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late 30's - lots of possibilities - 20+ years to go!!!

Discussion in 'Retirement' started by kpk1981, Jul 10, 2020.

  1. kpk1981

    kpk1981 New commenter

    Hello everyone. Been a long time lurker pondering over what go do with about 20 years left to retirement! Thanks to all posters for ideas and thought provokers. Any opinions on my ideas/plans would be very welcome (even if contrary!)
    • Aim - certainly to go at 60 if not sooner (57-58).
    • Aged - 38 so about 20-22 years to go until ideal retirement. No kids and reasonable mortgage. Wife is a teacher with similar age/TPS accrued.
    • TPS Situation - have 9 years in NPA60 and 5 years in NPA68 - subject to McCloud adjustments
      • Not sure on hitting 60 and taking NPA60 pension and leaving NPA68 until later?
      • Or take all at NPA60 (or earlier if taking early) with relevant actuarial adjustments?
      • Considering Additional Pension or Faster Accrual - many thanks to diddydave :) for comparisons posted recently as was likely to go for Faster Accrual but now seriously considering Additional Pension as slightly better. Ideally would like to pay over long time period but impacts of McCloud and revaluations a concern.
    • Other plans:
      • SIPP - started a SIPP 12 months ago with spare cash (£100-200 per month depending on other expenses!) My plan is to cover at least 2 years of retirement once hitting 58 in case of physical health/falling out of favour with school! Considering increasing amounts but would a LISA be better as no tax implications like a SIPP.
      • LISA - considering starting one for govt bonus but no benefits to early retirement as only accessed at 60 - any benefits beyond free money at 60?
      • Mortgage - making overpayments to be paid off by 55 to give options or early retirement (and to keep wife happy)
      • Other savings - have 6+ months (20k) for emergencies/holidays (saving a lot this year!) Keep thinking of putting some into one of the pension/LISA options but keeping in savings for now unless convinced otherwise.

    Apologies for sounding like a spoilt brat/worry-some thing - lots of options and want to make he 'best' possible decision if such a thing exists. Only so much reading you can do and every month counts! Thanks for reading.
    PeterQuint likes this.
  2. diddydave

    diddydave Established commenter

    You don't sound like a spoilt brat...to me that would be someone who expected to have something without putting in any effort - and you are clearly putting in the effort by starting the planning.

    You've a lot of very good points in your list, the one I would add is to consider how to maximise the NPA60 (Final Pension) through use of the hypothetical calculation. Many teachers when 14 years into their careers have reached the peak of the pay scales and so substantial wage increases from this point on depend on taking on more responsibility and getting more through TLRs or moving into leadership roles.

    Whilst you have only 9 years in the NPA60 scheme at the moment, the last 10 of all 14 are used in assessing your 'final salary' and the last 10 will always be used. So in 2040 (when you are 58) your salaries from 2030-2040 will be used. However, if you take a break from the scheme for a month they do a 'hypothetical calculation' that uses the salaries from the 10 years immediately prior to the break. I did a cost-benefit risk analysis and would recommend that anyone who reaches what may be a plateau in their pay should take a month out of the scheme 13 months after reaching that plateau because that 'locks-in' this extra calculation and that benefit can be many times greater than the cost of losing one month's worth of NPA68 pension. The presentation I made to explain this is here: https://docs.google.com/presentation/d/1RN8XUwMVjCf1KAY9DtSEbZHo9oJhW7mZ75tevV_Ar5Q/edit?usp=sharing

    These are not something I have paid any attention to so probably should look into them as part of the work I did on comparing ISAs to Additional Pension contributions. Having had a quick look my first concern is the gap between the interest rates they pay and inflation. At the moment I believe that this comparison is good...1.25% for a LISA versus 0.5% inflation, but historically I've struggled to find any ISA that offers rates that exceed inflation. And 20 years is a long time over which savings in an account paying less than inflation would have to degrade. The 25% bonus though is interesting. There will be no way to give a definitive answer to which is the best option because much depends on what happens in the future - to interest rates, inflation, taxation and legislation. So whether or not it is a good long-term plan I am unsure about.

    My gut feeling would be to start one because you cannot open one AFTER you are 40. Then you have this ready so that when you get closer to 60, when the rules are less likely to change dramatically, you could pump in the maximum amounts over a few years and be ready to claim the 25% bonus. (You may need to check the rules on this - I haven't)

    My comparison spreadsheet on ISAs Vs Additional Pension is here: https://docs.google.com/spreadsheets/d/1hbQc1RbI2B5ri27mKMBlIFuMhKwKp0yGfSG7knjxB2o/edit?usp=sharing

    It's a long way off and so the rules may change but my work shows that you start off being better off taking them early and then once you reach your NPA that advantage is gradually clawed back until you start to be worse off. The break-even point is around your late 70s (78, 79, 80). My sheet showing this is here: https://docs.google.com/spreadsheets/d/1MmQ1h1AwCoC5IggRdVai4L0aBu5j0subZHCkVe3JNOw/edit?usp=sharing

    We did benefit from ultra-low mortgage rates so were able to pay that off quickly but again this is an area that I have not done any real analysis on because by the time I came to plan retirement we had already paid it off - so well done for considering it this early in your plans!

