Embarrassed 40 year old - no pension.

barnstar2077

My two pence.  It is okay(but not ideal) to eat into capital when you retire.  You could drawdown 20k from your private pension for ten years, then subtract your state pension from how much you drawdown going forward until you run out of money, so you wouldn't need half a million.  Or you could (as I currently plan on doing) live off of your private pension for as long as you can, deferring state pension until you need it.  Deferring the state pension currently increases it by 5.8% per year.

As there are too many variables, and things could be changed dramatically by world events or the government by the time you retire, I would just stuff your pension (and possibly a stocks and shares ISA) and reassess your plans every five years or so.

As others have said, also look into your fund selection in the pension.  This could make a big difference in the long term.

MX5huggy

sho_me_da_money said:

Sea_Shell said:

How are your stocks performing?

Better than 1.69%?

What a beauty of a comment. Yes they are doing better than 1.69%. Heck they are up over 1.5% today. I guess this means i should hold onto them for the next 5 years and reassess.

I don’t like you holding a large quantity of your assets in a single stock. If there is no bonus to you holding them, consider selling and diversifying. Big companies go pop overnight Leman Brothers, Enron. Others fall out favour.  Never mind the risk of a general stock fall.  

Sea_Shell

MX5huggy said:

sho_me_da_money said:

Sea_Shell said:

How are your stocks performing?

Better than 1.69%?

What a beauty of a comment. Yes they are doing better than 1.69%. Heck they are up over 1.5% today. I guess this means i should hold onto them for the next 5 years and reassess.

I don’t like you holding a large quantity of your assets in a single stock. If there is no bonus to you holding them, consider selling and diversifying. Big companies go pop overnight Leman Brothers, Enron. Others fall out favour.  Never mind the risk of a general stock fall.  

Actually we did this.   DH held some shares in his (US) workplace scheme, and they were doing pretty well, but we realised that we were too exposed to this one company (but only for £20,000), and we wanted more direct control, so he sold them but immediately reinvested in a Global Equity Fund (Rathbones Global Opportunities)

That was in May 2018.   In the last 3 years the fund has grown by 55%.   Yes the risk of a drop is still there, but it is at least now diversified, and under our direct control (in our ISA).

ex-pat_scot

Sea_Shell said:

MX5huggy said:

sho_me_da_money said:

Sea_Shell said:

How are your stocks performing?

Better than 1.69%?

What a beauty of a comment. Yes they are doing better than 1.69%. Heck they are up over 1.5% today. I guess this means i should hold onto them for the next 5 years and reassess.

I don’t like you holding a large quantity of your assets in a single stock. If there is no bonus to you holding them, consider selling and diversifying. Big companies go pop overnight Leman Brothers, Enron. Others fall out favour.  Never mind the risk of a general stock fall.  

Actually we did this.   DH held some shares in his (US) workplace scheme, and they were doing pretty well, but we realised that we were too exposed to this one company (but only for £20,000), and we wanted more direct control, so he sold them but immediately reinvested in a Global Equity Fund (Rathbones Global Opportunities)

That was in May 2018.   In the last 3 years the fund has grown by 55%.   Yes the risk of a drop is still there, but it is at least now diversified, and under our direct control (in our ISA).

Indeed. That's an order of magnitude of greater risk.
It's one thing being exposed to the whims of the prices of an individual stock, compared with buying a sector or market tracker.
It's another huge increase in risk to have that one stock as your employer.  I've seen where the market has not been kind to a company's share price for a time, leading to a round of cost cutting and redundancies of colleagues. So they lost their income and also halved (and more) their savings.
For a triple whammy "what not to do", I used to work for a US bank, and my colleagues often had their entire 401k retirement funds also invested in the company stock, along with their full loading of company share incentive scheme, unvested options and their salary.  That really didn't work out well during a large market correction.
(my strategy was to crystallise the shares from the incentive scheme and reinvest elsewhere as soon as I was able, as even my naive younger self could see the massive correlation risk)

Neasy

Yes, I agree re risk. I used to have a sharesave investment in the company I worked for only to suffer a double whammy when the company's shares became worthless *and* I lost my job. 

