PositiveBalance's Positive Postings on the Path to Paying off Peter & Paul and...

PositiveBalance

Hello everyone!

Thank you all for being so lovely!

It has been a long day. Today's money tasks have been buying a bargainous new oven (another thing that bit the dust!) and sending off the money for a charity event I did recently.

Landlord's deposit is tomorrow.

P.S. I was accepted for the bank account. Phew!

hiddenshadow

PositiveBalance wrote: »

My place of employment already has a pension attached and their contributions are generous. Very generous. It's one of the few advantages of the job. I'm totally signed up to it.

The only thing is that I am in my mid 30s and this is my first pension and I have been talking to people who have been there for 10+ years and are near to retirement who don't seem to be getting a lot of money paid out when they retire, so I'm a bit scared about that.

If you're putting a decent amount in and it's in a balanced portfolio (mix of markets/bonds/etc), you should be fine. Being in it for the long haul helps loads. For reference, I saved (not enough ) in my 20s before moving to the UK - when I last contributed in 2009 my account was worth $23,968.31, it's currently worth $46,811.34. All I've done is let it sit (no real choice there as you can't withdraw without penalties until 59 ). Almost doubling in value in 6 years isn't bad. I don't plan to live off that money in retirement (if only because converting it to pounds and then paying tax - possibly twice - on it sounds like a pain), but in theory it should be worth ~$150k by the time I'm retirement age. Not bad for 5 years of contributing.

*Hangs head in shame* I don't actually know what this means. I have a sneaking suspicion that probably counts as an educated guess, but it has been a long day!

It means that if you have no dependents (children/spouse/other) there's no reason to need life insurance. One less thing to worry about!

We've got buildings/contents insurance and life insurance (just enough that DH or I could pay off the house if one of us died - don't "need" it, per se, but we're going on the assumption that the surviving one would want to take time off work and not worry about bills for a while). We've thought about adding income protection insurance, but haven't pulled the trigger yet.

If I weren't married I'd go with buildings/contents and income protection, personally.

PositiveBalance

Hi hiddenshadow,

hiddenshadow wrote: »

If you're putting a decent amount in and it's in a balanced portfolio (mix of markets/bonds/etc), you should be fine. Being in it for the long haul helps loads. For reference, I saved (not enough ) in my 20s before moving to the UK - when I last contributed in 2009 my account was worth $23,968.31, it's currently worth $46,811.34. All I've done is let it sit (no real choice there as you can't withdraw without penalties until 59 ). Almost doubling in value in 6 years isn't bad. I don't plan to live off that money in retirement (if only because converting it to pounds and then paying tax - possibly twice - on it sounds like a pain), but in theory it should be worth ~$150k by the time I'm retirement age. Not bad for 5 years of contributing.

Lawks! This is the kind of Pensionspeak in which I need to be fluent! I have no idea about any of the above. Unfortunately, I have no idea what the people who run the pension invest in, so I don't know. The only thing I do know is that it's impossible to find out anything about it. I have colleagues who are approaching retirement who want to know how much they will be getting so they can plan and they are telling me that they keep getting told that they 'won't know' until they basically start getting it.

I think I can add years to the pension, but I'm not sure if they would match it and even if they would I'm not sure if that's my current best option. I'm so new to this I need to do as much reading as possible before jumping in with both feet...and

Also, Hiddenshadow, as you seem pretty clued up about pensions, I foresee that there's a chance that I may end up with several different pension pots over my lifetime. Will the negatively effect perfomance? Am I better to have all the money in one place (might not have a choice if I have several jobs) or would it work on the principle of diversification of risk? One badly invested pension with more money in it might bring back less than a smaller one well invested, no? Thanks!

hiddenshadow wrote: »

It means that if you have no dependents (children/spouse/other) there's no reason to need life insurance. One less thing to worry about!

