Are we on track?

Scot4Moneysaving · 25 May 2018 at 10:18PM

I've posted on here a few times in the past under a few different usernames when i've needed help and advice on various topics and I read the forums regularly (almost to the point of obsession to be honest in the hope that what we should be doing will become clear!).

I'm hoping for some advice to see how hubby and I are doing in terms of long term pension planning and if there's any additional advice anyone can give or any direction for further reading to help us decide our way forward in terms of pension goals (and pre-pension living!).

We are in Scotland if that matters and I'm 35, hubby 38.

Hubby is a teacher, has been since 2006ish, has built up pension within the pre-CARE scheme of around 5.5k pa from 60 and lump sum of 17k and is now building pension in the CARE scheme. We are looking to adopt and hubby will likely take 6-9 months off work and return either 3 or 4 days a week.

I also work full time, earn around 35k and have a non-contributory pension of 9% from my employer. I've used salary increases over the last couple of years to increase this to 15% and taking into account my current pension pots valued at 37k from previous employer with L&G and current works pension pot of £19.5k.

I'm not contributing extra to either the L&G pension or my current one (as used salary increases instead).

My husband really doesn't want to work until 68 as per the new CARE scheme from the SPPA but i believe his right to buy out down to 65 was only available in the first 6 months of the change over. I'm also considering if he should be paying AVCs with a view to ending up with a bigger lump sum, but i'm not sure if a read somewhere that he would only be able to access this at the same time as he fully retired which probably wouldn't be ideal.

I'm confused between the following options of overpaying mortgage, saving more into savings (don't have a sizeable emergency fund), enjoying a holiday before we adopt, saving for when we adopt, paying more into both of our pension, or S&S ISA, LISA, or something else!? I also think people go into all of these situations knowing lots less about finances than I do, so in some ways i want to chill out about it (doesn't seem that's happening though).

Sorry if i've ranted on a bit, but any words of advice would be gratefully received!

justme111 · 25 May 2018 at 10:44PM

1. what is your after tax household income?
2. what is your after tax household expense?
3. when are you having an addition to the family?
4. what your income and expense will be then?

ideally you establish that your income is more than your expense or cut your expenditure to free money for emergency savings, treats like holidays, overpaying
mortgage etc. So basically you need to know how much you need to live on.
Then you look at your pensions and make rough estimates of how much they would be when you are 6O lets say. Or 55. compare that number to the number above and make provisions for more of it if needed or you have soare money after emergency savings. Alternatively you can contribute to ISA - pros and cons of investments in ISA versus pensions are a separate topic not that relevant at this stage.
After you have everything clear you decide what to redirect onto mortgage - depending on your rate , LTD, pension options etc.

Brynsam · 25 May 2018 at 10:58PM

As you on track? Depends where you're going! It's impossible for anyone to say definitively that you are doing the right thing and will end up where you want to be.

You and your husband might usefully ask yourself two questions: what can we afford (the answer isn't likely to be 'everything'; followed up with what are our priorities/timescale? Becoming a parent isn't going to be cheap - have you looked, calmly and realistically, at the costs of child care and how that is going to impact on your finances? Tie up too much in pensions now and you might have jam tomorrow, but you'll need something on your bread today - and if you have to borrow to fund it....

Thrugelmir · 25 May 2018 at 11:36PM

Until you reach your destination you won't know. Too many uncertainies in life to forecast accurately. If you've grand plans. Then you need to start working on them tomorrow.

Scot4Moneysaving · 27 May 2018 at 9:26AM

Thanks for the above posters, it's been useful to sit down and go through these questions.

