What savings vehicles I have for retirement

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? 🙂

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Author: fireinlondon

Fighting the high cost of living in London

10 thoughts on “What savings vehicles I have for retirement”

  1. I’m interested in how much value you get from your IFA. It doesn’t sound like you are confident in the management of the S&S ISA and the advice about spending £1000 (inflation linked) on a meal out would be terrible advice if it was given to me (and doesn’t sound like great advice for you).

    I’ve tried initial meetings with IFA’s a couple of times but never found one that I thought provided me with value for money (and more often than not they were suggesting things that would have been harmful to me).

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    1. Hi Playing with Fire,

      Well I will be posting monthly (and the yearly review after the tax year ends). IFA is a tricky subject, I’ve tried quite a few and found no value add – they simply took money for frankly no benefit. My current FA has been good so far (his comment about the meal was a little tongue in cheek) – helping in setting up the various portfolios, and doesnt try and take my self managed off me – he actually enjoys the competition strangely! They also provide further services as well – tax planning being a big one (so how best to split assets etc.) – a lot of people wont need that level of things so I think it really depends on what you want out of it.

      I have been disappointed with the ISA he has that seems that its going nowhere, hence keeping an eye on it – I’ll have the monthly and yearly reviews so we will all be able to see!
      FiL

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  2. Thanks for this, FiL, reminds me I need to do a similar post.

    In brief, this is my lot:

    State Pension
    Defined Benefit Pension
    Defined Contribution Pension
    SIPPs
    S&S ISA
    Cash ISA
    Premium Bonds
    Various P2P

    I’m likely to transfer the DC Pension to one of my SIPPs when I leave the company – have already enquired about it and there are no exit fees.

    I’ll also likely wind down most of my P2P accounts at some point, when I conduct a simplification exercise in a few years time.

    Not sure what to do with my small cash ISA when its fixed interest rate (2.75%) expires – stick in S&S ISA maybe, or leave as cash, so put in Premium Bonds?

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    1. Hi Weenie,

      Thanks for stopping by again! Sounds like a very similar list (although I have never bothered with P2P loans) and I suspect consistent for most of the FI community to a large extent. Don’t blame you to transfer the DC pension out when you leave the company – you will get a far better deal in a SIP than leaving it where it is. I have always transferred my DC pensions into one place – easier to track but I may start another to spread the risk over providers….

      For the P2P I guess it depends how much hassle it is and what the returns are – if its doing well no point taking it out, but if its just to make life easier and less stressful I can get that!

      If the money is in an ISA, even a cash one, I would never remove it from the tax safe wrapper – although given the increase in allowances I would reconsider that now! I guess it would really depend on how your emergency cash situation is – if you had plenty of cash on hand I would go for S&S, but thats my personal opinion (not advice <- note the disclaimer :))

      I am a fan of Premium Bonds for emergency cash purely as any winnings are tax free….

      FiL

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      1. At the moment, the P2P aren’t a hassle but I think at some point, they will be, hence the simplification thing. The returns aren’t bad, I think I’m coming up to 3 years with my P2P so I’ll get round to doing an update.

        Hmmm…here what you’re saying about losing the ISA tax wrapper, but like you point out, the Premium Bonds winnings are tax free too. I’ll not dwell on it – will just see how things are closer to the date!

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        1. Hi Weenie,

          I’ve followed the P2P stuff, but part of me thinks that I am too late to really cash in as its become main stream – I look forward to hearing the update 🙂

          As you say, why worry about it now, wait until you are going to rebalance and work it out then as things will have changed by then. My inclination for the minute is to fill up the ISA for now!

          FiL

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  3. Always interesting to read how someone else is doing things!

    With regard to the state pension, I’ve adopted the attitude I read in a comment somewhere, probably on Monevator. Treat it like an insurance policy against everything else going tits up – if it’s means tested you’ll presumably be eligible after The Great All-Asset Crash of 2033 wipes out everything else.

    Now, I wouldn’t want to live on nothing but the state pension, but it’s a lot better than nothing – and (another Monevator influence) governments of all stripes seem relatively unoffended by owning your own home, so if your mortgage is paid off and your home doesn’t count for the means testing, living off the state pension becomes a bit more practical.

    I think you should definitely count the DB pension as part of your net worth, either by factoring in the £1000 to your income in retirement or by converting it to an “equivalent” lump sum value. For me at least £1000 would be a not insignificant chunk of my post-mortgage living expenses.

    I appreciate there’s such a thing as having a safety margin but if you “don’t count” too much stuff, you end up feeling like you’re not making any progress. I know I have a tendency to regard my SIPP as “meh, I’ll never be allowed to get access to it one way or another, so it doesn’t really count”, but as I’ve been keeping better records over the last few years I can see SIPP contributions inflating my net worth and they don’t feel so much like money evaporating. I still greatly prefer to see the money piling up in my mortgage offset account, but making the effort to “count” the SIPP makes me feel a lot better about contributing to it.

    I must say you seem to have an awfully large number of different pots and it seems a bit over-complicated for my tastes. If you had just one or two accounts with emergency cash in, would it perhaps be easier/more worthwhile to move the money to somewhere paying a better, if not necessarily optimal, rate, for example? And I sold all my premium bonds a few years back, the interest rate was so poor that even being tax free didn’t make it competitive. (But then I’m paying >3% pa on my mortgage…)

    I do have 3 ISAs to try to compromise between diversification and costs, but while the details seem surprisingly hard to come by – even the Monevator table doesn’t show it, last time I checked – in reality many of the different ISA platforms share the same nominee companies under the covers, so even with my 3 ISAs I suspect there’s still a single company which could take down 2 of them if it turned out to be doing something dodgy. If you have many ISAs you might not be as diversified as it initially appears.

    I haven’t yet sat down and tried to pull this together into a concrete calculation, but I do sometimes wonder if it would be feasible to compare the risk of running out of money in retirement against the risk of dying young. “Well, if I retire now, there’s say a 5% chance I’ll run out of money and have to get a crappy minimum wage job when I’m 65 – but there’s a 5% chance I’ll die before I’m 60, so I want to enjoy some early retirement while I still can. I’m pulling the trigger!” (Numbers made up for illustration only!) I’m not saying it’s easy (or necessarily possible) to quantify the risks, but it’s easy to focus on the risk of running out of money and avoid thinking about the risk of dying young. Sorry if this seems morbid, it’s not meant to be.

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    1. Hi Steve,

      Thanks for stopping by!

      I am with you (and Monevator) on the use of the state pension – it is an insurance if all goes wrong and worst case, but I wouldnt be surprised to see in the future they force you to downsize or sell your home before getting too much state aid, but thats something I wont be able to change so will have to worry about if and when it happens!

      In terms of the DB, another part of the reason I dont count it is that its after I plan to retire, so it will almost be an inflation hedge after some years. £1,000 per year based on what I am aiming for in retirement isnt a huge amount, but also not insignificant – but then it can be used as a treat, hence I dont count it.

      You are right that if you dont count too much then you will never get to retire, however there are reasons that I dont, and you have just given me an idea for another post, so thank you 🙂 In a nutshell, I track based on all sorts of combinations of assets, but I focus on the nearest date first, so for me at this stage its excluding pensions and purely on ISAs and any other investments I can do over the years.

      I can understand that for many people the above would seem overly complex, but for my circumstances its about right (I could actually do with one more savings account but there you go!). The mortgage is sub 3% at present and should be when we refinance in a couple of years, but the tax free is a major factor for me, so its not ideal (although I do seem to be doing quite well – if I dont win again this tax year I’ll have got 1% return) but the best option for my circumstances.

      I know that a couple of mine are different nominee accounts, but that’s a good shout I am going to try and find out – although that may be a little while away!

      There is definitely something about getting the balance between living and being comfortable and the “One more year” syndrome – and not at all morbid – we will all die one day! Its one of the reasons I am not as frugal as many of the FI community out there – but believe it or not I have a post coming up on that as well!

      Thanks for the thoughtful comment and thoughts, always happy to discuss in more detail as well as the blog builds!

      FIREin’ London

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    1. Hi MustardSeedMoney,

      Thanks for stopping by!
      I think its a careful balance – I am with you that its forced savings, and so far in my lifetime house prices have only gone up (above the rate of inflation!), however the downside is that you would have to sell the home to release some of the capital to put to work, otherwise it is in effect dead money.
      For me, it is a savings, however I don’t intend to utilise the asset value, it isnt generating income but it does give me a roof over my head!

      FiL

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