Thought it was! I'm actually going to get life insurance, despite that. I want to leave some money behind me. From what I've seen it will be less than £10pcm but should I get hit by that bus that everyone keeps mentioning when I leave my front gate I want to be able to leave money to pay off the house as an investment for my sibling plus leave some spondooliks for my parental.

hiddenshadow wrote: »

We've got buildings/contents insurance and life insurance (just enough that DH or I could pay off the house if one of us died - don't "need" it, per se, but we're going on the assumption that the surviving one would want to take time off work and not worry about bills for a while). We've thought about adding income protection insurance, but haven't pulled the trigger yet.

I want to get sickness/injury and maybe income protection as well. Talking to you guys is making me think that maybe I want to over-insure myself but I am single and responsible for my own bills and I want to leave a little something behind me for those I love. (I'm sort of assuming that there will be a Mr PB and maybe some little PBs in the future so I am thinking of that as well, but is that perhaps something I should worry about at the time? Can you tell that I'm new and rubbish at this?! :rotfl:)

I think the thing is that I am acutely aware that I have a pre-existing medical condition that will basically make most sickness insurers run a mile and might cause an increase in life insurance premium as well. (That might not be true - it depends how big a dipsticks they are being.) This really worries me as I know that a lot of people get turned down for certain insurances for it and my as I get older, premiums are only going to go up.

Any advice would be gratefully received about the pension/insurance situation, please, Hiddenshadow et al.

edinburgher

The only thing is that I am in my mid 30s and this is my first pension and I have been talking to people who have been there for 10+ years and are near to retirement who don't seem to be getting a lot of money paid out when they retire, so I'm a bit scared about that.

You don't know how long they have been in the scheme, how much they have paid in and where their money has been invested. Is it a government-type pension (i.e. 1/60th of your salary per year), or is it a stakeholder pension (fixed amount gets invested in the funds that you have chosen?) In my experience, people overestimate how much they contribute to their pensions in real terms and underestimate how much they will need!

If you are a late starter you can invest more (in your work pension, or in a SIPP/personal pension/ISA), work longer, lower your expectations, or take more risks.

What sounds most palatable to you?

Karmacat

PositiveBalance wrote: »

Thought it was! I'm actually going to get life insurance, despite that. I want to leave some money behind me. From what I've seen it will be less than £10pcm but should I get hit by that bus that everyone keeps mentioning when I leave my front gate I want to be able to leave money to pay off the house as an investment for my sibling plus leave some spondooliks for my parental.

That sounds generous, but should it really be your priority right now? Sorting out your own finances first will give you an idea of how you can help them - on the same principle as a parent in charge of children during an emergency on a plane, they're told to take care of their own oxygen mask first, they can't help their kids if they themselves pass out from oxygen deprivation!

I want to get sickness/injury and maybe income protection as well. Talking to you guys is making me think that maybe I want to over-insure myself but I am single and responsible for my own bills and I want to leave a little something behind me for those I love. (I'm sort of assuming that there will be a Mr PB and maybe some little PBs in the future so I am thinking of that as well, but is that perhaps something I should worry about at the time? Can you tell that I'm new and rubbish at this?! :rotfl:)

My own opinion is that you're over-insuring :kisses3: and I *think* you might be confusing saving with insuring - the future MrPB and little PBs don't need insurance until they actually exist until then, saving and paying down debt is good!

I think the thing is that I am acutely aware that I have a pre-existing medical condition that will basically make most sickness insurers run a mile and might cause an increase in life insurance premium as well. (That might not be true - it depends how big a dipsticks they are being.) This really worries me as I know that a lot of people get turned down for certain insurances for it and my as I get older, premiums are only going to go up.

Any advice would be gratefully received about the pension/insurance situation, please, Hiddenshadow et al.

Is there a national organisation for your pre-existing medical condition? What do they recommend? Is there an insurer they have good deals with?

HTH

PositiveBalance

edinburgher wrote: »

You don't know how long they have been in the scheme, how much they have paid in and where their money has been invested. Is it a government-type pension (i.e. 1/60th of your salary per year), or is it a stakeholder pension (fixed amount gets invested in the funds that you have chosen?) In my experience, people overestimate how much they contribute to their pensions in real terms and underestimate how much they will need!