Replying to just me,

1. Just over 4.5k per month, 2217 me, 2350 husband.
2. Bills come to 2,400 with other 'normal' spending being another 800, this includes all of our socialising, overpaying the mortgage by £200 per month, birthdays, Christmas, lottery at work etc. we then save £800 per month, and there's about £500 left that always seems to manage to be spent on various things - for example this month it's gone towards accommodation for a wedding we are going to later in the year and the wedding present for the couple. Other months it's saved towards holidaying. The 2,400 also includes 500 towards a home improvement loan and the car we bought last year. Both of these loans will be paid off prior to our next remortgage period in about 3 1/2 years.
3, It's likely to be at the start of next year.
4. Looking at costs then, as i said my husband will likely take off 6-9 months, adoption leave from his work is 6 weeks at 90% and then statutory and looking at the costs for that period, we can get by with my salary + the statutory leave pay. Savings will probably kick in when wanting to do something over and above the norm. When my husband goes back to work, we've costed childcare locally and it sits well within what we will be earning then.

Even just thinking that through has helped me to see that this 'spare' cash that we have just now won't always be there and that's fine, but it means any plans for it will probably need to be short term so should probably just be saving it into an account at the moment.

Then in a year or two when things settle down and we get back to a more standard pattern of spending, then review again what we're doing.

Our mortgage is around £150k on a £190 house, we've got a longer term than we are hoping to need, currently I think it's at 29 years so we're overpaying by £200 per month. We're fixed for another 3.5 years at 2.49%.

Also take your point Brynsam about priorities. I'm thinking the priority at the moment is to have a rainy day fund in place for the next couple of years, and thereafter to look at things again. In the meantime we are putting away a reasonable amount into our pensions so it's not a total head in the sand approach, but once we are a bit more settled after the upcoming life changes then we can probably review it again. Hadn't really thought through our whole priorities changing, if for example we wanted to start putting money away to pay for university/wedding etc. etc. Too early to think of any of that but the time will soon be upon us.

Thanks again for the comments.

Kynthia · 27 May 2018 at 12:39PM

Children are a massive change to your life. They change your income, expenses and future plans. If adoption is very soon then concentrating on savings seems the priority. Next would be to get the mortgage LTV to 60% but that doesn't have to be done in a rush and certainly not at the expense of standard pension contributions. After a few years you'll be able reassess, especially if one of you becomes a higher rate tax payer as pension contributions then become very attractive.

Dox · 27 May 2018 at 12:57PM

Scot4Moneysaving wrote: »

I'm thinking the priority at the moment is to have a rainy day fund in place for the next couple of years, and thereafter to look at things again. In the meantime we are putting away a reasonable amount into our pensions so it's not a total head in the sand approach, but once we are a bit more settled after the upcoming life changes then we can probably review it again.

The next couple of years will see massive changes in your life, your priorities and the demands on your cash. It wouldn't be at all 'head in sand' to decide to build a substantial cash cushion now (for 'rainy day' think 'Noah's Ark'!) and scale down long-term savings such as pensions, then as you say, review in a couple of years when the initial fog of parenthood starts to clear.

kidmugsy · 27 May 2018 at 1:05PM

Your husband will presumably continue with his CARE pension and will presumably not contribute to AVCs. Whether you should be contributing much to your pension depends on (i) are you contributing (indirectly) by salary sacrifice (aka "salary exchange" or "smart pension")? and (ii) does contribution by you gain you further employer contribution? (I'm not clear whether you meant that your pay rises were salary-sacrificed into the pension.)

Otherwise I think the drift of the suggestions above is pretty wise: save cash with a view to (i) an emergency fund, and (ii) eventually reducing the LTV on your next mortgage. For where to save the cash see many threads on the Savings forum.

Also, for inspiration on how to save see the blog on which this was posted:
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

enthusiasticsaver · 27 May 2018 at 9:51PM

Pension planning is a movable exercise. You don't need to have it all planned out in your mid 30s. Just set some goals in place and work out how to achieve them over the next 10 to 15 years for example.

We retired at 58(original plan was 60 but we achieved our goals a few years early). This is what we did from our mid twenties. We had two young children so we knew that might affect things.

Paying into a pension is the most tax efficient way of saving long term. My DH paid into a booster pension. 9-10% salary from aged 28. My pension is not as good due to career breaks for children but when we were in a position to I bought extra years and paid in AVCs. We did this as young as possible knowing the sooner you start building up pensions the better the end result. It also got us used to doing without that income from quite young as there is always something else you could spend that money on.

