Are my assumptions sound on my retirement plan? Or is disaster on the horizon...

Jonboy1889

Tantalus86 said:

Hi, currently starting to look a lot closer at planning retirement with the aim of retiring as early as possible! Currently age 37 so a fair while to go yet, but don't want to end up like my father-in-law working long into my 70s and ideally don't want to be working beyond my early 50s.

I had used a number of online retirement planners but tbh I wasn't 100% convinced with the numbers that they were spitting out. I know they vary in their approach and use a number of assumptions that to be seemed optimistic.

So I created a spreadsheet to track estimated pension contributions & overall value to help work out a realistic retirement age target - who doesn't love a good spreadsheet...

 

Here are the parameters currently plugged into it.

 

And here is a screenshot of the results

 

1. Am I being too optimistic/pessimistic in any of my assumptions?  

2. How many years into retirement do I need to plan for? Odds are I won't be living to 100, but I suppose there's a chance I could (currently healthy).  

3. How long do you see the current fiscal drag going on for? At this rate i'll be a higher rate tax-payer in retirement.

4. Anything else I've missed? Comments?

 

Note: Will be mortgage free by 2042 and assuming debt free. The spreadsheet is purely for retirement - I had some other savings outside of this for emergency fund & potential uni costs for the kids etc. 

Can you talk me through how your pension fund grows by £35k in the first year?

£34.5k * 0.35 = £12k + £4k + £6.2k growth from 3.5% return of £176k average fund = £22.2k

I have probably missed something! 

kimwp

Sorry for hijacking, but what's the issue with contributing to a LISA? My reasoning was (at the 20% tax rate);
Pension means 15% tax, no NI
LISA means no tax, pay 8% NI 

Jonboy1889

kimwp said:

Sorry for hijacking, but what's the issue with contributing to a LISA? My reasoning was (at the 20% tax rate);
Pension means 15% tax, no NI
LISA means no tax, pay 8% NI 

100% agree with this- LISA is great as you can get it fully tax free when you take it (with no tax or NI to pay).

it makes less sense vs higher rate tax pension contributions, but is still not far off

hugheskevi

kimwp said:

Sorry for hijacking, but what's the issue with contributing to a LISA? My reasoning was (at the 20% tax rate);
Pension means 15% tax, no NI
LISA means no tax, pay 8% NI 

Nothing wrong in principle, but often a LISA will be outperformed by a pension.

Subject to any protections, pension cannot be accessed until age 57 (from April 2028). A LISA cannot be accessed until age 60 without penalty.

For a higher rate taxpayer without salary sacrifice, they can put £1 into a pension at a net cost of 60p and if a basic rate taxpayer in retirement withdraw 85p (25% tax free, 75% taxed at 20%). Compared to putting that 60p into a LISA and getting it grossed up to 75p.

Even for a basic rate taxpayer, if their employer offers salary sacrifice and shares some of the employer NICs saving the pension is likely to be better.

Where an individual is a basic rate taxpayer and does not have access to salary sacrifice, they may prefer to put money into a stocks and shares ISA and later move it into a pension when they are a higher rate taxpayer, or have access to salary sacrifice.

Jonboy1889

hugheskevi said:

kimwp said:

Sorry for hijacking, but what's the issue with contributing to a LISA? My reasoning was (at the 20% tax rate);
Pension means 15% tax, no NI
LISA means no tax, pay 8% NI 

Nothing wrong in principle, but often a LISA will be outperformed by a pension.

Subject to any protections, pension cannot be accessed until age 57 (from April 2028). A LISA cannot be accessed until age 60 without penalty.

For a higher rate taxpayer without salary sacrifice, they can put £1 into a pension at a net cost of 60p and if a basic rate taxpayer in retirement withdraw 85p (25% tax free, 75% taxed at 20%). Compared to putting that 60p into a LISA and getting it grossed up to 75p.

Even for a basic rate taxpayer, if their employer offers salary sacrifice and shares some of the employer NICs saving the pension is likely to be better.

Where an individual is a basic rate taxpayer and does not have access to salary sacrifice, they may prefer to put money into a stocks and shares ISA and later move it into a pension when they are a higher rate taxpayer, or have access to salary sacrifice.

True 

Although if it’s a pure additional contribution (ie no extra company contribution), then £100 contribution gets you £139 as a lower rate tax payer- which is taxed at 28% eventually with 25% tax free= £110 (obvs growth on top of this), even less if you pay higher rate tax by then £95

LISA costs £100 to get £125, but you get £125 at the end, no tax at all.

LISAs are great if you have young children at 40ish- as by the time they are uni age you have an a nest egg you can share all of it, no tax penalty at all.

you will get more growth on the higher starting point, but probably balances out 

MetaPhysical

You are right to be thinking of this at age 37.  Bravo to you.  But my counsel is that a million things can happen between your age and retirement, many of which you have little or sometimes zero control.  I had two more kids, my wife died, I remarried, made redundant twice, all after age 37.
What you can do is save as much as possible into a global tracker.  At your age I'd suggest 80-90% equities.  These have historically averaged over 7% per annum.

I am now 56.  I paid 3% since 18 and then upped that to 8% with employer match since I was 37 and upped this again to 25% from 48..  I have maxed out the personal pension TR allowance every year now since I was 52.  I can't emphasise enough how important it is to your plan to save as much as possible now into your pension to get the compounding going.  if I were 37 again I'd be at 25% contribution from your age and not 48 like I did.