If you are a late starter you can invest more (in your work pension, or in a SIPP/personal pension/ISA), work longer, lower your expectations, or take more risks.

What sounds most palatable to you?

It's a government-type pension but not sure the exact terms. I think I pay 4.5/5% of my salary and they add 20%. I will start looking into it properly.

But here's the rub. I'm not sure if pensions extra to this are the best type of investment for me. I need something for when I become old but I have also heard people state how it's a very inflexible type of investment. In some ways that is good - I can't be tempted to use it in the meantime in case I need to, so I should be guaranteed income in my older years - but there *might* potentially be better investments in the shorter term that could mean I would end up at retirement age with more money to my name if I were to use whatever spare money I have now to make those investments! (And also if I knew what I were doing! :rotfl:)

Perhaps the answer is a mix.

Ed, you have become marvelously clued up in the past few years. Where did you start? What have you been reading? I remember you saying that you were increasing your pension savings after some sort of pay rise. What is your approach? All this money you have floating round in all these online loans is your short-term savings, is it? How are you playing it? There so much on your diary now I will be searching forever!

Can I get some mortgage advice, please Ed? Doing some online reading has made me realise that OPing my mortgage is not the best option yet as I can get savings accounts with higher interest rates, so I am better to put any OP money into them for now. Alas, I don't have any at the minute as every spare penny is being flung at getting this house into a liveable state. but when I do it seems to me that getting it down to the 80% LTV ratio before it needs changing in just under 2 years would be a smart move as I would then fix at a new, lower interest rate. (If the market projections stay as they are I think fixing in a 5 year deal the time I need to swap would be the best option.) I can then rinse and repeat, depending on where the interest rates are at and what other decent investment opportunities present themselves.

When I come to renew my mortgage, how much should I have set aside for expenses? £1k for any fees (just in case), potential mortgage broker fees (not guaranteed) and on my current deal I have to pay £300 to wrap it all up (can't remember the technical term for that without looking at the mortgage papers). Have I forgotten anything?

Thanks!

PositiveBalance

Karmacat, you raise good points...thanks!

Alas, I have to go to work, so I'll answer in a bit, but I'll be thinking about what you have said all day!

hiddenshadow

PositiveBalance wrote: »

Lawks! This is the kind of Pensionspeak in which I need to be fluent! I have no idea about any of the above. Unfortunately, I have no idea what the people who run the pension invest in, so I don't know. The only thing I do know is that it's impossible to find out anything about it. I have colleagues who are approaching retirement who want to know how much they will be getting so they can plan and they are telling me that they keep getting told that they 'won't know' until they basically start getting it.

Have you enquired yourself? Your colleagues might be on a different plan to you, so your plan might be a bit more transparent (if you ask). First rule of money: no one cares about your money except you. (And us MSErs, but we’re weird and number-geeky ) Unless you ask, it’s very unlikely someone will sit you down out of the blue and explain all the details to you. You deserve to know how it works, though, so I’d see if there’s any information or a call centre or something where you can get basic info about how it will work.

Also, Hiddenshadow, as you seem pretty clued up about pensions, I foresee that there's a chance that I may end up with several different pension pots over my lifetime. Will the negatively effect perfomance? Am I better to have all the money in one place (might not have a choice if I have several jobs) or would it work on the principle of diversification of risk? One badly invested pension with more money in it might bring back less than a smaller one well invested, no? Thanks!

(Note, the following is all assuming that you’re contributing to a defined contribution pension scheme and not a defined benefit/final salary scheme.)

