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    • Mistermeaner
    • By Mistermeaner 6th Jun 19, 9:08 AM
    • 2,680Posts
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    Mistermeaner
    The plan and the numbers - please critique
    • #1
    • 6th Jun 19, 9:08 AM
    The plan and the numbers - please critique 6th Jun 19 at 9:08 AM
    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
    Last edited by Mistermeaner; 06-06-2019 at 9:11 AM.
    Left is never right but I always am.
Page 2
    • jimi_man
    • By jimi_man 7th Jun 19, 6:52 AM
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    jimi_man
    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.
    Originally posted by crv1963

    I also have this issue. However I am a 40% tax payer and she is a 20% tax payer. In retirement (before her pensions come into force - about 7 years) I will be a 20% tax payer and she won't be a tax payer at all. If I pay into my pension I am saving 25% tax (40% saving on the way in and 15% on the way out) whereas she is only saving 20% (20% on the way in and 0% on the way out) therefore it surely makes more sense to max mine out first?
    • Anonymous101
    • By Anonymous101 7th Jun 19, 7:04 AM
    • 1,413 Posts
    • 1,137 Thanks
    Anonymous101
    I also have this issue. However I am a 40% tax payer and she is a 20% tax payer. In retirement (before her pensions come into force - about 7 years) I will be a 20% tax payer and she won't be a tax payer at all. If I pay into my pension I am saving 25% tax (40% saving on the way in and 15% on the way out) whereas she is only saving 20% (20% on the way in and 0% on the way out) therefore it surely makes more sense to max mine out first?
    Originally posted by jimi_man


    Yes absolutely. I'm in the same position as you. This year will be the first year I will save the full £40k (almost) into my pension. I've been trying to assess whether its worth then contributing into Mrs. Anon's pension. She's currently in an LGPS scheme with work but we have been considering opening a SIPP for her too.


    At the moment I'm siding towards not doing this due to our ages. We're looking to step back from full time work a number of years before she reaches 55 so at the moment any surplus is going into S&S ISA's. I'd like to keep the cash assessable for the time being and there's always the opportunity to backfill the pension as we approach 55.


    I think a lot depends on you age. If you're nearing 55 that's not so much of a risk but in the longer term legislation can change so retaining some flexibility is a good idea.
    • crv1963
    • By crv1963 7th Jun 19, 8:19 AM
    • 993 Posts
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    crv1963
    I also have this issue. However I am a 40% tax payer and she is a 20% tax payer. In retirement (before her pensions come into force - about 7 years) I will be a 20% tax payer and she won't be a tax payer at all. If I pay into my pension I am saving 25% tax (40% saving on the way in and 15% on the way out) whereas she is only saving 20% (20% on the way in and 0% on the way out) therefore it surely makes more sense to max mine out first?
    Originally posted by jimi_man
    Yes I agree with your view.

    Everyone has their own circumstances, our particular situation is that Mrs CRV pension pots are far lower than mine and we started looking at this relatively late in our working lives. For us in our 50s saving into Mrs CRV pension makes sense.

    I was pointing out to OP that if he can afford 60k using carry forward into his pension this year it makes sense in his situation to put the maximum possible into his partners pension and LISA next year, his partner could then draw this tax free on retiring.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • atush
    • By atush 7th Jun 19, 9:28 AM
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    atush
    Re the missus she’s quitting work at the end of mat leave and in the model I’ve assumed she’s not going to work or earn again to be prudent - odds are she will end up doing some form of paid work , particularly when the youngest goes to school (she’s pretty senior in what she does earning 50k+ at moment)
    What is her current pension like? I'd top it up before she quits.
    • jimi_man
    • By jimi_man 7th Jun 19, 9:57 AM
    • 175 Posts
    • 204 Thanks
    jimi_man
    Yes I agree with your view.

    Everyone has their own circumstances, our particular situation is that Mrs CRV pension pots are far lower than mine and we started looking at this relatively late in our working lives. For us in our 50s saving into Mrs CRV pension makes sense.

