27 Jan 2015, 5:34pm
living intentionally personal finance:
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  • George Osborne may help me to live intentionally and spend more

    By his pension changes, that is. Sadly the exact mechanics wont be of much use to young’uns but for for some modestly old gits (45 plus) who have accrued a defined-benefit (DB) pension where you can buy  additional voluntary contributions (AVCs). Since there are a number of readers who work(ed) for The Firm that employed me for many years I’m throwing it out there.

    The philosophy of how difficult it is to qualify living off savings may be of more general interest. It’s heavy on pensions, which seem to be the Cinderella of the PF world, because most PF bloggers are younger than me and Monevator’s Greybeard seems to be off on a cruise. However, hopefully you’ll all get old enough to be interested in pensions one day, and if you can learn from my mortgage screw-up then so be it 😉

    Some pension and early retirement orientation

    One of the big challenges facing early retirees is how to fund the pre 55 early part of their early retirement. The part before 55 has to be something other than pensions because you can’t get hold of pensions before getting to 55. The goto place for this is ISA income and cash savings, though not paying your mortgage off early is a great way to have more cash savings in the pre-55 period, because you can use the pension commencement lump sum to save to pay off your mortgage from pre-tax income.

    don't automatically pay off your mortgage early if you are retiring before 55

    don’t automatically pay off your mortgage early if you are retiring before 55

    I didn’t get the mortgage wheeze right. In threading your way through the myriad paths to early retirement you are always going to get something or other wrong, that was my big mistake. I don’t have housing costs other than council tax and the 1% or so house purchase price depreciation fund, but having the borrowed capital to run down now would be useful. I could then use my AVC fund to pay off the mortgage tax-free at 60. Pretty much any time I go anywhere near anything to do with housing I screw it up royally. Why break the habit, eh?

    Because I drove my spending down to be able to quit early I have been able to string out my savings for twice the amount of time I anticipated. But it’s probably fair to say I haven’t lived large like like mistersquirrel and theFIREstarter 😉 I don’t have any complaints – freedom from The Man and being able to pursue my own interests is more than adequate compensation. For much of the first couple of years it was a process of recovery from the experience – and it’s respite that matters, not consumer goods and services. But I am also mindful that time is also ticking away, so if I could smooth my income I could do more in the near future rather than back-loading it. I’ve noticed the birds are starting to sing and maybe they call to me, get out there, travel more.

    I have no income – one of the primary navigational aids of personal finance spins and knows no North

    Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness.

    Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

    Wilkins Micawber

    I never understood how to manage finances without having a number I could allocate on the Annual Income side. Without a figure for income, I could never qualify the Micawber question. It has made me fearful and over-conservative in spending. This has worked out okay for me till now – it is how I got to this point and having the choice to take Osborne up on his alternative offer of getting my AVC out tax-free but earlier. If I had favoured spending I would have drawn my pension short by now.

    or, as da yoof sez, YOLO

    or, as da yoof sez, YOLO

    Some readers will wonder WTF? The income computation is easy. Take current age of Ermine, subtract from 60 which is how long it needs to last till a good alternative, then divide total amount of cash savings by years and you have the income level. Maybe knock off about a year’s savings to cover emergencies then run the calculation.

    Not so fast. If you have no income, you will find it the devil’s own job to borrow money which is a perfectly reasonable way of leveraging your emergency fund. A year’s worth of low-ish running costs as  savings is not enough to hedge some kinds of risks. Lucy Mangan charges us that If you don’t understand how people fall into poverty, you’re probably a sociopath  – probably correctly. I didn’t want that to happen to me, so I have used a much smaller percentage of my non-pension cash savings than that cash÷(60+1-current age) calculation would give. At least half of them are with those NS&I people so they aren’t being killed by inflation, unlike my cash ISA and cash balances. I really, really hate cash as an asset class, and never expect a return on it. At least inflation is surprisingly low given all the QE money that has been  pumped out – it seems to have gone in inflating the stock market and the housing market.

