21 Year Old trying to save for retirement.. Opinion?

djbd1973

Hi Andy,

By getting such a good financial footing at your age is great news so well done. I started saving for a house when I started work at 16 but in those days I used various savings plans which to me were a lot of money in them days as an apprentice, but I bought a house at 25, paid for our wedding in the same year, and then the remaining savings plans began to mature releasing money for essential house repairs and for reinvestment. My own retirement plans centre around building up my own funds through ISA's and more recently regular savers in the main, and I overpay my mortgages. Personally I don't trust pensions although I have two funds that I don't pay as much as I should into, but my wife and I now have our house and a flat (buy to let) with a current total value of £305000 and a total mortgage of £170000. We have a lot of savings built up now and two endowments (seemed a good idea all those years ago) that will give us a large cash lump and our own goal is to build up our retirement funds from property, our own savings and investments and the like. I am 34. The reason I am currently sceptical about pensions is that I have been running my own business for a couple of years now, and I have dealt with many other businessmen who have either just retired or are approaching it, and none of them are happy with what they are going to get despite pumping lots of money into their pensions. If I was earning a kings ransom every month and had the money to put into a pension also I probably would but at this point in time I have been scared off and would rather invest my money MYSELF. Hope this helps in some way.

dunstonh

Personally I don't trust pensions

Yet you have ISAs and there is no difference in the status of pension and ISA. Both are tax wrappers. Both can contain the same investments.

The reason I am currently sceptical about pensions is that I have been running my own business for a couple of years now, and I have dealt with many other businessmen who have either just retired or are approaching it, and none of them are happy with what they are going to get despite pumping lots of money into their pensions.

Thats not a valid reason.

If someone pays £100pm into an ISA and £100 into pension and invests in the same way then you are going to get a largely same result. In fact, from an income point of view, the pension would pay more than the ISA.

Self employed individuals get lower state pensions. You are looking at just £4500 a year. So, you need to put more aside. Perhaps you should ask these businessmen how much their fund value was when they retired and that will tell you the real story of their problem. i.e. they didnt pay enough in.

cheerfulcat

dunstonh wrote: »

Perhaps you should ask these businessmen how much their fund value was when they retired and that will tell you the real story of their problem. i.e. they didnt pay enough in.

Or they paid in plenty and the investments did well but they were whacked with a 50% exit fee when the pension was found to be unsuitable and had to be moved ( personal experience ).

inmypocketnottheirs

The best wrapper for my money is my property investments. I control, the responsibility is mine. I can take tax free cash out anytime I like (remortgage - tenants pay the mortgage).

Shoot me down in flames, but I'd rather have £1,000,000 of property (with £300,000 mortgage) than £1,000,000 stuck in a pension.

That does not mean I do not have a pension. I put £200 a month in. If it buys me a holiday, then I am happy. But for income, I'll take charge.

dunstonh

The best wrapper for my money is my property investments. I control, the responsibility is mine. I can take tax free cash out anytime I like (remortgage - tenants pay the mortgage).

After a period of sustained growth that may be the case. Lets see what the future holds.

Shoot me down in flames, but I'd rather have £1,000,000 of property (with £300,000 mortgage) than £1,000,000 stuck in a pension.

On that example, the pension wins hands down.

Property after mortgage repaid is £700,000. Then you have to pay capital gains tax upto 40%. So, lets say that is £200,000 giving you £500k. 500k at 5% = £25,000 a year

Pension at 5% a year on 1 mill = £50,000 a year. Double that of the property.

Or they paid in plenty and the investments did well but they were whacked with a 50% exit fee when the pension was found to be unsuitable and had to be moved ( personal experience ).

50% penalty is rare. 5-10% is more common if you have to move out of a legacy pension into a modern one. However, going forward, you wouldnt be using a legacy pension but a modern one.

EdInvestor

emmaur1 wrote: »

Corporate Bond Fund - 11 out of 102

This is the only one that's any good (and it probably hasn't made much because the bond sector is in a rough patch:( )


Who is your ISA with now? Are all these funds from the same provider?

EdInvestor

dunstonh wrote: »

On that example, the pension wins hands down.

Property after mortgage repaid is £700,000. Then you have to pay capital gains tax upto 40%. So, lets say that is £200,000 giving you £500k. 500k at 5% = £25,000 a year

Pension at 5% a year on 1 mill = £50,000 a year. Double that of the property.

Eh?

If you want income from property you don't sell it, you rent it out.:rolleyes:

[And even if you do want to sell a letting property at some point, CGT is very easy to avoid - there is letting relief, taper relief, annual CGT allowance (possibly x 2) and private residence relief if you've ever lived in the property.Most people pay very little CGT, if any.]

dunstonh

If you want income from property you don't sell it, you rent it out.:rolleyes:

Thats all very well but there is £300k of mortgage. You cannot keep the property and the mortgage going. You either have to repay the mortgage requiring you to build a pot of £1.3 million against the pension £1 mill or you have to sell the property.

Most people pay very little CGT, if any.]

And the revenue are coming after them for tax evasion...

Long term buy to lets are going to be highly likely to have CGT payable on disposal.

Lets make an alteration to the calculation to take your figures into into account.

Property at 1 mill with no mortgage @ 5% yield = £50,000 (ignored CGT but that is still likely to be needed to paid regardless of what is said)
Pension at 1.66 mill (22% tax relief and extra 300k to equal extra funding that property required to pay the mortgage) @ 5% = £83,333

cheerfulcat

dunstonh wrote: »

50% penalty is rare. 5-10% is more common if you have to move out of a legacy pension into a modern one.

It may well be rare but it's not unheard of. The point is that plenty of people thought they were doing the right thing by contributing to a personal pension only to find that they had been sold a pup when it was way too late. Like the businessmen mentioned earlier...

However, going forward, you wouldnt be using a legacy pension but a modern one.

The value of the legacy pension in this case was £250,000. The transfer value, and thus the value of the " modern " one, was £125,000. Having a snazzy new wrapper wasn't much consolation.

dunstonh

It may well be rare but it's not unheard of. The point is that plenty of people thought they were doing the right thing by contributing to a personal pension only to find that they had been sold a pup when it was way too late. Like the businessmen mentioned earlier...

Just as buying a property or any other investment can become obsolete over time if you don't keep an eye on it.

Also, we have to look at what is available now. Someone buying a pension today isn't going to be buying a pension with terms and conditions that existed 10 years ago, let alone 20. Modern pension have the same investment flexibility as ISAs.

The value of the legacy pension in this case was £250,000. The transfer value, and thus the value of the " modern " one, was £125,000. Having a snazzy new wrapper wasn't much consolation.

That affects one particular case. It wont be an issue for new contributers.

Would a landlord not keep the property they rent out under review for maintenance etc as well as making sure the rental yields mean it is still suitable for keeping or not? Why should pensions not get the same sort of reviews?