    One thing I would suggest is if you have considered an offset mortgage where your savings are discounted against your mortgage and so, in effect, earning you an interest rate that is the same as your mortgage rate? That £20k you have would cut the mortgage payments some what - and with an offset mortgage if you need it for anything you can simply use it.
    phlogiston likes this.
  3. diddydave

    diddydave Established commenter

    LISA - just read the rules a little more...you cannot add to it after you are 50...so 10 years of the money being locked away and inflation eating at it
  4. PeterQuint

    PeterQuint Lead commenter

    The one thing that sticks out for me is your very sensible plan to be mortgage free by 55.

    I’m 55 and wish I’d planned for that.

    If anything, make sure that’s both mortgage AND debt free (cards, loans), and even look to bring it down more quickly if you can.

    You never know when something will hit you which slows down repayments, so there’s no harm getting ahead.
  5. lindenlea

    lindenlea Star commenter

    Remember to invest in your life too. It might give you great pleasure and satisfaction to move house and that might also be a good financial investment.. Remember to be flexible about how you spend money - now is important as well as the future and you have a relationship to work on too. Who knows what the future will bring. I went for further qualifications and promotion to maximise my earnings and my pension among other things.
    phlogiston, littlejackhorner and Prim like this.
  6. diddydave

    diddydave Established commenter

    Had a bit of fun with the Lifetime ISA versus inflation calculations.

    The government adding in the 25% immediately that you put in money is a big boost, in effect the headline APR figure advertised with these is that much higher...it also means that it takes longer for inflation, if it is greater than the ISA interest rate, to erode the value.

    To this end I've made a sheet to look at how much effect different gaps between inflation and the savings rate makes:https://docs.google.com/spreadsheets/d/1jhf4XYSxz0Zhu42HbRC2LQsmA6iuPYJVr4QjaZ79rWQ/edit?usp=sharing
  7. kpk1981

    kpk1981 New commenter

    Thanks everyone so far. All good comments that are welcome and also thought provoking.

    diddydave - forgot to say I've read most of your posts on the Hypothetical calculation and luckily I had a month out of employment (switched from FE to schools and wanted a nice summer holiday that FE don't get!) Because I had a temporary secondment in FE I have 3 years of a higher salary locked in is what I believe. Back to HoD salary now and no plans to climb the greasy pole any further! The savings are a good mix of NS&I accounts and some well-timed fixed rate bonds so not currently worried about these. Mortgage has 3 years left until fixed rate period is up and then will reassess options for offsetting.

    LISA - the benefits of them are that you get 25% from the govt up to 50 but from 60 this is completely tax free (currently anyway!) The one advantage over pensions is the tax free part but having to wait until 60 is the problem. Not too worried about inflation as it would be a funds LISA with all the risks this entails but happy for that in the SIPP already and the benefits of a defined benefit pension means the risk is not as high as someone with a define contributions pension.

    PeterQuinnt - thanks for this. My wife prefers paying off the mortgage and I want to have a couple of years in my SIPP to retire early. We are fortunate to be able to cover both. Currently debt-free beyond a 0% sofa deal which was only taken as why not pay over 4 years instead of a lump sum! We've had some home improvement loans paid off in the past year which has given us the extra money to think about making more contributions to pensions & mortgage.

    lindenlea - my wife would say this is not a problem for me! I like a tropical holiday and am lucky enough to be able to afford these (probably as we have no children). House situation is all good and no further moves planned. Have discussed downsizing at some point in later life but not until we've retired and might fancy a move to the coast.
    PeterQuint and lindenlea like this.
  8. Prim

    Prim Occasional commenter

    Good to think about planning for retirement early. However, life is to be lived and make sure you give yourselves enough money to enjoy the time you have. Have fun and save a little for later. Mortgage free is the first goal I would say. Best of luck.
  9. Sundaytrekker

    Sundaytrekker Star commenter

    I think you’re exactly the right age to think about this. For reasons to do with my husband’s work, I had to take our financial future seriously at your age. My only pension option then was AVCs and I invested in those up to the maximum percentage allowed from my salary at the time. I later paid into additional pension for ten years to boost that a bit. Like Lindenlea, I went for promotion to increase my income and pension which served me well under the final salary scheme. I did a bit of overpaying the mortgage but, with offspring at university, not as much as I’d have liked.

    In the end, I retired just before 60 but still do some part time work. There is a balance to be had. Probably we would have had some more expensive holidays, more eating out, maybe even moved house once more if I hadn’t invested in my pension but the financial security now is worth it. Also, as I became a higher rate tax payer the savings in income tax made investing in my pension the best thing to do.

