Mortgage paid, now what to do ?

lamby021

Morning all,

A little advice from a novice when it comes to savings and pensions.

I am 42 and have just finished paying off our mortgage so the obvious question is now what do I do to plan for the future.

I have no savings to speak off as have been concentrating on clearing the mortgage first whilst the rates have been low. I do have a pension but stopped paying into it 10 years ago and contributed £100 per month roughly for 10 years into it.

Hard to say how much spare cash per month we will have as a family but will average £500 to £1000 at a guess so been trawling through threads like this looking for the best way to invest it, eg pension, isa, shares, under the mattress etc etc lol.

Many thanks in advance for any advice given.

archery

i would suggest maxing out cash isa to begin with an annual limit per adult of £5340 applies interst may be low at present but interest is tax free. below is a good link for best deals
available

https://forums.moneysavingexpert.com/discussion/401374

dunstonh

I do have a pension but stopped paying into it 10 years ago and contributed £100 per month roughly for 10 years into it.

So, basically, you have virtually no retirement planning to speak of.

Hard to say how much spare cash per month we will have as a family but will average £500 to £1000 at a guess so been trawling through threads like this looking for the best way to invest it, eg pension, isa, shares, under the mattress etc etc lol.

Leaving it as late as 42 will probably take virtually all of that £1000 to make up for lost time. The most important thing is the amount you pay. After that comes the fine tuning on what is best.

i would suggest maxing out cash isa to begin with an annual limit per adult of £5340 applies interst may be low at present but interest is tax free. below is a good link for best deals
available

Ok for the short term money/emergency fund but not at all suitable for long term planning.

lamby021

dunstonh wrote: »

So, basically, you have virtually no retirement planning to speak of..

My thoughts are to try and retire at 55 which leaves me 13 years of saving/investing etc though I am sure I will always do a part time job even if voluntary.




Leaving it as late as 42 will probably take virtually all of that £1000 to make up for lost time. The most important thing is the amount you pay. After that comes the fine tuning on what is best..[/QUOTE]

I like to think I'm very careful money and always have been, we don't need a lot to live on as very happy where we live now and do live life pretty simple.



Ok for the short term money/emergency fund but not at all suitable for long term planning.[/QUOTE]

Ok so what should we be looking at for long term ?

atush

Long term, you need equity investments. In Pensions (for the tax relief as I am assuming you are taxpayers) and in S&S Isas. I would keep filling cash Isas too.

I don't know if either of your employers will make contributions to your pension (many do and if yours does you have been Throwing AWAY free money for 10 years- not smart). They will have to contribute by 2016 though. Start one ASAP.

Then you need a min of 6 months spending in cash as a buffer. then back to saving extra in S&S ISAs.

I really think, if your employer does make contribs you have made a huge mistake in paying off the mtg over pension savings. As I don't think you have a chance in h*ll retiring in 13-15 years on 1000 a month. Unless you can live on very little (ie less than 10K per year).

dunstonh

My thoughts are to try and retire at 55 which leaves me 13 years of saving/investing etc though I am sure I will always do a part time job even if voluntary.

How much income do you want to live on?

If we look at £25,000 in real terms a year, plus inflation indexation then you are looking at having to put aside £3938pm to achieve an age 55 retirement.

lamby021

My employer does not make contributions as yet as is a family run firm so nothing lost there. As a side point being able to pay off my mortgage and be debt free is a great feeling so I have no regrets on that score.

I worked out last year that the minimum we can live off is 10k, might seem ridiciously low to some people but we live in a small village in the North where the cost of living is nowhere near as expensive as being near towns,cities etc. Also that is including our son's costs who is 10 at the moment so that should be extra as well in the years to come.

Ok so as far as I can gather

1) Get 5k of savings as back up (presumably in a cash isa ?)

2) After then look into mine and the wife's pension plans of our employers and see when either or both are going to double the pension payments (talking of which do I open a new pension for this, use my exisiting one or does the employer open it ?)

3) Then start looking at putting money into isa's as an alternative future income.

Many thanks for your inputs so far

property.advert

lamby021 wrote: »

My employer does not make contributions as yet as is a family run firm so nothing lost there. As a side point being able to pay off my mortgage and be debt free is a great feeling so I have no regrets on that score.

I worked out last year that the minimum we can live off is 10k, might seem ridiciously low to some people but we live in a small village in the North where the cost of living is nowhere near as expensive as being near towns,cities etc. Also that is including our son's costs who is 10 at the moment so that should be extra as well in the years to come.

Ok so as far as I can gather

1) Get 5k of savings as back up (presumably in a cash isa ?)

2) After then look into mine and the wife's pension plans of our employers and see when either or both are going to double the pension payments (talking of which do I open a new pension for this, use my exisiting one or does the employer open it ?)

3) Then start looking at putting money into isa's as an alternative future income.

Many thanks for your inputs so far

You've got to get your head around both matching employer contributions and more importantly the tax situation regarding your own contributions.