    The logical thing to to with a cash ISA these days is to switch the damn thing into S&S ISA but I can’t bring myself to do that, because of the fears of some of Lucy Mangan’s demons catching up with me, or needing to pay for an operation 1, or something like that. And as a result, the fearful me jams my spending. I err in the opposite way to mistersquirrel and theFIREstarter but error it still is.

    TEA calls this out well in The Pyramid and the Oxygen Mask – to wit

    If you are one of those people and you carry on working in your all consuming City or Corporate job, then you are wasting your life.

    This is more frequent than you might think. The most common motivation for this behaviour is fear  – fear of change, (irrational) fear of poverty, fear of loss of status, fear of their spouse’s reaction etc.  Its not enough just to make a life-changing amount of money, you still have to change your life.  Don’t just load the gun, pull the trigger.

    Apply own mask first…
    We owe it to ourselves and our families and friends to start by getting our own shit together.  Think about the airline safety briefing : always apply your own oxygen mask before helping others.  This initially sounds a bit counter-intuitive and even selfish to some people. 

    I have overcome most of that. I changed my life, and I qualified what Enough looked like to me. But I am still on his Level 2.

    These people understand the power of money and have mastered some of their emotional weaknesses re money. Paradoxically, they are seeking to get to a point (see level 1 below) where they think much less about money.

    I am not sure I can do that until Mr Micawber’s compass begins to respond and the questing needle shows which way is North. After a certain level personal finance is much more about the personal than it is about the finance. My fears of Lucy Mangan’s demons are part of the emotional weaknesses re money. Possibly I have some of the elements of her sociopath. I just didn’t want to depend on other people’s grace for dealing with the demons and so I spent less so I could buy my way out of certain kinds of misfortune. But I take TEA’s point. This is a question of balance and I haven’t got that right. A clawed hand remains frozen on the controls set to dead slow because the broken compass shows no signal I feel I can trust. There is still work to do on that intentional living thing.

    It has been five, getting on for six years since that fateful day in February 2009 when a jumped up punk of a manager squeezed an Ermine, intimated TINA and I realised I was all out of options and didn’t want to kiss The Man’s ass, and I locked down spending and took a three-year holiday from the middle class in the name of Freedom. I would do the same again. I have become even more ornery, awkward and unemployable since then. Work is not the point of Life 2. This much I know.

    I would soon have access to a DC pension

    Now if I had a DC pension I would soon be able to draw it. As a brutal simplification that everyone should qualify for their own circumstances, it makes sense to draw a DC pension as soon as possible, all other things being equal. By drawing it early, you stretch out the time over which the money is extracted, and you get a personal allowance for each of the years over which you take it. If you don’t need all the money that year , reinvest it in an ISA in the same sort of thing the pension was invested, and you shift the pension capital from being taxable to being sheltered from tax. If you still have more than 15k left over each year I suggest you need to spend more, unless you are looking to mollycoddle your kids in which case leave it in the pension since they can inherit that at their marginal tax rate it seems. The converse is that if you are so bloody stupid as to take your DC pension out in one lump then you deserve to pay a shitload of tax because such arrant stupidity should be taxed out of existence.

    But I don’t have a DC pension. So I can’t do that. Don’t get me wrong – I am deeply grateful that I started work at a time when there was a better balance between labour and capital and The Firm actually wanted people to work for them so they offered good benefits, the original DB pension being one of them. However, a DB pension is less flexible than a DC about the retirement date – draw it earlier than normal retirement age (60 in my case) and it is reduced by roughly 5% per year drawn short. If you are in decent health you really don’t want to do that. The actuarial reductions usually favour those who follow the norm rather than the early retirees. In itself that’s not a big deal, because I saved a quarter of my DB pension capital 3 in AVCs.

    the original plan – invest the 25% tax-free PCLS in the market in a couple of years time

    The original plan was to run off the SIPP I took out earlier this year when Osborne changed things, after another two years worth of contributions which I can get in by May 2015 (this year and next tax year), and then to draw my main pension a bit early and eat the actuarial reduction. I would then get the AVC tax free, which I would then shovel into ISAs over a few years, getting more ISA income to top up the actuarially reduced pension.

