Nearly 50 but no pension, what should I do?

ceuribet

Hi there, I am nearly 50 and sadly without pension! I work as a freelancer and money doesn't come regularly.But I do now what to save some money for the future. However, I have heard a radio programme saying at my age, pension scheme is probably not the best way to save for the old age. My questions: is that true? if it is what is the best way to get the best income later on considering I don't earn big money? Thank you!:)

gadgetmind

What's your state pension situation like? Have you been paying Class 2?

dunstonh

However, I have heard a radio programme saying at my age, pension scheme is probably not the best way to save for the old age.

That is too simplistic. There is a very small window income where it can be better to have nothing and get some benefits. However, any other savings you have beyond a certain limit can be included in the test and can actually do more damage.

It really depends on the amounts involved

atush

I think the radio was wrong, it isn't to late to save for you, as you will work til you pop your clogs if you haven't. Esp as there wont be pension credit by the time you reach SPA.

The most important thing is State pension. Do you have 35 years contribs? If not, start paying voluntary class 2's. Then, get a state pension statement to see how much state second pension you might have if you ever worked for an employer in the past.

then, if you have spare cash each month, put 100% of it into a pension. As every 80 quid will become 100 quid. that is, if you have a cash savings buffer. In yur case I would say 6 months outgoings. If you dont, save 50% of spare cash into a cash buffer, and 50% into a personal pension.

And consider working more, or taking a second job that fits in with your freelance work. To save more in the next 15-17 years.

kidmugsy

ceuribet wrote: »

I am nearly 50 ... I have heard a radio programme saying at my age, pension scheme is probably not the best way to save for the old age.

I don't see why that is true. The new flexibility means that after 55 the money is available to you virtually immediately if you want it. In your shoes the best bet would probably be to build up a cash emergency fund first - about 6 months of outgoings, as atush says. A good place to put that money is in interest-bearing current accounts e.g. at TSB, Nationwide, Lloyds, Santander etc. After that you could save what you can into a stocks and shares ISA, and then when you turn 55 and will qualify for the flexibility, contribute to a pension. You might even want to withdraw your ISA money and contribute it into a pension too.

That scheme would be a useful target, to be reviewed as you approach 55 in the light of the then-current rules.

LHW99

Also if you have ever worked for a company, check if there was a company pension that you were automatically a member of.

jamesd

The first thing to do is work out what sort of income you want in retirement. Provided you're willing to wait until state pension age and continue paying self-employed NI you can assume that your state pension will be about £8,000 a year in today's money.

Beyond that it's a good idea to pick an "absolute minimum" level, an "OK to retire on this" target and "that'd be nice to have" level.

Next step is to work out how to get to the target. First pick the OK to retire on this one and subtract the £8,000 a year or £155 a week state pension from it. Now go to a regular savings calculator and put in these numbers:

Monthly payment: £100
Duration: 18 (years between 50 and state pension age assumed to be 68)
Interest rate: 4.5 (long term UK stock market return less about 0.5% for costs)

Now the Your investment will be worth part will have a number put there automatically. In this case it is £33,186.80. There is a general rule that you can reasonably expect to take 4% of the starting amount of a pension pot as income, increasing with inflation each year. 4% of £33,186.80 is £1,327.47 a year or about £25.52 a week.

Basic rate tax relief cuts the net pension cost for a basic rate tax payer form the £100 a month to £80 a month. So now you know that you might reasonably expect that:

each £80 a month will get you £1,327 a year of income, £110.58 a month.

So given that you can work out how much to put in to get to your various targets.

Say you wanted £18,000 total taxable income. Deduct £8,000 state pension leaves £10,000. £10,000 / £1,327 = 7.54. 7.54 times £80 equals £602.40 net a month paid into a pension to get to this target income level, increasing the amount each month with inflation.

Now add 50% to the investment part - the £10,000 - and monthly payment to get there to allow for investment risk and give yourself a safety margin, but you could instead decide that you will just accept a drop to two thirds or so of the investment income if things go badly.

If you can get to your targets at 68 you can then start to consider whether you might be able to retire earlier on an acceptable income. But that's for another post at another time if it interests you.

jamesd

I did an earlier retirement example calculation in this post.