for many and you just don't get back to where you were as you get older.

And an observation; I think the "life-styling" approach that DC funds take is also predicated on an increasingly invalid assumption that they are your one and only pot. I wonder if you had considered moving any of these into a SIPP to reduce the management fees you pay each time you make a change? 

edinburgher

I am a bit contrary when it comes to lifestyling. While I have avoided it during the periods that my employer offered a DC pension, both Mrs E and I make use of it in our SIPPs (Vanguard Target Retirement 2040, currently a 71/29 split).

The reason for employing lifestyling with SIPP monies is that we can't afford not to have this money if we are to retire early and the rising bond percentage (while reducing returns) was intended to provide a degree of "safety". 

I don't really add to the SIPP, so just wanted it ticking over with an ok (doesn't have to be stellar) return to cover the first few years of retirement. I appreciate I'll need to up the equity proportion if we make it to retirement without disaster 

Should have full state pensions + at least £10k/per annum of DB pensions, so not sure if this is the best approach for our goals?