Obsessed with pension planning and saving?

FIREmenow

Has anyone else gotten obsessive over their pension?

Reading up on, and understanding my own pension options was a bit of a lifeline for me when I was on mat leave - I think my brain needed something different to keeping a baby alive to grab onto.  Now, my salary sacrificed pension contributions seem by far the most efficient use of my spare income with NI and student loan savings, so it can be hard justifying doing anything else with the money!

If you are naturally frugal/good with money, and have some disposable income, how do you know when to stop with the pension contributions and enjoy some of the money now?  I'm looking for ideas for some kind of system of how to portion up my spare money.

Van_Girl

I'm exactly the same, I pay 30% into my pension via SalSac, because I'm slightly obsessed with the savings on tax, NI and plan 1 & postgrad student loans. It's all detailed on my 5 year plan spreadsheet! I think my family would say I've reduced my income too far, but I still save for paying off my mortgage and enjoy the challenge of being very frugal! In total, I save around 44% of my income, although some of that goes into the emergency fund 

Can't help with any suggestions though

hugheskevi

Pensions are just a vehicle to move resources from one period of life to another.

You model required resources across lifetime, and set parameters such as pension contributions at a rate which will smooth resources across lifetime, taking into account preferences for things like age of retirement, expected job progression, etc. This doesn't have to be an equal amount of income in each year, it probably won't, as you will want more in some years for things such as mortgage or children.

If you are on course to have far more in later years than current years, that would be a warning sign that the plan is not balanced and you are contributing too much into a pension. Although a desire to reduce debt more rapidly might see less in early years than later years, as might a belief that the current pension tax relief is good and should be exploited whilst it lasts - but those things would usually be tweaks to central plan rather than a big rebalancing.

Pat38493

hugheskevi said:

If you are on course to have far more in later years than current years, that would be a warning sign that the plan is not balanced and you are contributing too much into a pension. 

OP's name handle might be an indication of intention to become FI very early.....

MEM62

It is always a very personal decision.  In fact, it's as much about being comfortable with your plan as it is the actual numbers.  I have two bother-in-laws and a friend that are all recently retired at around 60.  Each one keeps pestering me to retire.  I am not there mentally, although not far away, but I am also not yet comfortable with where my finances are - despite having more in my pension pot than either brother-in-law.  "How much money do you need?" I am often asked.  As much as I am comfortable with is the answer.      

gm0

There is wisdom in maintaining some kind of balance.

Deferred gratification - having the option to retire early - and early retirement pleasures from private pension funded consumption are good things.  Being on plan or ahead of plan saving up is splendid.  Clever you. Lucky you.

It is great.

But only if you live long enough in a decent state of health to get to the date of the deferral.  Most do.  Some do not.  It isn't nice or fair or predictable.  It just is.    Health lottery.  Accident and other misadventures.

If saving harder gives you joy in the here and now then nobody can say it is wrong or the amount is too much for you.

But just as with current consumption leading to lifestyle issues or debts - recognise it can be taken to excess.  Wine undrunk. Roses not smelled.  Good food and nice cheeses uneaten.  Trips and occasions with family and friends avoided due to expense. 

You don't get that particular chance again or that time back.

Carpe Diem (in moderation) - you may not pass this way again - and certainly won't with these companions at this life stage.

Peterrr

I agree with @gm0. The power of compounding over a number of decades is a wonder to behold, and anyone can ease up on their contributions should life or priorities change. Its more common for folk to take the opposite approach and be reluctant to tie their money up until their mid 50s (likely beyond for millenials), though there is a slightly unorthodox and potentially inefficient way of releasing pension funds earlier than legislation allows, by getting an interest only mortgage. I'm not saying it would suit everyone's circumstances but it certainly suits ours.

sevenhills

A few good investments and my SIPP has now increased to be worth £19k.
I am 61 so able to draw it, I have never saved so much money in my life, I earn around that each year.
I have only had this SIPP for three years, I prefer working days to bank holidays, then I can check share prices.
No sure if I am obsessed, but I enjoy it. What I need is a thread about a looming crash 🤣

Bimbly

Research into how to invest my pension pot led me here and it became a kind of obsession. I enjoy reading the forum, even though my strategy is kinda set.

