Midlife Crisis Pension/Investment Worries..long post warning

[Burnham]

(I was going to reply to an existing thread about bothering with pension planning, but I don't want to derail the argument going on in there)

I worry about my long term financial future, firstly because I didn't start thinking about it until what I consider was too late, and secondly because Im having midlife crisis.

The dream is that my wife and I will have a combined early-retirement income of around £30k PA...but Ive no idea how to achieve that, or when it might be possible. But that would certainly be enough for us to live on, and the sooner the better of course.

For those more in the know than me I'd like to share the numbers, if only to see if Im headed in the right direction. FYI, Im not taking any potential state pension into account here, but Ive contributed a lot to the system since I was 17 so I may get something out of it...but whenever that may be I don't want to wait for it.

• We're planning to downsize this year to a house worth circa £400k which would leave us mortgage free, and release around £70k in cash whilst saving us £1k a month mortgage payment. This will give us all the house we need for the foreseeable future, along with the ability to downsize again (think £200k for a 3-bed semi round here...its cheap). So, we can benefit from any potential(!) capital growth on the £400k property in the meantime, whilst being able to release a further 50% of its value when we need to, and still have a free roof over our heads.

• I started a private pension years ago, with the idea that it may get me a year travelling, or a nice weekend car further down the line...it was never to provide for a future (I still pay £50 a month into it...no laughing at the back please!). Its only worth about £32k with a 'retirement age' of 2031 when I'll be 55yrs old.

• I have a workplace pension worth £45k that I started more recently, and currently pay £600 a month into (I'll add a further £1000 a month to this when we downsize as I will put what was the mortgage payment into this too). The 'retirement age' for this one is 2042 when I'll be 66yrs old.

• Ive £171k in an ISA fund gaining circa 5% PA (12% last year, but thats not to be expected of course). The plan is to add the spare £70k from the house sale into this pot when our current place is sold.

• Ive the ability currently to save around £20k a year over my existing/increased pension contributions. Up to now, Ive been using these annual savings to overpay the mortgage...but once we downsize I guess it makes sense to benefit from the tax savings of getting it into my workplace pension (along with the £1600 I'll already be contributing). Maybe I should have done this before now instead of overpaying the mortgage...

BUT HERES THE KICKER....I don't want to be doing my job in 4 years from now (thats the midlife crisis bit). Ive done it for 23 years and can't bear the thought of doing beyond 2022, Ive just not got it in me. In all likelihood I'll try to get a job at B&Q that just pays the bills, so all of the savings and pension contributions will have to stop then. So Ive got 4 years in which I'll aim to get another circa £150k into my workplace pension (or half into that, and half in the ISA Fund?).

Am I doing this right? Is my plan flawed? I don't have a planned death date. I have no BTL's or Puggy Machines. When can I sensibly start taking £20k PA out of the ISA fund and consider stopping the B&Q job Ive not even started yet?

(Ive kept my wife out of these figures though she earns about £10k a year, no real pension, but will likely continue to work longer than me).

Thanks for getting this far down the page

[Burnham]

Thanks Testaburger, sounds like you thought about doing this long before I did. Its nice to talk about these things on a level plane. I don’t have anyone I can really discuss this with, and I don’t really trust accountants or financial advisors…but amazingly I’ll take snippets of advice from people I’ve never met on a web forum!

oyster said:

Good financial planning you might need, but financial worries you don't.

That's the thing though oyster, I'm practically the sole bread winner and I’ve made some poor financial decisions in the past and I don't want to again...so I do worry! I certainly don't expect any violins to come out, but I don’t want to waste any opportunity as my ability to save will be diminished soon. I'm not going to get any inheritance or golden handshake so I need to be clear on where I am in my head I guess. You were not being harsh btw. Ive been lucky and worked hard, but whereas most peoples earnings tend to rise, I can see mine diminishing in the future.

Roman Rhodes said:

For the OP, and it's really only minor in the scheme of things and you may already know this: regarding the ISA, you say about putting the £70k house proceeds into it- that will take over 3 years as the current maximum is £20k per year. You also suggest saving another £75k over the next 4 years into the ISA (splitting £150k between pension and ISA). You can't save a total of £145k into an ISA over the next 4 years.
Apologies if I've misunderstood!

You didn't misunderstand, I just didn't explain very well! My wife and I have a joint ISA feeder currently, with £40k in ISA’s each and £91k in the feeder pot. In April the pot will drop to £51k as we use the years allowance (as xeny suggested below). So the £70k from the house proceeds will go to topping up the pot. Any additional monthly savings I squirrel away can either go in the pot too, or it may be more sensible to get it straight into my workplace pension before Im taxed.

xeny said:

Between a couple, you can ISA wrap 40K/year.
Do the pension/vs ISA arithmetic based on the ISA being a bridge to the pension, simply to get as much benefit from pension tax relief as possible. I'd guess based on your age you'll be able to get at a money in a pension from 57.

Thanks xeny, the ISA being somewhat of a bridge before the pension is the plan, hopefully it will last. The dream would be for us to be able to live off the ISA pot if we were to take 5% a year (or 4% as RL17 suggests below, to be on the safe side), but that all depends on how much it goes up. Realistically I don’t think we’ll have enough. Would I be able to get at both pensions at 57 (even the one I only started more recently?)

RL17 said:

Re OP
Workplace pension tied up to 66 - better to have something that allows funds/income to be accessed earlier as when workplace pension kicks in you'll also be getting 2 state pensions.

Do some calcs as to when you can take 4% income out of ISA value and hit targets - if want more certainty then a switch into a range of income paying assets when you want to draw money from ISA (can still take income or most of it even if market swings down). (3.5% to 4% from investments trusts/funds etc or 5% from a range of income stocks, REITs etc achievable). Taking income out rather than capital - although if you more than happy with growth funds and their prospects stay with them or a mixture.
Also factor in inflation into you retirement income need - at say 2.5% its £34k in 5 years, at 3% £35k.

Will I not be able to access the workplace pension before 66? This is where I’m confused…im 41 now and that seems a long way off still! This is why I think I need to split any future savings across the investments as well as pension. I’d not factored in inflation…this is why I need help!

DSLiverpool said:

Spend your money whilst your young enough to enjoy it - whats the point being able to buy a DB11 when your 70 and cant get out of it!! My dad, bro and uncle never saw 60 so my pension is getting pillaged at 55 (this year)

Sorry to hear that DS…but you may buck the family trend (so remember to keep some of that pension back just in case)! I totally see your point of view in your situation. I don’t want a DB11 when Im 70, I just want to be able to put food on the table and have a few trips abroad.

EddieSteadyGo said:

You have shared a lot of financial detail but the one which is most important is the fact you don't feel able to work at your current level at this point in time.
If you are in your early 40's, and you feel this way, I would suggest finding a counsellor who you can share your thoughts with and who can help you find a good way forward. You may also need help from your doctor.

I honestly don't think the answer is to be found in discussing savings, ISAs, pensions etc.

Having said that, there is point of detail. You sound as though you have sufficient 'rainy day' money available to you. Therefore my suggestion would be to maximise your pension contributions to gain maximum tax relief rather than using taxed income in which to invest in ISAs. This way you gain the compound growth of the tax relief as well in your total savings.

Thanks Eddie. Ive had concerns about my mental health recently (my wife too). This is one of the reasons why I feel I need to put an end-date on my work in a few years time. This would also have an effect on my physical health too. We’re going off topic, but you are right and its something I need to address. Thanks also for the last line in your reply, that’s my thought too, but it seems a long way off!

BoRED S2upid said:

You done mention kids. They could eat into your pot if Uni needs funding but I’d say leave them to it they can have it when your dead ??

We don’t have kids unfortunately. We’d have liked to, but its not been possible. I’ve a massive hole in my bank account that’s marked IVF, and an empty space on the driveway because of it!

jeff m2 said:

Eggs in more than one basket.
OP Down sizing twice????
Maybe once, don't overdo it, moving is expensive and disruptive

Good points, but having the ability to do it twice does mean we have eggs in more than one basket! I’m not sure we’re ready to go into a smaller home right now, and if we did we’d have cash which is obviously I won’t know what to do with