Desperate Measures Called For - Ideas Welcomed

AuntLily

I am self employed and not unhappy with my work but not entirely happy either. After many years self employment I realise I have a woefully inadequate pension provision at now, age 52 I am concerned I've left it too late.

Have seen a financial adviser but he didn't really inspire me other than suggesting switching funds to one that would perfom better.

Am now reviewing what to do next. Pension pot is currently £129,000 with £1000 being paid in per month.

Have £50,000 of savings split between a S&S ISA and a cash ISA and have viewed this as the emergency fund.

Mortgage is due to run til I am 68 years old. Can't downsize as property is a farm and have livestock. Intend to keep this going for rest of life although it is not exactly an income more a lifestyle choice.

Have one other property mortgaged but let out with rental covering mortgage. Again mortgage will clear when I am 67.
No dependants.

I need to think about better financial provision. I'm not convinced that, at 52, paying into a pension fund when I want to work out how to retire early is actually the best plan. Thoughts anyone???

dunstonh

I'm not convinced that, at 52, paying into a pension fund when I want to work out how to retire early is actually the best plan.

What are you convinced of then?
i.e. what alternatives have you investigated that make you think they are going to be better than a pension?

Are you actually self employed (i.e. paying class 2 NI) or shareholding director of a limited company?

You say you want to retire early but then say you intend to keep the farm going for rest of life and wont be mortgage free until 67 or 68. So, what is your income need?

atush

Id say your mtg is a problem as it finishes so late. Do you have enough equity in property 2?

If so sell it to clear both mtgs.

kidmugsy

The question is how best to increase income, or reduce outgoings, to bridge the gap to the start of your State Retirement Pension. atush's suggestion is one route; the sainted jamesd might come along to argue against it.

One way to look at it is that once you're 55 money in your pensions is available pretty much instantly. So at that age you might gain by putting your S&S ISA money into a pension, trickling it in if needs be, while keeping a decent emergency cash fund outside (which, by the way, would probably be best kept in interest-bearing current accounts at the moment, rather than in a Cash ISA).

Remember that after 55 a 25% Pension Commencement Lump Sum will be available tax-free from your pension in an emergency: it would be wise to arrange that your pension pot is with a provider which offers all the new flexibility, rather than a provider who would insist you could take the PCLS only if you bought an annuity as well.

AuntLily

dunstonh wrote: »

What are you convinced of then?
i.e. what alternatives have you investigated that make you think they are going to be better than a pension?

Am considering using part of the emergency fund and the S&S ISA as a deposit on a BTL flat which would generate £450 a month rent after expenses and allowing for 6 weeks empty every 12 months if mortgage was interest only.


This would leave me a very reduced emergency fund. But then the emergency fund at £25,000 was high to cover 2 years mortgage on the farm in case needed - but - I have been reducing farm mortgage slowly - I would then use any spare cash to rebuild emergency fund rather than put into pension.

dunstonh wrote: »

Are you actually self employed (i.e. paying class 2 NI) or shareholding director of a limited company?
?

Shareholding director of a limited company

dunstonh wrote: »

You say you want to retire early but then say you intend to keep the farm going for rest of life and wont be mortgage free until 67 or 68. So, what is your income need?

I don't really think of the outdoor stuff as work. Income need around £12000 a year after mortgage paid off.

AuntLily

kidmugsy wrote: »

The question is how best to increase income, or reduce outgoings, to bridge the gap to the start of your State Retirement Pension. atush's suggestion is one route; the sainted jamesd might come along to argue against it.

Perfectly summed up there Kidmungsy.


Atush's suggestion is one I've considered. However I've been aggressively overpaying the mortgage on the farm in order to clear that debt (whilst at the same time putting £1000 a month into the pension). My thinking is that I could reduce my outgoings substantially by clearing the mortgage on the farm.


Property number 2 has enough equity to either then provide me with a lump sum (around £100,000) if sold, or, when I'm 67 an income of £9000 a year at todays rates.


