Taking control

cannydo

I am 46 years old and have decided it’s time to take control or rather do something about our (me and my hubby) retirement fund.

Probably left it a bit late, but we are both self employed, and probably won’t retire for another 20 years. So hopefully this will give us time to build up some retirement funds.

I have been reading up/watching videos on compound interest and I’m very interested, and wish I had known more about this years ago!!

So the first thing we are in the process of doing is transferring my husbands small pot of £3200 sitting in the people’s pension to a SIPP with AJ Bell, as it doesn’t seem to be doing much at the moment.and we will contribute £100 a month, and I believe we will get £20 tax relief on top of that.

Also I have savings in the bank of £12000 which I was thinking of putting into an ISA with vanguard investing in a life strategy fund. I was thinking going for the 100 then maybe in 10-15 years transferring to the 60/80. We will contribute £200 a month.

Are there any other funds out there that maybe we should have a more closer look at that would possibly give me better returns than the life strategy funds? We have still to decide what to invest my husbands SIPP with also.

We consider ourselves medium to high risk in the hope we of good returns after 20 years, because in all honesty as soon as we have all this set up we probably won’t look at it for another 10-15 years, so will be able to ride the roller coaster without it bothering us too much.

And to be honest, all of this can be very exhausting and confusing, I think we could spend days and days surfing the web and bamboozling ourselves with all the info available, my brain hurts after a while lol, so we would be quite happy to sit back and let our money work for itself.

Do you think our plan is sufficient enough considering our time in life?

Prism

Are you self employed or do either of you run a limited company?

The amounts you are planning to contribute do seem low to be honest. Of course it depends very much on your earnings and how much you can afford.

AnotherJoe

cannydo wrote: »

I am 46 years old and have decided it’s time to take control or rather do something about our (me and my hubby) retirement fund.

Probably left it a bit late, but we are both self employed, and probably won’t retire for another 20 years. So hopefully this will give us time to build up some retirement funds.

I have been reading up/watching videos on compound interest and I’m very interested, and wish I had known more about this years ago!!

So the first thing we are in the process of doing is transferring my husbands small pot of £3200 sitting in the people’s pension to a SIPP with AJ Bell, as it doesn’t seem to be doing much at the moment.and we will contribute £100 a month, and I believe we will get £20 tax relief on top of that.

Also I have savings in the bank of £12000 which I was thinking of putting into an ISA with vanguard investing in a life strategy fund. I was thinking going for the 100 then maybe in 10-15 years transferring to the 60/80. We will contribute £200 a month.

Are there any other funds out there that maybe we should have a more closer look at that would possibly give me better returns than the life strategy funds? We have still to decide what to invest my husbands SIPP with also.

We consider ourselves medium to high risk in the hope we of good returns after 20 years, because in all honesty as soon as we have all this set up we probably won’t look at it for another 10-15 years, so will be able to ride the roller coaster without it bothering us too much.

And to be honest, all of this can be very exhausting and confusing, I think we could spend days and days surfing the web and bamboozling ourselves with all the info available, my brain hurts after a while lol, so we would be quite happy to sit back and let our money work for itself.

Do you think our plan is sufficient enough considering our time in life?

No, its inadequate.
Look at it this way, you propose to save £1,200 a year for 20 years. You then expect it to pay you back something over say 30 years. That's alla pension is, no need to be bamboozled, save for a while, accumulate, then spend it. (There are various ways if spending ut but I'm simplifying)
Let's say it paid back double , heck let's go mad and say it will pay back treble. Does £3,600 a year sound like it will provide the life of Riley?
A rough rule of thumb is to take your age at the point you've started saving and save that % of your salary from that point onwards. So, in your case, 23% ongoing. I'm guessing that's substantially more than £100/month.at least, I hope it is.
Now to be fair you also look at another £200 month. In an ISA though not a pension. Not sure why. Put it in your pension, now that's £300 which probably still isn't near enough but is a lot better.
If you don't think that's practical then all you can do is save as much as you can.
FWIW if you save £100 a month, it's bumped up by 25% to £125. This is because of the way the maths works, take 20% off £125 and you get back to the £100. But that's incidental to the main point that you aren't proposingo save anywhere near enough.
Regards your £12k savinsg, if that's all your savings, dont Invest it all you need some easy to access money for emergencies. What you do invest, invest in a pension rather than an ISA to get the tax refund.

aroominyork

AnotherJoe wrote: »

What you do invest, invest in a pension rather than an ISA to get the tax refund.

