So, I have multiple savings vehicles that I spread my investments around in. Some of which I can access now, others in the future, and some that are a complete unknown. All of these, except for the state pension, count towards my total net worth, but not all are included in my calculations for when I can pull the trigger and retire.
State Pension
Whilst I have regularly paid my NI (although I did contract out for a couple of years), I am assuming by the time I can get my state pension (when I am 67, not really that early!) it will either be means tested or some other idea the government has come up with. I am therefore assuming in all my calculations that I will receive a grand total of £0 per year from the state pension. In effect anything above this will be a nice little bonus (likely with some tax implications, but…) if and when I get to that age. Maybe it will pay for a holiday each year!
Defined Benefit Pension
I realised one of the smart things I did when I first started work was to sign up to the DB pension scheme they offered. I was only there for a couple of years, and on a very low salary, so the amount that it built up is limited, but an inflation linked “guaranteed” (as close as these get) income isn’t to be sniffed at. Granted its about £1,000 per year – so again, this doesn’t feature in my retirement planning, and will act as a nice little bonus when it kicks in at the age of 60. To quote my FA – “Ask them to pay it out once a year as you won’t notice it in a month, and then go out for a nice meal”. I think £1,000 would buy a rather nice meal, but I don’t think I could ever bring myself to spend that much on a meal. I’ll let you know when I get to take it, on the assumption I am still blogging!
Private & Company pensions
I always sign up to the company pension wherever I work to make sure I get the maximum match possible. The minimum amount of total contribution I ever make is 10% (including match) to my company scheme, and then when I leave a company it gets moved over to my private pension. I used to automatically put 10% of my salary in regardless of the match requirements, however my concern now is the Life Time Allowance – I have 17 years to grow my pot. I do worry that with good returns I will breach this. As it stands I do salary sacrifice and also a direct debit into my personal pension, and any bonuses I get I then top up into my pension so it will grow quickly. Why pension first? The tax break, it’s that simple.
As it stands, I will hit the Lifetime Allowance in 17 years if I don’t contribute another penny and I get 9% returns P.A. – if I only get 5% P.A. and maintain my current contributions, excluding one offs, pay rises etc. I will also hit the limit in 17 years. In reality I will probably have to stop contributing before then unless they change the rules. I know, I can hear your heart bleed and oh lucky me. I accept that this is a really fortunate position for me to be in, so I shouldn’t complain – but if it makes me think twice, how do people in their 20’s starting work think? This won’t just affect me though – put away £1,000 per month (£800 pre-tax) into your pension for 33 years and achieve only 5% return and you will be at the limit. Yes, most people wont be able to put that aside, but now think about it over the 37 or so years people will be working, that becomes even less.
I can’t access this (under current rules, which will no doubt change) until I am 57. I want to have hit FI by then, so this means that it is my backstop – I know that the worst case would mean that I can hit FI when I can access it, so not a bad backup plan!
ISAs
I have a number of ISAs and it’s where I try to put the majority of my savings (be it in my name or my other half’s) for a tax efficiency point of view. They are spread among a number of different providers to reduce risk, and from the 2017 tax year I plan to start my “Go t’ Pub” portfolio in another ISA wrapper – but I will detail that in another post. For now – this is my income that will allow me to retire before my pension age, but it’s going to be tough going to get enough income out of it.
My other half’s ISA
The extra income generated from my other half’s ISA comes out of the wrapper to me rather than directly compounding in the wrapper. Not the most efficient some people may argue, however I use it to either pay extra off the mortgage or towards purchases that month, and gives me an easy obvious answer to how my income is tracking up. In the end this will go into the joint bills account, so I want to push to make sure this covers both of our share of the bills, and a bit extra so we can keep it increasing. The money we both contribute is put into other portfolios within the wrapper.
My S&S ISA with my IFA
This just ticks along and isn’t doing much. At the minute the performance isn’t great, so I may need to either transfer it away from him or into a different allocation. I will discuss with him at our next review meeting. It’s still ticking up slowly so I guess at least it’s going in the right direction. Having started this post, I checked my monthly tracking, and whilst I thought it hadn’t gone anywhere over the last 12 months, its still gone up 5% – not a great return, but we will save this for the year end review.
My self managed S&S ISA
This has grown nicely over time and so after this financial year no new contributions will be going into it with this ISA provider for some time but I will continue to report, monitor and grow it. More details to follow.
My Go T’ Pub ISA
This will only start in the new tax year but will build up over time with a different ISA provider, and also help to supply some of my cash reserve. More about this in another post.
My cash ISAs
I only have 1 cash ISA left now as I have moved most of them over to S&S over the years. They are part of my emergency cash pile, but the rates are so crap it’s untrue. That is why I will split this into two, one half remaining in cash, one half in an Investment Trust in my “Go t’ Pub” ISA and we can see how things pan out. Hopefully this will be of interest to others to see the difference, and also why you shouldn’t keep your emergency fund in the stock market! This is not included in any of my calculations for FI (the cash ISA that is).
Cash savings accounts
I have a few of these dotted around for my emergency reserve. I don’t chase the best rate, I go for ease and laziness. I could get maybe 1% extra but to be quite frank, I really can’t be bothered – the returns are just not worth it for my time. As my other income streams in the ISAs increase I will look to decrease my cash holdings. These are also not included in my numbers to hit FI.
Premium Bonds
The other vehicle for my emergency cash, but with the prizes automatically reinvested. Not the greatest rate, but its tax free, and that counts for a lot. Who knows, the million would make a great benefit! Again, these are not included in my plans for FI.
Mortgage
Some may question this as a savings vehicle, but when my mortgage was lower I spent more! We still have a fairly hefty mortgage (in my eyes, although to be fair it is less than 4 times my salary, and about 25% of my net income for my share) which I would like to reduce – there is one big however in this.
ISA allowances are a use it or lose it reward – at the end of the year, what you haven’t used is gone, never to be replaced. If I didn’t have a mortgage (and so also the insurance I pay to cover it), I would have more money than I can fit into the ISA allowances (subject to ever changing allowances!) – granted a great place to be. So for now I took the decision that the money I would have overpaid the mortgage with now goes into my other half’s ISA (see above). It’s going to be slow going and not as fast on the snowball, but means that I have the benefit of that income for the rest of our lives, and I am assuming I still have to pay the mortgage in my calculations which gives me a nice big boost to my income once its cleared!
So what do you use for your savings? Do you overpay the mortgage as well, or just invest as much as possible through your ISA? Or just spend it all down the pub? 🙂
FIREin' London 