Early-retirement wannabe

Marine_life

Running through a lot of the recent posts I think what a lot of people forget is that we are heading into a perfect storm.

1. Interest rates and therefore investment returns are going to be low for a long time to come. Forget historical averages, forget 7%, its not going to happen. Western Europe will (IMHO) remain fragile for many years to come.

2. People generally have less spare cash to spend. When I look at my children and their generation, university fees and high house prices will likely keep disposable income in check for some time (and most likely hit the generation ahead of them - like me - to meet their needs). My son will go to university next year - he does not have the 50k to pay for three years at university and I don't want him to start his life with debt, so that puts a massive hole in the budget.

3. The demographic time bomb means we can look forward for a long time to reducing public pensions and (potentially) increasing taxes. Who after all will pay for the extra 40-50 billion that the government needs to find over the next 10 years?

What does this all add up to?..........Uncertainty.

I think it means whatever your position - wealthy or middle earner - you will need a much larger buffer when the day comes to retire or at least the flexibility to reverse the decision.

lvader

The way university student loans are structured I think you would be mad to not take then up. Why pay upfront for something you may not have to pay back for a very long time?

ermine

I second Ivader. On this very site there's the lowdown. Although I agree with your sentiment, that a big student loan normalises debt in your son's mind, and you'd rather it weren't, the place your 50k could make a real difference in his life is if/when he wants to buy a house. By increasing his deposit and reducing the LTV it could a) enable him to buy where he might not be able to otherwise and b) reduce the interest rate of any loan and all the parasitic rubbish like mortgage indemnity guarantees and the like.

It would save him money throughout his mortgage-paying life, it would enable him to take a lower paying job and pay less tax and less student loan repayments (because he doesn't have to service 50k of the loan for 25 years) and it would help him through what for many people is a tough low-water mark in their disposable income - the early 30s if they have children. It would be a gift that keeps on giving IMO

Marine_life

ermine wrote: »

I second Ivader. On this very site there's the lowdown. Although I agree with your sentiment, that a big student loan normalises debt in your son's mind, and you'd rather it weren't, the place your 50k could make a real difference in his life is if/when he wants to buy a house. By increasing his deposit and reducing the LTV it could a) enable him to buy where he might not be able to otherwise and b) reduce the interest rate of any loan and all the parasitic rubbish like mortgage indemnity guarantees and the like.

It would save him money throughout his mortgage-paying life, it would enable him to take a lower paying job and pay less tax and less student loan repayments (because he doesn't have to service 50k of the loan for 25 years) and it would help him through what for many people is a tough low-water mark in their disposable income - the early 30s if they have children. It would be a gift that keeps on giving IMO

Thanks - those are helpful thoughts.

I think the main thing I do not like is the fact that the loan accrues interest and if he earns a decent salary (which i hope he does) it will mean we / he ends up paying anyway. I read the article and its clear to me that he could find himself in the situation of never having to pay the money back. I hope that isn't the case . There is also a currency risk to us (being that we are Euroland based). The pound: Euro seems a bit stubborn at the moment but we transferred a chunk of cash a few months ago when the rate was 1,14 or so so we will keep an eye on that and make sure we have some money in sterling.

Actually the university and house funding is making me think about delaying retirement for two years (I know, and some will then say it will be another two years!), although we need to wait until next year and see where we stand wealth and health wise before making any final decision. We will make the final payment on our mortgage in December this year and that will be a hugely liberating day!

mark55man

Good luck in December ML

short of selling and downsizing (not in the plan) mortgage repayment day is a pivotal day in my retirement planning (unfortunately years not months away)

robatwork

Fascinating thread. I don't think people on this forum are necessarily above average earners, just above average intelligence - hence thinking about their pension rather than shoving head somewhere dark. Yes, in the sand.

The cost of tuition fees is going to hit plenty of 40 and 50-somethings who don't want their offspring saddled with what's a pretty huge debt compared to what they emerged blinking from Poly with (at least in my case I came out with 0 debt and 2 job offers....a long time ago!)

ermine

Marine_life wrote: »

I think the main thing I do not like is the fact that the loan accrues interest and if he earns a decent salary (which i hope he does) it will mean we / he ends up paying anyway.[...] We will make the final payment on our mortgage in December this year and that will be a hugely liberating day!

His mortgage also accrues interest Rationally, you'd need to take a 360 degree view of the whole financial situation across both you and your son's financial positions.

However, when you have paid your mortgage off later on this year it means you can lob what you were paying to your mortgage into your own pension without taking a lifestyle hit. That means you start to add to your savings the 40% tax on what's going in. That makes your savings a lot faster - it made a remarkable difference for me. You can take 25% of the value of your pension as a pension commencement lump sum under certain circumstances. Which could be a 40% bigger boost to your son's house deposit from the taxman - so what if he's paying interest on the student loan if he's paying less interest on the mortgage.

I'm also puzzled if you're Euroland based why on earth your son wants to study in expensive old Britain. Student fees seem a lot lower in other parts of Northern Europe, which would offer another saving opportunity!

mark55man

ermine I agree my daughter could study in Holland (course taught in English) for £1000 a year - trouble is medical profession is a bit sniffy so we worry if this might hurt her progress

atush

lvader wrote: »

The way university student loans are structured I think you would be mad to not take then up. Why pay upfront for something you may not have to pay back for a very long time?

At 6% plus interest, accruing from day one, I am not a fan. Saying you might not have to pay it back because you dont/wont earn enough is like planning to fail instead of failing to plan.

If you don't anticipate earning enough to pay back your loan should be a major warning sign that perhaps you should not just consider university but perhaps instead other avenues.

I have chosen to fund university for 3. My own parents ran out of money my last year and I had to pay it back at 9%.

I hope to be able to help if needed for a house deposit, but that is not 100% certain- I will help but may not be able to fund 25% deposit on 3 properties.

elantan

I may be missing something here but my student loan is at 1.5% interest ... Personally speaking I would love to be making the £15k that is required to pay it back, wouldn't mind paying it back if I earned enough