I had always been interested in saving for a pension and wish it had been so easy when I was young as it is now. When I was 23, you had to go through a financial adviser to get a pension and he refused to let me put in as much as I wanted to. I thought I would just get it set up and then increase contributions later, but the pension company refused to accept extra contributions without me taking financial advice first, so I was stuck. At a later employer, I repeatedly asked for information about AVCs in an attempt to contribute more and never received anything - turns out the head of pensions had a very similar name as me and she got all my paperwork, so I wasn't able to do that either.

So now I'm trying to catch up, despite being switched onto pensions as soon as I was working after university.

One of the great things about pension contributions is that they disappear from my salary before I'm paid so I never get used to that money being in my bank account and spendable (I'm not that great at being frugal). This has helped cashflow this year with my mortgage going up by £200/month and energy bills doubling - I was able to reduce pension contributions to up my pay packet and cover increased expenses. If I had been used to spending my whole salary, that would have been a lot more difficult.

I've often thought of whether I should have more jam today instead of tomorrow. But I need to save because I don't think I can keep doing this working lark for as long as I'm supposed to. Although, I'm thinking I might take a holiday next year.

FIREmenow

Thanks everyone for your thoughts so far, it's really interesting to hear.

Van_Girl said:

I'm exactly the same, I pay 30% into my pension via SalSac, because I'm slightly obsessed with the savings on tax, NI and plan 1 & postgrad student loans.

Hello kindred spirit, it's nice to know I'm not the only one!

hugheskevi said:

Pensions are just a vehicle to move resources from one period of life to another.

If you are on course to have far more in later years than current years, that would be a warning sign that the plan is not balanced and you are contributing too much into a pension. Although a desire to reduce debt more rapidly might see less in early years than later years, as might a belief that the current pension tax relief is good and should be exploited whilst it lasts - but those things would usually be tweaks to central plan rather than a big rebalancing.

Hmm, wondering where tax relief will go in the future is another thing for me to dwell on.  We are mortgage- and debt-free which is the main reason for the excess money each month, but the costs of our child are certainly going to grow over time.

Pat38493 said:

OP's name handle might be an indication of intention to become FI very early.....

The aim is no later than 60 now, and reduced that as much as possible.  In some ways I'd go tomorrow if I could, but have also learned I need something to retire to or the lack of routine in the absence of work will be really bad for me.

MEM62 said:

It is always a very personal decision.  In fact, it's as much about being comfortable with your plan as it is the actual numbers.  

"How much money do you need?" I am often asked.  As much as I am comfortable with is the answer.      

How do you zone in what is comfortable MEM62?  Do you compare to your annual outgoings before pension or is it more of a gut feeling?

gm0 said:

If saving harder gives you joy in the here and now then nobody can say it is wrong or the amount is too much for you.

But just as with current consumption leading to lifestyle issues or debts - recognise it can be taken to excess.  Wine undrunk. Roses not smelled.  Good food and nice cheeses uneaten.  Trips and occasions with family and friends avoided due to expense. 

You don't get that particular chance again or that time back.

Carpe Diem (in moderation) - you may not pass this way again - and certainly won't with these companions at this life stage.

Thanks gm0, these are really good points, especially as we have a young child and older parents.

Peterrr said:

I agree with @gm0. The power of compounding over a number of decades is a wonder to behold, and anyone can ease up on their contributions should life or priorities change. Its more common for folk to take the opposite approach and be reluctant to tie their money up until their mid 50s (likely beyond for millenials), though there is a slightly unorthodox and potentially inefficient way of releasing pension funds earlier than legislation allows, by getting an interest only mortgage. I'm not saying it would suit everyone's circumstances but it certainly suits ours.

Thanks Peterrr, we are mortgage-free, but mostly because our house was a renovation project and mortgage companies were not keen.  With the power of compound interest, I wonder whether we should be starting a SIPP for our child - we do put money in a S&S JISA.  Who knows what NPA will be in 60+ years time, there could be a very long wait for that money.

sevenhills said:

A few good investments and my SIPP has now increased to be worth £19k.
I am 61 so able to draw it, I have never saved so much money in my life, I earn around that each year.
I have only had this SIPP for three years, I prefer working days to bank holidays, then I can check share prices.
No sure if I am obsessed, but I enjoy it. What I need is a thread about a looming crash 🤣

I'm glad your pot is doing well and you are enjoying the process!  I have a hybrid pension, but will probably need to transfer some of my DC part out into a SIPP at some point if I want to access it before the DB pension and lump sum.  I've got a bit of a wait until I can draw it yet though.

Does anyone split their income by percentage or some pots system to keep the pension savings in balance?  Would you start steady and ramp up the contributions as retirement approaches?  I think at the moment I am worried about under-estimating what I will need and wishing I could go back in time to pay in more.

hugheskevi

Does anyone split their income by percentage or some pots system to keep the pension savings in balance?  Would you start steady and ramp up the contributions as retirement approaches?  I think at the moment I am worried about under-estimating what I will need and wishing I could go back in time to pay in more.

I sort of do that. The pots I monitor are:

• State Pension for post age 68 income
• DB pensions for income after age 55 and 57
• DC pension to be used to smooth income between aged 57-68 (ie broadly providing what State Pension will provide after age 68 between aged 57-68)
• Cash and S+S ISA to provide resources between retirement and age 57
• Difference between house value and value of house I plan to move to

In the past I also used to monitor:

• Mortgage
• 0% card balances, which I used to provide zero cost borrowing to accelerate plans

In the initial years of following my financial plan, my priority was to contribute all higher-rate tax income to a pension, obviously whilst servicing other commitments. That meant nothing into ISAs and just paying the minimum to mortgage (and extending term and borrowing more when remortaging or whenever possible).  The extra to pension was both to additional DB and DC pensions - the DB increased the annual amount of pension income, whilst the DC pension was to be used to provide resources between minimum pension age and State Pension age.

At first, all the various pots were largely empty, so it was just a matter of responding to incentives if any came along. As time passed the pension pot(s) was filling up fast and there was a risk that I would be over saving. At that point I stopped most of the additional contributions and directed them to the next highest priority, ISA savings. Money left over after maxing out ISA saving then went toward next priority, mortgage.

Once the mortgage was finished, savings then went toward credit card balances. Then once the debts were paid off I finally built up cash savings for the first few years of retirement (noting this is different to precautionary savings, which I generally kept at 3-6 months of income).

Personally, I preferred to start very hard on pension to benefit from compound returns on my longest-term investment and then wind it back. That was subject to ensuring adequate funds elsewhere to deal with whatever life may decide to throw my way, but it was quite aggressive eg, borrowing around £50-70K on credit cards to speed the process above along a bit.

As long as you get your calculations broadly correct and monitor things over time, there shouldn't be any problem under-estimating retirement needs. Treat this as a refinement of assumptions - over time you get more information to inform your forecasts and the modeling becomes better. A higher income need is effectively the same as returns being lower than expected and is only an issue if it happens post-retirement. Pre-retirement it can be remedied by working a bit longer. Unless your maths are wildly out, a year or two of extra contributions should fix any issue.

My pension savings were kept in balance partly by the amount of income available which benefitted from higher rate relief, partly by Annual Allowance, and eventually by knowing when I would be over-saving into a pension if I continued heavy funding of pension and then switching to the other pots.

None of which is to say the above is right for anyone else, of course One key metric I think it is helpful to calculate is how much more you would have if you worked one more year than whatever you are planning - that helps to determine whether you will actually leave when planned when the time eventually comes. The impact of one more year of work when planning very early retirement is very strong, and needs to be considered.