Late starter - any tips?

woodyallen

Hi

I'm 41.

I will soon have £41,000 from a house sale following a relationship breakup - and £9,000 in other savings.

But also need to find a place to live - either using that £50,000 to put down on a property or renting.

I've no pension though, and haven't paid national insurance for a fair while.

I've recently gone self employed.

So I'm a late starter. And I'm not earning a lot yet.

What advice or tips can you give in order to get me an income into retirement, given my current resources.

It's starting to get a bit scary now.

atush

First off, take the time tomorrow to get into an office and sign up for NI self employed class whatever (I forget lol). At less than 3 quid a week it is stupid not to pay it. Then see about paying for past years to amke up for nat paying in. You need 30 years total min to get a pension so check this. If you will get 30 by 60/w/o paying extra then don't. Can't get it earlier than RA, but don't pay extra if you don't need to.

Then, you need to keep 5 K in savings in an ISA (for emergencies), then see to a pension. You get nore than you put in as your payment receives the extra in tax releif at your highest rate.

Then invest in a place to live. Rent, buy, whatever.

Further more if you are self employed who is doing your books? You need the services of an acct who can advise you the best way to pay yourself- might be dividends rather than salary for at least part. The tax saving on this could pay for your pension contribs.

unless you want to work til 80, you better get on it ASAP.

woodyallen

Thanks for the great advice.

When you said invest in a place to live - did you just mean get a place to live or did you mean buy somewhere.

Any tips on a good pension for late starters?

Also, does anyone have any thoughts whether I'm best spending £45k in order to get me a low mortgage and so low housing costs - or whether I'm best renting and investing that money somehow.

Thanks again.

Loughton_Monkey

Without aiming to be critical, I have to give you my 'headline' thought upon reading your post. And that is that after 20 year (or more) of working life, you seem to have a 'balance sheet' that consists of the following:

1. House Equity - £41,000 [fine]
2. Savings - £9,000 [fine as a 'safety belt' but no more
3. State Pension entitlement - Extremely little, made even worse by not contributing enough NI.
4. Private Pensions/Investments - NIL

The most likely explanation for this is that you live your life basically spending just about everything you earn. This is a very common syndrome and one that is worrying enough for the future taxpayer, let alone for those who choose to live this way.

So the place to start is your spending patterns for the future. OK, you then need a valid strategy (probably involving pensions) to make the surplus earnings 'work' best for you, but it's the spending that comes first.

There is no magic way out of this, other than to recognise it and correct it for the remaining 25/30 years that you may have left to earn a decent income. Perhaps see a financial advisor, or to begin with work a few figures out for yourself.

Personally, I always view this situation as a rather simple analogy. It's a bit simplistic, but sets out very plainly the principle of the situation you (and thousands of others) are in:

Imagine you are dispatched to a pleasant desert island. Basic facilities have been placed there for you but it is completely devoid of food, crops, fishing, or any means whatsover to obtain drinkable water or food. You will be left on the island for precisely 7 years.

You are told that each week, an airdrop will be made with enough food and drink to last an average person about 10 or 11 days. But importantly, this airlift will only happen for 4½ years. You then have 2½ years of complete solitude before being picked up.

When put this way, any rational person in the world will soon cotton on that eating the 11 days rations each week (because it's 'there') will make you very comfortable and happy for 4½ years, but as night follows day, you are going to have a lengthy, painful, and ugly death.

This is not dissimilar to a 20 year old having 45 years of working life, and another 25 years in retirement, hence having to 'save' 4/11ths of his rations (earnings) each week. The longer you don't do this, the scale of the task increases rapidly. So:

Step 1: Take a thorough review of future spending, and calculate what you propose to budget [and stick to].

Step 2: Take back-of-the-envelope assumptions of, say, 5% or 6% growth on your investments, against, perhaps, 3% or 4% inflation....

Step 3: Work out roughly the sort of annuity income the resulting investment might provide at age 65 (70?), and add it to what state pension might be. Is this enough to continue to spend about the same? If not, go back to step 1 etc.

Simple, but very effective.

jamesd

If you don't know where you want to live, start out by renting. The end of a relationship isn't a great time to be making quick decisions about where to live, maybe you'll want to move to a different area.

At 41 you do have ample time to get set up for a decent retirement, just need to start getting on with it. This doesn't have to be pensions. Initially using investing within a stocks and shares ISA is a good approach if you're not familiar with investing.

atush

Of course it doesn't HAVE to be pensions, but I would have a pesnion for the tax relief. And save into ISAs as well.

The OP needs to trim spending, see about how he should pay himself (be in salary or dividends or both, Pay NI contribs, and save into both a pension and Isas.

And yes OP, I said Rent, Buy Whatever taking the view that you will decide what is best for you short term. I say for short term rent with a view to getting your spending reigned in, and savings up before thinking about buying.

gadgetmind

woodyallen wrote: »

I've no pension though, and haven't paid national insurance for a fair while.

I've recently gone self employed.

Get a state pension forecast (it's free!) and see how many years on contributions you have made so far.

You can then start paying class 2 NI, which is dirt cheap at £2.65 a week, and you should pay this even if below the earnings limit. Maybe speak to the pensions people and ensure you can pay for April 2012 as it's only full years that count.

woodyallen

Thanks once more for the kind advice. I know this is a dumb question, but who do I contact over National Insurance. Is it the Inland Revenue?

EdGasket

Yes it's this place:

Inland Revenue
National Insurance Contributions Office
Benton Park View
Newcastle upon Tyne
NE98 1ZZ
Telephone 0845 302 1479
Open Monday to Friday 8am to 5pm

woodyallen

thanks lots! i'll call in the morning