    I was pointing out to OP that if he can afford 60k using carry forward into his pension this year it makes sense in his situation to put the maximum possible into his partners pension and LISA next year, his partner could then draw this tax free on retiring.
    Originally posted by crv1963
    Apologies, I wasn't criticising at all, I understand your point fully. I guess I was more looking for agreement that I was doing the right thing. Should have started a new thread really, sorry!
    • crv1963
    • By crv1963 7th Jun 19, 10:01 AM
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    crv1963
    Apologies, I wasn't criticising at all, I understand your point fully. I guess I was more looking for agreement that I was doing the right thing. Should have started a new thread really, sorry!
    Originally posted by jimi_man
    No need for apologies, I didn't see it as a criticism. Yes I would do the same as you, in your shoes.

    Good luck with it all.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • Marine_life
    • By Marine_life 7th Jun 19, 5:56 PM
    • 1,011 Posts
    • 2,002 Thanks
    Marine_life
    Working full time earning pre-tax 100K+
    My take home, after pension etc. and ignoring bonuses is ~£3K per month.
    Originally posted by Mistermeaner
    How does that work then? The take-home looks very low.
    Is your bonus is c. £50k?
    Money won't buy you happiness....but I have never been in a situation where more money made things worse!
    • Norwooder
    • By Norwooder 8th Jun 19, 4:40 PM
    • 25 Posts
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    Norwooder
    How does that work then? The take-home looks very low.
    Is your bonus is c. £50k?
    Originally posted by Marine_life
    Expect it is the pension conts
    • Norwooder
    • By Norwooder 8th Jun 19, 6:10 PM
    • 25 Posts
    • 6 Thanks
    Norwooder
    If in reality you expect to pay more into your pension (for example do you think you will pay more than £20k in 2020/21) you should stress text the projected nominal value of your pension against the following, to ensure you are not going to breach the lifetime allowance:

    - additional contributions (in excess of £20k from 2020/21)
    - higher investment return
    - lower levels of inflation resulting in less of an increase to the lifetime allowance

    As someone else rightly pointed out you should make full use of your annual allowance if you believe there is a risk you will be subject to the tapering. For example you may want to consider making use of any remaining carry forward you have that will be lost next year (i.e. 2016/17).
    • cfw1994
    • By cfw1994 9th Jun 19, 12:36 PM
    • 407 Posts
    • 354 Thanks
    cfw1994
    It’s frightening how many people don’t have a plan

    Or worse still a stupid plan

    A wise man one told me to save half of everything you earn

    This absolutely is possible, almost regardless of what you earn, providing you cut your cloth accordingly
    Originally posted by Mistermeaner
    I do agree that it makes sense to have a plan.....

    But I disagree with the ability to save half your earnings!
    Saving half my from an early age....would have led to a pretty dull past 20-30 years, I have to say!
    Absolutely no way I could have done that & bought the houses, vehicles (not flashy ones, but some quite nice!), raised the kids, enjoyed nice holidays, etc etc.

    Herein lies the problem we all face.

    Yes, one can scrimp & save & not "do" expensive things (some of which might be quite fun!), in the hope of a relaxed retirement....but I am a firm believer in balance (perhaps due to being a Libra!) - live a little, save a little, it'll all be fine!

    (added to which I went to 4 funerals in 2018 - so I don't want to be the richest person in the graveyard, but one of the ones with an interesting write-up on the headstone!!)
    • DT2001
    • By DT2001 9th Jun 19, 11:08 PM
    • 138 Posts
    • 136 Thanks
    DT2001
    I do agree that it makes sense to have a plan.....

    But I disagree with the ability to save half your earnings!
    Saving half my from an early age....would have led to a pretty dull past 20-30 years, I have to say!
    Absolutely no way I could have done that & bought the houses, vehicles (not flashy ones, but some quite nice!), raised the kids, enjoyed nice holidays, etc etc.

