Time to decrease?

MallyGirl

Firefly12345 said:

@1980ds you are spot on. The oft used rules around aiming for 65% of income in retirement just don't stack up for high earners [excluding the asset rich, properly wealthy people who generate more than they spend from their assets]   

That is true but £25k is quite a drop. Our combined salaries are somewhat more than yours but more evenly split and we are both contributing £40k to pensions. I am working on more like £60k a year in retirement until our late 70s and then tailing off a bit.

btcp

LadyGnome said:

btcp 
You also need to factor in the loss of the tax free allowance as well - that has an impact on your take home pay. 

I am a high earner and so tax, NI and loss of TFA hit hard. (I am not looking for sympathy I am very lucky to be in this position). Regaining the TFA will be a big help. I spend at least £5-10k a year on work expenses (commuting, clothes, coffees, collections team lunches etc). 

Children are expensive (I am paying school fees but even without that) eg parental contribution for uni will be £6k+ alone. If you have younger children childcare can be eye watering. 

Once you strip out the work, mortgage, children and pension costs and factor in the TFA it really does reduce the amount you need by a lot.  

I understand the tax implication, I am also a high earner and crying when receive those pay checks. I am very interested what other people plan for retirement and how they are planning to maintain the lifestyle (or not). I was working from home last year, meaning no work clothes, lunches, drinks, commute, holidays, etc. and I am spending 2k a month on average. I have no kids or mortgage. I did not have any house renovation, only a couple of maintenance issues. 2k a month is 30k gross income so this is a minimum I'd need for my pension, if I were to maintain the same lifestyle and continuing living in London.  If I wanted good holidays I'd need more money.  If I wanted a private medical care, I'd need more money too. 

jamesd

The high contribution year and low contribution year approach is good for your situation. Since you can go back three years you might find that one low can fund two high or that say low, high, low, high, high works. Lets you tweak to get just to £100k instead of going over or under.

When sacrificing you can save some 12% employee NI by concentrating the sacrifice into as few months at minimum wage as possible. In those months you'll save 12% on the bit between 1/12 th of the personal allowance and 1/12 th of the top of the basic rate band. So much will still be above the basic rate band and saving 2% that the gain isn't as large as it is for some but it's still money in your pocket not HMRCs. This happens because NI is worked out for each individual pay period, not annually.

Venture Capital Trusts are a very popular tool at your income level because they get 30% initial tax relief with only a five year minimum holding time, so pension restrictions have caused high earners to switch former pension contribution money to them. They are a form of fund that invests in relatively young and relatively small companies, before they are big enough to go to the stock markets to raise money.

Albermarle

kuratowski said:

Two reasons to use your wife's pension.  First, you both have personal allowances and basic rate bands.  Makes sense to get money out of the pension (in retirement) at the lowest possible marginal rate.  Second, you are almost certainly going to exceed lifetime allowance - which negates much of the benefit of tax relief.  But your wife has another lifetime allowance.

OP - good advice above . If you go over the LTA, which seems very likely , then any 40% tax relief gained on the way in will be lost , on the amounts you go over the LTA.
If your wife contributes to a pension and gets tax relief, even at only 20%  then later if she has no other taxable income , she can take over £16K pa from her pension tax free. ( 25% tax free + the rest under her personal allowance.)

btcp

Firefly12345 said:

@btcp Sadly I have to pay tax!  
@1980ds you are spot on. The oft used rules around aiming for 65% of income in retirement just don't stack up for high earners [excluding the asset rich, properly wealthy people who generate more than they spend from their assets]   

We all have to pay tax, but this conversation seems referring to gross figures so for the simplicity I stick to it. 

If we consider  net spending instead, my post above outlined my example. My monthly expenses are 2k, bare considering I worked from home for a year. This amount would be roughly 30k gross annual income. Your post suggested that you aim for 25k pension, which seems on a lower end to me. Of course we live different life and maybe you spend less. 

Firefly12345

btcp said:

Firefly12345 said:

@btcp Sadly I have to pay tax!  
@1980ds you are spot on. The oft used rules around aiming for 65% of income in retirement just don't stack up for high earners [excluding the asset rich, properly wealthy people who generate more than they spend from their assets]   

We all have to pay tax, but this conversation seems referring to gross figures so for the simplicity I stick to it. 

If we consider  net spending instead, my post above outlined my example. My monthly expenses are 2k, bare considering I worked from home for a year. This amount would be roughly 30k gross annual income. Your post suggested that you aim for 25k pension, which seems on a lower end to me. Of course we live different life and maybe you spend less. 

I am certainly not aiming for 25k per year. This, in my modelling, is a realistic worst case scenario. It's not what I want but it's not a disaster. I'm aiming for 50k. 

atush

I agree your cash is too low, and your wife should have a pension.  have her contribute her entire income, and you can then give her this same sum back.  She will still be independent, but you will have effectively paid her pension for her.  Open Jisas for the kids.  Increase your s&s isa, after you have maxed your pension up to the full 40K.  Open one for the wife.