Is it worth paying into a pension when you're aiming for early retirement?

wjr4

How much money is in your pensions at the moment? Or are they defined benefit pensions? That still hasn’t been clarified. 

german_keeper

Ibrahim5 said:

Student finance is weird. Say you budget £10k per year at university. If you are still working they get a £4767 loan. If you have retired they get a £10227 loan. The repayments are the same and according to Martin Lewis 83% will never pay it back. £20227 should be enough for living expenses even in London.

I am not sure what the relevance of the £10k budget figure is, but taxable pension income is counted as income for student finance. So there is no distinction between working and retired, it is just down to relevant income. Pension contributions are however relevant deductions so our 2 x £2,880 were very useful to deduct from the income figure, securing the full loan.

Just in case anyone finds themselves in a position where they are trying to declare current year estimated income due to 15% + drop, the obvious one being retirement compared to working a couple of years before, be prepared for a long wait. Took us nearly a year to sort out. He eventually got a full loan, quite correctly, but not after we had 4 different calculations including one that said he was entitled to nothing and we owed them about 5 grand they had already paid him!  

Triumph13

You really need to break out the spreadsheets and start modelling out different scenarios.  I've done some back-of-a-fag packet calculations, based on what you've said and a few assumptions on what you haven't, and I have to say it looks very good indeed.

You say you are saving £80 to £85k a year?  Is that all outside pensions at the moment?  If it is then I would say that your first action should be to contribute enough into private pensions to stop paying 40% tax.  As long as you have enough outside pensions to cover the gap from retirement to age 58 pensions are a very good deal.  Assuming you have equal salaries, and based on a post tax income of £105k (£80k you save and £25k you spend) that would be about £30k a year of tax relief to add to your savings just by avoiding the 40% tax band.

Continuing with those number and with 2% real return on investments and assuming pension access at 58 and state pension at 68 it looks feasible to me for you to go a year earlier than you planned, up your spending from £25k to £35k in the meantime and still have about £400k leftover in the pension when your state pension starts!

Ibrahim5

german_keeper said:

Ibrahim5 said:

Student finance is weird. Say you budget £10k per year at university. If you are still working they get a £4767 loan. If you have retired they get a £10227 loan. The repayments are the same and according to Martin Lewis 83% will never pay it back. £20227 should be enough for living expenses even in London.

I am not sure what the relevance of the £10k budget figure is, but taxable pension income is counted as income for student finance. So there is no distinction between working and retired, it is just down to relevant income. Pension contributions are however relevant deductions so our 2 x £2,880 were very useful to deduct from the income figure, securing the full loan.

Just in case anyone finds themselves in a position where they are trying to declare current year estimated income due to 15% + drop, the obvious one being retirement compared to working a couple of years before, be prepared for a long wait. Took us nearly a year to sort out. He eventually got a full loan, quite correctly, but not after we had 4 different calculations including one that said he was entitled to nothing and we owed them about 5 grand they had already paid him!  

It's all very hypothetical. We don't even know if they have children. Whilst they are working they must have a very good salary to save £80k a year. So the maximum loan is probably £4767. If you retire at 48 you can't have pension income so your income will be very low so they will get a maximum loan of £10227. So £10k per year per child works out as a reasonable budget to support them. I retired very early and supported multiple children through long university courses whilst in retirement. It's pretty uncommon, but if you do the maths it's doable.