Retirement Planning - thirty something!

BOBS

Getting to that age when starting to think about retirement fund /savings!
Have looked at pensions and when i worked as employee did pay into one for about 5 years (am now self employed) - my problem is both parents died at young age (cancer) and DH and I really dont want to spend our life putting money into a pension pot and not get the benefit from it so would really prefer to put money into an account so that we can see what I have etc etc -

We have another 10 years left on our smallish mortgage - about £24k left to go but hope to clear it in about 4. We have 3 kids - 12, 9 and 6. Only other debt is car repayments.

We do save approx £300 a month into our ISA but we do dip into it at Christmas etc for extras and intend to use it to pay off mortgage - when balance of mortgage remaining meets amount of savings in ISA.

What should we be aiming for as a retirement pot or what options are available to us.

Sorry for long post but really just thinking as I go ..... and will probably add to it as I think ...

Lokolo_2

BOBS wrote: »

Getting to that age when starting to think about retirement fund /savings!
Have looked at pensions and when i worked as employee did pay into one for about 5 years (am now self employed) - my problem is both parents died at young age (cancer) and DH and I really dont want to spend our life putting money into a pension pot and not get the benefit from it so would really prefer to put money into an account so that we can see what I have etc etc -

We have another 10 years left on our smallish mortgage - about £24k left to go but hope to clear it in about 4. We have 3 kids - 12, 9 and 6. Only other debt is car repayments.

We do save approx £300 a month into our ISA but we do dip into it at Christmas etc for extras and intend to use it to pay off mortgage - when balance of mortgage remaining meets amount of savings in ISA.

What should we be aiming for as a retirement pot or what options are available to us.

Sorry for long post but really just thinking as I go ..... and will probably add to it as I think ...

I trawled across your post, seeing that you hadnt had an answer 2 days! :eek: I will add my basic thoughts, but hope some more experienced members will help you too:j

The ISA is a great place to start, if you keep adding to that every year, you will build up a nice sum of tax-free income.

Essentially, the amount you need to put aside for retirement, will depend upon the kind of lifestyle you want to have, IE how much do you anticipate spending per Month/Year when you are retired?

Most people contribute to a pension of some sort because it can be tax efficient, and also some employers contribute towards their employees contributions (of course this doesnt apply to anyone self-employed!)

dunstonh

am now self employed

which means lower state pensions. Many self employed dont realise they this. Part of the extra tax/NI benefits that self employed get means you have to take a greater responsibility for your own planning. The loss of the state second pension is the equivalent of around £120,000 in a personal pension (so, if you are self employed and your retirement fund is less than £120k, you have actually ended up worse off in respect of pensions).

I really dont want to spend our life putting money into a pension pot and not get the benefit from it so would really prefer to put money into an account so that we can see what I have etc etc -

Money put into a pension isnt lost on death. The full value (including the tax relief and tax free growth) is paid tax free to spouse/partner or nominated beneficiary.

What should we be aiming for as a retirement pot or what options are available to us.

It depends on what you want to get back in retirement. No pension planning and self employed means you get £5000 a year.

A good yardstick saying is that you should aim to have at least £35,000 in your pension by age 35.

BOBS

Thanks for your comments - lots to think about! - what about the NI contribution part for state pension - does the fact that my own children are still very young counteract this - am in right in thinking that i will get these years back anyway ??

CLAPTON

BOBS wrote: »

Thanks for your comments - lots to think about! - what about the NI contribution part for state pension - does the fact that my own children are still very young counteract this - am in right in thinking that i will get these years back anyway ??

just to clarify
there are two state pensions
the basic pension of around 5,000 which you get if you have 30 years of NI contributions or credits

and the second state pension which SE people don't get (or people opted out for that matter)

so you can only plan on the state providing the 5k on retirement at whatever age that will be.

BOBS

CLAPTON wrote: »

just to clarify
there are two state pensions
the basic pension of around 5,000 which you get if you have 30 years of NI contributions or credits

and the second state pension which SE people don't get (or people opted out for that matter)

so you can only plan on the state providing the 5k on retirement at whatever age that will be.

yes i know about the self employed part but as i am in receipt of family allowance do i get the credits for these years towards the higher pension ??

jamesd

The second part is earnings-related. You get the full earnings-related contribution for zero PAYE earnings: nothing. Unless you have your business set up to have you as its PAYE employee, in which case you get whatever that PAYE wage entitles you to.

BOBS wrote: »

We have another 10 years left on our smallish mortgage - about £24k left to go but hope to clear it in about 4. Only other debt is car repayments. ... We do save approx £300 a month into our ISA ... intend to use it to pay off mortgage - when balance of mortgage remaining meets amount of savings in ISA.

So you're considering paying off a mortgage and saving mortgage interest rate, but not paying off probably higher car interest rate instead, and are happy to sacrifice the higher than mortgage investment returns?

Paying off a mortgage early instead of investing makes you poorer, not richer.

You seem to be using a cash ISA and not a stocks and shares ISA. Rates from 3.5-9% are readily available in a stocks and shares ISA, though with varying capital values over time. You're using the wrong tool for retirement income planning, the cash ISA is unsuitable.

You should be using:

1. Cash ISA for emergency fund and maybe for short term saving if that's possible within the allowance limit.
2. S&S ISA for retirement income if you want full capital access.
3. Personal pension for retirement income if you want a higher income with less capital access.

A mixture of all three is often best.

The most efficient thing to do with the mortgage is to pay it off with the lump sum from a pension, or to let it run to term. Using the lump sum means that you got tax relief for your mortgage repayment, as well as the higher investment returns, a good deal.

BOBS

Thanks JamesD - a lot to think about. We thought we should clear off our mortgage as ultimately that is the largest asset we will have. Opted to continue with car repayment as if we ever get into serious diffs we can hand it back - thats maybe wrong thinking on hindsite.
We plan that once our mortgage is clear we would continue the payments into our ISA instead to build up a pot.
Am i also right in thinking that i can loose capital on the stocks and shares ISA and that a small element of risk is involved.
Do you think i should get a financial advisor to sort us out ??

foxwales

You also need to consider inflation as time goes on the money you have saved will be worth less, so each year try to increase your savings amount by putting in an additional 5% each month for year 1, 6% for year 2 etc etc for example.

This will help you retain the pension age lifestyle that you want to achieve.

jamesd

Capital is at risk in a stocks and shares ISA. You decide how much up and down movement there can be through your choice of investments. A good balance is typically to accept 30-40% drops in bad years, knowing that over the following years values will recover. But you can vary the mixture to get anything down to 10% or so variation, at the cost of lower long term growth. If you were forced to take the capital out at one of the low times that would turn the routine ups and downs into a loss. But for retirement planning you aren't forced.

For things like property repayment what you'd do is wait for a time when you have more than ample money in the pot and also when the markets are high. Then you'd take out maybe 10% of the pot over say a three year high market period. That locks in some of the gains through the next down cycle. The worst time to take money out is when the markets are down. That's the best time to put more in. But also the time when the emotional temptation to take it out is strongest and when it's the most difficult to be willing to add more.

If you have an offset mortgage you can do things like accumulating cash in the offset account during market boom times, then taking it out to buy more investments during the busts.