Advice at 33

MaxiRobriguez

dunstonh said:

Additional contributions to pay it off - yes, essentially pay into your pension now and use TFLS or drawdown to pay off the mortgage you're no longer paying off. £1,200 a month a mortgage means you're funding that from £2,500 odd worth of salary because it's post tax. That £2,500 odd could be sheltered from tax by putting in pension. Then when you do come to accessing the pension a chunk of that will be tax free, and what is not is almost certain to be taxed at a lower rate than you currently have now. 

We dont know what the tax positions or options will be when the OP gets to retirement.   However, I would be planning to use the 25% for income rather than lump sum due to the size of the pension that is likely to be needed for someone who has got used to a £90k a year income (in today's terms).   The 25% TFC paid as income could avoid higher rate tax throughout retirement.

If the OP really does have financial problems that require the pension lump sum to clear the mortgage then I would look at spending habits as the next thing as it suggests they are not living within their means.

Hopefully, they can continue with the repayment mortgage and have it cleared through normal monthly repayments without the need to use the TFC.  (with not much info known about the OPs scenario, we could paint many pictures as to what could be done).

Yes - I am planning to continue to pay repayment mortgage without using TFLS, but it is an option for people if they *want* to clear their mortgage upon retirement - and will likely yield better results in terms of £ than instead of having built additional pension was used to (over) pay off mortgage, although obviously continuing to take that sum as income will likely be better.

There's a million ways to look at this but ultimately a mortgage is ~2% at the moment and pension allows OP to dodge 40% tax. Until such a point whereby: mortgage rates increase, the tax-dodge for higher earners is removed, the OP is nearing LTA and/or the OP is nearing retirement age such that his pot gains are dictated by changes in asset prices rather than contributions, mathematically the optimum approach is to fund pension.

MX5huggy

Ok lavish may not be the word, I only used it because you did. I’ve not even assumed if you are a man, and while we don’t have all the facts, we have to make assumptions or fill in the blanks. For example £60k is not massive if you are single or even more so if your partner doesn’t work. 

A 911 (used) could well be a money saving alternative compared to the A4, so if your heart is set on one investigate it. I run a Morgan 4/4 and a 12 year old Octavia. Although the A4 is the company car? In which case you should really be swapping to a EV for the tax savings the Skoda Enyaq is brilliant family car. 

Albermarle

30andcounting said:

Albermarle said:

You do have a lavish life style, you just can’t see it because you’re used to it and it’s just crept up on you.

The phrase 'lavish lifestyle' as used by the OP , I guess means he is not flying around the world in First Class, drinking champagne every night etc 

I think probably more accurate  to say that earning £90K pa ( before tax ) he  has probably got used to a comfortable lifestyle, bought a rather nice house, in a nice/expensive area,  maybe runs a couple of nice cars and the kids go to a nice/expensive nursery for many hours a week . So does not have much spare cash and therefore thinks he is not doing that great money wise, when in fact is in the Top few per cent of earners .

I think that is a bit rude and full of assumptions. I was only coming on here for some advice!

Sorry, should have depersonalised the wording a bit  and was just trying to make a general comment about what might be considered a lavish lifestyle ( or not) 
As a generalisation a lot of people earning good/high salaries , do not live lavish lifestyles but do fall into a sort of trap, where they get used to having the nicer things in life as a matter of course  and despite the high salary there is never much left at the end of the month .

noclaf

Op, not much to add as the more experienced on here have already provided useful input.
Just my 2pence- I turned 40 this year, a big regret is that I didn't focus on pensions sooner. As you are 33, plenty of time to make adjustments that will have a significant positive impact further down the line.
My combined DC pension pots are just over £100k and Ive increased my contribution such that with employer matching I am putting away £1.5k into the pension per month. For context I earn £62k per yr and with a little one on the way, am being more aggressive now as the additional expenses that will come with a child may limit my contributions.
I would take advantage while you can, obviously striking a balance between living in the present and putting away for the future.
Only other point to add is looking more closely at the actual funds you are investing in, I overhauled all of my DC pensions and LISA+ S&SISA with the help of this forum but wish I'd done it much sooner. The difference between a poor performing pension fund and the better options can be staggering over a long period. Best to try optimising it as early as possible, taking into consideration your risk tolerance, timeframe, investment, objectives etc etc

30andcounting

MaxiRobriguez said:

30andcounting said:

MaxiRobriguez said:

Short answer - yes.

£750 a month over the next 27 years will give you a pot of around £600k maybe after real returns compounded growth, which if you drawdown will give you about £30k a year, with 7 years still until you get additional state pension on top. That's quite the step down from £90k, and perhaps won't leave anything in terms of inheritance - at least from your pension pot.