My (very simple) view on investments is:
1) diversify as far as what you’re investing in (I like index trackers as they give you a mix of funds; also both my US and my UK pension pots gave me the option of a “risk profile” that I can change as I get closer to retirement and my risk-averseness decreases)

you can also diversify as far as the pension pots themselves. I had a pension pot when I was self-employed and then another one when I swapped to permanent employment. I opted to combine them because the new one had lower fees (see point #2) but if fees had been the same I would have kept them separate - the companies would have slightly different funds to invest in and management styles, so hedging your bets with multiple companies can (very slightly) mitigate risk (obviously if there’s a stock market crash then your pension value will go down no matter what)

2) aim for the lowest fees possible - it may only be 1% of your pension value but once you have a good amount in there 1% is a lot! I think I pay 0.45% on my US pot and 0.5% on my UK one

3) (sensibly) maximise the amount you’re putting in to the pension. Most personal finance “experts” (in the US, anyway) recommend 15% of your income go towards pension. You can find calculators that will tell you what you should be saving per year to get to whatever income you want in retirement. The problem is that it’s all guesswork - you could assume that £20k is plenty, but maybe in 30 years energy and food are both free so you could get by on £10k, or maybe the NHS is gone and you actually need £40k (hope not!). Likewise if you pay off your mortgage pre-retirement you probably won’t need the “rule of thumb” number, which seems to be 80% of your current income. It’s all about making reasonable assumptions and a bit of hoping for the best.

You can also google Monte Carlo retirement simulator and it’ll run various simulations of economic trajectories for the X years until retirement and tell you how often you’ll succeed in saving for retirement. Bit on the extra-geeky side, but it’s nice to know once you’ve reached a number where you have 90+% success rate of not running out of money.

Some things to consider when figuring out what to put in your pension:
- matching (think you’ve already got this one covered), no need to turn down free money
- tax advantages (£800 out of your salary = £960 in the pension), again free money
- salary sacrifice tax advantages (if you’re a higher rate taxpayer you can have your salary “officially” be lower so that you pay less in NI and you still get the tax advantages for putting money into your pension pot; rumours are that this will go away at some point though)

It’s worth playing around with a calculator like this one to see what effect increasing your pension contribution has on your pay check. A lot of the time it’s a much smaller effect than you’d think (thanks to the tax/NI benefits). For example, on £25k salary, 5% pension contribution costs you £83.33 as far as your pay check amount goes, but your pension goes up by £125 (£104.17 from you + £20.83 from HMRC). Going up to 10% contribution lowers your pay by £166.66 but your pension gets £250 each month (£208.33 you, £41.67 from HMRC). So you get a pretty good return on your money just on the pay check vs pension numbers (£125/£88.33 = 41% return; £250/£166.66 = 50% return), plus any gain they’ll have sitting in your pension pot growing until retirement

My key takeaway would be that something is (almost) always better than nothing. You can always move around/combine your pension pots later if you feel they’re not working for you, but you can’t go back in time and contribute more of your past salary to a pension. So you’re better off aiming to contribute as much as possible now, even if it’s not in the “perfect” mix of funds, or the “perfect” investment company, and then you at least have those funds around later to play with.

Also, you mentioned raises - if possible, always throw these directly into a pension. If you’ve been living fine on your current wage, you don’t “need” the raise, so you may as well defer its benefit to when you will need it in retirement. (Caveat there that if you’re already contributing tons to your pension then it’s probably overkill to increase it further.)

A final thought (sorry, this is getting super long!) - pensions here are extra-awesome because of the 25% lump sum tax free thing (that doesn’t exist in the US - wish it did!). If you needed to, you could use that to become mortgage free (or anything else financially pressing at the time). That’s a huge advantage to saving in a pension - yes, it’s still locked away until a certain age, but you have that extra flexibility if you get to retirement and aren’t MF, or your kid needs to pay for university, or you want to splash out and go on a world cruise, or what-have-you.

(I’m sort of assuming that there will be a Mr PB and maybe some little PBs in the future so I am thinking of that as well, but is that perhaps something I should worry about at the time? Can you tell that I'm new and rubbish at this?! :rotfl:)

I’d look into life insurance just to see if your medical condition means it makes more sense to insure now and keep coverage to avoid not being able to be insured later. If that isn’t the case, though, I’d wait until Mr/little PBs are in the picture before getting any insurance besides income/critical illness cover. As previous posters have said, you can help your family much better if you save/pay off debts more (since that’s more likely an outcome than getting hit by a bus).

edinburgher wrote: »

You don't know how long they have been in the scheme, how much they have paid in and where their money has been invested.

