My MF Mission 2015

lippy1923

I've been reading about the LISA that will become available in April and it's got me questioning everything I am doing financially.

I was going to use my EF to pay a chunk off my mortgage in the summer but now I am not so sure.
Should I instead pay £4k into the LISA to get the 25% and use this as a savings vehicle for retirement along side my pension?

I have worked out if I kept up with the £4k payments each year I would have the following-

23 years x £4k = £92k! by the time I am 50
23 lots of £1k gov bonus - £23k by the time I am 50

Total £115k (not including any interest)

If £115k sits in there earning say just 1% over the next 10 years that's another £11500 so come my 60th birthday it will be a pot worth over £125k tax free for me to take and do whatever I want.


This seems like a no brainer to me, but then my plans and hopes of becoming mortgage free will go out the window

I have questions about the LISA that I haven't been able to find the answers to yet.

1) What are the chances of the gov raising the age limit from 60, to be able to cash in your pot? I have a horrid vision of me slaving away saving religiously every year for them to tell me after 20 years, that I actually cannot reach the money until I am 70 as they raised the age limit! That would **** me off to no end!


I did have more questions but cant remember them now! grrrrr
So confused as to what to do.

hiddenshadow

Using a future value calculator it works out to £128,581.51 at the end of 23 years, assuming 1% interest. If you assume something a bit more ambitious like 3% growth, it's £162,264.42.

(http://www.calculator.net/future-value-calculator.html?ctype=endamount&cyearsv=23&cstartingprinciplev=0&cinterestratev=1&ccontributeamountv=5000&ciadditionat1=end&printit=0&x=55&y=12 if you want to see for yourself/play with the numbers)

I suppose it depends on why you want to be MF. If it's to reach FIRE then a LISA won't really help unless your FIRE date matches the date the government decides you can access the funds. (To answer your question, I wouldn't be surprised at all if the rules changed, though I think there would be a lot of backlash if they tried.)

It's all about compound interest - with 23 years to grow, your £4k annually packs a bigger punch in a LISA than being paid off to your mortgage. On the other hand, say you become MF in 10 years, you could then throw £4k/year into a LISA then and still end up with a decent pot (calculator estimates just over £78k at 3%). Bear in mind that you could just use the LISA sum to pay off your mortgage, thus still being MF immediately when it's accessible.

If it were me, I'd probably play both angles. If stock market is currently doing well, throw everything into LISA to take advantage of higher interest rate than mortgage. If stock market does poorly, throw everything at the mortgage because it's a better "savings" vehicle. You can do this on a month-by-month basis so that you get dollar-cost-averaging (no need to try and time the market re: LISA), and so that you can change course mid-way through the year if desired.

We're probably going to scale back our OPs to max out the LISA, but we're not going for MF per se anymore, just more equity in the house/lower mortgage payments for better cash flow, with the plan to downsize house in the future and be MF then.

lippy1923

Thank you very much for your post Hidden. Some excellent points and a bit of thinking for me to do.


Cheers

lippy1923

March update

-£500 OP
-£100 into shares
-1 extra month mortgage term reduction
-1 brick to colour in


Savings will be going down this month as I am paying off a £600 credit card. It will be hard seeing the money leave my savings account but nice to say goodbye to a debt.


I am still deciding on OP'ing / LISA but think I will do a split approach. I think its def worth contributing the £4k per year to get the 25% bonus and interest. So my aim is to do that as often as possible and any extra will go as OP's to the mortgage.

clear_as_mud

Awesome progress

lippy1923

£600 paid off a credit card today. That is 1 less credit card to worry about now. I feel sad that a chunk of money is now missing from my bank account but a relief that I now only have 1 credit card left with a balance on it.

lippy1923

Done some jigging of the budget. I paid my final childcare bill before the free hours each week kicks in. Next months outgoings should be a lot less now, combined with the savings from one of my cc's being paid off.

Childcare savings for April should be £210!
Not paying for a credit card any more should be £40 savings pm.

Total of £250 expected savings next month :-)

Firegirl

Fab savings Lippy!!!! Well done!

Firegirl

I've looked into the LISA a lot and although it is seriously tempting there are a lot of reasons to be put off depending on your situation. I'll list my thoughts.

If you work for a company and have a pension that will match your contributions you may better to pay into your pension and take a company match. The contributions you make to the pension will be tax free which isn't much less than what your getting from the government in the LISA. Check your own tax rates etc.

Also if you pay into a pension, you are likely to be able to access this before you are 55. Check this too. All the new pension rules give you much more flexibility with a pension.

A big one- LISA will be treated as savings and a pension is not, if you need to claim benefits at any point. Life can change very quickly and unexpectedly so although you think you are not likely to have to claim benefits, there might be a time that you will before your 60.

Saying all this, I'm still going to open a LISA because psychologically it feels like savings where a pension sort of doesn't. Also I'm out of work at the moment so don't have the company match pension option. If you do decide to open a LISA then you could treat it in your head like you know that will come off your mortgage so you know when you have built up enough in the LISA you know your mortgage free.

Oh I have gone on a bit!!!! I don't like the fact that there are massive penalties for taking money out early should you need to.

Hope this is helpful!

lippy1923

Thanks for your thoughtful post firegirl. I have thought along the same lines as you.

I already have a work pension and put the maximum in required to get my employers max monthly contribution. So that's taken care of :-)

Your next point is obviously important. It wouldn't be great to have to take out money in an emergency and be penalised so heavily. Obviously I don't plan on touching it but as you say, circumstances change.

There's also the uncertainty of what the gov will do in the next 30 years. Eg increase the age you can withdraw to be somewhere in line with state pension age (I'm my case it will prob be like 80 by then! Lol) Or they could just pull it altogether 5 years down the line. Who knows.

Also the fact that not a lot of typical high street providers appear to be supporting LISA. N@tionwide have outright said no which surprised me.

Not to mention it would throw me off my mortgage free mission, diverting money towards the LISA.

But then saying that I would have an account with a yearly savings target to meet, 25% bonus plus interest and potential for over £125k lump sum to look forward to on my 60th birthday. Could mean the difference between retiring at 60 or waiting until state pension age to retire.

Out of interest, Do you know which provider you want to go with yet?