Saving too much into pension for retirement?

Cus

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

What she said 😁⬆️

kempiejon

I don't know about the PLSA but if you have defined benefit pensions projected to pay out over £50k at 68 that bit looks a good start. I would like to know what I needed to give up work and be financially independent as that would bring that date in range before 68. 68 sounds quite a long time to stay at work for a 40 year old, even 57/8 is a good few more years at the grindstone.
In my 30s projected my savings and investments, in my 40s I itemised all my spending, the data gave me my starting point. Financial independence came my way at 50 odd, before pensions access, without the data I wouldn't have been able to make my escape plan.
Sacrificing what you can afford now for more money at pensions age is a good habit but there's better refinements that can be made.

thegentleway

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

Sarahspangles said:

There’s a thread at the top of this forum that discusses ‘The Number’. There’s some scepticism about the PLSA numbers, since the calculations are sponsored by pension providers who have a vested interest in suggesting you save more into pensions.

Cus said:

MallyGirl said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Without tying yourself up in spreadsheet hell, it is worth tracking spend at least into high level buckets that can be viewed as required spending, comfortable living, luxury/treats. That way you can arrive at your NUMBER.
First work out what you absolutely must have to keep the lights on, maintain house in good state, run car, whatever you would rather work for longer than try and do without. Then look at what you would like to do - hobbies, travel, subscription services, replacing whitegoods periodically. Then there might be a top level - dream holiday, 2nd car, camper van, gifts to kids.

What she said 😁⬆️

Thanks for helpful comments. I've got spreadsheets that track spending in fair bit of detail. My point was I don't know what spending will be in 25 years time...

However, our defined benefit forecasts + state pension would take us over what we spend now (which is only going to go down as we currently pay mortgage, childcare, etc... ).

thegentleway

Hoenir said:

thegentleway said:

Cus said:

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. However, I'm wondering if we are saving too much into our pensions. We both have defined benefit pensions that are projected to give us comfortable retirement with state pension at 68 (according to PLSA). Obviously we can save more into our pension so we have the option of retiring earlier. But at our current salary sacrifice rates we have more than enough to bridge the gap from 55 to 68. So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

If you know your required retirement number/withdrawal then it's a basic calculation to see which scenario, SIPP or ISA, gives the earliest date of that scenario.

I have no idea what our required retirement number/withdrawal; it's rather difficult to project that far ahead. I'm just going by PLSA numbers. I suspect as we approach retirement the numbers will become clearer and easier to estimate.

Until you get there. You won't know what your investments will actually be worth. 

Indeed but I know what my defined benefit pension will be. Investments are for early retirement which is obviously flexible and would be delayed if investments perform poorly. 

kempiejon

thegentleway said:

Hoenir said:

Until you get there. You won't know what your investments will actually be worth. 

Indeed but I know what my defined benefit pension will be. Investments are for early retirement which is obviously flexible and would be delayed if investments perform poorly. 

Once I knew my costs early retirement was accelerated as investments performed well. I take a flexible income from my investments, which will be supplemented by state pension eventually and personal pension pots sooner if needed.

QrizB

thegentleway said:

We are both higher rate tax payers and have been salary sacrificing income over higher rate of income tax. ... So it would be better to reduce salary sacrifice and put money into ISA for retiring before 55? 

There was a regular poster on the forum - @jamesd - who used to suggest Venture Capital Trusts (VCTs) for folk with your problem of having too much income to make use of other tax wrappers.

See for example:

https://forums.moneysavingexpert.com/discussion/comment/80525918/#Comment_80525918

I have no idea if this would work for you, and jamesd hasn't been on the forum since January, but it might be worth you investigating?

Alexland

QrizB said:

There was a regular poster on the forum - @jamesd - who used to suggest Venture Capital Trusts (VCTs) for folk with your problem of having too much income to make use of other tax wrappers.

My VCT experience was that the 30% upfront tax relief looks great but then once you factor in the high 2% pa+ fees, the opportunity cost of the money tied up in poor performing underlying investments and then selling at a 10% discount to NAV then it wasn't worth the bother let alone the investment risk. Still it was an experience I guess.

Cobbler_tone

I think you can only work in today’s money. You should have a rough idea of what you won’t be spending…mortgage, childcare, NI, lower tax bill etc. You may want to add on things like private health care, adding pets to the family, extra holidays/hobbies etc.
With DB pensions even easier as the income should be able to be modelled and guaranteed.
As for the price of milk, you need to assume it is relative your income/cost today. I think that’s how most of us would work things out.

Alexland

Cobbler_tone said:

I think you can only work in today’s money. You should have a rough idea of what you won’t be spending…mortgage, childcare, NI, lower tax bill etc. You may want to add on things like private health care, adding pets to the family, extra holidays/hobbies etc.
With DB pensions even easier as the income should be able to be modelled and guaranteed.
As for the price of milk, you need to assume it is relative your income/cost today. I think that’s how most of us would work things out.

Depends on how much inflation protection the DB scheme will really provide. My dad's was capped at 3% pa so over time the spending power of his DB scheme diminished as even a low average rate of inflation is lumpy not linear.

Cobbler_tone

Alexland said:

Cobbler_tone said:

I think you can only work in today’s money. You should have a rough idea of what you won’t be spending…mortgage, childcare, NI, lower tax bill etc. You may want to add on things like private health care, adding pets to the family, extra holidays/hobbies etc.
With DB pensions even easier as the income should be able to be modelled and guaranteed.
As for the price of milk, you need to assume it is relative your income/cost today. I think that’s how most of us would work things out.

Depends on how much inflation protection the DB scheme will really provide. My dad's was capped at 3% pa so over time the spending power of his DB scheme diminished as even a low average rate of inflation is lumpy not linear.

But that protection is known. Ultimately it is designed to protect somewhat against inflation, i.e. mine is 5% cap RPI.
It is incredibly difficult to protect against outlier years and over time you shouldn’t be too far off. You can add a contingency but ultimately you need a figure or else we’ll all work until we drop.
Ultimately my state pension will far outweigh any ‘damage’ that 5%+ RPI can do to my DB in the 10 years I’m waiting to get it.