Starting a pension at nearly 40.

marklv

Also, don't forget that your house is a pension in itself, to a certain extent. Once your retire you could sell it and live in a cheap retirement flat somewhere.

jamesd

For the ISA part do remember that it's the stocks and shares ISA, not cash ISA. Cash ISAs are useless for long term retirement planning because they only just manage to keep up with inflation, if that. You need the expected higher returns from investing when it comes to retirement planning.

It's also a pretty bad idea to wait two years. You'll be missing two of the most promising investing years of the current economic cycle. Better to cut back on the mortgage overpayments and get the investing started.

Mini_Bear

You could also do the dreaded equity release on your property in retirement to cash in on its value and supplement your pensions.

JA1000

Save under ISA if you are not so sure you can always transfer to a Pension at anytime as long as the lump is below your annual earnings, gives you peace of mind that you can get it until you are in a position to transfer in single premiums.

Sapphire

jamesd wrote: »

For the ISA part do remember that it's the stocks and shares ISA, not cash ISA. Cash ISAs are useless for long term retirement planning because they only just manage to keep up with inflation, if that. You need the expected higher returns from investing when it comes to retirement planning.

It's also a pretty bad idea to wait two years. You'll be missing two of the most promising investing years of the current economic cycle. Better to cut back on the mortgage overpayments and get the investing started.

Very bad advice to tell someone that cash ISAs are useless – they are not. They should be a very useful, safe part of everyone's retirement plan.

Advising someone who is ignorant about saving and investment to put money into stocks and shares – especially if there are not that many years to go to retirement – is irresponsible, suggesting they take unnecessary risks. Stocks and shares are a form of gambling, and are best taken up if you have money you can afford to lose.

Aegis

Sapphire wrote: »

Very bad advice to tell someone that cash ISAs are useless – they are not. They should be a very useful, safe part of everyone's retirement plan.

Advising someone who is ignorant about saving and investment to put money into stocks and shares – especially if there are not that many years to go to retirement – is irresponsible, suggesting they take unnecessary risks. Stocks and shares are a form of gambling, and are best taken up if you have money you can afford to lose.

Have to disagree with you here. Someone saving for their retirement with 10 years or more to go would be best advised NOT to stick their money into cash, certainly not more than a very limited percentage. With inflation and interest rates at more or less the same level at the moment (and with historic returns barely beating inflation over any given period), the real value of even the best ISA is going pretty much nowhere, which means that unless someone feels they can afford to fund their retirement solely from excess income now, cash ISAs aren't a great bet.

In terms of retirement plans, the benefits of pensions and stocks and shares ISAs far outweigh the benefits of cash ISAs, which are basically good for short term savings and emergency funds.

Investment isn't the same as gambling. If someone were going out and buying up high-risk derivatives with the possibility of losing everything, then I would agree that's gambling, but a well balanced portfolio taking advantage of multiple asset classes and geographical weightings stops being gambling and starts being just plain sensible, especially if you learn to hold your nerve during the occasional downturn and regularly top up your investments even when the doommongers are out in force.

Even low risk/return investments would be better than cash for most people trying to save for their retirement.

Annisele

Sapphire wrote: »

Very bad advice to tell someone that cash ISAs are useless – they are not. They should be a very useful, safe part of everyone's retirement plan.

Advising someone who is ignorant about saving and investment to put money into stocks and shares – especially if there are not that many years to go to retirement – is irresponsible, suggesting they take unnecessary risks. Stocks and shares are a form of gambling, and are best taken up if you have money you can afford to lose.

It isn't possible to invest for retirement without taking any risk at all. With cash, there's a risk that the money saved won't even keep up with inflation.

In principle I agree with jamesd on the value of cash ISAs for retirement planning (although he was a bit stronger than I would have been) - he didn't say that cash ISAs were useless for other purposes, only that they were "useless for long term retirement planning".