I don't think I've planned badly - its just I'd like to reduce the 15 years of work somehow and I'm just wondering if I can do better and somehow bring retirement forwards.

gallygirl

atush wrote: »

Id say your mtg is a problem as it finishes so late. Do you have enough equity in property 2?

If so sell it to clear both mtgs.

ETA: Wrote my answer before seeing last few posts so some of my questions are answered!

I don't agree with this - property 2 could provide a good passive income and there could be a large CGT liability. Worth investigating but there is not enough info to advise at this stage.

OP you haven't said what age you would like to retire at, also whether you would anticipate working part time. Is there any way to generate additional income from the farm - could any areas be let for example?

You need to chart out what your needs are and how much income you can generate. If you retire at 68 with both mortgages paid off will your state pension (assuming you have some entitlement - get a projection from DWP) and rental income be enough to live on? If not, how much of a shortfall would you need to fund from your pension every year?

Can you continue to pay 12k a year into your pension? I assume that attracts tax relief so you are getting 15k a year added to your pension? Assume that you get very poor growth and it only matches inflation for the next 15 years so its value then is equivalent to 225k today, together with your 129k (again, pessimistically assuming no real growth). That gives you a pot of around 350k. With no lump sum, and withdrawing 3.5% a year, which again is a low estimate, that would give you 12.5k a year in addition to your pensions. At that level of withdrawal it is unlikely the pot would ever run out.

So now you know what the pessimistic scenario would be when you're around 68, and also how much you need. And your savings are untouched. You can then start working backwards to say 60 and see what that looks like. Deduct the additional years from your pension pot and take into account that you have to fund more years before your state pension kicks in. How does that look?

There are very good retirement calculators out there but I think it's best to really get to grips with the basic maths and ideas before you start playing with growth %'s etc.

For what it's worth, I don't think your situation is as dire as you think, as long you don't have an expensive sports car habit etc .

atush

kidmugsy wrote: »

The question is how best to increase income, or reduce outgoings, to bridge the gap to the start of your State Retirement Pension. atush's suggestion is one route; the sainted jamesd might come along to argue against it.

One way to look at it is that once you're 55 money in your pensions is available pretty much instantly. So at that age you might gain by putting your S&S ISA money into a pension, trickling it in if needs be, while keeping a decent emergency cash fund outside (which, by the way, would probably be best kept in interest-bearing current accounts at the moment, rather than in a Cash ISA).

Remember that after 55 a 25% Pension Commencement Lump Sum will be available tax-free from your pension in an emergency: it would be wise to arrange that your pension pot is with a provider which offers all the new flexibility, rather than a provider who would insist you could take the PCLS only if you bought an annuity as well.

James a saint? Not in my bible

AuntLily

Thanks for the posts everyone. Gallygirl, that was really helpful in that you are right my situation is just fine - if - I want to retire at 67.
But I'd like to knock 10 years off that at least.


Which gives me just 5 years tops to build some kind of fund to add to my current amounts.
The pension is being paid from my company so it doesn't have the extra tax relief. I sat down and worked out the figures with my accountant and it was pretty much the same if I saved the corporation tax or paid that and then got the tax relief on the contribution. I will only be able to pay that in while I'm working in the company.


Totally agree that the farm needs to start to make more money. I have some ideas on that front.

Still thinking here on the pensions/investment/property ideas.

dunstonh

The pension is being paid from my company so it doesn't have the extra tax relief.

You avoid corporation tax and NI.

I sat down and worked out the figures with my accountant and it was pretty much the same if I saved the corporation tax or paid that and then got the tax relief on the contribution. I will only be able to pay that in while I'm working in the company.

The accountant seems to have forgotten the NI.

Thrugelmir

AuntLily wrote: »

Am considering using part of the emergency fund and the S&S ISA as a deposit on a BTL flat which would generate £450 a month rent after expenses and allowing for 6 weeks empty every 12 months if mortgage was interest only.

Why not pay more into your pension scheme and reap the tax benefits. Rather than leverage up with more debt and expose yourself yet further to the whims of the property market. While opting for a particularly tax inefficient form of investment.