    Herein lies the problem we all face.



    Yes, one can scrimp & save & not "do" expensive things (some of which might be quite fun!), in the hope of a relaxed retirement....but I am a firm believer in balance (perhaps due to being a Libra!) - live a little, save a little, it'll all be fine!

    (added to which I went to 4 funerals in 2018 - so I don't want to be the richest person in the graveyard, but one of the ones with an interesting write-up on the headstone!!)
    Originally posted by cfw1994
    Although not being a Libra, I feel that I agree and disagree with you! Both my OH and I saved 50%+ before children but rarely after (we have 4) although we used some of those savings to buy a bigger house.
    We were lucky to have the savings bug young which has enabled us to be mortgage free so are able to do as you suggest, enjoy live and save.
    Balance is as you say key.

    OP, odds are you’ll reach your ‘number’ sooner than 57. So flexible planning is the key. If you can retire earlier will you? Make different assumptions about levels of saving/spending and see how it affects your ‘pots’.

    We are both self employed, our income flow can vary quite significantly, so are not sticking to rigid savings targets. Having a plan allows us to know where we are but does not stop us from taking excellent value for money holidays that also, IMO, give our children a better ‘view’ of the real world.

    I will reiterate, balance as cfw1994 says is key and reading this pensions forum helps with the diverse opinions.
    • Mistermeaner
    • By Mistermeaner 10th Jun 19, 9:42 AM
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    Mistermeaner
    How does that work then? The take-home looks very low.
    Is your bonus is c. £50k?
    Originally posted by Marine_life
    basic is 80K

    Bonuses typically 20-50K

    only basic is pensionable

    I'm salary sacrificing 67% this tax year (to which the company adds 11%) so crica 65K going into pension this year

    I will have used up all my annual allowances and carry forward at the end of this year
    Left is never right but I always am.
    • Mistermeaner
    • By Mistermeaner 10th Jun 19, 9:46 AM
    • 2,680 Posts
    • 3,189 Thanks
    Mistermeaner
    If in reality you expect to pay more into your pension (for example do you think you will pay more than £20k in 2020/21) you should stress text the projected nominal value of your pension against the following, to ensure you are not going to breach the lifetime allowance:

    - additional contributions (in excess of £20k from 2020/21)
    - higher investment return
    - lower levels of inflation resulting in less of an increase to the lifetime allowance

    As someone else rightly pointed out you should make full use of your annual allowance if you believe there is a risk you will be subject to the tapering. For example you may want to consider making use of any remaining carry forward you have that will be lost next year (i.e. 2016/17).
    Originally posted by Norwooder
    good advice thanks - I have used up all my carry forward etc

    I will stress test furture payments for life time allowance impact - could be wrong but it's such an "unfair" and difficult to manage punitive tax I can't see it sticking around by the time it becomes relevant to me (and lots of others like me)

    Or another way of thinking about it is that I will pay in carefully to avoid hitting it, but if investments perform really well and take me over then while annoying to lose money in tax I can at least be happy with the pot I will have available

    In the plan I've budgetted to pay into my pension upto the age of 50; thereafter will likely prioritise my partners pension as others have suggested... I need to think about tax efficinecy on the way out as well as the way in
    Left is never right but I always am.
    • lassfarfromhome
    • By lassfarfromhome 12th Jun 19, 7:17 PM
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    lassfarfromhome
    I was going to ask exactly the questions Imelda asked above- are you married, do you have wills?

    It seems you are not married. Are you and your partner clear on exactly what that means for you both if one or even both of you should die?

    What would happen to your investments (Pension and otherwise) if you died tomorrow (these things happen)? Would they go to you partner? If not, who would they go to?