    Good luck and look at diddydave’s sums. He’s really good at it!
    lindenlea likes this.
  10. littlejackhorner

    littlejackhorner Occasional commenter

    We had always planned to retire early and when we bought our house we had an offset mortgage. We both paid far more into the account each month and it was great to see it coming down quickly. Every time we had built up some savings we would each put £1000 in to the account. We still had lots of lovely holidays and meals out. We had paid the mortgage off within 6 years. We don't have children and we both had very well paid jobs. We then continued to save with the aim of retiring at 55. As time went on we realised how much we needed to live a comfortable life and we were able to leave at 53. I have no regrets about what we have done and believe we managed to achieve a balance of saving and enjoying life. The 2 things that helped the most were definitely not having the expense of children and both of us pursuing management positions which meant we had far more money than we needed.
    I am certainly not advocating avoiding having children in ordertoretireearly. We simply met too late for this to happen for us.
  11. phlogiston

    phlogiston Star commenter

    I would say that pension arrangements are almost certain to change again in the next 20 years, so you are wise to have some investments that give you greater flexibility.
    I found that paying off the mortgage ahead of time was one of my better financial moves.
    I echo the reminders to enjoy the here and now, as well as planning for the future.
  12. diddydave

    diddydave Established commenter

    Great and still worth keeping an eye on. The salaries in the 10 years prior to the break are locked in so checking that these remain higher, when adjusted for inflation, than any since the break are key and if not then choosing a time to have another break to lock those newer 'high' salaries in could be of benefit.

    The nice thing about having 20+ years to go with this is that service after the break, and with the McCloud decision likely to allow you to include any service up to 2022 (my opinion, no facts on this yet), you are probably going to be allowed to count the service from after the break in the calculation because this 'unrestricted' calculation needs your actual final salary to be higher than the one you had at the time of the break but crucially for this comparison the salary at the break is NOT adjusted for inflation so with even 20 years of below inflation pay rises you are still likely to finish on a salary that is higher.
  13. JamDoughnut

    JamDoughnut New commenter

    Just to offer a slightly different perspective on mortgage over payments. I have actively not done this but instead invested the 'over payment'. Mortgages are typically 'cheap' sources of finance and by investing the over payment equivalent then I'm looking for any return greater than the low interest rate my mortgage costs. Plus, the money is more liquid than i would be had I overpaid the mortgage. I have an even bigger lump sum available to pay off the mortgage even sooner or use it for other life events that may or may not come along. However, have a relatively high investment risk tolerance and (more importantly) a longer time period. I do however understand the psychological benefits of being mortgage free but in my mind this is virtually offset by combining the amount I owe on the mortgage and the amount I have invested. Not for everyone I do agree, but maybe worth thinking about even if it just to discount?
  14. thejudgesscoresarein

    thejudgesscoresarein Occasional commenter

    Over the years I’ve worked with many teachers who approach retirement age with little savings, and they rely on the pension. They panic, but my advice to you would be to save as much as you can now.
    Potentially look at investing into property if you can?
    I purchased a villa in Tenerife back in 2007 when I was 46, and now retiring in a couple of weeks and I’m spending six months out there and selling it. I’m also selling my U.K. home and relocating to the south west.
    I’ve always wanted to run a B&B- but having spoke to people in the tourism and hospitality industry, it’s tiresome work especially for the inexperienced! Just going to buy a small 2-3 bedroom bungalow and use the proceeds from both sales to renovate and put in a pot for retirement.
    littlejackhorner likes this.
  15. frodo_magic

    frodo_magic New commenter

    Definitely pay off all loans, credit cards.

    Then pay the mortgage off. It's a great feeling when done, gives you a bit of comfort that the most expensive thing you'll likely own is bought and paid for should you leave teaching, go abroad to teach or have a senior gap year, lose your job, get ill, retire etc, and the cash piles up when the mortgage is paid very quickly indeed!

    After that, I would invest in a range of vehicles, not just one. Start a SIPP, buy premium bonds, use your isa allowance, buy additional pension. Spread your investments, just in case one area gets hit, but move investments into safe options three or four years before retiring - in case a pandemic, depression, war etc hits as you approach retirement. I wouldn't buy to rent now, but maybe a holiday home would work if you could have a lot of time using it. Not much good, however, if there is a virus, war, travel restrictions on the British because of Gibraltar and the the like though. Who knows what will happen?

    Check the state pension contributions and make sure you are on target to get the max possible - It's probably the best pension scheme going pound for pound so buy extra NI years to fill the gaps if necessary.

    Two other things; Firstly, you need far less in retirement than you think, and the teacher's pension is a great guaranteed minimum to have coming in, topped up with the state pension. Secondly, when you retire, plan to spend the money over time. I've spoken to many elderly people who keep saving and hoarding 'for the future' when they retire, instead of a steady plan to spend and enjoy in their old age, and the cash gets used up in care home fees, passed on to relatives etc. Spend it!
    Last edited: Jul 13, 2020
    Prim, wayside34 and Beauherne1990 like this.
  16. rach548162

    rach548162 New commenter

    Hi, my husband is a financial adviser and can help. If you would like any more info, let me know

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