No plans in place

simm31

Hello,

I've been reading (probably too much) for the last few weeks all over these forums. So here go's - I'm not looking to be judged, just some advise as to my options - so comments on here seams a little harsh!

I'm 39 this year and have 2 frozen Company pensions, I recall each worth a combined value of no more than £15k.

Opted out of SERPS years ago.

No private pension in place.

Young family and high income, but high mortgage.

So I'm more interested now in paying off the mortage in the next 8 years, which is a my achievable target.

I can only split my income so far.

Even if I could spare £200 p/m how can I afford a retire plan for me and the wife, she has nothing in place either!

I'm bassing this on once I'm 47/48 carry on working and using money that would have gone on the house to fund investents and a pension plan.

I just can't see enough income now (even at £85k+) to split in some for of retirement provision...

How can I achieve it and what plan should I consider.

I have an excellent handle on our household expenditure.

I do feel like I've failed for the future, yet provided like a King for my young family.

The more I read the more I get despressed on here that the house will HAVE to be sold to give us a retirement income...ergo why pay the !!!!!! off?

So confused...this is why I just end up forgetting about it!

edinburgher

Young family and high income, but high mortgage.

So I'm more interested now in paying off the mortage in the next 8 years, which is a my achievable target.

It's a laudable goal to pay off your mortgage, but relatively speaking you're not going to be very young when you do so (47) and you can't wait that long before taking your pension more seriously. Much of the growth in pensions will come from gradual growth (hopefully), combined with dividend payments that mean the sooner you start investing, the better.

Even if I could spare £200 p/m how can I afford a retire plan for me and the wife, she has nothing in place either!

Does your wife work? Do either of you have access to an employer pension?

How can I achieve it and what plan should I consider.

It's entirely up to you how you achieve it, but good that you are considering it!

I have an excellent handle on our household expenditure.

I do feel like I've failed for the future, yet provided like a King for my young family.

While you might have an excellent handle on your household expenditure (bills etc.), it sounds like you could work on your total expenditure, as someone on your salary should be more than capable of putting aside something in the way of pension/investment contributions.

If I were you, I'd take a long hard look at exactly what you spend your money on (everything, a spreadsheet/spending diary kept for a month or so will help) and then see where you can cut back (we almost always have something that can be saved on). It's great that you want the best for your family, but do remember to plan for yourself as your kids will be independent at some point.

The more I read the more I get despressed on here that the house will HAVE to be sold to give us a retirement income...ergo why pay the !!!!!! off?

Because you can sell it, buy somewhere more suited to your later life and pocket the difference? I'd rather have an expensive asset to sell than nothing!

dunstonh

Opted out of SERPS years ago.

Do you mean by the defined company pension schemes you had or using a private pension?

I just can't see enough income now (even at £85k+) to split in some for of retirement provision...

You are in for one heck of a lifestyle change in retirement then. The basic state pension is just over £5000 a year. The current proposals will be in force by the time you retire and that will see a state pension of £7280 a year. So, that plus a couple of old deferred pensions (they could be frozen but deferred is more likely) is going to be a heck of a lot lower than £85k+ a year). Indeed, if you were contracted out as you say then that may see as little as £5200 a year state pension.

How can I achieve it and what plan should I consider.

In your case, you are going to have to seriously look at your priorities and lifestyle. At the moment, with earnings of £85k+, you appear to be living for today and borrowing against your retirement by having very little provision for that.

The only way you are going to improve the situation is make provision for retirement.

I do feel like I've failed for the future, yet provided like a King for my young family.

Very common for consumer oriented households nowadays. From what you have said, it does appear that you are not living within your means. It may be a good idea to pop over to the debt free wannabee board if your shortfall in disposable income is due to debt. If its due to not living within your means then its possible they could still help by giving you a guide on what you can do now to reduce your overspending.

The more I read the more I get despressed on here that the house will HAVE to be sold to give us a retirement income...ergo why pay the !!!!!! off?

There is no way not to be depressed. You are at the point where a contribution of £100pm will only result in around £200pm of income in retirement. Hopefully the defined benefit schemes will pay a bit more than a few thousand pounds a year. First thing is to find out how much. Then work out what your lifestyle is likely to cost in retirement. Then look at the shortfall you have and how much you are going to have to give up.

Overpaying the mortgage at the expense of paying into pension/retirement provision can be very short sighted. For every £100 you pay, it only costs you £60 with the pension. Plus, with all time low interest rates, the ability for long term returns to exceed interest rates on mortgages is likely. Plus, as you say, you will only have to borrow against the property again in future if you cant afford to survive.

simm31

Thanks for the feedback.

I've got some meetings lined up next week to review Stakeholder pension options.

I live well within our means and have save in investments and ISA's over £30k

Coudl be hit by a bus tomorrow and that's kinda of how I live, for today and hope for the best tomorrow.

I'f I own the house outright by 47 and its' worth today £385K and in 8 years time...say £440k then we can always sell up and buy a tent.

47, it's not old!

So as a guide to give me and Mrs Simm a annual pension of say £25k p/a how much needs to be paid a month in to what type of scheme..and will it delver??? So much bad press...

Also have two houses to inherit (one day) from parents...I think we'll be OK...here's hoping.