Good luck to you.

FIREDreamer

Jonboy1889 said:

Tantalus86 said:

Hi, currently starting to look a lot closer at planning retirement with the aim of retiring as early as possible! Currently age 37 so a fair while to go yet, but don't want to end up like my father-in-law working long into my 70s and ideally don't want to be working beyond my early 50s.

I had used a number of online retirement planners but tbh I wasn't 100% convinced with the numbers that they were spitting out. I know they vary in their approach and use a number of assumptions that to be seemed optimistic.

So I created a spreadsheet to track estimated pension contributions & overall value to help work out a realistic retirement age target - who doesn't love a good spreadsheet...

 

Here are the parameters currently plugged into it.

 

And here is a screenshot of the results

 

1. Am I being too optimistic/pessimistic in any of my assumptions?  

2. How many years into retirement do I need to plan for? Odds are I won't be living to 100, but I suppose there's a chance I could (currently healthy).  

3. How long do you see the current fiscal drag going on for? At this rate i'll be a higher rate tax-payer in retirement.

4. Anything else I've missed? Comments?

 

Note: Will be mortgage free by 2042 and assuming debt free. The spreadsheet is purely for retirement - I had some other savings outside of this for emergency fund & potential uni costs for the kids etc. 

Can you talk me through how your pension fund grows by £35k in the first year?

£34.5k * 0.35 = £12k + £4k + £6.2k growth from 3.5% return of £176k average fund = £22.2k

I have probably missed something! 

I think the £34.5k is the target income from retirement (in today’s money) and not the salary that he pays contributions on?

Jonboy1889

FIREDreamer said:

Jonboy1889 said:

Tantalus86 said:

Hi, currently starting to look a lot closer at planning retirement with the aim of retiring as early as possible! Currently age 37 so a fair while to go yet, but don't want to end up like my father-in-law working long into my 70s and ideally don't want to be working beyond my early 50s.

I had used a number of online retirement planners but tbh I wasn't 100% convinced with the numbers that they were spitting out. I know they vary in their approach and use a number of assumptions that to be seemed optimistic.

So I created a spreadsheet to track estimated pension contributions & overall value to help work out a realistic retirement age target - who doesn't love a good spreadsheet...

 

Here are the parameters currently plugged into it.

 

And here is a screenshot of the results

 

1. Am I being too optimistic/pessimistic in any of my assumptions?  

2. How many years into retirement do I need to plan for? Odds are I won't be living to 100, but I suppose there's a chance I could (currently healthy).  

3. How long do you see the current fiscal drag going on for? At this rate i'll be a higher rate tax-payer in retirement.

4. Anything else I've missed? Comments?

 

Note: Will be mortgage free by 2042 and assuming debt free. The spreadsheet is purely for retirement - I had some other savings outside of this for emergency fund & potential uni costs for the kids etc. 

Can you talk me through how your pension fund grows by £35k in the first year?

£34.5k * 0.35 = £12k + £4k + £6.2k growth from 3.5% return of £176k average fund = £22.2k

I have probably missed something! 

I think the £34.5k is the target income from retirement (in today’s money) and not the salary that he pays contributions on?

Ah yes that makes sense

Jonboy1889

FIREDreamer said:

Jonboy1889 said:

Tantalus86 said:

Hi, currently starting to look a lot closer at planning retirement with the aim of retiring as early as possible! Currently age 37 so a fair while to go yet, but don't want to end up like my father-in-law working long into my 70s and ideally don't want to be working beyond my early 50s.

I had used a number of online retirement planners but tbh I wasn't 100% convinced with the numbers that they were spitting out. I know they vary in their approach and use a number of assumptions that to be seemed optimistic.

So I created a spreadsheet to track estimated pension contributions & overall value to help work out a realistic retirement age target - who doesn't love a good spreadsheet...

 

Here are the parameters currently plugged into it.

 

And here is a screenshot of the results

 

1. Am I being too optimistic/pessimistic in any of my assumptions?  

2. How many years into retirement do I need to plan for? Odds are I won't be living to 100, but I suppose there's a chance I could (currently healthy).  

3. How long do you see the current fiscal drag going on for? At this rate i'll be a higher rate tax-payer in retirement.

4. Anything else I've missed? Comments?

 

Note: Will be mortgage free by 2042 and assuming debt free. The spreadsheet is purely for retirement - I had some other savings outside of this for emergency fund & potential uni costs for the kids etc. 

Can you talk me through how your pension fund grows by £35k in the first year?

£34.5k * 0.35 = £12k + £4k + £6.2k growth from 3.5% return of £176k average fund = £22.2k

I have probably missed something! 

I think the £34.5k is the target income from retirement (in today’s money) and not the salary that he pays contributions on?

Although I’m pretty sure £220k would not provide an income of £35k? Although I guess in future money the equivalent will be possible from the growth over time 

bownyboy

The way I look at it is its better than nothing right?!

It will never be perfect, but if you regularly update it with actuals, you can learn from it and continue to tweak it.

I have something similar but also combined with a simple one sheet liquid networth outlook that I update on the 1st of everymonth and then forecast for the rest of the year based on some growth assumptions for cash / equities / bonds etc.