There's no guarantee the tax breaks for pension contributions will be around forever, and no guarantee you'll always be on £90k, so why not take advantage now? Is it really sensible to overpay your mortgage? You could just run your mortgage for longer, potentially into retirement, using the additional contributions to pay it off.  You're saving a 2% on a mortgage overpayment, but you'd be able to save 40% of tax by additional pension contributions.

FWIW, I'm also 33, also have nursery fees and a mortgage to consider, yet I'm contributing 3x as much as you despite earning 2/3'rds your salary. It can be done.  

Yes I understand you're first point but my needs in retirement wont require an income of £90K a year, I don't have a lavish lifestyle now nevermind in my 60s...I don't plan to anyway!

How do you mean when you say use your additional contributions to pay it off (relatng to mortgage), you mean my additional contributions now and then withdraw it from my pension at 55?

3 times as much on £60K, how? I'd like some inspirtaion! My childcare fees are £750 a month and mortgage £1,200 FWIW.

Thanks some good ideas and just what I was after.  

If you're used to £90k earnings you'll probably want more than £25k in retirement... Most topics suggest needing 2/3'rds of money in retirement to continue your lifestyle, but as you earn much more than normal people you could probably get away with half, maybe less.... but that is still significantly more than what you're projected to be on.

Additional contributions to pay it off - yes, essentially pay into your pension now and use TFLS or drawdown to pay off the mortgage you're no longer paying off. £1,200 a month a mortgage means you're funding that from £2,500 odd worth of salary because it's post tax. That £2,500 odd could be sheltered from tax by putting in pension. Then when you do come to accessing the pension a chunk of that will be tax free, and what is not is almost certain to be taxed at a lower rate than you currently have now. 

My pension contribution is £2.1k a month - my employer pays £400, I push in £1.7k. That reduces my post-tax income to about £2.6k a month, of which mortgage is £750, mortgage overpayment of £800, bills are about £500 including council tax and running a car, and nursery is £400.

That leaves a couple of hundred. We have an offset mortgage so the monthly mortgage and overpayments which total £18,600 a year go immediately into a S+S ISA at the start of every new tax year, or if necessary large capital expenditure. F.e we bought a new car this year for £15k (edit2: bought on a 0% credit card will pay it off over next few years) but it's only done 3,000 miles and will actually fit a pushchair AND luggage that our old Yaris, which has done 95k miles does not.

My wife also has part time earnings of about £15k a year - £5k of that goes into a SIPP, and the rest she uses for things like baby classes, lunch out if she's taken him out etc. That stuff racks up faster than anything else usually...

Edit: Pension pot (including ISA) is now at £200k, expecting it to hit about £800-900k by time I'm 50, which will give me drawdown of £30k+. I'm expecting to still have most of the mortgage by then but that will be easily serviceable on £30k which will translate into £2.1k a month in the pocket. Less than what I'm on now, but the £800 overpayment won't be needed anymore, so net + £300 a month.

Thanks that is impressive. But you say you are left with about £200? For what exactly? Are you ever concerned you are missing out on life currently - as in experiences with your kids etc, nice holidays etc etc. What happens if you got terminal cancer tomorrow? But a big pension pot....just curious and not a criticism..

MaxiRobriguez

30andcounting said:

MaxiRobriguez said:

30andcounting said:

MaxiRobriguez said:

Short answer - yes.

£750 a month over the next 27 years will give you a pot of around £600k maybe after real returns compounded growth, which if you drawdown will give you about £30k a year, with 7 years still until you get additional state pension on top. That's quite the step down from £90k, and perhaps won't leave anything in terms of inheritance - at least from your pension pot.

There's no guarantee the tax breaks for pension contributions will be around forever, and no guarantee you'll always be on £90k, so why not take advantage now? Is it really sensible to overpay your mortgage? You could just run your mortgage for longer, potentially into retirement, using the additional contributions to pay it off.  You're saving a 2% on a mortgage overpayment, but you'd be able to save 40% of tax by additional pension contributions.

FWIW, I'm also 33, also have nursery fees and a mortgage to consider, yet I'm contributing 3x as much as you despite earning 2/3'rds your salary. It can be done.  

Yes I understand you're first point but my needs in retirement wont require an income of £90K a year, I don't have a lavish lifestyle now nevermind in my 60s...I don't plan to anyway!

How do you mean when you say use your additional contributions to pay it off (relatng to mortgage), you mean my additional contributions now and then withdraw it from my pension at 55?

3 times as much on £60K, how? I'd like some inspirtaion! My childcare fees are £750 a month and mortgage £1,200 FWIW.

Thanks some good ideas and just what I was after.  

