Saving For Retirement at 40

Prestonian

Hi All

I have a few worries ahead of me regarding finances. My situation is as follows:-

Im 40 and have worked every day of my life since 17.
Ive opted out of SERPS in the late 80's
I have a 15yr frozen pension with a previous employer.
I have no current private or company pension that I am contributing too.
I have a 2yr old child with another on the way (this one was an accident!)
I also have 2 older children to a previous marriage to which im paying maintenance for the next 9 years.
I cannot afford a mortgage due to child fees (maintenance and nursery costs)
I am resigned to renting for the rest of my days.
My partner is not a high earner (and probably never will be). She earns around 17k/yr
I have no family that I can inherit off in the future (a house etc etc)

So with another baby impending, im putting to bed any thoughts of purchasing a home. Im gonna have to rent forever. Im now working for the next 10yrs or so just to get by. I can deal with that ok but im worried about what happens when approaching retirement.

The current state pension will be nowhere near enough for me to pay rent as well as maintain any standard of living.

What should I be doing to ensure I get money when I retire?

If I invest into a Pension heavily, will that be means tested when im 65 and then find myself not being able to claim housing benefit off the government?

If I started investing into an ISA every year till I retire (to try and build up some savings for a pension), will that get means tested? I dont want to be scrimping my way through the next 20 years to save for retirement for someone to turn around and say I must use that 100k or so (that is put aside for a pension) to pay for my rented house. If thats the case, I may as well have no savings at all and get a house rent free.

As you can see, im pretty confused, I need to seek advice. Who would I see about this... Citizens Advice, or someone else??

Thanks in advance.

Lokolo

Do you budget?

kev.s

prestonian- i'm coming to the big 40 this year also, my wife is not a big earner either, approx 12k.
i also opted out of serps (never understood if it was a good idea or not at the time 16-17 what do you expect?) i've always had some form of company pension since mid 20's though, 3 of which are frozen as finance guy says it's pointless to transfer to current pension.
i've still been saving since i was around 30 as you never know whats round the corner, i've been in some low places financially too, currently saving around £130 a week and paying 10% into works pension on top of their conts, to be honest i think pensions are a bit of a gamble now.

maybe you could try a credit union as they do savings accounts too and not bad interest, start small and leave it to accumulate, however it could be hard for you if the money has built up to a sizeable sum and temptation creeps in. i have been looking at ISA's too but unsure if it's worthwhile either... sometimes life's just to short to worry.

Prestonian

Lokolo wrote: »

Do you budget?

.

I'm not sure I understand your question. If you mean am I budgeting to save, then yes. I realise I must start saving now if I'm to have any money later on.
As I pointed out in my post, my main worry is not the fact I won't save enough, but as I dont own a home, will all my savings have to be used on rent? Or are my savings protected if I put them into a pension instead of topping up isa's every year.

Lokolo

You seem to think which vehicle is better for you to be able to claim benefits, which is not a good idea. How do you know these benefits will exist in 20 years?

A pension you will also get tax relief whereas an ISA you won't. And some benefits will ask for your savings amount, be it in ISA or not, whereas pension will supply you will income which can also lower benefits.

I think you really should have a proper financial plan.

http://www.makesenseofcards.com/soacalc.html

Use this and post in MSE format, people can then tell you where you could cut down. Then we can work out what sort of pension and savings plan you could do.

kev.s

roughly how much on childcare etc, does it benefit the lower salary earner to work? full time care save on fee's etc?

Loughton_Monkey

Prestonian wrote: »

.

I'm not sure I understand your question. If you mean am I budgeting to save, then yes. I realise I must start saving now if I'm to have any money later on.
As I pointed out in my post, my main worry is not the fact I won't save enough, but as I dont own a home, will all my savings have to be used on rent? Or are my savings protected if I put them into a pension instead of topping up isa's every year.

You are some 26 years away from retirement. Nobody can guess the state of the benefits system then. The new £155 state pension is, amongst other things, an attempt to rationalise a 'low' pension plus complicated means tested benefits into a flat pension for all - without further benefits except under a few specific extreme cases.

Personally, I'll almost certainly be in my box by then, but my strong guess would be that the 'madness' of Gordon Brown's kingdom will live on forever and be looked back upon as "The Benefit Years". This country cannot, and presumably will not ramp up benefits again after taking (probably) the next 15 years to get them back down to a sustainable level.

But back to your point. I would suggest that any talk, just now, of pension is "Cart before the Horse".

The stark truth [and you are not the only one] of your position (barring massive changes in job prospects --- inheritance etc.) is this:

From tomorrow onwards, your income potential is 'fixed' to a degree. By 'fixed', what I mean is you should be able to map out a reasonable scenario for how long both of you might continue to work. How much you will earn etc. - allowing for inflation etc. In other words, between you, there is a certain sum of money you will earn.

Now - as night follows day - there are basically two extremes that can (might) apply.

1. You continue to work for the next 26 years, and all the expenses of child rearing, rent, maintenance, etc. force you to live from hand to mouth. You will then retire on basic state pension (probably a 'none too bad' £300 a week in today's values for the both of you?).

2. You work out a spending plan that means you save so much that once the income from work ceases, you can continute to lead the same lifestyle.

Put another way, the choice is entirely yours, whether to spend all the remaining income in the same year that you receive it, or to spread it across the 26 years left with work, and another (say) 26 years in retirement. Or more likely, something 'in the middle'.

This, I would suggest, is the key issue to grasp first. And perhaps map out what you can on a spreadsheet - or bits of paper - as to how it all unfolds, taking into account the current value of the pension you do have etc.

If, in the final analysis, it ends up with you 'saving' a reasonable amount for the future, then I would suggest that pensions are indeed your first port of call. Cash savings will simply not grow enough. The tax relief assists pensions to better returns than an ISA, but gives different forms of how you 'take' the money.

Not sure you would get much 'change' from CAB. They are probably flat to the boards dealing with people having just lost jobs, in massive debt, rent arrears etc......

Prestonian

Ok thanks for the replies.

I think for now, I just need to work out what sacrifices Im going to have to make in order to start saving as much as possible. I will have to take some advice on what kind of pension I can put the money in to. In the meantime, I can always just save into an ISA and move it elsewhere later on.

On another note, regarding my frozen pension, it was mentioned at the time (under Tony Blair) that we wernt allowed to transfer frozen pensions. Is that still applicable?

kidmugsy

"... we wernt allowed to transfer frozen pensions. Is that still applicable?" If the pensions are Final Salary pensions, you are allowed to transfer them, but it is so often a lousy idea that you'd probably find that no-one would want to collaborate on such a transfer. If they are Direct Contribution pensions then transferring them is usually straightforward. You'd have to ask yourself "why bother?" Maybe you want to cut the amoiunt of paperwork, maybe you can find a new one with lower running costs, or a bigger choice of investments.