Financial 'opinion' for 23yr old getting pension & house

tim_n

I'm 23, and it's time I started planning for my retirement!

I am in a very low wage situation which I intend to compliment soon by getting a second job. I work for a far east company selling, and get £10,600. Although I live with my parents and rent/utility free, I am about to start contributing to the tune of £280pcm which I believe my parents are going to be saving to give back to me in the form of a housing deposit (Woohoo!).

My commitments include a 5 year old fiesta which I have been insuring for around £350 per year and drive around 10,000 miles in. The odd holiday here and there and a mobile contract about £30 pcm which I will get 100% cashback in 9 months time. I also have a full TV contract (multiroom) with sky @ £10 per month, make NI contributions (class 4? @ £21 pcm?) and budget £80 a month spending money.

tim_n

So far since february, I've managed to waste my money and not put a lot into savings. I have around £5,000 savings (50% in an isa, 50% in savings for house) but I also have a £7,000 student debt to which I'm not paying any interest at present, because I believe I am under the earnings limit. When I take my second job however I suspect I will be contributing to the interest (about £100 annually)

My parents have just given me a fat check (£1,500) to either put into a pension or to invest into a unit trust or the like.

On Christmas day we setup a Stakeholder pension with Friends Provident which takes a 0.8% rate. I intend to start making contributions at £50pcm in some of their high risk options. As my income grows I obviously intend to increase my contributions. A family member is with Friends provident and has had good experiences - especially with the higher risk investments which have grown faster than the rest of their portfolio.

The unit trust I am looking to invest in has consistantly performed well - over market growth since 2000 - It's 'Jupiter Financial Opportunities' that I'm looking at.

Anyone offer an opinion (not advice!) on what I'm doing? :- )

EdInvestor

Hello Tim

You fall into the category which will find it difficult to get advice because anything you save could be wiped out by a reduction in benefits when you retire, and thus advice could constitute misselling.

Personally I'd have thought you should be aiming at continuing with your emergency cash fund and the house deposit money.

As of next April the rules on pensions will change so that you can pay in large lump sums much closer to retirement without losing any tax relief, as you would do now. As a result, unless you have a job where your employer will pay contributions into a pension, it's the ISA tax wrapper you should concentrate on now, because that one is done on a yearly basis, so it's use it or lose it.

al_yrpal

Hi Tim,

On a different tack...

At your age you shouldn't be dwelling on such things. You're in the right job, selling is where the money is. Try and learn as much about business as you can, where things are sourced from, what sort of margins they get, when they have to pay, how much credit they are allowed etc.
Instead of getting a part time job put your efforts into getting your own business, its the key to getting rich. You'll never be rich being a wage slave.. One idea is, you can get on-line shops almost for free at several places on the web and start to sell things part time, you may have other ideas.
Read Alan Sugar's life story, and Dale Carnegie's book 'How to make Friends and Influence People' they might fire you up.

All the best

Al
ps Wish I'd done what I am suggesting at 23 instead of 46!

tim_n

bizarrely I already co-own a company selling e-commerce websites :- )

The job I have at the moment allows me to travel - it's not the sort of market I could easily get into as the market is saturated with the product I sell (hence why I'm finding it so hard to sell!)

Everyone I speak to is in two minds - one side says start a pension - it doesn't hurt to save a few quid into a stakeholder and it'll help you later on down the line. the other half says 'don't worry about it, you're too young and there's other tax free areas to invest in'. Hence why I'm trying to do both.

I work from home as it is with the paid employment - it was only ever a job to get me started in my own business - but truth be told I've not found anything to do at present that captures my imagination. Unfortunately I'm only motivated in short spurts and home has too many distractions at present - something I'd not have if I had my own house!

My plan is to get out, then get rich. Until I can get a mortgage though I can't do either, and the job I've got is ideal for providing financial stability whilst I start up my own business!

dunstonh

You fall into the category which will find it difficult to get advice because anything you save could be wiped out by a reduction in benefits when you retire, and thus advice could constitute misselling.

