The plan and the numbers - please critique

Mistermeaner · 6 June 2019 at 10:08AM

Hi All

Appreciate if the knowledgeable and experienced members of this forum could please check some of my calcs and assumptions stated below – this is ‘my numbers’ in planning for retirement.

I’ve built a spreadsheet with all this stuff in and want to test if assumptions and calculations plus the plan in general passes the sniff test.

Status:

I am 40, male, good health etc. Working full time earning pre-tax 100K+

My partner is 35, female, going to be stay at home mum (just finishing mat leave) so earnings ZERO (in the plan, she will likely go back to work at some point)

Kids X 4; ages 12, 10, 2 and 1 (we pay into Sipps for all these guys)

My take home, after pension etc. and ignoring bonuses is ~£3K per month, after bills and everything comes off we are more than comfortable on monthly outgoings + have £20K cash buffer

Assumptions:

I will work until im 57 and then retire (2036)
My partner will not return to work
Pension pot earns growth of 2% per annum, as do our LISA investments

The pots:

My pension currently has £250K in it
I will pay £60K into this tax year (using carry forward from prior years)
Thereafter I have assumed I will pay £20K per year into (prudent), until I am 50 (again being prudent)
No further payments from 50 to 57
When I am 57 in 2036 the pension pot will be worth circa £679K

My partner has a pension with circa £25K in it
We have assumed no further payments into this
When she turns 57 in 2041 this will be worth circa £38K

My LISA has £4K in it
I assume payments of £3600/annum (inc bonus) into this until the age of 50
At access time, when I am 60 in 2039 pot will be worth circa £53K

My partners LISA has £2K in it
We assume payments of £1500/annum (inc bonus) into this until age of 50
At access time, when she is 60 in 2044 pot will be worth circa £35K

Mortgage is currently £250K on 1.7% 5 year fix
We actively overpay currently at £1200/month
I have assumed we continue paying at £1200/month and interest rate is 2%
At time I turn 57 in 2036 the remaining balance will be circa £53K

In high level summary to achieve the above savings levels we need to put aside ~£21K per year (pre-bonus / tax relief etc.) for the next 10 years (at my current earnings we are doing triple this, but wanted to be ultra prudent to allow for change of job or unexpected spending increases)
We need to sustain mortgage payments of £14400 per year for the next 17 years

If we achieve the above the following pots (and mortgage liability) become available:

Year My age Partner age Amount

2036 57 52 My Pension £679K

2036 57 52 Mortgage balance -£53K

2039 60 55 My LISA £53K

2041 62 57 Partner pension £38K

2044 65 60 Partner LISA £35K

TOTAL POT £750K

2046 67 62 I should get full state pension

2051 72 67 Partner should get full state pension

On the basis of the above I feel like we will be reasonably comfortable, in that when I retire at age 57 the youngest child will be 18, we will be mortgage free and have a pot of £600K+ after paying off mortgage balance (assume £18K/annum on basis of 3% draw down)

At various points in the following years we will get another £100K+ in lump sums from the various LISA’s prior to then (hopefully!) full state pensions kicking in for both of us (based on forecasts)

Savings plan feels ultra prudent as assumes partner earns nothing and I only put £20K in my pension per year until I am 50 – this prudency I think covers items such as unplanned redundancy or diverting money from pension/savings to help the kids with e.g. uni, housing, cars etc.

Assuming I am still able to work at a decent level until I am 57 (and who knows beyond) and my partner inevitably returns to work when kids are bit older the savings amount can only increase

All thoughts and comments welcome

Mistermeaner · 6 June 2019 at 10:26AM

Oh; and in case anyone raises inflation

Rightly or wrongly I took the view to ignore inflation in the calcs on the basis it’s a zero sum game

If one were to include inflation in calcs then clearly 600K in 17 years is worth less than 600K today, however wages and therefore savings and also pot growth are all likely to increase inline with inflation and therefore the pots would all grow on a par with any increases in cost of living.

I therefore ignored inflation on basis that my pot in 17 years would be worth the equivalent of 600K in today money (or in other words have the purchasing power of 600K today)

MallyGirl · 6 June 2019 at 10:38AM

I think you are missing a trick by not paying £3600 gross into a pension for OH. She will get 20% tax relief (even though not paying tax) and it means that when you come to take pension income she is likely to get it all out tax free

Albermarle · 6 June 2019 at 11:05AM

On the basis of the above I feel like we will be reasonably comfortable,

Most likely more 'comfortable' than 98% of the UK and 99.9% than the world's population .
In this case your very detailed financial plan is probably not that necessary as even if it is +/- 25% , it will make very little substantial difference to your standard of living in relative terms to most other people.
Also lots of things can change over such a long period : health ; family issues; job change; legislation changes etc ( I wouldn't bet on your SP age remaining at 67 for example )
One of the pleasures of having high income/good assets is to not have to worry about or think about money too much rather than the opposite.

ex-pat_scot · 6 June 2019 at 11:10AM

Big picture:

