Worried I'm not doing enough, or the right thing!

Crystal_Ball

Afternoon all.

I often worry that I'm not putting enough away for retirement. I also know that what I do put away is not necessarily being put in the correct places. Just wanted to put some figures on here to see what people thought.
Before I give a bit more info, I do want to state that I'm aware that there are no certainties with retirement planning nor do I expect my retirement to be spent in Monte Carlo on a Yacht!!

I'm 32 years old, male and married. I work as a contractor but not through my own Ltd Co. I am a higher rate tax payer.

I have just shy of £17k in a cash ISA getting 2%. I put an extra £480 a month into my ISA.

I have a house worth approx £105k, on which I have a repayment mortgage with an outstanding amount of approx £83k, which currently has 33 years to run. At the moment I am paying 2.5% variable, the payment is around £310. I overpay this by £115 a month, which will rise to £215 in a few weeks once I've paid off the last £300 I have on a 0% credit card from our wedding last year.
We are looking to move up the property ladder in the next year or so, and these overpayments are basically a deposit saving.
I plan to decrease the term of the mortgage when we move. My wife will hopefully have around £6-7000 saved in her works share scheme by this point to add to deposit for new home.

I have an old company pension that is forecast to be worth £1400 a year.

My real worry is that the £480 a month I put away isn't going to provide much of a retirement. Are there any ways to calculate what sort of pension it could buy me coupled with the 17k.
Lets just say for the sake of the calculation I plan to retire at 65.

As a contractor I do need a cash reserve for time spent on the bench, I have got what I consider to be enough with the 17k. We could also just about survive on my wife's income if I were out of work.
I am now looking at better places to put the £480 each month.
I want to keep risk to a minimum.

I don't really want to pay it off the mortgage as my wife will just see that as the next house being bigger!!

Thanks in advance.

FatherAbraham

Crystal_Ball wrote: »

I have a house worth approx £105k, on which I have a repayment mortgage with an outstanding amount of approx £83k, which currently has 33 years to run. At the moment I am paying 2.5% variable, the payment is around £310. I overpay this by £115 a month, which will rise to £215 in a few weeks once I've paid off the last £300 I have on a 0% credit card from our wedding last year.

Why have you apparently been over-repaying a 0% loan in preference to saving the repayments in an interest-bearing savings account (preferably tax-free) until the end of the 0% loan?

Warmest regards,
FA

FatherAbraham

Crystal_Ball wrote: »

I want to keep risk to a minimum.

Perhaps you should stop being a contractor then? That's a fairly high-risk, high-return way to make a living.

Seriously, though, which risk do you want to minimize? Risk of loss of accumulated capital? Risk of not having enough income in retirement? Risk of inflation destroying the real value of your accumulated capital?

There is no path through life which permits you to eliminate all risk. From the risky nature of your employment, I'd suggest that your risk tolerance may be higher than you claim.

Take a look at this article, and try the suggested tools at the bottom. the FinaMetrica one has a very good reputation: http://www.guardian.co.uk/money/2011/nov/25/investing-risk-willing-to-take

Crystal_Ball wrote: »

I have just shy of £17k in a cash ISA getting 2%. I put an extra £480 a month into my ISA..

From what you've said about your wife's income, you may well have about enough cash savings now. You can improve upon 2% a bit.

You need to think about investing, rather than saving. Whether that's in an ISA or a pension fund is a different matter. However, a pension fund is likely to give a tax advantage, due to the tax-free lump sum, and a possible lower rate of tax in retirement. ISAs can be a long-term tax trap for higher-rate-paying workers, because income is saved net of 40% tax, then may be consumed in a period of 20% taxation. Ouch!

Crystal_Ball wrote: »

I have a house worth approx £105k, on which I have a repayment mortgage with an outstanding amount of approx £83k, which currently has 33 years to run. At the moment I am paying 2.5% variable, the payment is around £310. I overpay this by £115 a month, which will rise to £215 in a few weeks once I've paid off the last £300 I have on a 0% credit card from our wedding last year.
We are looking to move up the property ladder in the next year or so, and these overpayments are basically a deposit saving.

You're right to conceptualize capital repayment as savings. However, having a large deposit is most useful when it reduces the mortgage interest rate. Extra deposit beyond that is most questionable, as long as one has sufficient savings elsewhere. Many mortgages are inflexible about withdrawing overpayments.

And, don't keep overpaying (saving) in the long term if your true needs are for investment (to get higher return).

Crystal_Ball wrote: »

I plan to decrease the term of the mortgage when we move. My wife will hopefully have around £6-7000 saved in her works share scheme by this point to add to deposit for new home.

Mortgage debt is generally cheap credit. Don't reduce term unless ther'es a clear benefit (such as a reduction in interest rate). I usually try to increase term when I move to a new house, not decrease. This frees resources for investing for retirement.

Crystal_Ball wrote: »

I have an old company pension that is forecast to be worth £1400 a year.

