A Paupers Pension Tale (Not many nuts to dig up)

Albermarle

blue_mango said:

These recent comments made me think that perhaps I shouldn't be so focused on saving and live my life a little...while I can. 😳

It is not just a matter of saving , it is also utilising that saving to best effect by using all the tax relief and investing intelligently ( not that I have always done that )
If I had known what I do now , 25 years ago, I could have retired years earlier , whilst not saving any higher % of salary.

harlequinnyc

Albermarle said:

blue_mango said:

These recent comments made me think that perhaps I shouldn't be so focused on saving and live my life a little...while I can. 😳

It is not just a matter of saving , it is also utilising that saving to best effect by using all the tax relief and investing intelligently ( not that I have always done that )
If I had known what I do now , 25 years ago, I could have retired years earlier , whilst not saving any higher % of salary.

Whilst it makes complete sense to do this and maximise your money if you can, I also think that if you have 'enough' savings/pension income for your own lifestyle, then sometimes the pressure of this accumulating more adds to the stress you are trying to alleviate by leaving work. Not everyone has the financial savvy/confidence/aversion to risk that this requires. 

pensionpawn

harlequinnyc said:

Albermarle said:

blue_mango said:

These recent comments made me think that perhaps I shouldn't be so focused on saving and live my life a little...while I can. 😳

It is not just a matter of saving , it is also utilising that saving to best effect by using all the tax relief and investing intelligently ( not that I have always done that )
If I had known what I do now , 25 years ago, I could have retired years earlier , whilst not saving any higher % of salary.

Whilst it makes complete sense to do this and maximise your money if you can, I also think that if you have 'enough' savings/pension income for your own lifestyle, then sometimes the pressure of this accumulating more adds to the stress you are trying to alleviate by leaving work. Not everyone has the financial savvy/confidence/aversion to risk that this requires. 

It only dawned on me around 5 years ago that we should be doing all we could to increase my wife's pot from 10's of k's into 100's of k's rather than increase my pot (at a rate higher than the minimum to trigger my employers maximum contribution), which was already in 100's of k's, as by post 55 I would be able to comfortably draw down my PA and she would not. To that effect, we immediately started her a SIPP (in addition to her company pension) and we've been incrementally managing our finances so that over her final three years until her retirement she will contribute 99% of her pay. Twice the personal allowance is £2095 a month tax free (much more via UFPLS, which is what we'll be doing). Using some of my TFLS to cover the household bills for a few years was key to this strategy as it freed up all of her income. Without reading this forum I wouldn't have gained the knowledge to allow me to improve my pension planning to maximise the tax efficiency of our retirement.

noclaf

This is a great thread especially for someone who is anxious (about my own pension situation), it's refreshing to see the OP's story. 
I've just turned 40, total pension across two DC schemes just under £100k with £15k in a LISA...il likely add £4k this yr+£1k bonus but not sure if il be able tomaintain that every year.
A combination of not provisioning for pensions during my 'contractor years' and not paying any attention to the funds invested in nor contribution levels means I am now playing catch up by maximising salary sacrifice and more recently, moving both pensions to 100% Global Equities funds on the basis I have at least another 20 years of working to go... subject to health and there still being jobs!
To summarise my mistakes/lessons learned:
- contribute as soon as you can to a pension
 - maximise employee/employer contributions to the extent possible
- Do NOT bury your head in the sand for 15 years like I did assuming it's not important and that it will 'be just fine'! Try to understand what and how the pension is invested in asap e.g: what fund(s) and whether it's the optimum option for your timeframe...probably more applicable for DC pensions

I've probably missed some but the above covers all the mistakes I made...good luck to all on the 'journey'!

hugheskevi

pensionpawn said:

It only dawned on me around 5 years ago that we should be doing all we could to increase my wife's pot from 10's of k's into 100's of k's rather than increase my pot (at a rate higher than the minimum to trigger my employers maximum contribution), which was already in 100's of k's, as by post 55 I would be able to comfortably draw down my PA and she would not.

For many years I have been managing my wife and my own financial affairs entirely from the perspective of being a single financial unit rather than as two individuals. Initially, this led to utterly perverse financial arrangements when looked at individually, particularly for my wife. When considered in isolation, for many years her financial arrangements appeared to be to have large amounts of (0%) credit card debt, no liquid assets and seemed to be intent on making significant pension contributions above all else. That was because all of our ISA savings were in my name to minimise fees, whilst the house and mortgage were also only in my name as it predated our marriage (our next house move will be in joint names as that will fit our circumstances).

Having a clear lifetime financial plan from an early age and handling financial affairs as a couple is hugely efficient. I know many prefer varying degrees of financial independence within marriages, even to the extent of having entirely separate financial affairs, but that comes at a significant price in terms of efficiency and optimisation, given our pension and tax regimes.

atush

Albermarle said:

SMcGill said:

 I'd rather run out of money than time.

So true. I learned that from a lady I worked with who was hanging on in a job she didn’t like just so she could earn a few more years pension (which she admitted wasn’t essential). Six months after she did retire she was diagnosed with cancer. 12 months later she died. It’s a lesson I’m grateful to learn from her so that I don’t have to learn it for myself.