I monitored our projected pension income annually from statements and online projections and at the same time aimed to eliminate or reduce our outgoings to as low a level as possible while also trying to have a life. This meant no debt unless at 0% except for mortgage which we overpaid whenever possible. We tried to pay off mortgage by the time our first child went to University.

We saved an emergency fund and aimed to use savings for holidays, home improvements and cars rather than take on debt. An old fashioned approach but it worked for us.

Once the mortgage was repaid and our children financially independent we invested in stocks and shares as a separate pot to our pensions (some DB and some DC). When we were able to save 50% of our income we then decided we were able to retire.

enthusiasticsaver · 27 May 2018 at 10:04PM

Scot4Moneysaving wrote: »

Thanks for the above posters, it's been useful to sit down and go through these questions.

Replying to just me,

1. Just over 4.5k per month, 2217 me, 2350 husband.
2. Bills come to 2,400 with other 'normal' spending being another 800, this includes all of our socialising, overpaying the mortgage by £200 per month, birthdays, Christmas, lottery at work etc. we then save £800 per month, and there's about £500 left that always seems to manage to be spent on various things - for example this month it's gone towards accommodation for a wedding we are going to later in the year and the wedding present for the couple. Other months it's saved towards holidaying. The 2,400 also includes 500 towards a home improvement loan and the car we bought last year. Both of these loans will be paid off prior to our next remortgage period in about 3 1/2 years.
3, It's likely to be at the start of next year.
4. Looking at costs then, as i said my husband will likely take off 6-9 months, adoption leave from his work is 6 weeks at 90% and then statutory and looking at the costs for that period, we can get by with my salary + the statutory leave pay. Savings will probably kick in when wanting to do something over and above the norm. When my husband goes back to work, we've costed childcare locally and it sits well within what we will be earning then.

Even just thinking that through has helped me to see that this 'spare' cash that we have just now won't always be there and that's fine, but it means any plans for it will probably need to be short term so should probably just be saving it into an account at the moment.

Then in a year or two when things settle down and we get back to a more standard pattern of spending, then review again what we're doing.

Our mortgage is around £150k on a £190 house, we've got a longer term than we are hoping to need, currently I think it's at 29 years so we're overpaying by £200 per month. We're fixed for another 3.5 years at 2.49%.

Also take your point Brynsam about priorities. I'm thinking the priority at the moment is to have a rainy day fund in place for the next couple of years, and thereafter to look at things again. In the meantime we are putting away a reasonable amount into our pensions so it's not a total head in the sand approach, but once we are a bit more settled after the upcoming life changes then we can probably review it again. Hadn't really thought through our whole priorities changing, if for example we wanted to start putting money away to pay for university/wedding etc. etc. Too early to think of any of that but the time will soon be upon us.

Thanks again for the comments.

So you already seem to have made a good start. Saving around 20% of your income is good but obviously that will change when you have children. I would set your priorities for the next 5 years which will be expensive re childcare costs, reduced income for your husband. Set up sustainable overpayments to your mortgage and pension and save with a view of having a lump sum for replacing cars, home improvements, bigger house maybe.

Personally we didn't do expensive holidays when our children were young figuring it was easier to do UK holidays until they were a bit older and less of a pain to take abroad. Saving for university, weddings etc can come later.

atush · 28 May 2018 at 4:50PM

I'm confused between the following options of overpaying mortgage, saving more into savings (don't have a sizeable emergency fund), enjoying a holiday before we adopt, saving for when we adopt, paying more into both of our pension, or S&S ISA, LISA, or something else!? I also think people go into all of these situations knowing lots less about finances than I do, so in some ways i want to chill out about it (doesn't seem that's happening though).

First prority is that emergency fund. Gotta have one.

then if not too late consider a holiday and more savings into S&Sisas. Keep putting increases in salry into your pension. But if the OH is taking time off from work you may need to save more to cover this is your income is not enough.

For the OH, consider a PP or sipp to help him retire before scheme age.

Are we on track?

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