25 year old self-employed - no idea where to start with a pension!

alicefreelance

Hi there!

I'm a 25 y/o who's self-employed and I've had pensions/retirement on my mind for a while. Obviously, it's a long way off but being self-employed, I'm aware that the situation is a little more difficult. I'm getting a little paranoid that I've left it late as all my friends, who are employed, already have a pot (albeit a very small one!).

The thing is, I have no idea where to start. I'm earning an average of £2,000 a month before tax. I do hope to increase this as the years go by, obviously. But for now, I think if I'm careful with my spending, I should be able to put £150 - £250 or so away each month. Is that enough?

Also, I've read that ISA's are good for the self-employed, but then there's also pensions - but I have no idea which one would be best for me! I'm guessing I won't be retiring until I'm AT LEAST 70, so based on this information, what would you guys recommend as a starting point?

I don't have a flashy lifestyle, I just want to be comfortable when I retire. Looking at the figures online which need to be saved scares me a bit - how on earth do you get to that point?!

Thanks in advance for any information. I'm quite clueless, to be honest, so I really do appreciate the help.

Drp8713

Whether it is enough depends on how much you want to live on in retirement.

£250 a month is £312.50 with tax relief added.

If you invest £312.50 a month for 30 years at a 5% return after inflation, you would have £255k in today's terms.

Enough to yield you around £10000 a year or £800 a month without running down the capital.

The state pension if it still exists then is currently £8500 a year from 68 subject to change.

Spreadsheetman

Just for context - if you assume SP rises by 2.5% inflation PA then it will be circa £17,400 in 30 years time.

If you look at the investment pot you'd need to equal that at 4% drawdown then you would need around £435,000. However you look at it that's a lot of money to save even with good returns.

dunstonh

Obviously, it's a long way off but being self-employed, I'm aware that the situation is a little more difficult.

Self employment is no more difficult than employed. You actually have more choices. Choice can confuse some people but its better to have choice than be forced to use your employer's chosen scheme.

. I'm getting a little paranoid that I've left it late as all my friends, who are employed, already have a pot (albeit a very small one!).

You are not late yet. Certainly, later than someone starting one at 20 but its still very affordable.

I think if I'm careful with my spending, I should be able to put £150 - £250 or so away each month. Is that enough?

Its a good start as long as you remember to increase it every year or two to keep up with earnings and inflation.

Also, I've read that ISA's are good for the self-employed

Was that reading recent or historic? I suspect historic and out of date.

alicefreelance

@Spreadsheetman, I'm a little bit confused as to what you mean here - trying to get used to all the terminology. Are you saying thats within reach if I begin saving now?

BLB53

The thing is, I have no idea where to start. I'm earning an average of £2,000 a month before tax. I do hope to increase this as the years go by, obviously. But for now, I think if I'm careful with my spending, I should be able to put £150 - £250 or so away each month. Is that enough?

Remember that with pensions, whatever you put in, the taxman with add a further 25% so I suggest start with 10% of your gross income, say £200pm and invest in a low cost global multi index fund such as Vanguard Lifestrategy via a SIPP.

Maybe get hold of Edwards book 'DIY Pensions' before you start if you decide to go down this route but it can be very cost effective and straight forward once its all set up and you have your monthly DD in place.

Albermarle

Also, I've read that ISA's are good for the self-employed, but then there's also pensions - but I have no idea which one would be best for me

In simple terms with a pension , whatever you contribute you get tax relief on . So if you add £100 , the taxman adds another £25. However you can not access the money until you are 55 and then it is partly taxable.
With a Stocks and shares ISA, if you add £100, then that is it. However the money is always accessible and non taxable.
A very important point though is that the pension and the ISA are only 'tax wrappers' to use the jargon.
Your money is actually invested in investments inside the ISA or pension. Often the same investment funds can be available in both ISA's and pensions and if this was the case then in very simple terms in your case the pension has a 5% financial advantage but the money is tied up until at least 55
Have a look at these links.
https://www.moneysavingexpert.com/savings/stocks-shares-isas/
https://www.moneysavingexpert.com/savings/discount-pensions/
There is also a Lifetime ISA , good if you are saving for a house deposit
https://www.moneysavingexpert.com/savings/lifetime-isas/

louloubelle79

Not an expert but my husband set up a stakeholder via cavendish

https://www.cavendishonline.co.uk/pensions/stakeholder-and-personal-pensions/aviva/