    Note the correct way to have done this job would have been to keep my mortgage at the level of the PCLS and live off the money I paid my mortgage off with until at 60 I take the PCLS tax-free and pay off the mortgage. The general cocked up the tactics there, even before the battle plan made contact with the enemy.

    the new plan – invest the AVC in deferring my main pension

    It appears I can shift the AVC into a SIPP without taking the main pension, as it is considered a DC independent saving. All of a sudden I lose the whole point of the AVC, which is to get 25% of my DB pension capital free of tax. I now only get 25% of 25% or a sixteenth of the capital tax free. However, I have discharged my mortgage and don’t have a particular need for a shedload of cash, other than as investment capital to make up for the actuarial reduction.

    From some time after this April, I can draw down the SIPP tax-free, as long as I stay below the income tax threshold. There is also some hazard of work income over the coming years 4. Indeed, it seems I can contribute to a SIPP up to £10k p.a. while drawing from it, so I can lose any earned income into the SIPP, which is a good way of spreading out earnings to minimise tax – I don’t aim to give up much time to the filthy W word, so 10k will probably do 🙂

    Each year I live off the AVC fuelled SIPP and the dividend income of my ISA, my deferred DB pension increases by roughly 5%. Effectively I get a return on my AVC funds in terms of that permanently increased DB pension, and at current stock market valuations that looks a higher return and lower risk than I could win from adding to my ISA. Of course that is a return on capital, the return of capital is consumed as income. Normally if you want a return on capital you need to retain the capital and not spend it, this is one of the few exceptions 5. When I get to 60 I will probably stop drawing down the divi from my ISA unless I think of something to spend it on. Running down the AVC + ISA income is roughly equal to the value of the DB pension at NRA, so I smooth my income. I will get two smaller bump-ups, one at 60 when the ISA dividend income becomes superfluous to requirements, and one in the distant time at 67 when and if I get the State pension.

    I get the same general effect as if I hadn’t made a cod’s of the mortgage/PCLS thing, subject to the limitation of being limited to the tax threshold + the income from my ISA each year. I’m easy with that, big spenders may not be.

    An annual income, and an answer to the Micawber question

    Obviously there’s the benefit of getting this AVC cash into use rather than depreciating for another six years. More importantly, however, I get an income for the first time in about three years. So I could return to that middle-class sort of spending if I wanted to. They say that it takes a month to break a habit, so six years should be plenty. I can’t unsee the wanton waste I discovered in some of the empty dreams of the middle class cubicle slave I was. I am no longer a cubicle slave, but some of the dreams still seem empty. I found freedom in the open spaces, in the sound of birdsong, in places like this

    1501_wolves_P1000135rather than places like this

    Westfield, London

    Westfield, London

    I am in no hurry to spend more, but I do need to release the dead hand of the fearful non-spender who felt adrift in a pathless land without the compass of Wilkins Micawber to guide the way. Unusually among consumers, possibly I am consuming at too low a rate. I can easily live well on the personal allowance plus £5000 tax-free from my ISA, maybe I will have to consult with good people like mistersquirrel and theFIREstarter as to how to inflate my outgoings on fine living. On the other hand I don’t have to spend all of it every year. My ISA will thank me for continued reinvestment. I now have a high-water-mark for annual spending, which I can exchange for the dead-hand’s ‘as little as possible’. The tide is a long, long, way out.

    the tide is out there somewhere

    the Wash – the tide is out there somewhere

    There’s no rush – one of the arts of pension planning seems to be keep as many options open, and then opportunistically close them off at the eleventh hour in whatever way is most advantageous at the time.

