Saving too much into pension for retirement?

hugheskevi

Another option which might have attraction is to have a year or two out of the workplace, go back for a few years, then another year or two out. That might be impossible depending on what you do for work, but it is viable for some.

In my case, I have taken 3 spells of unpaid leave totalling about 3.5 years to go travelling during my employment. That is essentially moving retirement years around, ie, taking a year of no work now, and working one year longer than I would otherwise have done. So my plan is now to retire at age 48, which is much closer to 55 and access to pension than retiring at 44 or 45 would have been.

Bostonerimus1

You'll never be able to find the most financially efficient path for your lifetime investing because there are so many unknowns. So don't fret about that. Concentrate on being efficient right now and giving yourself financial flexibility to react to future circumstances. As a higher rate tax payer pension payments are going to be very beneficial, so definitely do those, but also put something into an ISA so you have easily accessible tax free money. The amounts are up to you and the contribution rules, but I'd put more into the pension than the ISA to get the tax benefits.

Bostonerimus1

LHW99 said:

In terms of inflation, that is down to luck/poor luck. It had been pretty low since the 90's and then no one would have been able to match 2022/23. Retiring at the start of 2022 wouldn't have been the best timing for anyone. It's why those models show financial success as a percentile over the past 100 years, as you can never guarantee success. It isn't predicted to do anything spectacular up 2030.

As said in an article I read somewhere - a Monte Carlo simulation is fine in theory, until you can't afford the electric bill

...and all you get from those is a probability distribution of various outcomes given a large number of assumptions. They are certainly useful as a guide, but I defaulted to "planning for the worst" when I was investing for retirement.

kempiejon

Bostonerimus1 said:

LHW99 said:As said in an article I read somewhere - a Monte Carlo simulation is fine in theory, until you can't afford the electric bill

...and all you get from those is a probability distribution of various outcomes given a large number of assumptions. They are certainly useful as a guide, but I defaulted to "planning for the worst" when I was investing for retirement.

This extrapolating the specific from the general has risks for the specific doing the investing. Like all in with a lump sum verses drip feeding, the simulations show in general all in is better - but buying throughout the market fluctuations stops a specific all in bad pick and is better for peace of mind.

Cobbler_tone

For many it is about getting away from the drudgery, commitment and stress of a full time role. I will be in the ball park to go at 58 in a couple of years and have 9 years to bridge to the state cash injection. I have to keep reminding myself that if needed it will be easy to pick up £1k a month via PT work...but that would be the contingency rather than part of the financial plan, unless I get bored and prefer to do a little something. If I wasn't so tired of working full time and was on my own I have no doubt I'd go until I was 60.
As a couple we currently earn £120k a year but aiming to retire on nothing like that. When you factor in what you actually won't be paying...tax, NI, travel expenses, pension contributions, high savings, no mortages, the requirements are staggeringly lower. You just need to include all the things you may forget to, like car depreciation etc.

Without the focus on 25%-40% pension contributions over the past few years there is no way I'd be in this position.

Pat38493

kimwp said:

If you want money before you can draw it from your pension, you need to save outside your pension.

That's right, but even then, my thoughts would be to prioritize filling up the pensions until you are on track to have enough to last from 57 to 67, if you still make only minimal matching contributions to the pension.

After that, switch to savings outside the pension.

This is based on the assumption that all the money we are talking about is for retirement - if there is a need to save for other investments earlier in life, this could change things again.

Many would of course recommend that you should have an emergency fund outside the pension of minimum several months salary at all times, but that's not the main topic here I guess. 

SouthCoastBoy

Pat38493 said:

kimwp said:

If you want money before you can draw it from your pension, you need to save outside your pension.

That's right, but even then, my thoughts would be to prioritize filling up the pensions until you are on track to have enough to last from 57 to 67, if you still make only minimal matching contributions to the pension.

After that, switch to savings outside the pension.

This is based on the assumption that all the money we are talking about is for retirement - if there is a need to save for other investments earlier in life, this could change things again.

Many would of course recommend that you should have an emergency fund outside the pension of minimum several months salary at all times, but that's not the main topic here I guess. 

I was the opposite of that and did not start saving into a pension until around 40. I always saw them as too restrictive, what if I needed the money before 50 (as it was then) also I was not particularly keen to take out an annuity, things have since changed. It has meant I have sizeable savings outside of my pension and therefore if I want to spend for 100k I can do without having a hefty tax bill.

michaels

Not sure if it is worth keeping pension 'headroom' to avoid even higher marginal tax rates later should income and inflation continue to rise with thresholds remaining frozen - one example might be the child benefit threshold that increases the effective marginal tax rate at 60k

Hoenir

michaels said:

Not sure if it is worth keeping pension 'headroom' to avoid even higher marginal tax rates later should income and inflation continue to rise with thresholds remaining frozen

I'm reminded of a well known entrepreneur that I was fortunate enough to cross paths with. His attitude was that he worry about the tax bill once he'd made the money. If he made as much money as he targetted to. Then he'd have no objection to paying some tax. He simply focussed on his objective with 110% effort. Rather than than expending energy over things over which he had no control. 

kimwp

I recommend you watch James Shack's videos on YouTube about how much you need to save. But you need to know "your number" (annual.income in retirement needed) to make a sensible decision.