Obsessed with pension planning and saving?

Universidad

FIREmenow said:

Has anyone else gotten obsessive over their pension?

Yes and no.

I don't really suit the grind. It messes me up in all kinds of ways. Some I think we all feel, some unique to me. I've always played it safe, instead of going for a risky low paid career that might have spoken to me, or a high pressure high paid career that surely wouldn't, I went for something middle of the road, respectable, OK salary but not competetive, but with a good pension. It was the safe, sensible option.

And gradually the salaries eroded over time. And gradually the pension eroded over time. And one day I just looked at my lot and thought, I'm nowhere near the stage that all my sacrifice and sensible planning had prepared me to be. And a big part of that was salary erosion, but a bigger part of that was that the pension had been cut, over and over again, and we were being told straight lies about how significant the cuts were.

And when after one more set of pension cuts I sat down and finally did the math I realised I would not really be able to stay in my job and ever retire. And I just felt like a mug. I felt like I had been robbed blind and decieved, and used up. I had paid such a price for playing the safe game and doing the "right thing" - because times change, and the right thing was most definitely the wrong thing after all. And I just felt like I'd thrown away so many years of my life.

So when I finally got to the end of that little low I decided it was time to get a proper pension, and then stop worrying about it.

So I quit my job, got another with a proper pension - in that order, because I was still pretty angry about it all to be honest - and I'm now paying every spare red cent into it until I'm back where I was supposed to be at this time in my life. Then I'll go a little beyond that. So I'm making huge sacrifices daily and thinking about nothing else, and that's pretty obsessive!

But on the other hand, after another 18 months or so, I'm taking my foot off the gas and coasting any way I like into a retirement that should be basic, but comfortable. And who cares how I earn my crust between then and retirement, because those years that I don't know if I'll be able to work are covered, and the years before then I'll just float around like a leaf.

I know that my view of pensions is not particularly objective. A lot of folks in my parents generation have done better than they ever expected, but when I see a good pension, no matter how gold plated, I'm always looking for the ways the providers intend to cut it off before I get to the tap!

MEM62

FIREmenow said:

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?

Good question

I am aiming for my disposable income in retirement to be what it is now.  That requires less income overall as I will not be servicing a mortgage or ploughing money into my pension and savings.  As for generating that income I have used several online drawdown calculators to get a feel for how much I need in my pot.  The results from each vary considerably and, of course I will remain invested and do not have a crystal ball.  However, it gives me a general feel for what I consider to be safe.  If I retire in two years I will also have four years before my state pension starts so need to bridge that gap.  I may work part time to lessen the draw on my pot in the first few years and also as a nice transition from working full time and stopping work altogether but I will not take a job with my current level of pressures and responsibilities.  I have a level of security in that I have a DB pension that will pay circa £5k per year when I reach 65 and I already have sufficient years for my state pension at 67, which is currently  £10K-ish.         

This is the plan that I am comfortable with.  

gm0

To the musing upthread re children and pensions. The non-earnings limit and the ability to open pensions for children is one of those middle class tax rebate / free money taps - open to those with resources across generations in a family and not others who lack said resources and live month to month just about.  If parents or grandparents can find a little disposable capital or income to do it - it is one of a very few "no brainers" in the system.  Hiding in plain sight.  Obscured by jargon.

You don't need a lot to begin. £100 once would be enough to start. And on up to 58k per child over about 20 years at the high end.  (2880 per year per child) from earliest age/when you get around to it. 
Via gifting out of regular income, small gift allowance, PET (7 year rule) as needed based on amounts.
Parent runs it. Money comes from wherever it does.  Minimum age is "newborn".

Immediately a host of beneficial outcomes show up

1) £1 to the pension = Add the 20p tax relief free.  Get that somewhere else.  Risk free.

2) If from an estate likely to be subject to IHT down the trail i.e. perhaps grandad has a house in the SE.  Another 40p is tax to be paid now avoided (so from Jeremy Hunts' successors).  Just part of a possible inheritance brought forward to today - and today's tax rules.

3) Assets are transferred to the children - so likely not wealth tax eligible on granny or mummy in future changes because it is not theirs any more - so very likely not counted.  (Anything is possible but some things are more difficult and less likely to happen). 

4) Once invested - 15-20 years compounding of returns before the child starts employment linked saving of their own.

A handy bust and boom cycle like the last few may not show up in the saving period. 
But done age 5 to 20 @ 2880 - 46k added - value approx 65k with a 3.5% net fees long term return. Or a lot more. At the traditional equities 7% number.  More like 100k.  Unknown obviously.  That at age 20 starting work and trickling in a few % of mid 20k agency contract graduate starter salary.  That is one helluva leg up at a good price.  And you can do it or not do it - skip years when bonuses do or don't happen.  It's flexible.  Not committed to do it every year.

