Does this seem like a sensible plan?

kimwp

I've made a couple of mistakes recently with money, so thought I would run my pension pondering past this forum as I'm thinking of a change to what I have previously been doing.
- Age: 40

- Current pension fund value approx £330k in DC pension, £35k in LISA
- Outside pension/LISA - emergency fund plus 5k cash.
- Current spend: £13k not including infrequent outlays eg new bathroom, new white goods, laptop

- Aiming for 20k a year in retirement, not including state pension.
- Retirement age? I'd like to not need to work before I can withdraw from my pension, so I need to save outside my pension.

Re the part of my salary under the 40% threshold - so far I have been putting as much as possible of this into my pension pot on the basis of needing it for retirement and the tax advantages (28% tax&NI vs effective 15% in retirement with no NI and 25% allowance). Do I continue to put as much as possible into pension or take the tax "hit" to start saving outside for retirement before pension?

Additionally, during this tax year, while I have some annual allowance carryover from three years ago, should I put some of my spare cash into my pension to get the tax relief?

El_Torro

One thing of note is that you are assuming you will be able to access your pension at 57. Since you are 40 now it is likely that you will be 58 or older by the time you can access your pension. 

You are allowing your pension and LISA to do a lot of heavy lifting when you are retired. Not that this is a bad thing necessarily, that's what the pension is for after all. Still, I would build up your Stocks & Shares ISA. It doesn't have to be £20k a year, though a big ISA pot gives you more options, especially if you want to spend money before you retire. 

tacpot12

I would say that you are already on track to reach your retirement goals. 3% is very conservative return. I'm retired and have a diversified portfolio of Investment Trusts and Exchange Traded Funds with a UK bias, and am getting an average annual yield of 4.3% after all charges, and there is some capital growth as well (at least 1% on average). And this is with a DIY protfolio.

For most people in the UK, their safe withdrawal rate from their DC pension is above 4% because of the safety net of the Sate Pension and other savings they have outside of their pension. 

When modelling outcomes, everyone focuses on the failure rate; they rarely looks at effect of the success rate though. Most people retiring in the UK with DC pots of around £500,000 are going to die with their pot being worth £2-4 million! 

Albermarle

Current spend: £13k not including infrequent outlays eg new bathroom, new white goods, laptop

This is very low, especially for someone who could easily spend more.
Although it is good you are making good provision for retirement, I wonder if you are doing this too much/at the expense of living today. YOLO and all that.

kimwp

tacpot12 said:

I would say that you are already on track to reach your retirement goals. 3% is very conservative return. I'm retired and have a diversified portfolio of Investment Trusts and Exchange Traded Funds with a UK bias, and am getting an average annual yield of 4.3% after all charges, and there is some capital growth as well (at least 1% on average). And this is with a DIY protfolio.

For most people in the UK, their safe withdrawal rate from their DC pension is above 4% because of the safety net of the Sate Pension and other savings they have outside of their pension. 

When modelling outcomes, everyone focuses on the failure rate; they rarely looks at effect of the success rate though. Most people retiring in the UK with DC pots of around £500,000 are going to die with their pot being worth £2-4 million! 

Thank you Tacpot, I really wasn't sure whether 3% was conservative or not. Is 3% a conservative "real" return (IE taking into account inflation?)

kimwp

Albermarle said:

Current spend: £13k not including infrequent outlays eg new bathroom, new white goods, laptop

This is very low, especially for someone who could easily spend more.
Although it is good you are making good provision for retirement, I wonder if you are doing this too much/at the expense of living today. YOLO and all that.

Thanks Albermarle, it's definitely something I need to reflect on every now and then. I probably hold back if I think something is expensive for what it is, but to counteract that, twice this year, I have thought "I want to buy", and spent £1,000 each time. I eat out with friends, get takeaways (ideally should cut back for health reasons), eat organic, buy or do things if I need or want them, don't worry about the cost of petrol, parking or heating, so I'm not leading a life of unbridled extravagance, but I'm not financially restricting myself.

barnstar2077

I'm 47, hoping to retire at 55.  Although I still put money in my pensions I am currently stuffing my ISA until I have £70k in there, £40k to cover the two years to 57 when I can access my pensions, and 30k as a house repairs and white goods fund.

I am doing it this way round so that if anything happens to my job before I reach 55 it will allow me to either retire earlier on less, do a couple of days somewhere to top it up, or at the very least give me years to find another position.  I'm hoping to be able to switch to bolstering my pensions at 51.  In short, an ISA adds a great deal of flexibility. 

kimwp

Thank you el torro and barnstar, you've convinced me, I'm going to start saving outside my pension as well.

cloud_dog

@kimwp, I used 3% as my default for my growth projections and ignored inflation, although occasionally I would stress test the projections between 0.5% and 5% just to see where the pain points were and the optimistic early retirement point could be.

barnstar2077

kimwp said:

Thank you el torro and barnstar, you've convinced me, I'm going to start saving outside my pension as well.

You could also live on money from your ISA for a while and pay the majority of your salary into your pension if you find your ISA has done better than expected in the last years before retirement.  So, the only real downside is the loss of potential growth on the 25% uplift that you may have had if you had paid it into the pension sooner.  I'm not suggesting you abandon the pension in favour of an ISA, I'm just saying if you overshoot it isn't a problem.

As you are so young still, make sure you are at least 80% equities in your ISA and pension (and globally diversified etc.)   I use Vanguard's FTSE All Cap accumulation fund on Vanguard's own platform for my ISA and private, non work related, pension.

kimwp

barnstar2077 said:

kimwp said:

Thank you el torro and barnstar, you've convinced me, I'm going to start saving outside my pension as well.

You could also live on money from your ISA for a while and pay the majority of your salary into your pension if you find your ISA has done better than expected in the last years before retirement.  So, the only real downside is the loss of potential growth on the 25% uplift that you may have had if you had paid it into the pension sooner.  I'm not suggesting you abandon the pension in favour of an ISA, I'm just saying if you overshoot it isn't a problem.

As you are so young still, make sure you are at least 80% equities in your ISA and pension (and globally diversified etc.)   I use Vanguard's FTSE All Cap accumulation fund on Vanguard's own platform for my ISA and private, non work related, pension.

Good point about adding the money later!

I'm in 100% equities, all-world, all cap or as close as I can get with the options available.