I disagree. At age 23, there is no telling what benefits would exist in 40-50 years time. Therefore, retirement planning is appropriate. To plan to rely on state benefits which may or may not exist in the future is, in my opinion, far more foolish than doing nothing.

A relatively small monthly contribution at this stage can make a whole load of difference.

The issue about when to start and having other priorities exists throughout your life. You can say you are saving for a house, then you are paying for the house, then you have a family and children to pay for and then before you realise it, you are in your 50s and looking at a retirement where you have to sell that house to finance your retirement because you had other priorities.

A family member is with Friends provident and has had good experiences - especially with the higher risk investments which have grown faster than the rest of their portfolio.

Actually, FP have a better track record on the lower risk funds with their stakeholder pension. Their Personal Pension is a far better product than the stakeholder though and offers a much better range. Especially considering your higher risk profile, that you appear to have.

Everyone I speak to is in two minds - one side says start a pension - it doesn't hurt to save a few quid into a stakeholder and it'll help you later on down the line. the other half says 'don't worry about it, you're too young and there's other tax free areas to invest in'. Hence why I'm trying to do both.

Those that are successful help themselves. Too many want it handed to them on a plate or have the attitude of putting off until tomorrow what should be done today.

You need a couple of hundred thousand (ideally) for retirement (ignoring the tax wrapper for the moment). Its far easier to build that up with 40-50 years to go than with 10-20 years.

she_ra987

Hiya Tim,

Just one thing about your student loan. As far as I am aware you still pay interest on your student loan even if you are not repaying it (at the rate of inflation so depending on how you look at this you could view it as interest free). Being under the threshold only means you don't have to start making repayments not that they are not adding interest. The threshold is £15,000 and then you repay 9% of anything over that. So if you earn £15,500 you would repay £45 (I think!).

EdInvestor

You need a couple of hundred thousand (ideally) for retirement

And the rest...

... but here's a guy who has only a small emergency fund, a pile of student debt, no home, a low salary and business aspirations which may require him to invest cash.

How can it be possibly good advice to lock away what little money he does have where he can't access it for 30 years?

Tim's other post suggests even more clearly that he shouldn't lock away any spare money.

He wants to buy a house but has only a small deposit and a job which could disappear.How could he pay the moprtgage if it did disappear?

IMHO he would be best to save up all he can and look for a more secure and better paid job so he can finance his home. If said new job had a pension with company contributions attached, fine, but clearly his own priority is the home so that's where his financial focus should be.

tim_n

I don't think there's a right or wrong idea - btw I understand that I'm paying interest on the student loan and it's not frozen, but it's a small rate to pay so I'm not rushing to pay it off anytime soon.

I'm working on building an emergency fund and trying to get myself better motivated. I've started tracking my money again (something I did to great sucess when I had no money as a student) and am shocked to see how I've let things slip! I should be about £3,000 better off which has been spent holidaying, gadgeting and drinking!

January 1st is a new year for me financially and I'm hoping to start afresh and work on building a good business, a home and an emergency fund!

cheerfulcat

tim_n wrote:

Everyone I speak to is in two minds - one side says start a pension - it doesn't hurt to save a few quid into a stakeholder and it'll help you later on down the line. the other half says 'don't worry about it, you're too young and there's other tax free areas to invest in'. Hence why I'm trying to do both.

Hi, Tim,

You are *never* too young to start saving for retirement. With the effect of compounding on investment returns, someone investing from the age of twenty has a huge advantage over someone starting ten years later.

It doesn't have to be in a pension, though there are attractive tax advantages with a pension wrapper ( and of course disadvantages, the principle one being that the money is not available for other purposes ). It doesn't even have to be in a tax-free environment, nice as those are, since you can still make £8500 in capital gains ( this tax year ) before paying CGT.

Cheerfulcat

EdInvestor

cheerfulcat wrote:

You are *never* too young to start saving for retirement.

Quite agree

It doesn't have to be in a pension....

And yet most people seem to think it does. I wonder why?