Over the long term, stocks and shares usually outperform cash by some margin. That doesn't mean that they always will, but it does mean that they should at least be considered as part of a retirement plan. In the vast majority of cases, it's sensible to have a mix of investments in a pension plan.

jamesd

Sapphire wrote: »

Very bad advice to tell someone that cash ISAs are useless – they are not.

I didn't write that they are useless, I wrote that they are useless for long term retirement planning. In this case for someone with thirty years until they reach state retirement age.

I use cash ISAs myself, just not much for long term retirement planning. I have some in one now to smooth out market volatility, though I'll move it into my stocks and shares ISA soon. Cash is also useful inside a pension pot sometimes, more so as you get very close to or after retirement. Sometimes the best place to be in the markets is not in them at all and that's a good time to use a lot of cash.

But my point was a short way of saying it's a bad idea to use a cash ISA as your pension pot, because it's a very poor choice for the job when you're thirty years away from retirement.

Now, for someone who is close to retirement I may have written something different, because that's no longer long term retirement planning if they are planning to buy an annuity. Cash is of far higher value in that situation and I'd be saying some should be used.

Sapphire wrote: »

They should be a very useful, safe part of everyone's retirement plan.

They won't substantially exceed inflation. NS&I inflation-linked bonds would be a better choice than cash ISAs usually, because they are guaranteed to grow by more than inflation. NS&I inflation-linked products still aren't really very appropriate for someone with thirty years to go until state retirement age, except as a part of the mixture for the most cautious. They can be a lot more useful after retirement, though.

Sapphire wrote: »

Advising someone who is ignorant about saving and investment to put money into stocks and shares

Jet is thirty years from state retirement age and has plenty of time to start learning how to invest well. It's a lot better than never starting and being far poorer in retirement as a result.

Sapphire wrote: »

is irresponsible, suggesting they take unnecessary risks. Stocks and shares are a form of gambling

Stocks and shares are not a form of gambling. There's a huge difference between the two:

Gambling: loaded in favour of the house so that long term on average the gamblers lose compared to keeping their money in cash.
Investing: loaded in favour of the investor so that long term on average the investors win compared to keeping their money in cash.

For both there is a large amount of short term unpredictability but that's not the same as making investing gambling.

The risk isn't unnecessary unless someone starts out with enough money to retire on. Even there it would be sensible to put most of the money in things other than a cash ISA. It is possible to take very little risk and use cash ISAs for long term retirement planning. It just guarantees a far lower income in retirement than can be expected from a better mixture of investments.

Sapphire wrote: »

Stocks and shares are ... best taken up if you have money you can afford to lose.

Most people have a simple and stark choice: either invest using things like stocks and shares or be poor in retirement. Most people simply can't afford to lose the money they will lose by using cash instead of investing. It's unsettling and worrying but necessary.

But even so, there are some people, perhaps including you, who simply can't stand knowing that sometimes the capital value of their investments will drop. The least bad solution in that case is throwing several times as much money at the problem, how much depends on how long it is until retirement. The longer you have to go, the more you have to multiply the investment amount by to get the required cash amount.

dunstonh

Very bad advice to tell someone that cash ISAs are useless – they are not. They should be a very useful, safe part of everyone's retirement plan.

Can only echo the responses above.

Cash is not risk free. It may not have investment risk but you replace that with shortfall risk and inflation risk.

The further away you are from retirement, the higher the risk cash becomes. Short term is fine and right for some cash. With cash you are effectively saying that you don't want real terms growth and are guaranteeing that you will have to pay more into your retirement planning due to guaranteed low returns. With investments, you may get low returns, you may get high returns. You don't know. However, with 30 years to go, someone using cash savings would have to pay around double the contribution compared to someone using investments.

PipPip

Do people really believe that buying stocks and shares, even if you buy a balanced portfolio is not "gambling"? Come off it, of course it is. You are putting your money into a place where the future value is completely unknown and is subject to a vast array of variables. In addition, the odds are stacked in favour of large players with inside information and the ability to play with derivatives. Its gambling.