Long term saving strategy

patchyX2

Brief background: I'm mid 30's with a wife and 2 young kids. My wife has been off work for a few years raising our children but will hopefully be returning to work soon, meaning we have a bit more cash coming in. We want to take a chunk of that extra income and save it for the long term, but I'm not sure where to put it.

In terms of our savings, we have:

• Few months income set aside for emergencies
• A S+S ISA with a couple of index tracker funds in (~20k)
• My wife has a couple of old pensions, but nothing substantial
• I pay 5% into my company pension (they match up to 4%), which is currently worth ~35k. 
• We are both basic rate tax payers
• No debts, apart from a mortgage (fixed at 1.49% for a few years with pretty low monthly repayments. Good chunk of equity so no conerns over next LTV band)

We're paying into the S+S ISA for a few reasons:

• Safety net if we were to lose our job(s) for an extended period of time
• To fund any 'once in a lifetime' costs, e.g. to pay toward our forever home, moving abroad, helping the kids through uni, etc
• Extra money if our curcumstances changed dramatically, e.g. illness
• If we don't eat into this because of any of the above, then this will be used to fund early retirement, or at least a reduction in hours as we near retirement age

I know we would get the best returns if we pour this extra money into our pensions due to the tax relief, but I'm wary about doing this for a couple of reasons:

• Retirement age increasing and/or declining health meaning we can't access the money until we're too old to enjoy it
• Lack of flexibility if our circumstances change massively

I just wondered how other people are saving for the long/extreme long term, or anyone who is at or nearing retirment age that wishes thaey could advise an earlier version of themselves on this sort of thing?

ColdIron

I would have told my younger self to put more into my pension

grumiofoundation

As a basic rate tax payer and if you think you will be a basic rate tax payer in retirement then the bonus on a lifetime ISA (stocks and shares as for retirement) is ‘better’ than the tax relief on additional (non-employer matched, non-salary sacrifice) pension contributions.

Drawback - only accessible without paying a penalty at 60. 

tacpot12

I did tell my younger self to put more in to my pension and as a result I was able to retire aged 53 when my employer wanted to make me redundant. They couldn't understand why I was the only person in the department happy to be being laid off!

You are certainly thinking along the right lines with your S&S ISA, but if you have don't have Income Protection Insurance I would suggest you sort this out for yourselves so that you don't need to put that much more into your S&S ISA in case you cannot work due to ill health.

Ultimately it is about balance, so I would suggest that you set your wife up with a good pension, but continue to contribute to the S&S ISA, and plug any insurance gaps you have. 

Albermarle

I know we would get the best returns if we pour this extra money into our pensions due to the tax relief, but I'm wary about doing this for a couple of reasons:

• Retirement age increasing and/or declining health meaning we can't access the money until we're too old to enjoy it

• Lack of flexibility if our circumstances change massively

• These are valid concerns but you should not let it affect your planning so much. The age at which you can access both personal and state pensions will increase and could well be 60 and 70 respectively by the time you get there. However if you do not want to have to work until 70 then you will  need to build up a substantial pot to retire at 60. Also the issue of declining health can affect anybody of course but statistically you would be unlucky for this to affect your life until you were older.

• At least when your wife starts working she should join the workplace pension that will  be offered, and and one/both of you should try to increase your contributions above 4 or 5% if possible. Also due to your ages you should make sure that both pensions are relatively aggressively invested in higher growth funds.

• Or as suggested you could also look at LISA's for one or both of you as a supplement to the workplace pensions .

granta

ColdIron said:

I would have told my younger self to put more into my pension

Agree. And I would have told my younger self to pay more attention to what the underlying investments in my pension were, understand the basics of investing, and make adjustments for a long-term buy and hold strategy at a risk level I was comfortable with.

Thrugelmir

When you say your mortgage outgoing is low. How long is the mortgage term?  As this will determine the rate at which you repay the capital owed. 

MaxiRobriguez

Don't ignore pension because the access age may change. Even if they are pushed back to 70, or 75 - that's still at least 10 and maybe a much as 25 years worth of time which you can draw from that pot.

Maybe straddle as many positions as possible (S+S ISA, LISA, Pension) - but don't dismiss one outright.

MX5huggy

MaxiRobriguez said:

Don't ignore pension because the access age may change. Even if they are pushed back to 70, or 75 - that's still at least 10 and maybe a much as 25 years worth of time which you can draw from that pot.

Maybe straddle as many positions as possible (S+S ISA, LISA, Pension) - but don't dismiss one outright.

There’s no way access to pensions will be pushed to 70 +, the current proposal is it moves so it’s 10 years less than State Pension Age. So 58. 

patchyX2

Thrugelmir said:

When you say your mortgage outgoing is low. How long is the mortgage term?  As this will determine the rate at which you repay the capital owed. 

20 years left. We've just started overpaying by a small amount (£50) each month too. 

patchyX2

MaxiRobriguez said:

Don't ignore pension because the access age may change. Even if they are pushed back to 70, or 75 - that's still at least 10 and maybe a much as 25 years worth of time which you can draw from that pot.

Agreed, but when you get to that age, can you really enjoy the money? I'd be so disappointed if I made it to retirement age with a massive pension pot, but I had a dodgy hip and sore back which meant I couldn't really travel and do these things I wanted to.