Mortgage free at 35. Now to start a pension.

2016Convert · 18 July 2017 at 12:04PM

Hi there

I've sacrificed pension planning in order to clear my mortgage and as off yesterday I am mortgage free.

So, now I'm planning on a pension and was to get things started ASAP.

I don't know where to start. I can afford to save £1000 a month. Any advice or links to where to start?

Thank you

xylophone · 18 July 2017 at 12:40PM

Does your employer offer a pension scheme?

Or are you self employed/employed by your own limited company?

dunstonh · 18 July 2017 at 12:53PM

I've sacrificed pension planning in order to clear my mortgage and as off yesterday I am mortgage free.

That's a shame. Clearing debt at 2-3% whilst missing out on 7-10% p.a. isn't ideal. Hopefully, you are not a higher rate taxpayer or have children/working tax credits.

I can afford to save £1000 a month.

If you are an average consumer on average earnings and looking to retire at 68 (state pension age) on average pension income then it will take you to around age 42 to catch up with that contribution.

How much do you earn now (so we can see how much £1000 is relative to your income)? Do you plan to retire earlier than 68?
Are you married/have a partner?
Are you employed/self employed/director?
How much income are you looking for in retirement?

bostonerimus · 18 July 2017 at 1:08PM

2016Convert wrote: »

Hi there

I've sacrificed pension planning in order to clear my mortgage and as off yesterday I am mortgage free.

I would not have done that myself. The early years of pension or ISA investing are very important as your money has more time to grow. Also you've been paying off what I assume to be low interest debt of a couple of percent and missing out on potentially far higher returns in the stock market.

35 is still relatively young which is good so you'll have maybe 30 years to save for retirement.....however the 10 or 15 years you've lost can never bee recovered. You should make sure that you put your entire mortgage amount into saving and investments plus whatever you would have paid in anyway to catch up.

So, now I'm planning on a pension and was to get things started ASAP.

I don't know where to start. I can afford to save £1000 a month. Any advice or links to where to start?

Thank you

Use your employer's plan first to get the employer match. Then look at a SIPP. You should also be using your ISA allowance as ISA savings give you flexibility.

2016Convert · 18 July 2017 at 2:29PM

Ahhhh...its seeming like I have made a error in overpaying the mortgage.

I'm self employed, single and no children. Income is around £70k. I am investing in the business and it does have assets.

Kicking myself now.

2016Convert · 18 July 2017 at 2:32PM

I can up the amount paid in to £1500 comfortable. Just would mean I couldn't treat myself to the holiday and car I wanted after becoming mortgage free. Ah well. You live and learn.

GunJack · 18 July 2017 at 2:58PM

2016Convert wrote: »

I can up the amount paid in to £1500 comfortable. Just would mean I couldn't treat myself to the holiday and car I wanted after becoming mortgage free. Ah well. You live and learn.

But you do have somewhere to live that no-one can kick you out of (under normal circumstances)....it also lets you have a lower income than if you had to find rent/mortgage payments...I do feel people often under-value security of tenure...

atush · 18 July 2017 at 3:18PM

2016Convert wrote: »

Ahhhh...its seeming like I have made a error in overpaying the mortgage.

I'm self employed, single and no children. Income is around £70k. I am investing in the business and it does have assets.

Kicking myself now.

Oh dear. You pay higher rate tax, so 100 into a pension would have cost you 60. where else can you make 40% overnight?

Do you have savings? If so, you can whack in 32K this year, which will be grossed up by HMRC to 40K. Then you tell hMRC about your pension contribs and they will refund the rest of your relief via SA, adjusting your tax code or by cheque.

Go to the Monevator website and read up oon compounding returns. This will explain why we said not investing for 15 years wasnt good.

As a side note, starting at 35, you need to put in at least 19% of your gross income.

Are you a limited company?

2016Convert · 18 July 2017 at 4:53PM

I do feel very comfortable that my outgoings are around £1000 a month. And I do have a home for life.

2016Convert · 18 July 2017 at 4:54PM

That's fantastic advice. Thank you.

ex-pat_scot · 18 July 2017 at 4:59PM

A bit more detail might help the suggestions perhaps.
You say you are self employed with income £70k.

is this through limited co, with low salary and dividend approach to remuneration? Is it through an umbrella PAYE scheme?

If PAYE, then I would suggest making sufficient contributions to bring you down to / below HRT threshold. That means at least £25k (gross) to take your effective gross salary down to £45k.
That £25k will obtain HR tax relief, plus ers and ees NIC relief.
Frankly I would also bung an additional £15k in as well to make the pension contribution a nice £40k total (ie the annual allowance). As a single person, with no mortgage, that will leave you £30k to live on, which should be fine under normal circumstances (you might not think so, but I do!)

If you are a ltd co, then the approach should be similar, but the relief is slightly different due to (lack of) ers NI but the additional dividend tax.
I would still seek to put away the max £40,000 into the pension each year.

As noted above, if you ended up with £30,000 gross PA upon which you needed to live, then that would give you £2,500 pm gross -> £1,975 net (PAYE) or £2,000 (very roughly) under a divi approach. That's not a first class lifestyle, but 20 years of that will get you to 55 with £800,000 pension contributions plus investment compound perfornance.

Mortgage free at 35. Now to start a pension.

Comments

Categories

Get our FREE Weekly email full of deals & guides - and it’s spam-free