But in all seriousness I will pay something each month in to something...just what I'm not sure!

bilbo51

As a very rough rule of thumb, to give a 65 year old man £25,000 p.a. income today would take a pot size of ~£500,000.

So you have 26 (say 25 to make the sums easier) years to collect that = £20,000 p.a. pension contributions. The good news is that as a higher rate tax payer, this will in fact cost you less.

simm31

bilbo51 wrote: »

As a very rough rule of thumb, to give a 65 year old man £25,000 p.a. income today would take a pot size of ~£500,000.

So you have 26 (say 25 to make the sums easier) years to collect that = £20,000 p.a. pension contributions. The good news is that as a higher rate tax payer, this will in fact cost you less.

That's simply unaffordable when I've got a young family and a highish mortgage.

I honestly think I'll start some form of pension but in all honesty I think buying a second house offers a far greater return.

Then we can sell two houses and still live work and have some investment income...just can't see how a pension is affordable at my age in order to pay out a decent sum i.e £25k

dunstonh

You seem to be forgetting that the Govt will be paying 40% of your contributions in a pension. Plus, you get tax free growth.

epsilondraconis

OP, this online pension calculator may assist you...

http://www.h-l.co.uk/pensions/interactive-calculators/pension-calculator

DavidHayton

Hi OP,
Good idea to line up the meetings so that you can get some real advice. What you hear on this board can be viewed as no better than what you hear from the man in the pub.
What I suspect that you will hear, though, is that you will need to cut back on your lifestyle now if you want to maintain a reasonable lifestyle in retirement. £85k is a good salary, but not enormous once Mr Osborne has taken his 40% tax from you. Therefore it is silly not to shelter as much as you can within a pension. Bilbo mentioned a figure of £20k per year. After tax relief, this would only cost you £12k pa, or £1k per month. This should be manageable from a take-home of over £4k. Have a look at the thrift board if you want some hints.
One other thing that I have learned as my young family gets older is that they don't get any cheaper. It won't get easier later.
Best wishes
David

Loughton_Monkey

You may be interested in a bit of 'history'.

Certainly at around the time I was going to work (1972) for the first time, most major employers had in place a Final Salary Scheme. The best of these gave you a pension of 40/60ths of your Final Salary after you retired at age 60 (typically) with 40 years service.

It was judged that the one third 'drop' at retirement allows you to continue the same lifestyle because (a) you would get a bit of state pension as well, and (b) generally you have lower mortgage/children costs.....

Now most such employees didn't stay 40 years. But the point is they started off with this "forced" savings. Throught those 40 years, the overall cost would equate to about 25% of salary. In a sense, we had it "easy" in that we had no choice [we would have been stupid not to join the scheme]. Most of us, I expect, realised that when me moved company, maybe to another Final Salary Scheme, this heavily 'devalues' a continuous 40 years service and so we tended to voluntarily to save more to make up the difference.

As time has gone on, company pension schemes have got less and less valuable, to the point of being non-existent (almost) these days. However, this doesn't change the fact that investing somehow about 25% of your lifetime earnings (importantly from an early time otherwise compounding doesn't work as well) remains the rquirement for a 'decent' pension.

So I think, logically, you can work it out yourself. If you 'miss' that opportunity for the last year of 40 working years, you are only short of - say - £21K out of £81 salary. But when you missed the first year, and then the second year.... and so on, each year is proportionately harder to catch up since you have missed yet another year's contribution and 'growth'.

By the time you have had, say, 20 of your 40 years, with virtually no pension savings, then even doubling the 25% - so save 50% from now on - would come nowhere near to providing 2/3rds of your final salary.

Use the pension calculator (posted above) and run a few hypothetical numbers through that and you will see what I mean.

I respectfully suggest you have only one option (apart from just accepting total financial misery in retirement) and that is to sit down and spend a while with your wife and work out some major adjustments to the cost of your lifestyle. And then work out some 'painful' large contributions to an appropriate pension scheme. Depending upon your mortgage rate, these days they are quite low, and really not worth paying off (higher than the minimum). Just keep the minimum up and let the actaul mortgage value 'inflate away'. Many interest only mortgages were very 'painful' in the first years - but 20 or 30 years down the line, many would have been able to pay off the whole lot from 'petty cash'.

Finally, I hear anyone in your position saying that "I cannot live on less than 85K...."

But you know this isn't true. You could name 100 workmates, neighbours, relatives who live quite well on £65K (or whatever). And if you are (as I expect) paying higher rate tax, most of which could be negated by paying (effectively) £60 into a pension investment, but immediately getting £100 to 'work' for your retirement fund. All that 40% tax you have been (are) paying has [rather ironically I think] been funding other people who didn't save for their retirement properly either!

Act now before it's too late.

edinburgher

I honestly think I'll start some form of pension but in all honesty I think buying a second house offers a far greater return.

Can't say I agree. You'll need a deposit for it, you'll need to keep it tenanted as you'll still pay the mortgage even when it's not and you need to make a decent profit on the capital value of the property when you sell (or have the mortgage paid off before you retire and continue to let it out). If you sell it, there may be tax implications.

On the other hand, you could stick the £5k/year (or whatever) in a pension/ISA etc. and enjoy 25+ years of tax free growth and dividend returns with a lump sum and an income/drawdown at the end of it. Also, with the pension you'll get more as a higher rate tax payer.

Seems like a no-brainer to me?