MaxiRobriguez

Consider increasing your 20% contribution if you can. Even though you're now under the 40% tax threshold, if you're contributing by salary sacrifice you're still getting a 32% tax dodge.

Contributing more now allows you more flexibility on what work you do in your fifties. ie - you could possibly reduce hours or do an easier job if needs must, knowing you've injected pension capital already.

FWIW I'm on a similar salary to you, with higher bills, and I'm managing to get £2k via salary sacrifice in. It can be done. 

sho_me_da_money

Thank you all. All fantastic comments and advice. I am really grateful to you. A number of you mentioned for me to look into your fund selection in my pension. 
........
The one they currently have me with is this:
https://fundcentres.lgim.com/srp/lit/NR955O/Fact-sheet_Workplace-Pathway-Funds-Journey-Plan-2-LG-PMC-2045-2050-Target-Date-Fund-3_31-03-2021_UK-WPEmployee_UK-WPAdviser_UK-WPEmployer.pdf
........
But I really like this one albeit at a higher risk:
https://literature-lgim.huguenots.co.uk/srp/documents-id/d77cd10d-b44c-47b7-ac18-407eec4b8803/Fact-sheet_World-ex-UK-Equity-Index-Fund-LG-PMC-World-ex-UK-Equity-Index-Fund-3.pdf
........
The risk categories are 4 Lower, 4 Middle, 4 Upper, 5 Lower and 5 Upper. I am essentially proposing going from 4 middle risk category product to a 5 lower risk category product. I love the investments in the 5 lower (Amazon, Facebook, Google, Tesla, JP Morgan etc.)
........
Wondering what you guys thought?
........

MaxiRobriguez

sho_me_da_money said:

Thank you all. All fantastic comments and advice. I am really grateful to you.
A number of you mentioned for me to look into your fund selection in my pension.  The one they currently have me with is this (risk category 4) - 
https://fundcentres.lgim.com/srp/lit/NR955O/Fact-sheet_Workplace-Pathway-Funds-Journey-Plan-2-LG-PMC-2045-2050-Target-Date-Fund-3_31-03-2021_UK-WPEmployee_UK-WPAdviser_UK-WPEmployer.pdf
But I really like this one albeit at a higher risk (risk category 5):
https://literature-lgim.huguenots.co.uk/srp/documents-id/d77cd10d-b44c-47b7-ac18-407eec4b8803/Fact-sheet_World-ex-UK-Equity-Index-Fund-LG-PMC-World-ex-UK-Equity-Index-Fund-3.pdf
Wondering what you guys thought?

The fund you are currently in is a target date fund - so as you get older you will automatically have your equity allocation reduced in order to buy more bonds, which is done for capital preservation reasons.

The second fund is just a fairly standard equity index tracker, so you won't have this done for you, and you will need to pay closer attention to mitigating your risk as you get closer to retirement (ie, within 10 years, 5 years, 2 years).

The second fund is heavily biased towards US equity. 62% of the fund is in US stocks. This is because the US has had a great run over the last ten years compared to other regions so has come to dominate global trackers. This might result in a period of underperformance (return to the mean is real) compared to a portfolio where you give more weighting to alternative allocations - like small cap, Europe, EM...

But no one can predict the future in terms of which funds will outperform. Don't spend time getting caught up on it. If you've got a cheap and diversified fund (which this second one is) then you'll find you get better returns if you concentrate on finding ways to push as much money in as possible. The first few years of gains in a portfolio are paltry in comparison to the money you put in. It's only when the portfolio is sufficiently large that small differences in funds/gains start to make a real difference. 

sho_me_da_money

Thanks Maxi, so the second one (the one I would like to change to) is a gooden to commit to?

MaxiRobriguez

sho_me_da_money said:

Thanks Maxi, so the second one (the one I would like to change to) is a gooden to commit to?

For most people it's absolutely fine yes. Very little harm in starting with that and then adapting as you get more experience.