    Definitely worth getting professional advice on this if you haven't already.
    • atush
    • By atush 12th Jun 19, 8:53 PM
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    atush
    Or just get married.
    • Parking Trouble
    • By Parking Trouble 13th Jun 19, 3:26 PM
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    Parking Trouble
    Did I misread it or does the OP still with a couple pf teenage kids expect to live on a drawdown of £18k pa?
    Mr Straw described whiplash as "not so much an injury, more a profitable invention of the human imagination—undiagnosable except by third-rate doctors in the pay of the claims management companies or personal injury lawyers"

    • Mistermeaner
    • By Mistermeaner 13th Jun 19, 6:06 PM
    • 2,680 Posts
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    Mistermeaner
    Or just get married.
    Originally posted by atush
    I thought we were trying to save money ?
    Left is never right but I always am.
    • Mistermeaner
    • By Mistermeaner 13th Jun 19, 6:08 PM
    • 2,680 Posts
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    Mistermeaner
    Did I misread it or does the OP still with a couple pf teenage kids expect to live on a drawdown of £18k pa?
    Originally posted by Parking Trouble
    I don’t think so but please advise if I missed something!

    When I’m 57 youngest will be 18

    According to the plan I’ll be mortgage free and have a few decent pots

    No firm plan to retire exactly then
    Left is never right but I always am.
    • atush
    • By atush 13th Jun 19, 6:11 PM
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    atush
    I thought we were trying to save money ?
    Originally posted by Mistermeaner

    Make a booze run to france and have a hog roast. Doesnt have to be expensive.

    Honestly, if youve been together long enough to have teenagers you should go ahead Lots of tax and inheritance issues solved immediately.

    Immediately she can transfer some of her unused PA to you, should pay for the above wedding in just a few years.
  • jamesd
    I assume it is perfectly legal for me to go into draw down and cycle my (hopefully) tax free draw down amounts into her pension?
    Originally posted by Mistermeaner
    Totally legal provided you receive the money in one account and she makes the contributions from another. Though in your case this doesn't matter as you'll be within the lump sum recycling limits because the contributions will (should) have been 3600 gross for many years and the amount of increase won't exceed 30% of the lump sum anyway.

    But it's wasteful to give that money to her. I've been getting income tax and NI relief on my eventual mortgage capital repayments. So can you by using your and/or her pension tax free lump sum for mortgage capital paying. But you're turning down this free gain by overpaying on the mortgage instead.

    You can only get a 25% tax free lump sum on up to the pension lifetime allowance, so around £250k at the moment for you possible plus more from hers. You will be at risk of exceeding the LTA.

    In addition she has an income tax personal allowance of £12k a year so can get that out tax free. As can you. So pension money is first choice for mortgage capital paying, not overpaying now. Later can come after tax gain LISA money.

    You've also assumed 2% plus inflation investment growth. The real (after inflation) value of the mortgage capital doesn't go up, it goes down, and you're paying just 1.75% interest. Even without pension tax relief that favours investing over overpaying.

    I hadn't really considered tax efficiency on drawdown - well worth considering how to maximise this
    Originally posted by Mistermeaner
    It's important because it can radically favour pension then LISA contributions.

    I'm salary sacrificing 67% this tax year (to which the company adds 11%) so crica 65K going into pension this year
    Originally posted by Mistermeaner
    If you can change sacrifice level during the year, get the sacrifice done in as few months as possible to maximise the NI benefit. NI is calculated for each individual pay period, unlike income tax. So by concentrating the sacrifice you maximise the 12% employee NI saving and reduce the 2%. Will matter more in later years than this one where carry-forward is already making each month high.

    Another tool you're missing is VCTs. These get 30% income tax relief capped at income tax due in the year of purchase. Has to be repaid if you sell within five years. So you can potentially get that 30% plus or minus investment performance three times on the same money between now and 57. Why not try to do enough buying each year to eliminate your income tax bill, in exchange for deferring 70% for five years?

    Children's SIPP contributions can be interesting but switching that money to other things so you can help them later with after tax relief money on your own investments looks like a better move, particularly as they can benefit most from capital for property deposits.
    Last edited by jamesd; 14-06-2019 at 3:20 PM.
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