    Ed Miliband could destroy this plan

    …in May. In which case it’s back to plan A. There’s nothing I can do about that, it’s the usual mantra – coffee for the things I can do something about, red wine for what I can’t change. It’s the problem with pension savings all round – government meddling can screw up the best laid plans. In fairness to governments, it is only government meddling that has made this alternative a possibility. It wasn’t a possibility when I left work in 2012.

    of market crashes, and excitement, and foolishness

    All this will take a few years, should there be a market crash I can rethink, draw my DB pension a little earlier, eat some actuarial reduction and seize the opportunity to invest the SIPP. Assuming, that is, I have the cojones to do that – such a market crash could be the trumpet at dawn of the great unwinding. Or maybe I lack the taste for the ride. Finding myself unable to to determine a reasonable spending rate without having an annual income shows that perhaps I am not the Wolf of Wall Street. I should heed the words of Warren Buffett…

    To make the money they didn’t have and they didn’t need, they risked what they did have and did need–that’s foolish, that’s just plain foolish.

    …and at most half-split this if the denouement comes this year. At the moment an increase in DB pension looks lower risk than the known risk of the market 6. It’s taken me a long time to realise that I had this opportunity, because my original plan was built when Osborne’s changes hadn’t happened. However, the job of any chief executive is to adapt to changing circumstances

    no plan survives contact with the enemy

    von Moltke

    Pension planning is a bastard for complexity and counterintuitive wrinkles and changing rules. I’m generally of Monevator’s opinion when it comes to financial advisers, but I wonder if pension planning might not be an exception. Certainly for those working at The Firm, take up the offer of the Wealth at Work seminars, since you don’t pay for the advice and they have knowledge of your specific environment. Just don’t hire W@W to run your investment portfolio, which is what they’d like you to do afterwards 😉

    My pension will eventually be a combination of the DB pension with about 2/3 of the target time accrued, and my ISA to make up the difference, tax-free. But as an early retiree I could have 30 years ahead – possibly more. It would be unwise to ignore the tail risks that affect both types of pension, though differently. The world will change over that sort of timescale. Just to remind ourselves of the scale of those sorts of changes, we were listening to this on the radio 30 years ago

    Only one guy in Britain had a mobile phone, though the first had been demonstrated in 1973 in the US. Those 1970s analogue devices were not cellular like TACS was, so the number of channels was very low and prices were astronomical.

    Motorola's Martin Cooper, April 1973

    Motorola’s Martin Cooper, handset first used in April 1973

    Nobody much had the Internet. I was using a VAX with green-screen text terminal and 9600 baud serial connectors to do circuit simulation. 30 years is one hell of a long time for things to change. It’s plenty of time for tail risks to show up. But it’s also plenty of time for nimbler, younger minds to invent good stuff that people want to pay for. Assuming, of course, that the work of humans is not done here – in which case the spoils will accrue to patrimonial capital as Piketty told us it would.

    Notes:

    1. the NHS does fine with big stuff and with chronic stuff, but elective quality of life interventions it does poorly now the Tories have been at it.
    2. with the obvious rider ‘for me’. If Work is the point of Life for you then knock yourself out
    3. computed by taking the gross paid at NRA and multiplying by 20
    4. there is some research work I want to do. In the end even an ermine can’t outrun the W word forever…
    5. it isn’t a true exception, it is the interaction with life-expectancy figures that gives an appearance of a return on capital.
    6. I am casually interchanging risk and volatility of the short-term price levels which I really shouldn’t do

    DB actuarial reduction is certainly a big block to early retirement. I can’t access mine, or the associated AVCs, until I’m 66 and I’ve just discovered that a few years of part-time working have scuppered the “Rule of 85” protection which I was relying on to buy me a couple of extra non-reduced years. The LGPS lets you take your pension in full when years of membership, plus age, come to 85. However, I’ve just realised that it’s years of membership in actual days of work, not just by the calendar. This makes complete sense and is only fair, but I’d missed it in my original plan so I need to get more in my SIPP than expected before I can go.

    You make a good point about taking advice on pension planning from scheme experts if possible – it can be quite tricky, and easy to make false assumptions which can send you down the wrong track.

    Thanks Ermine for another thought provoking piece. As you say, the whole pension space is so complicated and changing that getting support is useful. Unfortunately I worry which advisers and firms can do this or whether they will focus more on product and fund bells and whistles.

    Just another quick point, as you allude to in the footnote the 5% isn’t really a return, it’s an increase in income per annum, but as you have forgone a year’s income that needs to be brought in if to compare to a value increase (probably by thinking about the proportion of expected life that represents, you could do something more complex, but it is all probabilities and may be spuriously complex!)

