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Best financial advice?

Discussion in 'Retirement' started by yashin, Jul 8, 2020.

  1. yashin

    yashin New commenter

    Those of you who managed to retire early or normal retirement what advice would you give someone mid career about finances and how to ramp up their finances to get to a point when you can retire.

    I have a small TP and mid 40's
     
  2. diddydave

    diddydave Established commenter

    I made a page with my thoughts on this: https://edividers.co.uk/contemplating-retirement-my-path-and-other-notes#stepwhilstworking

    Everyone's circumstances are different but being able to give up work when I was 51 has been, so far, marvellous...however, the opportunity to do this has a lot to do with my circumstances rather than any shrewd financial planning. (I.e. No children, a partner whose income was equal or better than my own, both of us having multiple income streams outside of teaching - she's an author and I created a couple of businesses over the years selling first interactive white boards and now exam divider screens, add in marking exam papers and you can see I may not be typical).

    That said once we started to seriously look at whether she could give up work, prompted by the illness of her parents who she wanted to be able to look after, it was surprising (to us) how little we actually needed to live on. Looking back paying off the mortgage was a massive saving, having one that we could overpay on made a difference in that every time we got a pay rise we added that (or most of it) to the mortgage payments - and at a time when we were doing budgets where we had to decide whether or not we could afford an extra can of baked beans that took some discipline. Once the mortgage was paid off we then put what would have been the mortgage payments into a private pension to run alongside the TP - this was at a time when we were both in the 40% tax bracket so it made the most sense. By doing this we never got used to having the money which meant that the savings just grew - and we couldn't raid the pension fund as it was locked away until we reached 55.

    The TP is very good value. I've been working on a comparison of the two flexibilities (additional pension versus faster accrual) and I'm fairly certain that additional pension is better value.
     
    Laughing Gravy, Dommi35 and Prim like this.
  3. yashin

    yashin New commenter

    Thanks so much. Interesting to read your thoughts.
     
  4. JanE60

    JanE60 New commenter

    Any thoughts on buying extra years of TP? Seem very expensive, but not sure if worth doing long-term rather than leave money in various savings accounts which are accruing next to no interest. With teaching career of only 22 years, my TP is quite small.
     
  5. HannahD16

    HannahD16 New commenter

     
  6. HannahD16

    HannahD16 New commenter

    Hi Jan
    I deliberated for more than a year on this issue and finally bit the bullet at the start of this financial year. I had for over a year been putting money into the AVC scheme (my account had lay dormant for years but was still building small amounts). I then read lots on this forum and decided the future proofing of any additional pension was quite a good bet to bateau of the AVC. I am buying an additional 3k per annum through AP and have upped my accrual rate too. Not sure how the latter will work out for me.
    I have cut out a few bills over these last few months and am considering going back into the AVCs but with a lower monthly amount.
    I have not that many years in the NP60 pension scheme (started a few years later than most) and also will have some years in CARE. I really want to retire at 60 so see the AVC as a way of bridging the years between my NP60 pension and my CARE and state pension which will come seven years later.
    I feel I am taking a fairly calculated approach to planning ahead though it is fairly expensive but the tax break makes it attractive for me.
    I am just not a saver by nature so the fact that this saving is deducted at source makes it a little more painless too. I have found Diddydave’s insights invaluable here.
    Good luck with it whatever you decide to do
     
  7. heldon

    heldon Occasional commenter

    you cannot buy extra years anymore. You can buy extra annual pension I believe.
     
  8. diddydave

    diddydave Established commenter

    I did a comparison sheet measuring investments in ISAs against Additional Pension. The approach I took was to look at what you could do with the money if you didn't buy the additional pension. However the spreadsheet doesn't show you what effect it has on your 'estate' - once you have bought the additional pension you no longer have access to that lump sum and it is, in essence, gone from your estate. So if you died the day after buying the additional pension your beneficiaries are likely to get far less.

    On the flip side though the ISA part of the sheet doesn't allow you to spend the money, the growth is in part due to keeping it in the ISA so you get interest on the interest. If you spend that interest then the additional pension catches up and overtakes it even faster.

    https://docs.google.com/spreadsheets/d/1hbQc1RbI2B5ri27mKMBlIFuMhKwKp0yGfSG7knjxB2o/edit?usp=sharing

    You can make a copy of the sheet and put in your own figures - for instance I cannot find an ISA that pays 1.7% interest!

    Oh, yes and whilst I know what you mean by 'extra years' that is not the correct term to use. It used to be the case that you could buy extra years that would be used in the calculation of your pension and they were much better value than the new 'additional' pension so of course they were scrapped.

    Using the numbers I put in then the summary is:
    The benefit of the ISA is that you keep control of the lump sum but by the time you are 81 even that has been overtaken by the amount of pension you have received.
     
