Investing newbie with questions...

Not_Me_Officer wrote: »

I've finished John Edwards DIY Investing book and found it very helpful. So much so that i've just ordered his DIY Pensions book for a read.

I've not read them, but seemed pretty short (and cheap) on Kindle, so nothing to lose by taking a look.

Andy Bell (who set up AJBell / Youinvest) has one called "the DIY investor" which is quite easy to follow, but weightier and more expensive than the ones you mentioned. There's a new edition out next month. It goes through the concepts and practicalities of opening ISAs or SIPPs or other types of accounts with investment platforms and buying different types of investments within them. I bought it for my dad. It doesn't mention LISAs as they are a brand new concept, but LISAs aren't rocket science and there's loads of posts on the ISAs board here that would explain the ins and outs. Not sure if Bell's new book has much/any updated content to pick up on the new tax rules of the last couple of years, or just a shinier front cover. Hopefully the former.

Once i've gone through that i'll take a look at S&S ISAs vs S&S LISAs and then try to weigh up whether i put my retirement plan in one of the 3 or split it and if so to what ratio.

Splitting it makes sense as each of the investment wrappers have their own pros and cons.

If it is genuinely intended for retirement age 60+ though, and not for some intermediate goal in ten or twenty years where you might want to withdraw the proceeds, LISA beats S&S ISA due to free bonus money. It will really help you boost your pot of assets to draw out in your 60s or beyond without tax. A normal S&S ISA would simply leave you with a smaller pot of the same assets.

If you don't already have much pension and you are worried about means testing or bailiffs etc then a pension is more compelling than if you did /weren't, as it's "off the radar" rather than being accessible with a penalty. You can't be forced to access a pension early.

However, if your retirement planning has gone so badly that you have run out of money apart from your retirement funds, it might be useful to be able to access them in an absolute life or death crisis, so the LISA is OK. Access for a penalty is not a bad feature -you should hope you never need to use it though, otherwise you will have a miserable retirement at poverty level without any private pension income and relying only on the state.

Either way, as you don't want to be living on pennies a week over the course of a 40 year retirement, you're clearly going to need to increase your pension funding above its current £14pm . Would you try to live off £50pm in retirement? Because that's what you're aiming for with that level of contribution. In due course you'd need to put more into your pension to meet the overall increasing minimums if your employer is only putting in his minimum piece. So don't be putting so much into an ISA or LISA that you can't afford to stay in the work pension and lose the employer free cash. However, that is probably a red herring as you can always modify how much you pay in to which product, in due course. If you start with £100-150pm now to the LISA and 50-100 to pension you could adjust it later if you need more pension contributions to stay in the work scheme but can't really afford it.

Really the main thing to be concerned with retirement planning is if you put pennies in you get pennies out. And your £200pm which sounds a lot now will not be much when a pint of beer costs £20 in retirement ; aim to increase the £200pm every year by more than inflation, especially as you have left it late to properly get started. When the minimum pension contribution at work increases, try to do the full amount of that increase without reducing this £200pm or whatever its grown to.

Side note - you mention your wife 'can't get into this kind of thing'. Don't let her ignorance and disinterest make it fall all on your shoulders. When you have worked out your plan, at least tell her what it is and what sort of pot it might build by the time you're both mid-sixties and looking to give up work.

Say for example you invest £200pm in real terms (i.e. increasing with inflation) for the next 30 years and then make on average 4.5% growth above inflation for that 30 year period. That gives you a pot of £150k in real terms (today's money) age 64-65. If you then draw out 4% a year from that big pot of capital while keeping it invested you will hopefully be able to keep it running for the next 30 years after you start drawing on it without really eroding it in real terms, so you can afford to live longer than you planned and have a bit left over for your kids.

But 4% of £150k is only £6k a year. It would be more than that if you had a LISA bonus on the contributions between now and age 50, which will help. But you might not achieve the assumed 'inflation plus 4.5%' rate because nobody knows exactly how investments will perform from here.

Anyway, can you live on £6k a year between the two of you from age 64-65 while waiting for state pension to kick in at about age 70? Probably not. You might want to draw it much faster. So it would be half gone by the time you got to state pension age and you'd then just be living on the residue plus state pensions, which are about £8k each if you have a full entitlement - which isn't much fun if you have got used to each earning £30k plus towards the end of your careers.

If you spell it out for your wife, she still might not want to take much interest in what exactly you are investing in or who exactly you are investing in on her behalf, but she would hopefully take an interest in improving the £200pm figure so you end up with more in the pot because nobody wants to plan to be poor. Make sure she is maxing out any free money at her own workplace pension, assuming she works.