    Memento mori

    I probably could have done with some full stops in that last sentence/paragraph!

    Neverland the current pension changes are virtually begging people with big DC funds to retire at 55, which is exactly what the government doesn’t want them to do since it would like to continue to extract income tax from them at 40/45% to close the huge £75/100bn annual spending deficit

    Therefore expect more changes after the election, whoever wins

    28 Jan 2015, 3:03pm
    by Rowan Tree

    reply

    I agree.
    Managing money post retirement in your 50s and 60s is a rapidly changing field. I made these notes five years ago –
    I expected my state pension age to be 64.
    The pension pots/savings would provide an annuity.
    I would continue enjoying work until 62 then give myself a couple of years off.
    I had very little expertise in my understanding of PF, but I could save well.
    My funds had lost a lot in the crashes of 2002, then 2008, and were slow to recover.
    Fund fees were high but I couldn’t see them clearly and work them out.

    My situation five years later (now)
    My state pension age is now 66.
    Managing pension pots/savings is more complex, there’s more opportunities out there than an annuity, but greater knowledge is needed.
    Also, work got so bad that I packed it in at 60, to save what was left of me.
    (We’re living off DH’s income, but he wants to retire sooner rather than later, though).
    I found Monevator and the UK PF blogs, and learned something. Got rid of all those high fees. Spent ages getting the amount in my funds set to something I could live with when the markets crash.

    That’s just five years!

    I don’t like spending money, it’s so hard to replace it when you’re retired. But some has been ring fenced for what is special to us. Motorcycling. Diving. A set amount.
    One day we will be too old. Blade Runner Tears in Rain.

    Of course things are changing even more for younger people it is just that most aren’t paying attention. It’ll be 57 I think before I can get my hands on my private pension. Clearly at 55 I will be too young and reckless to have access whereas by 57 I’ll have matured enough to have complete freedom.

    Neverland – I don’t know the numbers but I thought the projections from HMRC were for a higher amount of income tax (short term at least) as people get their hands on the cash and take the tax bill on the nose. I can see one rush coming if, for example, people thought they couldn’t trust an incoming government to keep the same freedoms!

    David

    Things worked out OK for me and my wife for two reasons:
    1- I was able to hang in until age 58 and my DB pension had a fairly generous actuarial discount so I got a decent income from it.
    2- I married well. My wife has an absolutely gold plated DB pension that paid the Full Monty when she retired at age 55.
    So we had a financial Micawber compass from the start. We are now on government largesse so both Canada Pension and Old Age Security payments arrive tomorrow. We still have RRSP money to cushion any illness or inflationary issues in our really old age.
    I do sympathize with those who want to get out earlier than 55 though.

    29 Jan 2015, 8:30am
    by Neverland

    reply

    @David

    Basically with two SIPPs in the family you can take out an income of £100k a year and pay only £16k of income tax (no NI), because 25% of what you take out is tax free and you’ve got £20k+ of personal allowances on top

    George will get a lot less income tax out of private pensions than he thinks, the great british public loves avoiding taxes

    @Cerridwen – that is a real drag that the AVCs are locked to the time of drawing the main pension. The LGPS AVC documentation is pretty dense, and nowhere does it say anything about being able to transfer the AVC to a SIPP, though I wonder if this possibility is a question worth asking.

    The terminology around pensions is devilishly opaque and schemes seem to differ in the detail a lot.

    @David – the advice that The Firm paid for was even-handed in the orientations seminars. Apparently if you went for the ‘free’ one to one follow-ups they pushed their portfolio management. In all fairness, in the seminars they did describe the effect of fees 😉

    I also thought I read somewhere that the Exchequer expected to receive a short-term boost to the finances by a whole load of old gits going wha-hey – YOLO and drawing a lot out of their SIPPs as lump sums. But I can’t find it anywhere now.

