How does this financial situation look long term…
Discussion
DonkeyApple said:
Putting aside the use of cash in the pension which seems an excessive loss of earnings, I think the big question is how much rent you are paying a month because if that is a large chunk of your net monthly income then there isn't much you can do while maintaining that cost burden which will have to change anyway the day your retire.
obvs that current and future rent is a major component to planning. For example, maybe the OP could bite the bullet now and rent somewhere cheaper (whether size/type of property or area) - and be able to stick another £x into pension planning....
DonkeyApple said:
Household income in the region of £8k/month net.
The big question is just what are you spending it all on to be only putting aside a couple of grand a month to replicate your future income post employment?
Nett income is 7k monthly, we're not extravagant, no loans, both cars paid for. I use a credit card occasionally if I feel like I want some protection, but it gets paid off each month. what's left in the current account every month gets moved to the savings and around this time of year I'll be putting a lump sum into my SIPP. The big question is just what are you spending it all on to be only putting aside a couple of grand a month to replicate your future income post employment?
When we talk about the relationship between current and future income, I don't want to curtail enjoying life to the full by over providing for an uncertain future. Don't we all know people who die within a couple of years of retirement, or even sooner, and we shake our heads and mutter about how unfair it is.
Stakeholder pension is a joke, piss poor performance, shambolic admin. So that's now in the SIPP while I decide what to do - the interest is far better than the provider's performance while that rate lasts, I'm aware that rates are dropping all over.
So while I complelety get the maths of maxing out pension contributions, between a poorly performing stakeholder pension and my own ignorance of financial markets or reliable pension funds, scooping up the relief and leaving it as cash accruing interest seems a fairly sensible course of action for the moment.
Moneyquery said:
So while I complelety get the maths of maxing out pension contributions, between a poorly performing stakeholder pension and my own ignorance of financial markets or reliable pension funds, scooping up the relief and leaving it as cash accruing interest seems a fairly sensible course of action for the moment.
I'd argue it is a poor course of action, as it generates complacency - you can kid yourself you're getting a return, while in fact you are probably losing to inflation and burning through time. The trick with investing is that you need to give it a decent period of time.Spend some time fixing the ignorance - be it employ an IFA for a session, or read some threads here like https://www.pistonheads.com/gassing/topic.asp?h=0&... . There's nothing magic that makes an investment a "pension fund" - most of my pension and general investments are in the same kind of asset.
Secondly - aim to average money into the SIPP over the year - start getting the potential extra return on the rebated tax sooner. If you were further from retirement, losing half a years potential return would be a minor issue. When you are looking at retiring in a few years time, leaving money sitting around is foolish.
Oh, and anecdotes are not data with regard to average age of death.
Moneyquery said:
over providing for an uncertain future.
I don't think that is a serious risk from the information you have given us.Moneyquery said:
When we talk about the relationship between current and future income, I don't want to curtail enjoying life to the full by over providing for an uncertain future. Don't we all know people who die within a couple of years of retirement, or even sooner, and we shake our heads and mutter about how unfair it is.
I think the issue is you are not currently over providing for your future. What you have set away is a not going to yield a high income considering you may well be renting. It’s made worse by your current relatively high income. You are currently going to have a relatively low disposable income. This may be Ok for you, but it’s going to be like slamming into a brick wall given your current income.you also need to look at your SIPP. Over the last year or so most equity based SIPPs would have blown your cash investments into the weeds.
The issue is that you cannot easily set the date for your death however, you can set the style of your life before you die. The downside is that you need to put more away to cover off the risk of not dying early doors.
So you can guess that you might, worse case scenario, live another 20 years. Even worse, your partner may not die on the same day as you and if she persists with living will need money after you are brown bread but let's stick with 20 years or 240 months. If you need £3k/month then you're going to need about £750k. So if you only plan to work for another 3 years you need to be saving about £20k/ month going forward.
All very over simplified but gives a roughy starting point from which to tinker with the various numbers. Starting with leaving the funds as cash, in theory 4% with no capital risk isn't shocking but it's not likely to stay that high so looking to start migrating some of that cash over to equities is probably sensible. Spending less from now and putting more in the pension and claiming back all your higher rate income tax also seems sensible. Extending your retirement point is also a big win as it not only delays the spending of the pension pot but allows for a lot of money to be added to it. Rent is going to be one of your largest endless costs so you probably need to plan how you will reduce that once free of the need to be close to work etc.
Because you have a high household income you don't have the emergency others have but you arguably need to start changing a few things now. And if you achieve your personal goal of dying young and manage to defeat the NHS's amazing ability of preventing that then you at least leave your partner in a good position as well as your children.
So you can guess that you might, worse case scenario, live another 20 years. Even worse, your partner may not die on the same day as you and if she persists with living will need money after you are brown bread but let's stick with 20 years or 240 months. If you need £3k/month then you're going to need about £750k. So if you only plan to work for another 3 years you need to be saving about £20k/ month going forward.
All very over simplified but gives a roughy starting point from which to tinker with the various numbers. Starting with leaving the funds as cash, in theory 4% with no capital risk isn't shocking but it's not likely to stay that high so looking to start migrating some of that cash over to equities is probably sensible. Spending less from now and putting more in the pension and claiming back all your higher rate income tax also seems sensible. Extending your retirement point is also a big win as it not only delays the spending of the pension pot but allows for a lot of money to be added to it. Rent is going to be one of your largest endless costs so you probably need to plan how you will reduce that once free of the need to be close to work etc.
Because you have a high household income you don't have the emergency others have but you arguably need to start changing a few things now. And if you achieve your personal goal of dying young and manage to defeat the NHS's amazing ability of preventing that then you at least leave your partner in a good position as well as your children.
Just coming back to this, thanks again for all the advice.