If you're used to £90k earnings you'll probably want more than £25k in retirement... Most topics suggest needing 2/3'rds of money in retirement to continue your lifestyle, but as you earn much more than normal people you could probably get away with half, maybe less.... but that is still significantly more than what you're projected to be on.

Additional contributions to pay it off - yes, essentially pay into your pension now and use TFLS or drawdown to pay off the mortgage you're no longer paying off. £1,200 a month a mortgage means you're funding that from £2,500 odd worth of salary because it's post tax. That £2,500 odd could be sheltered from tax by putting in pension. Then when you do come to accessing the pension a chunk of that will be tax free, and what is not is almost certain to be taxed at a lower rate than you currently have now. 

My pension contribution is £2.1k a month - my employer pays £400, I push in £1.7k. That reduces my post-tax income to about £2.6k a month, of which mortgage is £750, mortgage overpayment of £800, bills are about £500 including council tax and running a car, and nursery is £400.

That leaves a couple of hundred. We have an offset mortgage so the monthly mortgage and overpayments which total £18,600 a year go immediately into a S+S ISA at the start of every new tax year, or if necessary large capital expenditure. F.e we bought a new car this year for £15k (edit2: bought on a 0% credit card will pay it off over next few years) but it's only done 3,000 miles and will actually fit a pushchair AND luggage that our old Yaris, which has done 95k miles does not.

My wife also has part time earnings of about £15k a year - £5k of that goes into a SIPP, and the rest she uses for things like baby classes, lunch out if she's taken him out etc. That stuff racks up faster than anything else usually...

Edit: Pension pot (including ISA) is now at £200k, expecting it to hit about £800-900k by time I'm 50, which will give me drawdown of £30k+. I'm expecting to still have most of the mortgage by then but that will be easily serviceable on £30k which will translate into £2.1k a month in the pocket. Less than what I'm on now, but the £800 overpayment won't be needed anymore, so net + £300 a month.

Thanks that is impressive. But you say you are left with about £200? For what exactly? Are you ever concerned you are missing out on life currently - as in experiences with your kids etc, nice holidays etc etc. What happens if you got terminal cancer tomorrow? But a big pension pot....just curious and not a criticism..

I've recently changed my working hours to do 4x long days, so I don't really see my lad those days but it frees up a day where I have him all day which is great. We do a class, go out for a walk etc - nothing too expensive - and frees up a day of child care as my wife uses that day to go to work. On the weekends we typically go see family. We've got a couple of UK holidays booked and a night out planned next week but the £200 a month just about funds all that.

If I got terminal cancer tomorrow then my wife would need a large pot of money to be able to continue looking after our lad without needing to worry. Pension pot covers a large % of that already, so it won't be too long with continued contributions that I can phase out the life insurance. 

Used to travel lots when I was younger, and would like to do that after I retire, but the places I want to go aren't feasible at the moment with a youngster, so it'll have to wait.

El_Torro

Paying more In to your pension now is certainly tax efficient. You’ll get at least 40% tax relief on the way in, whereas when you withdraw the money you’ll probably pay less than 20% tax. This is why most people are keen to suggest you focus on your pension now.

One point that I’m not sure if it has been covered is that you may not be able or willing to earn as much as you do now in the future. If you focus on growing your pension for the next few years it can give you more options in the future to get a lower paying job (less responsibility, different career, fewer hours, etc...). Or maybe even look at early retirement. Sure, at 33 you think working til 60 will be fine, but will you feel the same way when you’re 50?

How you save / invest is important. Do I pay off the mortgage? Do I put more in my pension? Etc... How much you save is important too. As you have found many of the regular posters on this forum prefer to save more today to give themselves more options in the future. We all need to find our own balance though. Just one word of warning: You are in a comfortable position today with lots of options, that may not always be the case.

noclaf

El_Torro said:

Paying more In to your pension now is certainly tax efficient. You’ll get at least 40% tax relief on the way in, whereas when you withdraw the money you’ll probably pay less than 20% tax. This is why most people are keen to suggest you focus on your pension now.

One point that I’m not sure if it has been covered is that you may not be able or willing to earn as much as you do now in the future. If you focus on growing your pension for the next few years it can give you more options in the future to get a lower paying job (less responsibility, different career, fewer hours, etc...). Or maybe even look at early retirement. Sure, at 33 you think working til 60 will be fine, but will you feel the same way when you’re 50?

How you save / invest is important. Do I pay off the mortgage? Do I put more in my pension? Etc... How much you save is important too. As you have found many of the regular posters on this forum prefer to save more today to give themselves more options in the future. We all need to find our own balance though. Just one word of warning: You are in a comfortable position today with lots of options, that may not always be the case.

