Mid-life musings

Bumblingbee

I've started this thread for me to try to gain a bit of clarity on what I am aiming for pension wise and whether we're heading in the right direction. I'm not sure my thread fully fits here as I / we really are working towards being mortgage free, financially independent, being prepared for retirement and hopefully pulling back on work at some point. 

So if you don't mind thoughts that aren't fully thought through please join me, and please share your views and thoughts along the way

Current situation - Both late 30s with two young children 3 and under, we've previously been mortgage free prior to buying our current home and have done significant work on it which is now finished. We intend to become mortgage free again in hopefully the next 6 or so years, but really keen to focus on what I/ we need to do to have enough to retire so we can either go part time or not care too much about our jobs and what happens to them. 

So starting with the pensions, we have 

Me: 2 x current pensions £209,000 (L&g) and £57,500 (Aegon), and expect to have c£75,000 which I will be adding to this in the next few months, so lets assume that happens. Total £341,500

Current contributions £18,620 p.a salary sacrifice inclusive of employer contribution, and cannot be increased so any additional payments have to be made direct

Husband: £172,000 (L&G) contribution 10% of salary plus employer contributions - don't have further info to hand at this stage. 

Total pension pot combined = £513,500

Now I need to work out how much we need every year.. will post that separately

MallyGirl

Do you earn enough to contribute that much to a pension this year.
I also focused on becoming mortgage free for a long time when I would have been better off prioritising the pension. I saw the light at around 50 so have been in catch-up ever since.

Bumblingbee

Ok, how much do we need?? I have used our current income and expenditure and just amended slightly - I'm assuming that we'd maintain our current lifestyle, yes we'll be much older and things may change slightly but given retirement is c30 years away it seems a reasonable place to start. I've removed mortgage and life insurance, adjusted water down slightly, left G&E the same, adjusted food and fuel down slightly, and added a miscellaneous of £500p.m to cover eating out, entertainment, clothes etc over the £50pm as there's no value in really guessing how much they would be independently given our life will be significantly different to now.

So broadly £30,000 per year? What have I missed? Too generous or too prudent? Thoughts welcome

EXPENDITURE
		Spending	How Often	Weekly Total	Monthly Total
Council Tax		£       -	Month	£       52.24	£      227.00
Water Rates		£       -	Month	£       11.51	£       50.00
Gas & Electric		£       -	Month	£       47.45	£      206.16
Childcare		£       -	Month	£            -	£             -
Clothing		£       -	Month	£       11.51	£       50.00
Food		£       -	Month	£     138.08	£      600.00
H Cars		£       -	Month	£       26.70	£      116.00
Me Car		£       -	Month	£       16.11	£       70.00
Fuel		£       -	Month	£       23.01	£      100.00
TV licence		£       -	Month	£         3.05	£       13.25
Mobiles		£       -	Month	£         6.90	£       30.00
Sky / Netflix / Internet		£       -	Month	£       14.61	£       63.50
Holidays		£       -	Month	£       97.81	£      425.00
Misc		£       -	Month	£     115.07	£      500.00
		Total Expenditure		£    564.05	£  2,450.91

Bumblingbee

MallyGirl said:

Do you earn enough to contribute that much to a pension this year.
I also focused on becoming mortgage free for a long time when I would have been better off prioritising the pension. I saw the light at around 50 so have been in catch-up ever since.

Yes I do, the £75k will be a portion of my earnings for this year, and using carry forward from previous years. For me, its not either mortgage or pension as both offer different things but getting rid of the mortgage whilst having my plan for the long term. I don't want to work until I drop, and I do want to spend as much time with my children as possible, so need a fairly well thought out plan

Yankee24

We had similar numbers back then.  Now 55 and 58.  Kids launched fully for 3 years.  When they were teens incl a small mortgage and life ins etc I worked to 48k a year.  Now I work to 60k incl travel.  No mortgage.  Generous with the kids.   No new cars,  rarely eat out.  Lots of travel and great food and drink.  It’s tricky to guess… what surprised me was how lovely it is not to budget now that the kids are gone.  

kempiejon

If in today's money you want to have about £30k to spend, a bit of reverse engineering from a 4% withdrawal means a pot of about £750000. However 4% might be the wrong number, State pension will add another £12k each, if you want to go early you might want a bigger pot or withdraw more early on or both. Add a bit of excess safety and £1m might be the number. I am intending to retire on less but my needs are modest my tastes are pedestrian, SO is younger and well paid, I should have a small defined benefit pension before normal pension age too.
Read a report recently about what the retireds need https://www.retirementlivingstandards.org.uk/
£15k basic £30k and £40k for moderate to comfortable but picking a number like above might be wrong but we all have to start somewhere. I hope my lifestyle will be flexible enough to be able to turn the income tap up and down as my investments progress. I will be out of the work place in my 50s. There's the chance of an inheritance or a change to a more expensive mortgage which can push dates and requirements about.

Bumblingbee

@Yankee24 Thanks, that's good food for thought, it's so hard to predict the future and obviously will readjust as we go, but I don't want to sacrifice the today for tomorrow, so need to find that happy mid point. Are you still working or retired now? What does the £40 - £60k look like in terms of a breakdown - holidays etc?

Bumblingbee

Let's say based on current lifestyle we need £30k which is I think amply covers living costs but not the nice to haves, so perhaps an increase to £40k p.a which fits just under the moderate lifestyle = a pension pot of £1million working on 25 years life expectancy and going at 65. I would assume as time goes on we would draw less. 

Double checked my husbands contributions and he pays £12k pa into his pension. Just to keep things simple rounded up we pay in £30k p.a. before any additional payments. In three years time (when little goes to primary) we would have a pot of c£600k -/+ any growth. Hypothetically what growth do you assume will happen over a period of 23-25 years if we stopped paying anything? We won't stop but there's a point when you either pull back or know you can and that the plan broadly will work. 

But actually is it a pot of £1 million needed? As we would have 2 x state pension coming in so we would only need £16k x 25years or 30 years - lets work on the latter if I'm assuming that's still around and not means tested = £480,000

Early_Retire_Free

In my experience (having been retired for 7 years), the regular outgoings are pretty easy to model.  What nobody can answer is how much variable expenditure you need.

When you are retired, you will have a lot of time on your hands and you will want to fill that time which can become quite expensive.....or not.  Our variable expenditure (mainly holidays) is the same as our fixed costs.

Also, you will want to think about how much you want to help the children with education, setting up home, weddings etc.  Should not be underestimated.

Marcon

Bumblingbee said:

MallyGirl said:

Do you earn enough to contribute that much to a pension this year.
I also focused on becoming mortgage free for a long time when I would have been better off prioritising the pension. I saw the light at around 50 so have been in catch-up ever since.

Yes I do, the £75k will be a portion of my earnings for this year, and using carry forward from previous years. For me, its not either mortgage or pension as both offer different things but getting rid of the mortgage whilst having my plan for the long term. I don't want to work until I drop, and I do want to spend as much time with my children as possible, so need a fairly well thought out plan

Just double checking (because the point is so often overlooked) - if you're planning to pay in £75K this tax year by way of pension contributions to a relief at source scheme, you are earning at least £94K+?

kimwp

It's often said on this board that expenses on certain things can go up as you get older- paying for a gardener, cleaner, jobs that you might otherwise have done yourself.