Of course we all know someone like this . An ex colleague of mine worked until 65 and then was diagnosed with motor neurone disease and was dead after a horrible 12 months. On the other hand , you might get to 90 and be unable to buy anything to make your last years comfortable , or spoil the family, or pay for private health care etc  .
It works both ways .
The only known fact is statistically that a man who reaches 65 , will on average live another 20 years . If you are female, a little longer. If you   are financially comfortable, well educated and with no specific life limiting illnesses or very bad habits , then it is likely you will live longer than the average.

I agree with this, my BIL was diagnosed with cancer around 6 weeks after retiring from the University system, cant remember the acronym, UCSS?  Anyway, he was dead within a year of retiring from his DB pension job.  My own dad died of a brain aneurysm in months after retiring from his civil service job in the US govt. at 57.  But my in laws died in their late 90s, so you never know.  I'd plan, unless you are a smoker and have cancer genes in the family, to live to 85+

atush

michaels said:

Apologies if my comment came across as negative. I love to hear everyone's experiences as i am contemplating retiring at a similar age. However sometimes those with a db pension look at the size of dc pots that others have saved up and don't realise that to buy an annuity paying 1200 per month from age 55 would require a dc pot of 750,000 which doesn't sound like a pauper pension? 

I have to agree, many here are dismissive of those with big pension pots, which come at a cost of education, lower quality life/work balance moving around the world even.  Not a walk in t he park really. plus many live in high cost areas from housing and council tax to the cost of goods and services and transportation.  Swings and roundabouts, and no one should castigate the other side.

hugheskevi

Albermarle said:

The only known fact is statistically that a man who reaches 65 , will on average live another 20 years . If you are female, a little longer. If you   are financially comfortable, well educated and with no specific life limiting illnesses or very bad habits , then it is likely you will live longer than the average.

Most life expectancy data quoted is about the whole population. However, those with a significant pension are not representative of the wider population.

It is interesting to look at the Pension Regulator data about assumptions used in Defined Benefit pension schemes, for which scheme actuaries will have made scheme specific assumptions.. A 45 year old man is assumed to live to around 89 years of age (although some schemes assume 92), whilst a 65 year old man is around 87 years (some schemes assume 89). For women, the difference is about an extra 2 years.

Just a small difference which is often overlooked, but women in particular are quite likely to live up to and beyond 90, on average.

barnstar2077

Quick Update:

I have had a play with my retirement plan spreadsheet and I am now not sure if I will manage to retire at 53 or not.  I could drop down to two or three days at that point until the numbers add up, so all is not lost however.  The more I think about it, the more it appeals to me to drop down in days sooner, once my pension is suitably stocked.  These are decision's for closer to the time though.

Some days I think I am crazy even trying to work out where I will be financially years from now to be honest?  There are so many variables it seems unlikely that my plan will run smoothly, but I just keep thinking that the only thing worse than a bad plan is probably no plan at all. 

Also, I have switched from the VLS 100 fund to the Vanguard Global FTSE  All Cap in my SIPP.  I have been happy with the performance and weightings of the VLS fund until now, but upon looking at my work pension again I realise that I have way too much in the UK (I was happy with the 25% in the Vanguard, but my works pension is 40%)  Not much I can do about the work pension unfortunately, it has a very limited fund selection, so a change in the SIPP has had to be made.

hugheskevi

barnstar2077 said:

Some days I think I am crazy even trying to work out where I will be financially years from now to be honest?  There are so many variables it seems unlikely that my plan will run smoothly, but I just keep thinking that the only thing worse than a bad plan is probably no plan at all.

I suspect you probably underestimate/overlook a lot of the benefits from planning, you already will have achieved eg,

• Understanding and arranging for the position of either surviving spouse, whether that happens early or late in retirement
• Understanding what might be the key pressure points, eg, perhaps the year or two immediately prior to State Pension age should investment returns disappoint
• Understanding any key risks specific to you, eg if planning to move house to another area, a difference in house price change between the areas may be important and so needs to be monitored. Children not becoming as independent as expected, and so on, might all be considerations.
  
• Risk allocation - probably lower risk assets for money early in retirement (eg ISAs), with higher risk for assets used later in retirement. On the other hand, perhaps you have plenty of assets for your plan, so prefer to reduce risk, even if it reduces expected return - why take unnecessary risk. For example, there is an inconsistency in my retirement plan that the required return from my ISA is higher than the required return on my DC pension - despite the ISA being invested more cautiously than the DC. This isn't serious, as the required return on the ISA is only 3.4% p/a which shouldn't be a problem, but it does demonstrate that my priority should not be more DC pension.
  
• Stress-testing plans, eg, sequence of return risk, etc
• Understanding minimum required, target amount and comfortable amount, and ensuring plans are robust to at least deliver minimum amount.

Once your plans have considered all the things like the above, you are in a great position to respond to uncertainty. The outcome will not be as originally planned, but you should be able to ride the waves pretty easily, confident that you have all the key things covered (and understand the situations in which this wouldn't be the case). A key part of planning is as much managing the journey as it is reaching the destination.