My real worry is that the £480 a month I put away isn't going to provide much of a retirement. Are there any ways to calculate what sort of pension it could buy me coupled with the 17k.
Lets just say for the sake of the calculation I plan to retire at 65.

As a contractor I do need a cash reserve for time spent on the bench, I have got what I consider to be enough with the 17k. We could also just about survive on my wife's income if I were out of work.
I am now looking at better places to put the £480 each month.
I want to keep risk to a minimum.

I don't really want to pay it off the mortgage as my wife will just see that as the next house being bigger!!
.

Don't triple-count the £17k savings.

It can't simultaneously be your short-term-unemployment survival fund, your increase in deposit for a larger house, and also part of your retirement-income purchase capital.

You should consider gradually tailing the savings off and starting to ramp up your long'term investing.

Warmest regards,
FA

R_P_W

Saving into a cash ISA is great for short term savings or in addition to pension and maybe a S&S ISA - but it isn't really a very good plan for retirement!

xylophone

https://www.moneyadviceservice.org.uk/en/tools/pension-calculator
might help.

Would you benefit from seeing an IFA? http://www.unbiased.co.uk/find-an-adviser?gclid=CKKarO6hwLYCFYXHtAodwFAAwA

Crystal_Ball

The cost of the whole wedding wasn't on the credit card, about £1000 we were over budget, the interest free period comes to an end soon, so it's now getting paid off before that happens.

I know what you are saying regarding contracting and risk. It wasn't down to choice that I got into contract work. And staff jobs close to home are few and far between. Not to mention those that come up would effectively halve my income.

Sorry if was unclear about the 17k, it's not something I will dip into unless its the last option. I understand that this means I can't exactly count it as an investment, but if the worst happened and I had to spend it, it would be my intention to re-build the pot as soon as I was working again.

Thanks for all of the advice and the links, I shall have a look.

AlwaysLearnin

Personally, I'd be looking at personal pensions. I know it's locked in (can be a good thing - removes temptation...), but you sound pretty comfortable financially at the moment and the 40% tax relief makes it very attractive.

atush

I agree that you need to stop saving in cash (although leave your emergency fund in cash ISAs) but instead invest the money.

I'd be inclined to split it between a pension and a S&S ISA each month.

Normally, if you only pay BR tax, some say to avoid a pension. I don't, esp for you as you are a contractor who could go bust/be sued and a pension has protection from creditors (or means testing ) whereas ISAs do not. Not to mention the uplift you get from BRtax relief.

If you are a limited company, it could have tax advantages for your business as well.

Crystal_Ball

I have been putting a bit more thought into this and am going to arrange to see an IFA.
Doing a bit of reading on here I see that it might not be the best idea to put all of my eggs in one basket, and that it is a good idea to split things up, maybe between a pension and stocks and shares ISA.

Am I correct in my assumption that if I put the £480 a month into a pension scheme, the tax man will put an additional £192 into the pension each month? (I'm a higher rate tax payer.)

If this is correct then to me it seems like I would be missing out on a good chunk of cash by splitting the monthly investment betwee say n a pension and ISA, as I would be missing out on the tax relief on whatever amount I put elsewhere than the pension.

I guess an IFA will answer this for me, but it would be nice to have a basic understanding of the situation before speaking to one.

As for the Ltd Co. thing mentioned above, I DO NOT operate through my own Ltd Co. I worry enough about retirement, I don't need to add the worry of IR35 investigation to that!!

Thanks!

tony4147

Crystal_Ball wrote: »

I have been putting a bit more thought into this and am going to arrange to see an IFA.
Doing a bit of reading on here I see that it might not be the best idea to put all of my eggs in one basket, and that it is a good idea to split things up, maybe between a pension and stocks and shares ISA.

Am I correct in my assumption that if I put the £480 a month into a pension scheme, the tax man will put an additional £192 into the pension each month? (I'm a higher rate tax payer.)

If this is correct then to me it seems like I would be missing out on a good chunk of cash by splitting the monthly investment betwee say n a pension and ISA, as I would be missing out on the tax relief on whatever amount I put elsewhere than the pension.

I guess an IFA will answer this for me, but it would be nice to have a basic understanding of the situation before speaking to one.

As for the Ltd Co. thing mentioned above, I DO NOT operate through my own Ltd Co. I worry enough about retirement, I don't need to add the worry of IR35 investigation to that!!

Thanks!

I'm also a Contractor and I don't have a LTD Company (IR35), I work through an Umbrella Company, mainly as it's easy. I'm also a higher rate tax payer.
The Umbrella I use have a group pension scheme with Scottish Widows and I pay into it by salary sacrifice, basically my pension contributions are paid into the scheme and I pay tax and NI on whats left. For every £100 paid into the pension it only costs me something like £54/56, so yes it's free money.

Crystal_Ball

Tony, do you mind me asking which umbrella you use?
I'm also using an umbrella co (NASA Consulting).