5) Future cashflows. Those lucky children need not (can choose) to save a bit less at early working life stages. Once encumbered by their talents and choice of career. Plenty of demands on their cashflow without trying to save 10-15% to pension alongside on £25-35k aged 20-30

6) It's locked up against youthful exuberance, poor choices, peer influence and ease of squandering. e.g. my mate said FTX tokens were a sure thing bet.

7) And it's an educational tool. When you seek to guide your kids about debt, life shape and cashflows, mortgages, pensions - what it all is - and how compounding is a thing.  Just enough to get them a bit pension savvy before starting work to make good (by which I mean understood) choices as young adults.  Their choices.  Their consequences. Adulting. 
Spoiler: School won't do it.  Too little.  Too rushed.

The case against:

0) Lacking resources to do it (debts, household budget, not having emergency cash etc. sorted out first across family.

1) There is no way to reverse out and decide to gift the same cash towards starting work clothes, rental/purchase deposit. 
Once it is in.  It is in. And it's not an asset you can borrow against.

The only other material objection I can think of is political.  If you think that the non-earnings limit even existing and being used for children is unacceptable and an affront to the socialist utopia. To contribute to it is bourgeois kulak resource hoarding deviance of the worst sort. A few people think that and won't do it out of principle.

My strong suspicion is that *most* people across the several income and wealth deciles - who could find £100 (or more) towards year end occasionally) - just haven't had time in busy lives to think about it at all.  Small children alongside work will have that effect.

Nobody paticularly tells you about this you have to figure it out.   I don't think it's on the Haynes baby service manual curriculum at NCT but they may have added it since we went.

noclaf

Op I can relate, discovering this forum was a bit of a 'moment' for me in my mid 30's and I did become rather obsessive once I had done some reading and also realised my pension was woefully under funded for my age.

Cue a few years of aggressive sal sac contributions, I've had to pull back a bit as young family in tow now and conscious there needs to be a balance between living now and being comfortable in retirement but there are a lot of unknowns which makes it challenging to know how much I should be contributing each month.  

I wouldn't say I'm obsessed with saving but  definately over-obsess on the pension front, I've tried to minimise my fees when selecting  both SIPP investments and my current workplace pension funds but there is that slight concern that we might be in for a period of muted growth which will ultimately mean the need to contribute more per month to end up with a reasonable pot.

At present am trying to strike a balance between take-home pay/ISA/Pension and it's not easy with all the unknown variables so I guess in about 15-20 years will know if I made the right choices.....

Dh6

A few years of muted growth might is exactly what we need noclaf as we’re in the accumulation phase 👍🏻

SouthCoastBoy

This is definitely me, always enjoyed saving, now in my late 50s more obsessed than ever 😄 

Mutton_Geoff

Best advice I can give is to put as much as you can into your pension whilst working (I was obsessed and contributions ranged from 30-50% over last 30 years). Less income, get used to certain level so when you transition to retirement there is less of a bump as the resulting pension is the same (or more  ) than your pay after pension deductions whilst you were working.

It's a shame you're taxed as normal on pension income though. At least there's no more NI.

FIREmenow

hugheskevi said:

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.

Thanks for this detailed response, it's really interesting and helpful to hear your approach. The cascading pots in order of priority makes sense to me,  and fits in with my current spreadsheet with a row for each year and the columns for different income streams. 

FIREmenow

Universidad said:

FIREmenow said:

Has anyone else gotten obsessive over their pension?

Yes and no.

And when after one more set of pension cuts I sat down and finally did the math I realised I would not really be able to stay in my job and ever retire. And I just felt like a mug. I felt like I had been robbed blind and decieved, and used up. I had paid such a price for playing the safe game and doing the "right thing" - because times change, and the right thing was most definitely the wrong thing after all. And I just felt like I'd thrown away so many years of my life.

So when I finally got to the end of that little low I decided it was time to get a proper pension, and then stop worrying about it.

Thanks Universidad, am I right in thinking you are/were in USS? Is that the pension you went from or to? I'm in USS now and it's sad the state is in and how much strike action it has taken to get to where things are now. I'm hoping to capitalise on the sal sac of extra contributions into the DC part for a bigger lump sum. 

If you've left HE, is the gold-plated pension civil service? I did look at CS jobs in my mat leave as the 2022 cuts to USS were happening. Although I put a high value on the team I work with and the satisfaction I get from helping students at the moment. So the new unknowns of a different sector,  or moving to a post-92 to join the TPS haven't convinced me yet. 

FIREmenow

MEM62 said:

FIREmenow said:

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?

Good question

I am aiming for my disposable income in retirement to be what it is now.
 I may work part time to lessen the draw on my pot in the first few years and also as a nice transition from working full time and stopping work altogether but I will not take a job with my current level of pressures and responsibilities.  I have a level of security in that I have a DB pension that will pay circa £5k per year when I reach 65 and I already have sufficient years for my state pension at 67, which is currently  £10K-ish.         

This is the plan that I am comfortable with.  

Thanks MEM62. I can see how working a bit longer makes sense if you don't want to cut back on your current lifestyle and spending,  even if others think you should! I appreciate you sharing your process.