When should I start saving for a pension

EdInvestor

I saw someone last week who has just arranged a 40 year mortgage as that is the only way they could get the money. They will be borrowing a large amount longer than they will be saving for their retirement.

You see, equity release can come in handy, as they can basically just convert this one later and they won't have to pay it off.

Does the OP think the Sharesave scheme will pay off the debt AND provide a deposit?Will it do either one of those jobs?

If not, seems to me he will need to forego, or at least strictly limit, his involvement in the 2nd pension scheme for the moment until he gets the debt paid off at least.

If he can join now with a very small contribution (just to guard against entry being denied later to non members), that might be a way forward, and then when the debt and house purchase are sorted, he can increase his contribution.

dunstonh

You see, equity release can come in handy, as they can basically just convert this one later and they won't have to pay it off.

Nope, still dont see it.

This person is borrowing £100k over 40 years. They will pay around £600k over the 40 years for that 100k house. Probably roughly what it will be worth in 40 years time. After 40 years of struggle to pay that mortgage, do you really think that the first thing they will want to be doing (as it finishes at age 65) will be borrow against that property again? If you plan to do equity release, there is little point you borrowing the money and you pay as well rent and stick the savings into investments.

You shouldnt plan to equity release in retirement. It should be a fall back option. A last resort option or an option to use if you are single with no dependents and dont see the point of leaving money to some unknown (or Gordon Brown!).

Chrismaths

Given what I've said before about mortgages and pensions, I thought I probably ought to balance out what I've said with some figures on the power of compounding, and how important it is in the context of retirement savings.

What I've done is knock about some figures using real growth rates of 5% per annum, 7% and 9%. In these examples, I've worked out if you start saving at age 18, and save at a constant rate until you are 65, at what age you have built up half of your final retirement fund.

Constant growth rate: 9%
age at which you have half of your eventual fund: 24.9

Constant growth rate: 7%
age: 26.7

Constant growth rate: 5%
age: 29.3

So what this says is that if your investments grow at a rate of 9% per year, because of the compounding effect you will have the same retirement fund if you only invest for 7 years at the beginning of your career, as you will if you invest for the next 40 years.

Of course the flaw in this plan is that you don't have as much money when you are 18-25 as when you are 25 - 60!

However, what it does show is a better use for Gordon Brown's CTF money. If he had said instead of giving the money to your kid aged 18 (when they will spend it on beer, drugs, women and gambling as I did ), If they invested a small amount of money regularly between the ages of 0 - 18 and locked it up till 65, the pensions crisis for kids born today simply wouldn't exist!

Happy Easter all, I'm off to reminisce over my mispent youth.

ti1980

Everyone who worked at M&S got given free shares in 2003 and they can be cashed in this year or wait another 2 years and then they won't have to pay tax or NI on them.
I am a 'she' btw so will probably spend an amount of time not working, I know this will make a difference to things.
The amount of shares that I mentioned, I won't be able to get until 2009 and 2010 respectively, I joined a 3 year and a 5 year plan. So this means I will have to stay with them in order to get the amounts I mentioned.
If I leave them before then I won't be entitled to buy the shares, I will just get my money back plus some interest (not very high).

ReportInvestor

Chrismaths wrote:

If [Gordon] had said instead of giving the money to your kid aged 18 [but] locked it up till 65, the pensions crisis for kids born today simply wouldn't exist!

Well I wouldn't have been quite so optimistic as you Cm, but it would certainly have given them a start.

ReportInvestor

dunstonh wrote:

Time speeds up as you get older.

Not just an IFA. Also a philosopher.

ReportInvestor

ti1980 wrote:

I am a 'she' btw so will probably spend an amount of time not working, I know this will make a difference to things.

You are learning fast.

Is it worth getting in that maximum M&S pension contribution (you 10% - M&S 20% - That's a hell of a lot of money) in advance of any career break so that you have the effect of future compound growth on your side?

EdInvestor

What scares me so much about investing in a pension is that the money is 'locked' away for so long and I wouldn't be able to get any of it

The OP has said this about three times now.

And then she says:

The thing with me is that my credit cards are my immediate problem and they won't be paid off til I'm pushing 30. I still have other debts to pay off, gonna be me forever.

and

Also I'm renting at the moment and at some point in the relatively near future (3 years ish after credit cards paid off) I would probably be getting a mortgage.

Now let's look at the "big picture" for a moment.

I suspect that most people would agree that ideally one lands up at retirement with

1) A decent home of one's own, preferably one that's a bit bigger than we actually need ( so we can trade down to something smaller and get some money out if need be)

2)A decent company pension to cover most of our living costs comfortably

3)The state pensions in full - half of this might be included in (2)-as an income top-up

4)An additional biggish pot of capital to cover things like house repairs, replacement of the car, big trips overseas, helping out kids and grandkids etc and as a further income top up if required.


Now at the moment , at the age of - what 27 ish?- tj1980 has a good job with a future and is fully covered for stages 2 and 3 with her existing non contributory pension and her NI contributions.

She has not made a start on 1) indeed she is wasting money paying rent.

Although she has made a start on 4) with her Sharesave, this will be gobbled up by paying off her debts and finding the deposit for her home.

Quite frankly it seems to me that despite the undoubted attractions of this second pension, the last thing she needs to do is to lock up more money in over-provisioning categories 2 and 3 of her long term needs when she is shelling out rent and paying back debt.

That would surely be a totally unbalanced way to proceed.

THe appropriate thing at the moment IMHO is to lauch a serious attack on the debt, via the "snowball" process ( pay off most expensive interest rates first), followed by a major effort to accumulate savings, with a view to combining them with the Sharesave when it matures and shortly after that having enough to put down a deposit on a home, thus also stopping paying rent.

After that it would be appropriate to look at the second pension.Right now, given the existence of the other one, I wouldn't see it as a priority.

ti1980

I wouldn't say it was a good job, it is secure as long as the company does well but it isn't exactly the highest paid in the world. In fact it is quite the opposite, practically everyone I know that doesn't work there earns so much more than me but I know that many of my friends don't have any sort of pension and aren't even thinking about it yet.

One thing is if I pay off my credit cards at the rate I am doing now then I will be free of credit card debt in 16-18 months but that still leaves my other debts which will take another 3-ish years to pay off I would imagine.

There are lots of things I need to think about as I want to pay off my debts quickly but I also want to plan for the future and retirement (assuming I live long enough to retire etc).
I also want to get qualifications to move into a different and much better paid job as I do enjoy what I do now but there are no big payrises or anything like that, I think its a 3% rise every year. It is only a sales assistant job and is something that anyone could do.

Chrismaths

wasting money paying rent

If you had a mortgage how much would you be 'wasting' on interest payments?

How much would you 'waste' on stamp duty? On buildings insurance? On maintenance?

This is one of those things dreamt up by estate agents that for some reason everyone has fallen for. But this is probably a subject for another board...