    @Neverland – that does seem to be the message, really – get money out across the maximum number of personal allowances.

    the great british public loves avoiding taxes

    guess that’s the quid quo pro for getting them to save more though 😉

    @Rowan Tree – that’s a lot of rapid change! Your big win in the face of it is/was

    I had very little expertise in my understanding of PF, but I could save well.

    That’s most of the battle won…

    I was 46 when a colleague pointed out AVCs to me, and it took a little while to actually get my head round what this could do for me in terms of the tax win. Once I got it I hit it hard!

    @Ray your wife was in a seriously generous scheme with a NRA for 55 – hats off to you both! I was tickled to read about the Canadian concept of Freedom 55 – though it’s not the default NRA I see, which appears to be 65 still. Indeed, Canadians seem to retire well if there is an industry of “One growing industry for seniors is retirement coaches.” to teach them how to get the most out of it!

    @ermine my wife was a teacher and the union negotiated an “85 factor” (age +yrs exp.) so she was able to get out at 55. Actually she went to an 88 factor.
    I worked for Unilever but they don’t offer a DB pension to new employees that is anywhere as good as the one I have.
    In Canada now the official age for government benefits is now 67 for the younger set. They’ve also increased the actuarial discount from 5% per year to 6% per year. So you have to plan well to retire early.

    @Neverland you could well be right, over the medium term, however in the short term it is a numbers game, there are an awful lot of much smaller funds which will go in one lump and the very very few that can support £50k a year withdrawals haven’t really changed their position under the new freedoms.

    So short term more tax, longer term less tax – designed to appeal to politicians.

    Page 27 in here gives the govt view:
    http://www.parliament.uk/Templates/BriefingPapers/Pages/BPPdfDownload.aspx?bp-id=RP14-57

    “Shall I part my hair behind? Do I dare to eat a peach?

    I shall wear white flannel trousers, and walk upon the beach.

    I have heard the mermaids singing, each to each.

    I do not think that they will sing to me.”

    Work height hours a week using that big brain of yours, meet new people, get annoyed now and then which reminds you how great the rest of your post-work life is, and enjoy the extra £10,000 a year spending money.

    You’re welcome. 😉

    @Monevator Touché 😉 Google was my friend – I flunked Eng Lit!

    2 Feb 2015, 9:40am
    by living cheap in London

    reply

    Great post once again, & is making me reflect sharply on my current mortgage payment plan. Maybe i shouldn’t be making over-payments & let it run longer, & put the over-payments in to our ISA’s for the next 10-15 years.

    Currently the mortgage will be completed age 45 (5 yrs time) on present payments, though it could potentially run another 20 years as we recently re-mortgaged. it’s fully offset so there is no interest rate-hike exposure. My plan to over-pay is based around liberating the offset cash into ISA’s monthly but maybe i’ve been looking at this through an inverted lens.

    @living cheap in london – it’s definitely worth running the spreadsheet then, with each year, your age and rows for pension savings and ISA savings and mortgage repayments/drawdown. It depends on your tax position, but certainly higher rate taxpayers should very seriously think about using pension savings and keeping the mortgage, at least up to the 25% tax-free PCLS.

    Say for the sake of argument you have a 100k PCLS (£400k pension savings in total), that will have cost you £60k to save up. You can defer payment of £100k of the mortgage, which you can use to bridge the intercession between, say, 50 and 57 (in your case the earliest you can use the PCLS). That means you are £14k a year better off.

    Over those seven years you’d probably be wise to shift that £100k from equities to something safer if you are going to liquidate a fixed amount of cash, so you may lose out on about 18% stock market gain in real terms (assuming a 5% real return and an average carry of 3.5 years) but you reduce volatility. The more racy among us would say keep that mortgage while interest rates are low and invest. I’m not that hard, but each to their own 😉

    That way you get to carry £100k effectively interest-only for seven years, so that’s what – £5k a year, say £35k, although deflated in real terms. So you lose a putative 53k over the seven years (opportunity cost + interest cost). But you save £40k due to the tax benefits. £13k over seven years isn’t a bad price to pay to gain seven years of £14k p.a. flexibility in smoothing your income between early retirement and age 57. It’s at least an option worth considering. Had I realised the difference I would have gone that way, in which case I wouldn’t need to muck around with SIPPS for five years, beyond the £3600 a year tax bung.

