As part of my READY, AIM, FIRE thinking towards FIRE, I’ve now cut my excess pension payments as part of my salary
I have the benefit of Salary Sacrifice and I can save a lot of money by putting money into my pension through work – but I’m ending up with too much money in my SIPP/Pensions/LISA and not enough in accounts that I can access now without tax problems.
So, I took the step to reduce my voluntary extra pension payments to around 10% of my salary and as a result my take home pay this month will be about double! Even more important, it gives me more cash now to invest in my ISAs or share accounts.
Since I started this current job 3 1/2 years ago (my god, where does the time go?) I’ve been packing out my Pension to the point where I’m reaching the annual allowance (£40k year/£120k over 3 years). Diverting all this money into pensions which I can’t touch for decades has meant that month to month we are cashflow negative (income from work/employment is less than family spending). We’ve managed to survive by diverting money from P2P or VCTs around – but it’s clear from our accounts that our pension funds are increasing more than our non-pension funds – and the picture looks even worse when you remove the house out of the equation!
So, I’ll be putting this extra money to good use. Using the crude 4% SWR, an extra £2000 per month is £80 a year spending money and if I keep this up for the next 6 months and get a good bonus – that could be up to and extra £1000 by next Summer! Personally, I’ll be reclaiming the Income tax by investing in VCTs in the coming weeks
The path to FI and how you get there is something that you need to think carefully about. My decision to max out the pension worked well from a pension point of view but – with our high spending now (family formation!) – the right decision to achieve RE is to pay taxes on the money now and retire early sooner.