Good post. After fritting away money on all sorts in my 20's , I also came to the same realisation. The pace of change in the world and how this might impact the future job's market should not be underestimated. Increased automation , AI, Robotics etc will likely remove / make a number of jobs disappear or at least reduce the opportunities. I'd also add 'health' as another dependency...we don't know what's around the corner such is life. I doubt I can maintain my current job hours and intensity well into my 50's but who knows...not meant to be a negative post but more for awareness.

dunstonh

30andcounting said:

MaxiRobriguez said:

30andcounting said:

MaxiRobriguez said:

Short answer - yes.

£750 a month over the next 27 years will give you a pot of around £600k maybe after real returns compounded growth, which if you drawdown will give you about £30k a year, with 7 years still until you get additional state pension on top. That's quite the step down from £90k, and perhaps won't leave anything in terms of inheritance - at least from your pension pot.

There's no guarantee the tax breaks for pension contributions will be around forever, and no guarantee you'll always be on £90k, so why not take advantage now? Is it really sensible to overpay your mortgage? You could just run your mortgage for longer, potentially into retirement, using the additional contributions to pay it off.  You're saving a 2% on a mortgage overpayment, but you'd be able to save 40% of tax by additional pension contributions.

FWIW, I'm also 33, also have nursery fees and a mortgage to consider, yet I'm contributing 3x as much as you despite earning 2/3'rds your salary. It can be done.  

Yes I understand you're first point but my needs in retirement wont require an income of £90K a year, I don't have a lavish lifestyle now nevermind in my 60s...I don't plan to anyway!

How do you mean when you say use your additional contributions to pay it off (relatng to mortgage), you mean my additional contributions now and then withdraw it from my pension at 55?

3 times as much on £60K, how? I'd like some inspirtaion! My childcare fees are £750 a month and mortgage £1,200 FWIW.

Thanks some good ideas and just what I was after.  

If you're used to £90k earnings you'll probably want more than £25k in retirement... Most topics suggest needing 2/3'rds of money in retirement to continue your lifestyle, but as you earn much more than normal people you could probably get away with half, maybe less.... but that is still significantly more than what you're projected to be on.

Additional contributions to pay it off - yes, essentially pay into your pension now and use TFLS or drawdown to pay off the mortgage you're no longer paying off. £1,200 a month a mortgage means you're funding that from £2,500 odd worth of salary because it's post tax. That £2,500 odd could be sheltered from tax by putting in pension. Then when you do come to accessing the pension a chunk of that will be tax free, and what is not is almost certain to be taxed at a lower rate than you currently have now. 

My pension contribution is £2.1k a month - my employer pays £400, I push in £1.7k. That reduces my post-tax income to about £2.6k a month, of which mortgage is £750, mortgage overpayment of £800, bills are about £500 including council tax and running a car, and nursery is £400.

That leaves a couple of hundred. We have an offset mortgage so the monthly mortgage and overpayments which total £18,600 a year go immediately into a S+S ISA at the start of every new tax year, or if necessary large capital expenditure. F.e we bought a new car this year for £15k (edit2: bought on a 0% credit card will pay it off over next few years) but it's only done 3,000 miles and will actually fit a pushchair AND luggage that our old Yaris, which has done 95k miles does not.

My wife also has part time earnings of about £15k a year - £5k of that goes into a SIPP, and the rest she uses for things like baby classes, lunch out if she's taken him out etc. That stuff racks up faster than anything else usually...

Edit: Pension pot (including ISA) is now at £200k, expecting it to hit about £800-900k by time I'm 50, which will give me drawdown of £30k+. I'm expecting to still have most of the mortgage by then but that will be easily serviceable on £30k which will translate into £2.1k a month in the pocket. Less than what I'm on now, but the £800 overpayment won't be needed anymore, so net + £300 a month.

Thanks that is impressive. But you say you are left with about £200? For what exactly? Are you ever concerned you are missing out on life currently - as in experiences with your kids etc, nice holidays etc etc. What happens if you got terminal cancer tomorrow? But a big pension pot....just curious and not a criticism..

Are you concerned about missing out on life tomorrow?
What happens if you are don't get cancer tomorrow? (which is statistically more likely)

Life is full of things that happen that you do not expect.  You spend your life playing the odds game.   Statistically, the odds massively favour you making retirement and then going on to have 30 years of retirement (especially if you plan to finish at 60).

That means planning for all eventualities as best you can.  Your older self will not thank your younger self for lack of self-control on finances if you spend too much when you are young.   Also do not forget that pensions can be passed on to your spouse and down to your children and their children.   So, you may not be planning for just you but your family.

30andcounting

Thanks for everyones comments, it has given me a lot to think about!