    Obviously DYOR and it might not be for you, but I’d say most people who are in a position to retire pre-55/57 should at least have a good reason to rule it out 😉

    3 Feb 2015, 10:35am
    by living cheap in London

    reply

    @Ermine thanks for much for taking the time to reply in such detail.

    I’ll crunch some numbers in the coming week, though i fear i may not be able to stretch out our mortgage long enough (even at minimum monthly payments) to get to the PCLS. Still though, you’ve got me thinking about my current over-payment strategy – think i’ll push some of this into ISA’s over the next few years either way.

    Keep the great posts coming!!

    I think many of us [older] folks would do things differently – I’d have been smarter about using all my ISA allowances every year, smarter about selling my shares when I exited MegaCorp but as they say hindsight is the best sight 😉

    re: Pensions they are complicated which is why I think a lot of young people are turned off by them which is a shame because if you do contribute out of your pre-tax you get all the benefits of (a) tax relief, (b) “paying yourself first”, and if you start at 20 then (c) possibly 40 years of compounding – I know you’re not a fan but over 40 years I reckon it does help. The good thing is it’s now fairly easy to xfer pensions into a SIPP and I’ve done that for the little odds and sods I collected over the years – nothing more than about 5k in each but scooping them all together made me feel better 🙂

    The Carpe Diem / YOLO vs prudent and relaxed old age is surely one of the hardest decisions to make – it’s one of those sliders in a computer dialogue box, how far do you push it. Too far to YOLO and you have no contingency for “shit happens” life events, too far towards prudent and you’ll die rich without ever having being silly and fun… tough one.

    @ermine
    Another great post, I’m going to read through this again later!

    @living cheap in London
    Definitely run the numbers and look at your situation, but also remember that it’s not always just about the money. Paying off that mortgage just feels grrrrreat.

    Regrets? I’ve had a few, but when it comes down to it, it’s wonderful knowing that if, for whatever reason, I stopped working tomorrow, we’d find a way to get by, helped by the fact that we’ve removed the biggest and most necessary of all the items on the “expenditure” side of the sheet.

    Also, since I paid the mother off, the savings rate has gone through the roof, which is another big plus!

    Obviously if you’re talking about routing the overpayment dosh into somewhere where it’s accessible (e.g. ISA) and you could therefore pay off the mortgage at any point (assuming the value of said accessible location isn’t going to be too volatile..) then that’s probably almost as good. Almost, but not quite 😉

    Horses for courses maybe. Run the numbers and see how you feel. Good luck!

    @mistersquirrel I think young people are being rational in favouring ISAs over pensions in their early years. There is the flexibility issue, the risk of government fidding (and in serious economic distress appropriating pensions – the roll-call of that in Pickpocketing Pensions makes uncomfortable reading). Yes, you get 20% off now but what will income taxes be later – higher I would surmise. People easily forget just how high taxes were and how low personal allowances were. When I started work in 1982 I was paying 30% tax on over 2/3 of my lousy income plus 8.75% NI – so the young Ermine was eating a tax rate within a whisker of the older ermine’s higher tax rate but paying more proportionally due to the shockingly low personal allowance. If I were < 30 I would imagine such times could come again in three decades... Obviously take employer match and 40% taxpayers should be thinking about pension saving even if they're 25 😉 The Carpe Diem/YOLO is a tough one. At the moment I take the line that eight years of Freedom from the Man is a seriously big win and it's not like I am bored so I bias to throttle back the YOLO when it comes to spending money. Once I manage to roughly match the original track my pension would have had I'll ease off. The SIPP/AVC trick lets me get there quicker, the ISA then becomes entirely fun money. @JAL Can't argue with the peace of mind of a fully paid off house. But it does come a the cost of an income suckout pre-55. Against that, if you're still working but jittery about if the axe is coming your way and don't see a way to getting a similarly paid job, knowing you can batten down the hatches and nobody can take away your house is a very good feeling. I discharged my mortgage early for exactly that reason.

     
     
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