  9. eljefeb90

    eljefeb90 Senior commenter

    I took out AVCs as soon as they came out. My aim then was to be able to retire at 56 which would coincide with my final mortgage payment.
    But , as it does, life played a few tricks on me. We ended up having another child in our late thirties...we already had two. Then, universities started charging fees, which I felt bound to help out with, for all three children. To be honest, I was the only wage earner and we never had much spare cash. I could have done with putting less into the AVCs.
    The happy ending is that I was thankfully able to retire at 57, using some of the lump sum to pay off what remained of the mortgage and my youngest's university fees.
    Surprisingly, I only withdrew cash from my AVCs in the first two years of my retirement. I have got into exam administration and invigilation and work on average about ten days a month, but this varies a lot.
    I took early retirement from teaching, but not from working life. The work is not stressful and gives me a sense of purpose and achievement as well as about 10k a year.
     
    Prim and HannahD16 like this.
  10. yashin

    yashin New commenter

    When I calculate my pension I used this formula

    Final salary X number of years/80

    I get a different figure to the one from TP

    Is there calculation accurate or an estimate?

    I was in service pre 2007 and did less than 10 years.
     
  11. diddydave

    diddydave Established commenter

    It's an estimate but with one exception pretty accurate.

    The exception is that they don't do any of the "hypothetical calculations" (this is the term used for checking that you are not disadvantaged if you had a break in service and those calculations can be tricky): https://www.teacherspensions.co.uk/.../hypothetical-calculations-v1-april-2019.ashx

    Your formula is correct but...

    The 'final salary' can be worked out in two different ways:
    1) (The obvious) Your salary in the last 12 months of service (or full-time equivalent salary if part-time)
    2) The average of your best 3 consecutive years in the last 10 years of service, adjusted for inflation.

    On your benefit statement, from the TPS website, it will tell you which 'final salary' they have used.

    One other aspect is that you may have overlooked in your own calculation is the adjustment for inflation. If you are no longer teaching, suppose you stopped in 2010, then the calculation is done to 2010 and then has the inflation increases from 2010 to 2020 applied to it.

    Finally it is possible for your final salary to be restricted. If it had a sudden increase (>10%) in the last few years (<3) then they can limit the amount to less than the actual final salary.

    I'm quite happy to take a look at your benefit statement to help out if you want to share.
     
  12. the hippo

    the hippo Lead commenter Community helper

    The best financial advice I can think of is quite simple: don't retire in the UK. Yes, that might not be an option if you have lots of friends and family in the UK, but they could always come and visit you. Your TPS pension won't go far in the UK these days, so retiring somewhere cheaper (and warmer) makes sense.
     
  13. diddydave

    diddydave Established commenter

  14. diddydave

    diddydave Established commenter

    Do I recall that you've a blog or something where you offer your insights into this?

    Is your location one of those that means you still get the annual inflation increase on your TP?
     
  15. Sundaytrekker

    Sundaytrekker Star commenter

    You are a star, diddydave!

    From my own experience, additional pension was worth buying. It gave better income, though less flexibility, than the AVCs which I also bought.
     
  16. the hippo

    the hippo Lead commenter Community helper

    Yes, you will get the increase if you live in most places in the EU. The sad thing is that many people who are living in "Rip-Off Britain" just do not realize how expensive it really is.
     
  17. tabourne

    tabourne New commenter

    Can anyone recommend a company to speak to about planning for retirement? Are Wesleyan any good - if not, any others you could recommend. Just looking at my pension statement gives me a headache.
     
  18. JanE60

    JanE60 New commenter

    I would like to leave the sinking ship which is SS England. However, which countries are happy to accept British citizens AND are cheaper and more pleasant? I love Austria (expensive) and Italy (difficult to buy property without financial penalty). New Zealand is my dream, but don't have the youth or stash of cash to qualify for residence! Any suggestions of optimum places from your experience?
     
  19. the hippo

    the hippo Lead commenter Community helper

    Central Spain, away from the Costas, can be cheap. A lot of Eastern Europe is bargain basement, with cheapie flights if you want to visit friends and family in the UK. As for Italy, yes, the northern and central bits are expensive, but how about the south and Sicily?

    Yes, Kiwiland is a lovely place to live (or so I have been told by those who ought to know). By the way, teachers in New Zealand are really badly paid, while property prices in most of the cities are almost as insane as in the UK.
     
  20. diddydave

    diddydave Established commenter

    The rep I had for Wesleyan was excellent and I was able to bounce a lot of ideas back and forth with her. It was an important first step in getting a handle on the scheme, the more I looked into it the more questions I had and some she had to go away and find out about...at that point I thought I'd better check them out for myself and so started learning a lot more about it. The one thing that she never mentioned was the hypothetical and I've heard several colleagues report that they had to initiate a conversation about this rather than the Wesleyan point it out. To that end the reports I've had are generally good but that it can depend on who the rep is but if you learn more about the scheme then you can ask the right questions and they are a good sounding board.
     

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