Options after the mortgage is paid off.

Mike_Lincs

Funny you should say that as I've just emailed an IFA, and she only charges £150 an hour after the initial free consultation *gulp* Hope she gives a quick answer

bugslet

Hi Mike

I'm not an expert on pensions, unlike dunstonh, who is most definitely an expert, I find my circumstances not dissimilar to yours.

I'm nearly another 10 years older though:(, three bed semi with around 20k mortgage left on it, which I could pay off if I want to. I have overpaid because as a small business owner, I take a cautious view that my business may not last forever and I wish to feel secure.

I have put money into a pension and provided that the business does carry on, I owuld hope to have circa 300k in the pot at retirement. Nice to have more, maybe it will happen, maybe not.

I did look at renting out a house or two but certainly round where I live, there seems to be a lot of properties available for rent, so I could expect some vacant periods with no rent coming in and having briefly being a landlord, the wrong tenant can be a PITA. If you do want to go down the route of being a landlord, I'd look around and see how the market is where you are first.

In terms of moving to a bigger house, it isn't something I need to do myself, but I would like to move to a better area. where I live is OK, but could be nicer. I don't view that as a long term strategy for my income, it's purely a personal decision to improve quality of life. It may possibly allow me to move to a less good area later on, but that is debateable on many points.

Mike_Lincs

Hey Bugslet
As a self-employed design engineer I don’t have much job security (1 week’s notice is the norm). I can be in one company for a few months and another for years, fortunately my current contract has lasted many years and I had a pretty good idea that would be the case so I made hay while the sun shined and paid off the mortgage. I think having a secure roof over my head was the right thing to do with my current work situation.
I’m rapidly going off the Buy to Let option! I’m really not clued up on pensions and have no idea how much of a pension pot I should be aiming for, 300k sounds like a good amount though.
Hopefully the IFA will steer me in the right direction … stick my life savings on Red 14

bugslet

I was going for no 8 in the 3.30 at Haydock myself....;)

Yep, sun shining equals mortgage payments!

300k is OK, I'd prefer about 500k. I'm sure I read the average pension pot is about 30k, sure dunstonh, jamesd or linton can comment on that, so I'm at least part way there.

tony4147

Mike_Lincs wrote: »

Hey Bugslet
As a self-employed design engineer I don’t have much job security (1 week’s notice is the norm). I can be in one company for a few months and another for years.

Snap, I'm aiming for a pot of £400-500K, I'm 50, and even though I have a fund now of £127K, to get to what I want by 67 is going to take £1k/month minimum

Mike_Lincs

Yikes 500k sounds like a lorra hard saving to me, reckon i need to put away at least 1k a month aswell, best put the Ferrari Enzo on hold damn it.

jamesd

Yes, the average pension pot used to buy an annuity is around £30k. Anyone who deliberately sets out to plan for retiring early or well is likely to end up with a lot more than that!

Someone who just wants help to get started can use this way of working out an initial estimate of what they need to pay in to a pension:

1. Think of your minimum income level for a tolerable retirement. Don't go far too high, this is for contingency planning if things go really badly with investments.

2. Multiply that by 20 to get the amount of pension pot you need. Multiply by 1.3 if you want to take a 25% tax free lump sum and not use it for income, ignore it if you'll reinvest the lump sum.

3. Use a regular savings calculator to work out how much has to be paid in each month on average to get to that target. Start out with £100 as the monthly payment, duration in years as the number of years to go to your target retirement age and 5 as the interest rate, for a stock market tracker.

4. Adjust the monthly payment until the "Your investment will be worth" line is a little more than your target from step 2.

That's your minimum and you must increase it with inflation each year.

Now, contingency planning:

5. Add one more year and see what that does to the result and the possible income, so you can get some idea of the effect of delaying by a year. Add a few more years to see some less good contingencies.

6. Repeat steps 2, 3 and 4 for your target for a comfortable income level.

At this point you have a low and high monthly contribution for a target and contingency income level.

Next stop, more contingency planning. Increase the pension pot target size from step 6 by 50% to allow for a really bad market drop that is sustained for a long time. Now again with 100% more instead of 50% more. These numbers are your more ideal targets for deliberate planned early retirement with high confidence that you're not going to need to drop to your contingency minimum income level.

If the numbers look completely unachievable and you've started out trying for age 55, relax that a bit. The number of years makes a huge difference.

Now you can allow for the effects of tax relief and possible employer matching to work out your net monthly cost.

atush

James you are scaring him I think.


Mike do do that at some point. But for you, right now you need to start. As you will keep fining an excuse not to start. Like you don't understand the above, or you are afraid of 'locking away your money' etc.


At this point, anything you save into a pension will be saving you 40% tax. So, you should get started asap- like today. then increase your contributions once you get the hang of it. Certainly in the next tax year come april.


I am happy to see you leaving behind the idea of BTL esp as you failed t mention the insecure nature of your job/income. All the better to start saving into a pension as that money is safe from means testing should you be out of a job tomorrow.

Mike_Lincs

Thanks allot for the advice jamesd, I shall save those wise words and work out some figures over a stiff drink J

atush it takes more than some clever pension algorithms showing my future financial doom to scare me … o hang on, no it doesn’t *yikes* *gulp* *faint*

Saving 40% tax sounds highly appealing!

tony4147

Mike,
As a Contractor I'm not sure if you work through a ltd Company or Umbrella etc. I work Umbrella and pay my contributions as a salary sacrifice, for me it works as every £100 into my pension really only costs me something like £53.