Life insurance is pretty well covered by death in service benefit at the moment, like someone above said, I'm worth far more dead than alive.
Re budget, still working on it but around 40k per year at today's levels plus state pension would pay the bills and keep us comfortable, bit of travel and leisure provided for. Kids would be well sorted by then, if not, well tough.
I've used the time off to work a few things out. I think a sensible short term course is to halve the ISA (which has gone down to 1 point something while new customers are being offered 4.4 via HL, criminal) before transferring the rest to a better one next week (it's maxed out this year).
Also halve the savings which gives around 40k which should go under the pension allowance for this year, I'm sure there's plaenty of back fill anyway from the previous 2 years. That will bring 10k back from HMRC which might be needed for kid's plans or could go into ISA or SIPP
The transfer of my workplace pension is in progress and the money's left the scheme not turned up in the SIPP yet though. Ongoing contributions will have to go into the workplace pension. I can review that every couple of months I guess.
I think a split between a "safe" pension fund and a couple of trackers via the SIPP might be the next step?
Life insurance is pretty well covered by death in service benefit at the moment, like someone above said, I'm worth far more dead than alive.
Re budget, still working on it but around 40k per year at today's levels plus state pension would pay the bills and keep us comfortable, bit of travel and leisure provided for. Kids would be well sorted by then, if not, well tough.
I've used the time off to work a few things out. I think a sensible short term course is to halve the ISA (which has gone down to 1 point something while new customers are being offered 4.4 via HL, criminal) before transferring the rest to a better one next week (it's maxed out this year).
Also halve the savings which gives around 40k which should go under the pension allowance for this year, I'm sure there's plaenty of back fill anyway from the previous 2 years. That will bring 10k back from HMRC which might be needed for kid's plans or could go into ISA or SIPP
The transfer of my workplace pension is in progress and the money's left the scheme not turned up in the SIPP yet though. Ongoing contributions will have to go into the workplace pension. I can review that every couple of months I guess.
I think a split between a "safe" pension fund and a couple of trackers via the SIPP might be the next step?
I plan to try and max out pension over ISAs. We already save quite diligently and with a family wedding out of the way next year our only big expense would be holidays and maybe replacing one or both cars.
I know that won’t do it on its own so some sensible placing of SIPP money will be crucial I expect.
I know that won’t do it on its own so some sensible placing of SIPP money will be crucial I expect.
Moneyquery said:
I think a split between a "safe" pension fund and a couple of trackers via the SIPP might be the next step?
you may find this useful when deciding on how to allocate money: https://www.youtube.com/watch?v=VNunDJiAdT4Moneyquery said:
I plan to try and max out pension over ISAs. We already save quite diligently and with a family wedding out of the way next year our only big expense would be holidays and maybe replacing one or both cars.
I know that won’t do it on its own so some sensible placing of SIPP money will be crucial I expect.
By my calculations in order to have £650k in the pot by the end of 2027, you need to:I know that won’t do it on its own so some sensible placing of SIPP money will be crucial I expect.
- Add £50k a year
- Achieve 7% returns (compounding) on the whole lot
If you add £40k/year the required returns increase to c9.5% p.a.
At your current contribution levels of £2,600/month (£31k/year) you will need to achieve returns of >11% pa (compounding) to hit £650k by the end of 2027.
Moneyquery said:
Just coming back to this, thanks again for all the advice.
Life insurance is pretty well covered by death in service benefit at the moment, like someone above said, I'm worth far more dead than alive.
Re budget, still working on it but around 40k per year at today's levels plus state pension would pay the bills and keep us comfortable, bit of travel and leisure provided for.
Well that’s not going to happen. Also, you’ve been blowing over £80,000 per year while working, how are you intending to half your outgoings once you actually want to do things instead of going to work?Life insurance is pretty well covered by death in service benefit at the moment, like someone above said, I'm worth far more dead than alive.
Re budget, still working on it but around 40k per year at today's levels plus state pension would pay the bills and keep us comfortable, bit of travel and leisure provided for.
Moneyquery said:
I plan to try and max out pension over ISAs. We already save quite diligently and with a family wedding out of the way next year our only big expense would be holidays and maybe replacing one or both cars.
I know that won’t do it on its own so some sensible placing of SIPP money will be crucial I expect.
How will you be stopping paying rent?I know that won’t do it on its own so some sensible placing of SIPP money will be crucial I expect.
Ken_Code said:
Moneyquery said:
Just coming back to this, thanks again for all the advice.
Life insurance is pretty well covered by death in service benefit at the moment, like someone above said, I'm worth far more dead than alive.
Re budget, still working on it but around 40k per year at today's levels plus state pension would pay the bills and keep us comfortable, bit of travel and leisure provided for.
Well that’s not going to happen. Also, you’ve been blowing over £80,000 per year while working, how are you intending to half your outgoings once you actually want to do things instead of going to work?Life insurance is pretty well covered by death in service benefit at the moment, like someone above said, I'm worth far more dead than alive.
Re budget, still working on it but around 40k per year at today's levels plus state pension would pay the bills and keep us comfortable, bit of travel and leisure provided for.
xeny said:
Ken_Code said:
It’s a shame then that he’s £300,000 short of £650,000.
Currently 63, considering working to 67. That's £75,000/year. Between serious pension contributions and a bit of luck with equity returns, that is achievable.As others have commented I am at a loss as to how someone earns so much and has accumulated so little.
OP, if you can manage on £40k as you suggest and would like any chance of doing so I would suggest you start right now living at that income level and put all the rest into investments that may hopefully make the same income sustainable in the future. My target for that kind of retirement income would be £1m in round figures which is a big ask to achieve in just 4 years.
Sorry if this sounds negative but you are asking the right question and this is the answer.
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