37 years old - My current situation and savings/retirement plan

n15h

HedgehogRulez said:

Aggressive return expectations. I’d plan with 0-1% growth taking into consideration inflation

I appreciate the feedback. However, I have tried to be conservative where possible even though I have seen my pension investments returning 8%+ per year in the last 5 years. I know that rate of return (or any rate) is not guaranteed with investments. I am only making a forecast of where I am aiming my pension and other savings pots to be at when I get to my retirement age.

HedgehogRulez

Yes. You need to consider inflation in your calcs. It’s the 9th horror of the world 

n15h

HedgehogRulez said:

Yes. You need to consider inflation in your calcs. It’s the 9th horror of the world 

Compound interest is the 8th wonder of the world (Einstein).
Now I've learnt a new saying - Inflation is the 9th horror!

Simon11

I am nearly 37 and have also been saving heavily into pension. Lots of similarities, although I am lucky to earn twice as much but have a family to support and a rather large mortgage (yours is so low!) I am now at a point with a huge amount in the pension, which is growing more than my wife earns part-time each year so easing back on throwing money at the money to make life easier and even more fun now!

For yourself, if you keep going, I think you could retire or take the foot off the gas much earlier than your plan.

Have you done a detailed breakdown of how much you actually need when you retire in todays money?

• I want a comfortable lifestyle which I think would be in the region of £40-£50K per year. My expenses/lifestyle costs are likely to fall by that age

With my wife, we are looking at £33k a year including £8k for holidays! We have likely missed some costs, however it helps with lots of stats I run in my model (e.g I can retire at 59.4 years old with today's savings put away )

n15h

Simon11 said:

I am nearly 37 and have also been saving heavily into pension. Lots of similarities, although I am lucky to earn twice as much but have a family to support and a rather large mortgage (yours is so low!) I am now at a point with a huge amount in the pension, which is growing more than my wife earns part-time each year so easing back on throwing money at the money to make life easier and even more fun now!

For yourself, if you keep going, I think you could retire or take the foot off the gas much earlier than your plan.

Have you done a detailed breakdown of how much you actually need when you retire in todays money?

• I want a comfortable lifestyle which I think would be in the region of £40-£50K per year. My expenses/lifestyle costs are likely to fall by that age

With my wife, we are looking at £33k a year including £8k for holidays! We have likely missed some costs, however it helps with lots of stats I run in my model (e.g I can retire at 59.4 years old with today's savings put away )

Thank you for the feedback. Yes, mortgage is low as I was fortunate to build a 20% deposit and in the environment of low interest rates, I was constantly overpaying to reduce the balance and the remaining term. I wanted to build the equity so if I do sell in future, I won't need a large mortgage for the next house I then end up buying and moving into (if that ever happens - I'm content with my current house/location).

I have thought about increasing my pension contributions and am going to consider testing the waters to see how much I can increase them by without straining my finances (and how close I can get to falling my pay from 40% tax to 20% tax band). Its impressive that you have grown your pension so much - long may it continue!

I do like the idea of an earlier retirement than at age 58-60, however I'm just mindful of when I can access the pension, and retiring without a bridge until I can access the pension. I believe its currently at age 55 and increasing to age 58.

I did a detailed breakdown of my current expenditures which are ~£2300 per month in totality. That will likely reduce to ~£2000 if the mortgage is paid off before retirement or just soon after starting retirement. My rough sums are a pre-tax annual income of £40K could give a monthly income of ~£2800 after tax which should cover my expenses (and maybe a holiday or 2!). However, I'm giving myself extra leg room to cover for anything unexpected or any increases in cost of living, hence going up to £50K annual income pre-tax.

I hope that makes sense. 


Edit: Updated monthly income to ~£2800

Linton

n15h said:

kimwp said:

A few questions -

Are your retirement numbers in current values and pre or post tax? What real rate of return are you assuming?

My retirement numbers are future values pre tax. The rates of return I am assuming is:
- Pension: 7%.
- LISA: 6%
- Other S&S ISA: 5%
- Savings (ISA and non-ISA): 3%


Edit: Error in my reply. I had said the future values are post tax. This is incorrect and they are pre tax

Well done, you are way ahead both financially and in planning terms of where I was at 37.   I was able to retire less than 20 years later, so you would seem to be in a very good place.

I suggest you are less optimistic with your assumptions on investment returns.  The reason is psychological. If you keep your current position updated with actuals you should normally see your planned retirement date come earlier each year.  The reverse is less encouraging.  Your assumptions wont change reality but will change how you think about it..

Furthermore the markets can be far less benign than over the past, say, 15 years.  In 2000 equity markets dropped by about 50% (less in the UK because of currency movements) and had barely recovered by 2008 when they crashed again.  It would be surprising if some event of this magnitude did not happen again during your investment lifetime.

For comparison,  my prediction of retirement date through to death assumed 4% investment return, 0% cash return, 3% inflation.
 

