Is this a crazy idea or a sensible one?

bigfreddiel

funscott wrote: »

depends how far off 55 you are as your money is tied up until then. but an isa / savings account you can use the money.

thats the point of pensions - you can't get at the money to fritter i away on tablets holidays and many other things you think you need

what you must do is save to BOTH pensions and isas

read a few books on how to build a balanced portfolio

any book by bogle woud be good start

check out passive portfolios

check out the monevator site

once you've seen how it works open a s%s isa with td directinvesting and fund a vanguard lifestrategy 80% ACC fund

if you can max it out every year till retirement that's good and you'll have £2.1m

if you only save £1000 per year you'll accumulate £200k


and a £1 a day will see you with £72k

its up to you

fj

Carpi09

bigfreddiel wrote: »

thats the point of pensions - you can't get at the money to fritter i away on tablets holidays and many other things you think you need

what you must do is save to BOTH pensions and isas

read a few books on how to build a balanced portfolio

any book by bogle woud be good start

check out passive portfolios

check out the monevator site

once you've seen how it works open a s%s isa with td directinvesting and fund a vanguard lifestrategy 80% ACC fund

if you can max it out every year till retirement that's good and you'll have £2.1m

if you only save £1000 per year you'll accumulate £200k


and a £1 a day will see you with £72k

its up to you

fj

I'm interested in how you worked these calculations out. I have just opened a S&S Isa with Vanguard LS 80%

Doesn't make sense to me.

?

kidmugsy

marathonic wrote: »

You may find that you are employed by a company with this type of [salary sacrifice] scheme in place in the future or that you become a higher-rate tax payer. At that point, maximise your pension contributions. Until then, contribute the minimum required to get your maximum employer contributions.

Seconded. Strongly.

bowlhead99

Carpi09 wrote: »

I'm interested in how you worked these calculations out. I have just opened a S&S Isa with Vanguard LS 80%

Doesn't make sense to me.

?

If you invest 1000 every year for ~30 years at a rate of return of 10%, you'll get to ~200k.
You can prove that for yourself by working it all out longhand:
For example 1,000 x 1.1 x 1.1 x 1.1 etc to 31 times is 19.2k. Then the next year's 1000 x 1.1 x 1.1 etc to 30 times is 17.4k. Add all these up (the later 1000s won't have as many years' growth) and you get to about 200k.

10% a year is very ambitious and I suspect fj used something lower, like 7% over 40 years to get to the same ~200k. Of course if you don't start until your mid thirties you might not have 40 years left before you waant to start spending it.

And 200k sounds like a substantial return from 30-40k invested but of course 200k in 30-40 years won't buy as many beers or loaves of bread as 200k today. Really you should reduce the 7% return to about 4% to account for inflation, you'd only get a real return of 100k or so instead of 200k.

I think for someone mid thirties and only paying basic rate tax, a huge pension contribution is not particularly compelling because you still pay tax (on the 200k it's turned into) when you take it out. Apart from whatever 'tax free lump sum' the govt allows in 30 years time if any. Much more useful to have the cash available for emergencies, children, property purchases etc and growing in S&S ISAs, rather than locked up voluntarily for 20-30 years and growing in pension.

The real advantage is for a high rate taxpayer, who could use pension to avoid a 40-50% tax bill now and only have a 20-30% tax rate by the time they retire on lower income. Or as others have mentioned, if your employer matches contributions, you are throwing free money away if you don't take them up on their kind offer.

innovate

If £5,760 is your only money on the side, you would be crazy to put it into a S&S ISA or a SIPP.

You should have a 3-6 month rainy day fund that is readily accessible in case of an emergency. So a cash ISA, even with miserable interest rates is the way to go to start with.

However, since you are in the savings habit now you should also be thinking of starting (with additional money) regular savings into a S&S ISA, and/or SIPP, or increasing your contributions to your work pension scheme.

Radiantsoul

Looter wrote: »

Is this a good idea? Please correct me if I'm wrong, but getting 20% tax relief on a pension is more appealing than getting 2 or 3% (if you're lucky!) in a cash ISA?

You have to "pay back" the tax when you take it out(at 60) so it is not such a big plus.

Cash ISAs are about money you want to access in the short term(often instant access and at the moment locking your money up for longer does not substantially increase the returns). Whereas pensions are about money you want when you are...umm...retired. A stock and shares ISA is a sort of middle ground in you can access it whenever you want, but you may find the market is against you if you need to cash in at a given point. Basically you need to think when you might need the money.

atush

By all means, make sure you are saving enough into your pension so that you get max employer's contribs and have enough to retire on.

but if this is your only 5K, then I'd keep it in a Cash ISA. Then save into a S&S isa with some of your spare cash going forwards (alongside your pension).

You need to address short (cash) medium (S&S ISA) and long term (pension) savings.

johnnyl

ifyou have to ask then its probably crazy :rotfl: