Is it time to slow down on the saving and start spending a little more

Mistermeaner

Musings....

I am 43 and currently have £650K in DC pensions. My partner (age 38 currently non-working) has £120K in her SIPP. Additionally we have £43K in LISA's and another £35K in an S&S ISA. Current accounts we have around £15K so any urgent spending needs are covered.

I have always been a 'max the pension' kind of saver regularly putting in £40K per annum for the last 10 or so years - coupled with decent growth for most of that period I now feel we are in a pretty good pension position.

I'll never stop paying in but wondering if its maybe time to start chilling out on the saving, accept paying HR tax and put a few more quid in our pockets for fun in the here and now - holidays, meals.... whatever

We don't live a bad life by any stretch but we are generally very frugal - given the amount we have saved and how long we have until retirement it got me thinking about whether we should continue to be so frugal and 'tax efficient'. If we carry on saving as is going to smash the lifetime allowance 

Our circumstances:

Me, 43, sole earner in house, basic £95K, bonuses not guaranteed but typically £20K+ (so right in that horrible earning zone)
Partner, 38, stopped work to look after kids but wants to go back later this year
Kids: 4 of them - oldest 16, youngest 4
House: worth maybe £500K, £200K remaining on mortgage
No debts (other than mortgage)

Given our frugal saving I would say we live life as ~£50K household


What do folk think - is now the time to ease back on the pension savings and enjoy more hols with the kids before they leave / do up the house / pay off the mortgage etc. or should we carry on piling into the pensions and savings for a few more years?

Musing, thoughts and others experiences welcomed


Thanks

artyboy

Well the no-brainer starting point is that you should definitely maintain enough pension contributions to get you below the £100k income threshold. 

How much further you go.... well if your employer offers good contribution matching, I'd personally still put enough in to take advantage of that as well as the 40% tax relief (or 42% effective tax/NI relief if you're in a salsac scheme).

I can't really directly answer your key question because ultimately everyone has their own lifestyle needs/wants, and what's right for me (or anyone else on here) may not be for you. But one suggestion that's at least tangentially related to quality of life - you have a decent chunk in pensions, but a lot less in ISAs - have you thought about rebalancing contributions? That could give you a lot more flexibility if you wanted to retire earlier than your pension access ages would otherwise allow... 

Yes, it's less tax efficient, but it does increase your options a bit further down the line...

Linton

I suggest you plan your finances on maintaining a constant standard of living throughout your life.  If one is used to a particular lifestyle trying to spend less can be painful and trying to spend more is likely to be less fun than you think.

So you could specify a retirement date and work out how much you need to save  to maintain your current expenditure minus the things that wont be needed in retirement.  If the plan shows you will have too much money at retirement you either make your retirement date earlier or save less and spend more pre-retirement. Otherwise, otherwise.

One way of spending excess money without forcing yourself to live more expensively day to day is to take a good lomg holiday   - world cruise, trip to Antarctica etc etc or any other experience you will remember for the rest of your life.

af1963

Are you in a role where you could reduce your working hours and salary, and spend more time regularly with the kids  ( either as reduced hours each week, or more time off) ? That may be more "valuable" than any choice you make about whether to take more taxable pay or put more into the pension.  

Albermarle

basic £95K, bonuses not guaranteed but typically £20K+ (so right in that horrible earning zone)
I do not think the large majority would consider earning £115K ( four times the average wage) very horrible.....

If we carry on saving as is going to smash the lifetime allowance 
This is probably the main issue. The LTA will effectively take back any 40% tax relief gained over the LTA limit.
If you were actually a 40% taxpayer in retirement, it would take back even more than you put in. 

Audaxer

Mistermeaner said:

What do folk think - is now the time to ease back on the pension savings and enjoy more hols with the kids before they leave / do up the house / pay off the mortgage etc. or should we carry on piling into the pensions and savings for a few more years?

You certainly have done really well salary-wise, and by sensibly building up your pension. However I don't think you need to be depriving yourselves of holidays with the kids, doing up your house etc., just to plough the maximum amount into your pension.

I agree that it may be a good idea to invest some monies in S&S ISAs as well as your pension.

Adyinvestment

If I was in your financial position at your age, I would be making the most of it while still saving some, and making memories while the kids are still kids.

You don't say what age you would like to retire but if you continue adding to your DC pension you could easily be hitting LTA in a few years, and could be multi millions if you carry on for a couple of decades, even though the tax relief is very good now the LTA negates this.

Personally I would not contribute any more to the DC (unless retiring in the next few years) and add some to the ISA's and partners SIPP and enjoy life, carry on as you are and you will almost certainly be a multi millionaire retiree with the best years of your life behind you, even then you will probably be a multi millionaire.

Pat38493

Actually my first reaction here was that I would manage my income to 99999, carry on putting the rest into pension (making sure to also take advantage of employer matching).

Spend the rest.

Hope things change with LTA in next 12 years.  You are already on course to bust the LTA with reasonable growth even if you put no more in, but I would still carry on doing that rather than paying 60% tax to put money into ISAs.

IMO The LTA will either be increased at some point, or it will be reduced and gradually phased out or replaced with some other approach - either way my thinking is to mainly ignore it for time horizons beyond 5 years or so as I don't have a better option (my income is in the same ballpark as yours).

Just my personal opinion of course.

bostonerimus

Pension finances are easy when you are young; just put as much away as you can. As you get older tax, inheritance issues and even qualifying for benefits start to enter the calculation. I'm in the US and a big part of my planning is to reduce the balance of my tax deferred retirement accounts before I'm required to take the money from the accounts by the tax authorities. If I spread the withdrawals out over more years I can reduce the overall tax bill and transfer the money to tax free accounts which will save my heirs from a lot of tax worries. In the UK you have to be careful about the lifetime allowance and if you are well off you might consider deferring State Pension and withdrawing a bit more from DC pensions. Of course it's complicated to work out the best thing to do as it depends on tax rates, investment returns etc.

NedS

At what age would you like to retire? If it's at 50, you are probably safe from LTA and may need to focus more on non-pension savings to see you through until you can access pensions. If you are happy to work to 60+, you will likely have very different set of financial priorities. My point - it's very difficult to comment on what may be appropriate without first knowing long term plans. If you've not thought about it yet, now maybe the time to start, at least to allow you to be guided in your financial planning.

JohnWinder

You’ve had some good musings, and I have no experience, but here’s a basis for assessment.
Estimate your annual spending needs in retirement. You’ll fund that from several sources, but ignore the secure, inflation protected ones like SP, and focus on your investments (and thus also focus only on your spending needs beyond what the SP will provide).

Your retirement funds can be used with two distinct approaches, or better, a mix of them.

Those funds can be in a volatile shares and bonds portfolio exposed to market risks; if so, you need to retire with about 33 times those annual spending needs. Now you can see where you are and follow how you’re tracking on that path to ‘enough’. That approach leaves you exposed to the three major retirement financial risks: inflation; longevity; market.

The other approach is to use the retirement funds to buy a secure, inflation protected, steady income stream, which can eliminate at least two of those risks. That income stream could be a lifetime annuity(-ies) or a handful of linkers. If you use that approach, then you price the lifetime annuity needed to provide for your retirement spending, and compared it with how much you have now to spend on that annuity. If you have enough, you stop saving, otherwise keep saving. As before, keep tracking this price vs your savings over the years to keep yourself on the right path. It’s called the funded ratio. https://www.bogleheads.org/blog/2017/01/15/monitoring-your-retirement-goal-the-funded-ratio/