Simon11

n15h said:

I have thought about increasing my pension contributions and am going to consider testing the waters to see how much I can increase them by without straining my finances (and how close I can get to falling my pay from 40% tax to 20% tax band). Its impressive that you have grown your pension so much - long may it continue!

I do like the idea of an earlier retirement than at age 58-60, however I'm just mindful of when I can access the pension, and retiring without a bridge until I can access the pension. I believe its currently at age 55 and increasing to age 58.

In the 20% tax bracket, there isn't as much benefit from putting money into a pension (as you are likely to withdraw at 20% tax). Thus it would make sense to take everything out up to the 20% tax bracket with any spare money put in your stocks & shares ISA and anything in the 40% tax bracket into the pension. This gives you more freedom with your money and allows more retirement options pre 57 years old.

Overtime, hopefully your salary increases and additional 40% pay can go into the pension.

kimwp

Simon11 said:

n15h said:

I have thought about increasing my pension contributions and am going to consider testing the waters to see how much I can increase them by without straining my finances (and how close I can get to falling my pay from 40% tax to 20% tax band). Its impressive that you have grown your pension so much - long may it continue!

I do like the idea of an earlier retirement than at age 58-60, however I'm just mindful of when I can access the pension, and retiring without a bridge until I can access the pension. I believe its currently at age 55 and increasing to age 58.

In the 20% tax bracket, there isn't as much benefit from putting money into a pension (as you are likely to withdraw at 20% tax). Thus it would make sense to take everything out up to the 20% tax bracket with any spare money put in your stocks & shares ISA and anything in the 40% tax bracket into the pension. This gives you more freedom with your money and allows more retirement options pre 57 years old.

Overtime, hopefully your salary increases and additional 40% pay can go into the pension.

A LISA is a good option for the 20% tax bracket as you get the 20% tax back and no tax to pay on withdrawal - provided you won't need the money before 60

n15h

@Linton thank you for the kind and constructive feedback. I find it impressive you were able to retire less than 20 years after where you were at 37, and hope I can achieve the same. Your points about psychological assumptions on investments makes sense and keeping the current position updated. I am thinking of using this thread as a type of diary on how I'm doing, and over time (such as the next 10-15 years), be able to look back at my journey and share my thoughts with this forum. You are right about the benign nature of markets, and it would be remiss of me to think that markets can only continue going upwards.

@Simon11 - My apologies, but my knowledge of tax is very sparse except knowing the 20%/40% tax brackets and that pensions contributions deducted from gross salary can help lower the amount of tax. I'm trying to make sense of what you've said but please correct me if I'm wrong - My pension contributions are paid from gross salary before tax/NI is deducted. As I am about £4K over the 20% tax bracket, my reading/understanding of what you've said is I should consider increasing my total contributions so that £4K is paid into the pension, which then moves me in to the 20% tax bracket, and any spare money is then put into the S&S ISA. This could then give me more freedom with money and allow more retirement options pre age 57. Please let me know if this is wrong.

@kimwp - Thanks, yes I opened a LISA a few years ago back when I was in the 20% tax bracket. As I'd already bought my house long before I opened the LISA, the intention has always been to use the LISA for retirement purposes at age 60 onwards.

kimwp

n15h said:

@Linton thank you for the kind and constructive feedback. I find it impressive you were able to retire less than 20 years after where you were at 37, and hope I can achieve the same. Your points about psychological assumptions on investments makes sense and keeping the current position updated. I am thinking of using this thread as a type of diary on how I'm doing, and over time (such as the next 10-15 years), be able to look back at my journey and share my thoughts with this forum. You are right about the benign nature of markets, and it would be remiss of me to think that markets can only continue going upwards.

@Simon11 - My apologies, but my knowledge of tax is very sparse except knowing the 20%/40% tax brackets and that pensions contributions deducted from gross salary can help lower the amount of tax. I'm trying to make sense of what you've said but please correct me if I'm wrong - My pension contributions are paid from gross salary before tax/NI is deducted. As I am about £4K over the 20% tax bracket, my reading/understanding of what you've said is I should consider increasing my total contributions so that £4K is paid into the pension, which then moves me in to the 20% tax bracket, and any spare money is then put into the S&S ISA. This could then give me more freedom with money and allow more retirement options pre age 57. Please let me know if this is wrong.

@kimwp - Thanks, yes I opened a LISA a few years ago back when I was in the 20% tax bracket. As I'd already bought my house long before I opened the LISA, the intention has always been to use the LISA for retirement purposes at age 60 onwards.

Thanks, my point was in relation to Simon's point - if you are saving into a pension from wages in the 20% bracket (and it's not being matched), then you are probably better off (if you will be paying 20% tax on your pension) to put it in a Lisa rather than sipp.

But if you want the money ten years from now but before 60, then LISA obviously not a good option