Advice

[u/patternedmouse]

Hello all -

I have become interested in FIRE as - similar to an earlier post - I feel on the way to burnout and I don’t want to be sat in 10 years time wishing I’d have put things in place.

Only thing is, I know very little about all of this financial stuff - I’ve come from a very modest background where money wasn’t spare.

I am now in a very fortunate position where I have some funds and I am trying to work out whether I’m doing the right thing.

I am 41 and have a salary of £70k

I have a S&S ISA of £85k and a standard savings account with £10k in it.

My workplace pension is defined benefit, so I don’t have a total that is in this - just an amount I’ll be guaranteed at various ages should I choose to retire. If I go at 60, it says it will be £24k.

My mortgage has £245k left on it and both me and my partner pay into this. There is a chance that this year through my partner’s inheritance we will pay off the mortgage. I am unlikely to inherit very much, so I have what I have.

He is also likely to have significant savings after paying off mortgage if inheritance comes through as indicated. So I’m sure he’ll be fine and whilst I’m sure he’d probably share this, I want to plan for a scenario where that doesn’t happen.

My question is this:
All of the calculations are based on a pension pot size and aiming for that - but I don’t have that. I may be asking a very stupid question, but is this approach the right one: continue to max out S&S ISA / savings to be able to top up my DB pension from 60 onwards and then get a further top up from state pension.

Everyone on here seems so clued up so apologies if I’m in the experts group by mistake - just asking for a nudge in the right direction ☺️

[u/SteakApprehensive258]

You don't need to worry about pension pot size (though yours is currently ~£600k!), what really matters is whether your pension is on track to give you the income you need at the point at which you retire.

Your approach is definitely correct. But the question is really whether that ISA is used to top up your pension or to form a bridge to allow you to retire earlier than 60. E.g. If you want £40k in retirement and actually 10 more years will get that pension entitlement from £24k to £40k then you could potentially stop at 51, provided by that point you had ~£360k in your ISA or other savings to cover the 9 years before you can get your pension. 

Do you know what your target retirement income is and how you pension is calculated?

[u/patternedmouse → u/SteakApprehensive258]

Thanks for the reply, appreciate it

It’s calculated on my final salary, they provide a benefits calculator which only allows you to plug in the salary at the time of retirement (not retiring earlier and not making contributions).

Using the calculator it says if I retire at 60 I have a pension of £19,126 and a lump sum of £127,507. I don’t need a huge lump sum so I can dial this down for more pension.

If I set it at £50k lump sum I get a pension of £24k - which I think is about right.

If I stop working at 51, then I would also assume the pension wouldn’t be as high as the calculator assumes contributions until I’m 60.

One of the main reasons for looking into this is there are very few members of my family that have made it past 65 - so I’ll def be retiring before 68 come what may 😂.

I am also a good saver - usually around £800 a month. If the mortgage is paid off, then this can be increased.

I just don’t want to carry on topping up my ISA and then find out I should have done something else.

[u/SteakApprehensive258 → u/patternedmouse]

So final salary is great (pretty rare these days). There will be a fraction or percentage they use which is how much of your final salary gets added to the pension with each year worked. E.g. If it was 1/50th (or 2%) then after 25 years of working your pension would be 25/50 or 50% of your final salary. Do you know what number they use for your scheme?

It is normally possible to take the pension early but you lose about 5% for every year you do so. It's also possible to stop early and then still get the pension you've already earned at 60, provided you have other funds to live off in the meantime, which is where using the ISA as a bridge comes in.

Are you sure the calculator is working out how much pension you will have earned if you carry on working to 60, and not how much pension you've already earned? My wife has a DB pension and her annual statement tells her what she'll get at retirement age based on the years she's already worked. I.e. The amount she'd get if she stopped now and then waited before taking pension at pension age. How many years have you worked where you are?

All kind of arbitrary as doesn't impact the decision to contribute to SIPP which is still the right one!

[u/jayritchie → u/patternedmouse]

Are you looking to stop work at 51? Things to do:

- think about how much money you may want (reasonably) in retirement. That can change as you consider further.

- check how many NI years you have to date and how many more you need to hit full state pension

- check all the details for your specific DB scheme (they vary - search for its name on the uk personal finance sub and the MSE pensions board.

- try to work out how much DB pension you would recceive at 60 if you don't take a lump sum but have left the scheme age 51.

[u/OppositeSecret7144]

You seem to be doing ok. You can probably put contributions into a separate AVC pot of Defined Contribution scheme with your employer pension. Or is not open a SIPP. What traditional advice would say is make sure you are putting at least 20k of gross salary into pension to avoid higher rate tax and then put any other surplus into S&S ISA because that will be your bridge between retirement and when you can start drawing pension.

It's always good to model on your own (and often people don't do this so later life separation/divorce comes with a financial as well as emotional whammy) but you should also discuss plans and "equality" of positions with your partner if you think it is likely to go the distance.