It’s worth explaining the tax difference between SIPP and ISA. With SIPP you pay no tax now but do pay tax when drawing it down in retirement. With an ISA you pay tax now but access it tax free in retirement.

This is a zero sum game – they work out the same – if you are paying the same marginal tax rate now and in retirement. For example:
SIPP: invest £1000, gross up to £1250, say it doubles to £2500. Tax it at 20% and you have £2000.
ISA: invest £1000, say it doubles to £2000. Withdraw it tax free.

The “but” to the zero sum game is that you can withdraw 25% of your pension tax free (as things now stand). That means you only are taxed on £75% of your SIPP and end up with £625 + £1875*80% = £2125. So the SIPP wins by 6.25%.

The time the SIPP really pays is if you are (or can contrive to be) a 40% taxpayer now and a 20% taxpayer after retirement. That way your £1000 is grossed up to £1666, doubles to £3333, and you end up with £833 + £2500*80% = £2833.

LHW99

The time the SIPP really pays is if you are (or can contrive to be) a 40% taxpayer now and a 20% taxpayer after retirement.

20% taxpayer now, and 0% taxpayer after retirement is an OK situation too, although 6.25% immediate uplift is more than interest on cash savings these days if you are 20% before and after.
Check your state pensions too.

cannydo

Hi thanks for your replies.

We are both 20% taxpayers. We both earn approx £26000 year after tax. We have no mortgage, just all the usual household bills. We own our vehicles, so its really just 'keeping them on the road' costs. The only debt we have is a bank loan at £400 a month which ends in january.

Our kids are aged 13 and 14, and we usually have a family holiday every year costing around £3000. We will need savings for college/uni in a few years, and first cars etc.

Anotherjoe how much do u think we should putting towards our retirement every month given our income? Also the only reason I was going to open an ISA was because I can't quite get my head around SIPP's. It seems to me the government gives you tax relief just to simply take it from you again when you withdraw. Although aroominyork's example does make it clearer.

Do you think I should just put our £12000 saving into a my husbands SIPP on top of the £3200, or should I open my own?

Also what is your opinion on the vanguard lifestrategy funds, are they worthwhile, or is there something else out there that would give us better returns.

LHW99

Do you think I should just put our £12000 saving into a my husbands SIPP on top of the £3200, or should I open my own?

You should look at pension provision as a couple IMO.
If everything is in your husbands SIPP, and for example you were both 0% tax payers at retirement, then after the tax free part, he could take out another £12500 each year before paying tax. If it is split between you, you could take £12500 from both (if you have enough).

cloud_dog

Yeah....what (s)he ^^^^^ said.

In your situation that makes pension a far better option.

aroominyork

LHW99 wrote: »

20% taxpayer now, and 0% taxpayer after retirement is an OK situation too

Yes, but since the state pension is taxable most people who also have a SIPP will cross the personal allowance threshold and become basic rate taxpayers.

AnotherJoe

aroominyork wrote: »

Yes, but since the state pension is taxable most people who also have a SIPP will cross the personal allowance threshold and become basic rate taxpayers.

They will eventually but for those who retire before SP there will be a period during which they can withdraw without paying any tax on their withdrawals.

AnotherJoe

cannydo wrote: »

Anotherjoe how much do u think we should putting towards our retirement every month given our income?

Probably more than you can Which is true for most people.

cannydo wrote: »

It seems to me the government gives you tax relief just to simply take it from you again when you withdraw. Although aroominyork's example does make it clearer.

Indeed, it is much more nuanced than that and there si always a minimum of a 6.25% benefit. If you were say 30 you could argue that there's a flexibility to an ISA that trumps that tax saving. However given you are only 9 years away from being to access funds in a SIPP that argument is less strong.

cannydo wrote: »

Do you think I should just put our £12000 saving into a my husbands SIPP on top of the £3200, or should I open my own?

Definitely have your own. Apart from anything else it maximises the amount you can take out without paying tax.

cannydo wrote: »

Also what is your opinion on the vanguard lifestrategy funds, are they worthwhile, or is there something else out there that would give us better returns.

Wrong question If it was as simple as knowing what would give better returns in the future my butler would be typing this for me from my own personal private tropical island.

i think there are better funds out there than lifestrategy because i dont like the artificial 25% concentration in nominally UK companies due to it focusing on a very few big companies in a restricted set of industries. I'd prefer their global funds without UK focus. However thats not to say that in ten years time the former wont give higher returns than the latter. Its just about risk.