For instance, if you were a higher rate taxpayer and your wife a lower rate taxpayer, it would be more beneficial for you to pay into your pension and claim 40% relief whilst your wife could invest in ISAs because that requires contributions from post tax income and she would only be getting taxed at 20%.

Matching employer contributions or getting them to make some into your pension is crucial. It is 100% free money.

Also look at salary sacrifice and ask your employer to add the 13.8% national insurance saved to your pension as well.

lamby021

A lot more research to be done by the looks of things, could be awkward asking my employers regarding pensions as the business is struggling and is family run, i've also been there nearly 18 years and would not want to put any pressure on them at the moment, or is that the wrong way at looking at it ?
Both myself and my wife are in the lower tax bracket but her employer does contribute towards the pension so thinking for her to do the pension side of things and myself to concentrate on isa's.
Thanks for all the feedback.

ermine

could be awkward asking my employers regarding pensions as the business is struggling and is family run, i've also been there nearly 18 years and would not want to put any pressure on them at the moment, or is that the wrong way at looking at it ?

It is the wrong way of looking at it. You are facing a potential major financial emergency. This financial crisis isn't likely to get better any time soon and a family firm that is struggling will probably continue to struggle. Paying off your mortgage was not necessarily the best thing to do here.

You need to get that emergency fund stoked up ASAP, though it you are thinking of claiming unemployment benefit for more than six months you should take care not to accumulate more than about 6k of savings (pension savings excepted).

OTOH if your household can operate OK with just your wife's income then you don't need to worry about the savings limit and then the more the better. Looks to me that the threat to your job is immediate and needs thinking about as a priority. The good news is that being mortgage free means you have engineered a lot of cost out of your lifestyle. Every £1000 pa you don't have to pay to a mortgage is £1320 you don't have to earn that year.

jamesd

lamby021 wrote: »

As a side point being able to pay off my mortgage and be debt free is a great feeling so I have no regrets on that score.

That was horrible financial planning, though. You swapped a mortgage on the property for mortgaging your financial future instead. You've lost huge amounts of money in the missed compound gains from investments over the years. You don't even seem to have sufficient money put away to keep your home if you became long term unemployed or unable to work. Done now, though, so time to try to deal with the consequences.

lamby021 wrote: »

I worked out last year that the minimum we can live off is 10k, might seem ridiciously low to some people but we live in a small village in the North where the cost of living is nowhere near as expensive as being near towns,cities etc. Also that is including our son's costs who is 10 at the moment so that should be extra as well in the years to come.

That's excellent news that does mean that you should have a decent chance of recovering. The amount doesn't seem low, it's entirely reasonable for people with a modest lifestyle and even more so with fairly low ongoing housing costs.

lamby021 wrote: »

1) Get 5k of savings as back up (presumably in a cash isa ?)

Eventually. The First Direct 8% regular saver is probably a better choice for accumulating the money since it pays 8% taxable on up to 300 a month for a year. But this comes after the employer pension plans if they match money, not before, unless the match doesn't also allow you to save because it's so high.

lamby021 wrote: »

2) After then look into mine and the wife's pension plans of our employers and see when either or both are going to double the pension payments (talking of which do I open a new pension for this, use my exisiting one or does the employer open it ?)

Yes, find out what they pay. If they offer matching of contributions you've been even more extravagant with throwing money away than it initially appeared.

Also find out if it's a salary sacrifice pension scheme. That saves you the employee NI as well as the income tax and is a great deal for basic rate tax payers.

You'd have to use the pension that the employer offers.

lamby021 wrote: »

3) Then start looking at putting money into isa's as an alternative future income.

Yes, first thing is generally to take any employer pension matching, then use investments within a S&S ISA.

The pension income has a cap called the GAD limit that will restrict how much income you can take. There's no cap on the amount you can take from ISAs. This means that it can be useful to have ISA money to increase the income you can take until the state pensions start, to give you a level income before and after.

So first you take employer matching, then you use any 40% taxed money in a pension, then S&S ISA and if that's still leaving money left over you use investments outside a tax wrapper.

For income levels assume that you'll need to accumulate capital of at least twenty times the income that you want. 25 times is more prudent, 17 times is about the limit of what's sensibly usable for planning.

You should be OK because you see to have both sufficient income and a sufficiently low income target to get the money you need accumulated. But it'll have cost you a lot more than it needed to.

If you know of anyone else doing what you've done please strongly discourage them from throwing away so much money. Balance is crucial to sensible long term planning and that requires at least taking employer matching money on pension contributions and should include exploiting the higher than mortgage rate compound gains from investments. The most efficient way to clear a mortgage is with the 25% tax free lump sum from a pension. That gives you tax relief on the equity you're buying and is the best deal going, even more so with employer matching and/or a salary sacrifice pension scheme.

Criticism of the atrocious financial planning aside, congratulations on being mortgage-free! Just do it differently if there's a next time.