- on £100K+ you are in the arena where you should have sufficient disposable income and flexibility for a number of things
- i would prioritise pension saving (42% / 62% relief) over mortgage overpayments in the current low rate regime
- I would start with the assumption of the full £40,000 pa pension contribution (subject to taper rules if you start to hit £150.000+ income). Indeed if your salary is on an upward trajectory then your ability in the future to put more than £10,000 pa might be restricted; in which case I would aim for the full £40,000 at the moment.
- if £40,000 annual pension contribution might feel a little risky with respect to job security etc, you can backload the payment eg pay £1500 - £2000 per month into pension then in March (depending on your outlook) pay a lump of £15,000 or whatever to get the full £40,000 pa contribution.
- be very wary of escalating child costs as they grow. We are in a very similar situation, albeit 10 years further along the path. School fees, university, music / sports costs can add up hugely (but don't have to). Whilst we are delighted to have such talented, focused, musical and theatrical children, our bank manager is a little bemused at times... We have the funds, but 4 children can very quickly absorb even a large income.
- insurance. THere's a huge amount riding on your shoulders as a single high earner. Make sure you have sufficient life cover and critical illness, as well as a plan for unemployment.
- Plan B. And C. A lot can / will change between now and 2036. Health, family, interests, work, pension rules, tax rates, cash requirements, job prospects. Think about how you would react to any of those challenges, and how flexible your plans are to accommodate.
- non pension saving. (this is a case of "do as I say, not as I do"). Be alert to the possibility that access to your pension could be restricted in the future. I'm worried about that, being 5 years out from my earliest access point! Having significant ISA savings or other "plan B" realisable assets would allow you the flexibility to retire at a point of your choosing, rather than being tied to the earliest pension pot access rules.

Frankly, you are in a marvellous position. Married with 4 young children. All fit and healthy I presume, and growing up in a high-income forward-planning financially stable loving home.
I know it's also hard work!

Best of luck

BoGoF · 6 June 2019 at 11:31AM

At 40 your state pension is 68 is it not?

And likely to increase.

Not that it will affect your plans greatly.

crv1963 · 6 June 2019 at 1:14PM

I don't disagree with any of the above comments but definitely agree with MallyGirl, 2880 pa into partner pension and possibly increase LISA savings for her?

As my children got older the present packaging got smaller and smaller but the expense didn't reduce. Now they are in their early 20s they speak with greater affection of the time spent doing things together than the things that they were given- days out to the beach, places we took them to and the best one has to be the times we took them to the beach and played football/ rounders, so remember to do the free stuff too!

Mistermeaner · 6 June 2019 at 2:34PM

Thanks all for input

Couple of people mentioned the pension for the partner; what is the advantage of this vs e.g. paying into her LISA? (is it just that itenables additional contributions above her LISA limit?)

Ref the comments on increasing her LISA contributions; if we have extra disposable this will certainly be considered but thinking was as I am older we get my pots sooner (both my pension and my LISA), and also we get more tax benefits in my pension (High earner) + salary sacrifice benefits (nat ins.).... for this reason we would always prioritise contributions into my pots rather than hers

NB: They are my pots only by name.... it's all OURS

PS: I am working on the assumption that should I die at any point it can all be inherited by her in full (assuming we're married which is a discussion for another day )

Linton · 6 June 2019 at 2:52PM

Mistermeaner wrote: »

........
Ref the comments on increasing her LISA contributions; if we have extra disposable this will certainly be considered but thinking was as I am older we get my pots sooner (both my pension and my LISA), and also we get more tax benefits in my pension (High earner) + salary sacrifice benefits (nat ins.).... for this reason we would always prioritise contributions into my pots rather than hers

On the other hand it would make sense to ensure that your wife's tax allowance is fully utilised during retirement. With your income surely you can do both.

NoMore · 6 June 2019 at 2:54PM

I think they mean in addition to, not replacing the LISA, so if you've maxed out your own pension and LISA's and still have money to spare stick it in a pension for your wife max £3600 per year (£2880 contribution by you, then tax claimed back by pension)

crv1963 · 6 June 2019 at 6:02PM

NoMore wrote: »

I think they mean in addition to, not replacing the LISA, so if you've maxed out your own pension and LISA's and still have money to spare stick it in a pension for your wife max £3600 per year (£2880 contribution by you, then tax claimed back by pension)

This is certainly my thoughts. Having maxed out your own contributions including your carry forward once you have saved as much as you can you need to pour money into your partners retirement provision.

This way as Linton suggests in #9 to try to reduce joint tax bill on retirement.

An example of this is we as a couple are prioritising Mrs CRV contributions to a SIPP. This is because although I have tax allowance available to save into a SIPP for myself I will already by virtue of my existing pension provision be a tax payer in retirement. By saving into a SIPP for my wife she will in retirement not be a taxpayer so it saves us tax in the future by saving in her pot now.

If you can manage to put 60k into your pot this year using carry forward then you should even as a HR taxpayer be able to find the cash next year to top her LISA and 2880 into a SIPP for her. Then she will have 7200 pa savings all invested for retirement.

If/ when she returns to employment then if you do not actually need her income save it all 80% less any employers pension into a SIPP and the rest into another wrapper?

Different pots available at different times is good as it gives you greater choice, and if one part disappoints then you still have options rather than everything in one basket.

The plan and the numbers - please critique

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