26 & Confused about Options

Jk920

Hi all, first post here, apologies if this is the wrong forum. I am 26 years old and will have saved £64k by the end of the year as I live with my family at the moment and saved aggressively in the 3 years I've been working. I have had low paying jobs and this year had my biggest increase to £30k which I want to increase next year. I'm grateful that I hit that milestone but want to keep challenging myself. I also am planning to start a side hustle in skills I've developed.



I'm a bit concerned about the options I have, as I know I will be home next year and can save to £87k which is good, I also want to buy a house at some point (I'm single) and also been interested in Financial Independence so wanted to put away £35-40k as a starter fund for that. I only have £5k in pension and although this will increase to a low £7k next year, I don't feel entirely comfortable with it being locked away until I'm 65 with no chance to actually access it before that in case I don't wish to retire that age and do it earlier if possible. I'm not suggesting it is likely but I would like to keep that door open for myself. I'm concerned with my options and have a conflicting ideas of what is possible.

Neil_Jones

It's going to be quite unlikely that you as a 26 year old will get to retire anywhere near 65 in all honesty. My retirement age as a soon-to-be 38 year old is already 68. Recent news stories suggest this is going to become 75, whether it will or not remains to be seen.

But anyway... Your pension value (what is this? a workplace or a private one?) has best part of 40yrs to increase in value so don't worry at this time about its value, keep contributing to it though. At this time you have the option of early withdrawal at 55 but obviously that may not be an option by the time you reach 55.

Easiest short term solution I suppose would be to just save, save and save some more. If you've managed to amass £64k then well done, keep it up. However consider investing in things like Stocks and Share ISAs maybe if you're comfortable with them (bear in mind these are good for the long term and avoid the want to pull out just because their value dips), or failing that the other cash saving types.

MaxiRobriguez

You've got enough for a deposit now if you wanted to buy a house. Don't worry about saving more, mortgages are relatively cheap and if you're saving at that rate you'll pay it off soon enough.

Don't dismiss a pension either. It might be locked away but you benefit from not having to pay tax on money that goes into either a workplace salary sacrifice or SIPP. It's well worth doing, otherwise you have to generate additional returns to make it as worthwhile. What you could do if you wanted to retire earlier is contribute to both this pension and for example a stocks and shares ISA, using the stocks and shares ISA to tide you over from retirement to when you can access pension.

Best thing you can do is work out what you'll need in retirement and work backwards from there.

Jk920

Neil_Jones wrote: »

It's going to be quite unlikely that you as a 26 year old will get to retire anywhere near 65 in all honesty. My retirement age as a soon-to-be 38 year old is already 68. Recent news stories suggest this is going to become 75, whether it will or not remains to be seen.

But anyway... Your pension value (what is this? a workplace or a private one?) has best part of 40yrs to increase in value so don't worry at this time about its value, keep contributing to it though. At this time you have the option of early withdrawal at 55 but obviously that may not be an option by the time you reach 55.

Easiest short term solution I suppose would be to just save, save and save some more. If you've managed to amass £64k then well done, keep it up. However consider investing in things like Stocks and Share ISAs maybe if you're comfortable with them (bear in mind these are good for the long term and avoid the want to pull out just because their value dips), or failing that the other cash saving types.

Thanks for your response, I've not heard of that but I do know the retirement age is somewhat increasing, however people are achieving FI so I'm not entirely convinced. Either way, I think choices you make now can have an effect than sticking my head in the sand.

Pension is workplace, it's £180 in total per month. I'm planning to keep contributing, no plans to stop this but to rather build a large pot of savings on my own too.

I think your advice is solid with the saving, I'm also looking to increase my income again next year so can invest more into my ISA,

Jk920

MaxiRobriguez wrote: »

You've got enough for a deposit now if you wanted to buy a house. Don't worry about saving more, mortgages are relatively cheap and if you're saving at that rate you'll pay it off soon enough.

Don't dismiss a pension either. It might be locked away but you benefit from not having to pay tax on money that goes into either a workplace salary sacrifice or SIPP. It's well worth doing, otherwise you have to generate additional returns to make it as worthwhile. What you could do if you wanted to retire earlier is contribute to both this pension and for example a stocks and shares ISA, using the stocks and shares ISA to tide you over from retirement to when you can access pension.

Best thing you can do is work out what you'll need in retirement and work backwards from there.

Thanks for responding, appreciate it. I don't think I have enough for a house I want yet but should be set with a deposit next year and also have savings on the side. But it is very calming to know that I can afford a deposit at this point at the bare minimum.



I hope I didn't miscommunicate, I think a pension is great and I've always contributed and don't plan to stop it but I think, and I should have made this clearer in my original post that I wish to set aside savings in an ISA instead so 1) I can regularly top this up and set goals as to what is realistic 2) see the results on a yearly/monthly basis 3) It's calming knowing it's there working alongside my pension.



I'm not concerned about the retirement part either, I'm working more towards financial independence so that I can be more comfortable financially and not really worry about it and if I want to take a career break for a year or 6 months, I'll be fine to do so.

Albermarle

Whilst you are a basic rate taxpayer , the tax relief benefit from saving into a pension is 6.25% compared to saving in other ways . However as you know the money is tied up for 25Years +.

However if you manage to increase your salary level and become a higher rate taxpayer at some point in the future , the tax relief benefit from investing in a pension increases dramatically . Just something to keep in mind .

DrSyn

Well done for saving the amount in the time you have.

What type of pension do you have Defined Benefit or Defined Contribution? At the moment you are getting tax relief on what you are putting into it. Take an interest in your pension & whats in it.

If you intend to buy a house, the interest rate on a mortgage is low at the moment. How long it will remain so low no one knows.

Make sure you always have an emergency fund at hand. You never know when you may loose your job or the boiler may break down. How big it should be, will depend on who you talk to.

Do not get sucked into paying high interest on cards & loans.

If you do think of starting a stocks & shares ISA then make sure you watch both of these first:-
http://www.kroijer.com/
https://www.ifa.com/indexfundsthemovie/

then consider these:-
https://www.vanguardinvestor.co.uk/investing-explained/what-are-lifestrategy-funds?intcmpgn=lifestrategyfunds_learnmore_link
https://www.hsbc.co.uk/investments/isas/hsbc-global-strategy-portfolios/

Remember investing is for a minimum of 10 years.

You mention Financial Independence, have you heard of the "FIRE MOVEMENT"
https://www.bbc.com/worklife/article/20181101-fire-the-movement-to-live-frugally-and-retire-decades-early
https://www.campfirefinance.com/the-fire-movement/
https://www.firecalc.com/

Eco_Miser

There is a confusion in this thread between retiring and drawing a pension. You can retire at any age (if you've got enough to live on); you can draw a private pension at age 55 (going to increase to 10 years below State Pension age when they pass the legislation); and you can draw your State pension at an ever increasing age that a 26-year old may never catch up with.

Given this, do your major saving in an S&S ISA.

arwain

MaxiRobriguez wrote: »

You've got enough for a deposit now if you wanted to buy a house. Don't worry about saving more, mortgages are relatively cheap and if you're saving at that rate you'll pay it off soon enough.

The OP has done fantastically well saving so much in such a short period of time. They are however currently living with their family which I assume means living at home with their parents.

When I left home and bought my first house, even though I used to pay my parents keep, this was nothing like how much I had to find when it came to paying a mortgage and running a house.

I am sure the OP: will still be able to save well, but I would be surprised if they would be able to put away similar levels to what they have done over the past 3 years.