^ this. Unless you know for sure that they’re pension setup exactly matches yours (time spent in the scheme, contribution levels, contribution frequency, fees attached, investment type, etc), you’re comparing apples to oranges.

PositiveBalance wrote: »

But here's the rub. I'm not sure if pensions extra to this are the best type of investment for me. I need something for when I become old but I have also heard people state how it's a very inflexible type of investment. In some ways that is good - I can't be tempted to use it in the meantime in case I need to, so I should be guaranteed income in my older years - but there *might* potentially be better investments in the shorter term that could mean I would end up at retirement age with more money to my name if I were to use whatever spare money I have now to make those investments! (And also if I knew what I were doing! :rotfl:)

Perhaps the answer is a mix.

I’d lean towards pension first thanks to the tax advantages, but then top-up with other investments (S&S ISA, etc) with spare income once you reach a pension contribution level you’re happy with.

Can I get some mortgage advice, please Ed? Doing some online reading has made me realise that OPing my mortgage is not the best option yet as I can get savings accounts with higher interest rates, so I am better to put any OP money into them for now. Alas, I don't have any at the minute as every spare penny is being flung at getting this house into a liveable state. but when I do it seems to me that getting it down to the 80% LTV ratio before it needs changing in just under 2 years would be a smart move as I would then fix at a new, lower interest rate. (If the market projections stay as they are I think fixing in a 5 year deal the time I need to swap would be the best option.) I can then rinse and repeat, depending on where the interest rates are at and what other decent investment opportunities present themselves.

That was our plan. We put down 10% and were aiming to pay off a further 15% to get into the 75% LTV bracket for renewing our fix. The bank decided our house is worth a further 15% since we bought it (woo) so we’re in the 60% LTV. We fixed for 5 years because 60% is the lowest rate the bank offers (so no benefit to re-fixing when we’re at a lower LTV) and because we’re hoping to be able to pay it back fully in those 5 years as well (so can avoid fees for having to switch multiple times). Originally our plan was to keep re-fixing for 2 years and aim to knock out 5-15% LTV each time until we got to 60%, we just got there early thanks to house prices.

When I come to renew my mortgage, how much should I have set aside for expenses? £1k for any fees (just in case), potential mortgage broker fees (not guaranteed) and on my current deal I have to pay £300 to wrap it all up (can't remember the technical term for that without looking at the mortgage papers). Have I forgotten anything?

It depends on your lender. We paid £450 fee to the bank for our fix and nothing else. (Fee would have been £950 but they had a discount for existing customers.) We worked directly with the bank, so no broker fees. Not sure what your £300 fee would be, that sounds a bit random if it’s not an early repayment charge (which you can avoid by arranging your new fix to start after your current one ends). Budgeting for ~£1,500 sounds reasonable and would possibly give you an instant OP to make on your new fix if the fees end up lower than that. (Don’t put the fees on your new mortgage as you’ll pay interest on them for years!)

patanne

Personally until you have a little PB or a Mr PB I wouldn't bother with life insurance unless as hiddenshadow said you get better rates now than you will when you are older. If I were you (& I am certainly no financial adviser) I would be looking at assuring your income if anything should go wrong (so some kind of income protection) then a funeral plan. Your family will have any equity in your property and as you are a MFW you will probably get better returns on that than actually paying life insurance. After the MFW is complete then I would be looking at saving for as early retirement (& FI [financial independence]) as possible - especially if this is going to impact your health.

PositiveBalance

Hi everyone,

My head is quite literally blown by the amazing advice you have offered. There is a lot of it, so it is clearly going to take quite a while for it to process, so bear with me.

I just wrote a fairly long post which has been lost (grr!) so I'll have to come back as I really need to go to bed. My working week is, alas, not over, but my attention span will be I don't get to bed quick-smart!

Thanks for your advice and I'll be back soon to have a very serious think about it all.

Financial action of the day: letter required to get deposit from landlord back found.

P.S. hiddenshadow, I have no idea if you are male or female, but after that simply *EPIC* post, you are my new financial crush! :rotfl: