Crunching the spreadsheets

[ballibeg]

The budget this week brought even more changes to pensions. I've been crunching the numbers and we've just passed the point where paying more in to the pension isn't worth it.

You get taxed if your pension pot grows by more than £40,000 a year. Your lifetime pension pot size is limited to £1million.

DW's pot grows by her contributions which are a fixed percentage of her income and by an annual multiplier.

The multiplier over the next twenty years will grow her pot to maximum size. Stopping her contributions means her income will now rocket so we'll pay more tax but we can clear our mortgage, she can retire at 50 and we can help kids through college.

Only ten years left! I can't quite believe it.

Dave

[poky]

The budget this week brought even more changes to pensions. I've been crunching the numbers and we've just passed the point where paying more in to the pension isn't worth it.

You get taxed if your pension pot grows by more than £40,000 a year. Your lifetime pension pot size is limited to £1million.

DW's pot grows by her contributions which are a fixed percentage of her income and by an annual multiplier.

The multiplier over the next twenty years will grow her pot to maximum size. Stopping her contributions means her income will now rocket so we'll pay more tax but we can clear our mortgage, she can retire at 50 and we can help kids through college.

Only ten years left! I can't quite believe it.

Dave

Congratulations! That is awesome. DH will be 44 when he starts his "real" job, and it looks like he'll have to work at least 15 years to be comfortable in retirement. We were just talking the other day about how if he'd stayed where he was instead of going to med school at 36, he'd be able to retire at about 50. Ah, well; it's been an adventure.

[ballibeg]

And the adventure will continue!

Think we'll end up doing work/travel. She definitely wants to work in Africa, probably on the training facility doctors side. I'm a jack of all trades so can fit in any where.

Her sister and brothers are only just having kids. They're much older parents than us and it will be strange that ours will be away while theirs are still kids.

[GreyhoundsRUs]

Very cool! I can't wait to get to a point where we can plan more in the future financially.

[ladymoreta]

Awesome!!

[scrub-jay]

Nice!

[spotty_dog]

Nice work! That's got to feel good especially with the farm also providing support. Who maintains the pension pot and supplies the growth? Your system is different than ours but sounds pretty equitable -- and I like how it's easy to be able to predict what your means will be at retirement age!

[ballibeg]

Here in the NHS you put in a fixed percentage, 8%, of your income. Your employer also puts in 6%. DW is a GP so self employed so she pays both her own 8% and employers 6%.

The fund is backed by Government and is deemed to grow at Consumer Price Index +1.5%.

With financial crisis the Government have changed pension rules for all in UK. You're only allowed a pot of £1 million. Anything over that is charged 55% tax. The limit grows at CPI.

I get an annual statement so can see her current savings, growing at compound interest (CPI+1.5%), will be at limit at pension age of 60 do no point paying in more.

Means she'll take the money she would have paid in as income and pay income tax on it. Guess that's what the Government wants, more tax coming in.

We'll feel well off but can pay off mortgage early saving £thousands, support kids at University and still save enough to have an amazing free life post 50.

Think Government will get more tax but knock on effect will be rural Doctors, already in short reply, will be leaving work at 50.......

Dave

[ballibeg]

Forgot to add the pension at 60 is 25% of your pot tax free lump sum and then 75%ish of your career average annual earnings for life. Hence important to leave scheme at peak of earnings as going part time lowers the average and reduces annual pension.

[spotty_dog]

Ah, so the pension pot is like a combination government-sponsored retirement plan plus social security. CPI + 1.5% is a nice rate of growth! Here, we are limited on how much we can contribute without paying income tax, but not capped as to the amount that can be in the account (though I think there are rumblings of implementing this.) The amount that employees and employers can contribute varies by plan and many employers have no plan available for their employees. My husband's self-employed plan permits him to contribute $18,000 from his own income and another 25% of his income, up to a max of $35,000, as his "employer contribution."

But we're not convinced that this limit will give us enough to live comfortably forever if we retire at 50-55. So we make additional contributions to another investment account, even though it's still taxed as ordinary income.

We also pay into the social security system, so if those rules don't change, we'll also expect a benefit payment from that once DH reaches "full retirement age" (which I think is about 70 years old now). The amount you get is dependent on your average (inflation-adjusted) earnings for your peak 35 years of employment. So you typically benefit from working longer. But there is a maximum payout for this benefit, because it is basically intended to be a safety net against abject poverty. For example, this year even if you had earned $1M for 35 years, you would receive a maximum of $31k in SS benefits.

[poky]

Forgot to add the pension at 60 is 25% of your pot tax free lump sum and then 75%ish of your career average annual earnings for life. Hence important to leave scheme at peak of earnings as going part time lowers the average and reduces annual pension.

Ineteresting! Is the 75% inflation-adjusted at all? Or do you live on progressively less "real" income as you live longer?

[ballibeg]

Index linked.