Retirement Planning - what to do next?

TheBanker

Hi

As my username suggests I work in Banking, however I work on the payments side so although I have an understanding of investing, I am not an expert. I've been thinking about retirement planning recently and wondered if anyone had any thoughts?

I'm currently in my early 40s, with no dependents. I earn a good salary (I'd rather not post figures). 

My main pension is my employer's DC scheme, which I contribute to through salary sacrifice. The combined employer/employee contributions are 20% of my salary. I'm receiving the maximum employer contributions. I also have a small SIPP (about £25k) which contains contributions from a previous employer's pension scheme. I'm not adding anything to the SIPP. The SIPP is with Vanguard invested in their Lifestrategy 80 fund.

When I run pension calculators, based on my current DC fund value, ongoing contributions and desired level of income, they suggest that I'd be in a position to retire at 58.

My dad died when he was quite young (65) and so did not get to enjoy a long retirement. This makes me wish to retire in my late 50s. 

Outside of my pension, I have about 6 months salary saved in cash, about £10k of shares in my employer (acquired through various incentive schemes) and about £5k in a S&S ISA.

My mortgage will be paid off when I reach 57 - although my fixed rate finishes in 2025 and I am aware the new rate will be higher. I currently live in the South East due to work; on retirement I would like to move back to the North where my family and most of my friends are. I would probably also downsize at this point. Other than the mortgage I have no debt. 

So that's the background...

Thinking about my current situation:
- I could increase my pension contributions further which would have tax saving benefits, but obviously locking money away until I am 57
- I think I need to increase my S&S ISA to give me a 'pot' that I can access before I am 57.
- When my mortgage rate ends, it may be beneficial to make overpayments. At the moment it isn't because the mortgage rate is much lower than the return on savings accounts.

So my plan is...
1. Sell some of the employer shares (given I work in Banking I wish I'd done this last week!) - I am too exposed to banking. I'll sell the shares that I can without taking a tax hit, and put the proceeds into the S&S ISA.
2. Set up a regular contribution to the S&S ISA, with the aim of building up at least a year's income. 
3. Try to build my cash savings over the next two years to give me the option to make a mortgage overpayment in 2025, if rates at the time make this desirable. If not then I can add the funds to my S&S ISA or keep them in cash. 

My aim in doing this is to potentially be in a position to retire before I can take my pension. This is, obviously, dependent on how well investments perform and what happens with interest rates and house prices. Whilst my house doesn't form part of my retirement planning, if I was to move, and the new house was cheaper, this could provide an injection of capital. 

And my questions are...
1. Does this seem sensible (rather than adding more to my DC pension)? I appreciate nobody can give advice but if you could validate that I'm not barking mad that would help!
2. In my situation is it worth seeking professional advice? I have no inherent objection to paying an IFA, but am not sure they'd be interested given the vast majority of my assets are in my workplace pension. Other than the small SIPP and S&S ISA there's not really a lot for them to advise on.
3. Is there anything obvious I've not thought of?

Thanks for reading, I realise this is quite long. But appreciate any thoughts.

JohnWinder

'Blame the parents? The association between parental longevity and successful ageing' https://www.jstor.org/stable/26349279?seq=12

These people found the mother's longevity more important than the father's, and your smoking, drinking, exercising and wealth have a confounding effect, ie 'don't, don't, do, and have'.

TheBanker

JohnWinder said:

'Blame the parents? The association between parental longevity and successful ageing' https://www.jstor.org/stable/26349279?seq=12

These people found the mother's longevity more important than the father's, and your smoking, drinking, exercising and wealth have a confounding effect, ie 'don't, don't, do, and have'.

Thanks - I'm not planning to pop my clogs at 65, but I want a retirement I can enjoy. My dad retired at 60 so he had five years which I don't think was long enough after a lifetime of hard work and raising a family. 

Irrespective of my own life expectancy, I'd like to retire in my late 50s - I appreciate that given I am reasonably healthy, haven't smoked for years etc means I need to plan for a longer life and therefore will need a larger pot. 

retiringtoosoon

What's your salary?

MX5huggy

You could build up a bit more of S&S ISA savings (as you say a years salary). 

But the Salary Sacrifice pension a really so advantageous over ISA I would be putting as much as possible into that. Exactly how good depends on your salary but £100 to pension only costs you between £49 and £59 in income to put in your ISA. If downsizing (in value if not space) is realistic then that money can get you from say 54 to 57/8. 

JohnWinder

I think you've set out an important basis for your financial planning, viz understanding your circumstances so that your planning can address those. When you alluded to perhaps not having much state pension contribution to your retirement (because you might retire early and die early) I wanted to suggest some refinement to the inputs of your thinking. Want to know how important some people think that is? Start at 30:00 min and listen to Charles Ellis, an investing guru, talk about what investors should be focused on. https://rationalreminder.ca/podcast/244

Albermarle

It depends a lot on your salary level and how much higher rate tax you are paying.
Higher rate tax relief on pension contributions, is very generous and you should maximise that as much as possible.

Average life expectancy for you would be around 83/84, which means 50% will live longer than that.
57 is still relatively early to retire, the average I think is around 63. 

TheBanker

Thanks all, some interesting points.

MX5huggy said:

You could build up a bit more of S&S ISA savings (as you say a years salary). 

But the Salary Sacrifice pension a really so advantageous over ISA I would be putting as much as possible into that. Exactly how good depends on your salary but £100 to pension only costs you between £49 and £59 in income to put in your ISA. If downsizing (in value if not space) is realistic then that money can get you from say 54 to 57/8. 

I do want to build my ISA pot. Not just for retirement but also to have funds available before then in case something bad happens. I guess what I need to work out is how much extra tax I'm willing to pay by using the ISA rather than increasing my pension contributions further. 

I agree that Salary Sacrifice is really beneficial. Perhaps I should maximise it over the next 2 years then see if a possible future government changes the rules?

Really I need to choose between (approx) £100 extra in my pension or £50 in the ISA, don't I?

JohnWinder said:

I think you've set out an important basis for your financial planning, viz understanding your circumstances so that your planning can address those. When you alluded to perhaps not having much state pension contribution to your retirement (because you might retire early and die early) I wanted to suggest some refinement to the inputs of your thinking. Want to know how important some people think that is? Start at 30:00 min and listen to Charles Ellis, an investing guru, talk about what investors should be focused on. https://rationalreminder.ca/podcast/244

Thanks. When I was talking about my desire to retire early, it's not really about the state pension, I know I'll have that from 68. It's more about having time to enjoy life while I'm still young enough and in good enough health. I will listen to the podcast this evening because I'm supposed to be working now

Albermarle said:

Average life expectancy for you would be around 83/84, which means 50% will live longer than that.
57 is still relatively early to retire, the average I think is around 63. 

I know 57 is young to retire. My heart's not set on it - it will depend on my circumstances at the time. What I'd like, though, is the option to go early if the circumstances are right.

What I've not really thought about is whether I might want to work part time in future. It seems to be increasingly common for colleagues who are approaching retirement to drop down to working 3/4 days a week instead of five. My industry also uses a lot of consultants on short-term contracts so there's an option to 'retire' from my job and top-up my income that way. 

Thinking it through, by 57 I shouldn't have a mortgage, so will need less income. And if I'm comfortable with my pension/ISA balances by then I might be able to reduce my contributions, which could enable me to work part time, or for part of the year.