My plan...

PeonySugar

Hi all

Right it's time to sort out all of my retirement planning, and I have a few questions if that's okay.

I am 29, work for a company which has a decent pension plan, and employee share plans.

My pension is currently worth £26,665.51.

Currently £409.52 goes into it a month.

I contribute 7% (5% and then 2% AVCs) and employer contributes 13%. Next year, the employer contribution will be changing to 15%.

My first employee share plan begins next month, contributing £100.00 a month at a 20% discount for 3 years. The share price is nearly double the option price already.

I am also contributing £30 a month to a share match plan and my employer puts in £40.00 a month. It's currently at £2005.00.

We also usually get £200.00 worth of free shares a year.

Yearly bonus varies each year but on average is around £1200.00

Savings which are not allocated to anything at the moment is £8000.00.

Is there anything else which I can do to help boost things up a little? I don't really want to contribute any more to my pension, I would rather have it in something a bit more easily accessible so that I can perhaps retire a little before I start taking my pension.

Is investing my bonus in something each year a good idea? 30 x £1200 is £36000.00. With interest over 30 years that could be something. What do I do with it?

We have £195000 left to pay off our house which is worth £260,000. We are however planning on upsizing one more time next year, hopefully building a little more equity by renovating it.

Any advice, feedback, constructive criticism is appreciated

Triumph13

It's a long time since I bought a house, but it's probably worth checking what the impact on interest rates would be if you put your extra savings for the next year or two towards having a bigger deposit on the next house as the rates tend to be lower with a lower LTV ratio?

Albermarle

I contribute 7% (5% and then 2% AVCs) and employer contributes 13%. Next year, the employer contribution will be changing to 15%.

This is a very good level of contribution in % terms at least . If you move jobs you may well find a new employer is not so generous , so something to keep in mind if you ever thinks about changing jobs .

Savings which are not allocated to anything at the moment is £8000.00.

It is always a good idea to have some easily accessible savings to cope with emergencies - new boiler, big car garage bill etc so probably best to keep this £8K in reserve .

Is investing my bonus in something each year a good idea? 30 x £1200 is £36000.00. With interest over 30 years that could be something. What do I do with it?

Investments do not pay interest ; they are subject to financial markets and therefore can go down as well as up . However history shows that investments in stock markets will normally be productive and easily beat inflation and bank interest rates over the long term.
What you should be looking at in your case is a stocks and shares ISA for the extra money .

[Deleted User]

1. Keep putting as much as possible into low cost funds, all equity.

2. Pray for a bear market, the lower it goes, the less you pay for your stocks.

3. Think of housing as expense rather than investment. Oftentimes people make money, sometimes they lose but it’s a crapshoot compared to a diversified investment portfolio.

4. Pay off the interest but not the mortgage. Put money into equities instead. It makes sense to be leveraged when you are so young.

5. When you are in your 40s start paying off the debt and after that get some bonds.

Audaxer

PeonySugar wrote: »

Is investing my bonus in something each year a good idea? 30 x £1200 is £36000.00. With interest over 30 years that could be something. What do I do with it?

You could invest your bonus each year within an S&S ISA in something like a low cost world tracker. As that would be a 100% equities fund it will be volatile but should have good growth over 30 years. If you don't want to go for 100% equities, you could invest in a low cost globally diversified multi asset fund, with a percentage of equities to suit your risk tolerance.

Marcon

Albermarle wrote: »

Investments do not pay interest

They do if they're bonds, albeit the archaic jargon is 'coupon'.

crv1963

You say "we" so I take it that you have a spouse/ life partner?

If so look at it in the whole. You should look to what you will both get in retirement as an income. Both having smaller individual pensions but lower tax payments could be better than one having large pension while the other has small pension not utilising their tax allowance.

In our case I will always pay tax on income/ pension whilst Mrs CRV will be well under her tax allowance in terms of pension income, while trying to increase her pension provision has led to us deciding that I work past my notional retirement age (55) so we can even things up a little.

So until she gets her PP+SP+ Survivors Pension she will always be tax free. I on the other hand will pay tax on my pension from day one.

Another advantage of building spouse pension beside tax rate on getting it -is should life events dictate divorce then the pension sharing order means the person with the larger pension pot will lose less of their pot- having already helped the other build theirs. (I "lost" 40% of my original pension pot on divorce to my former spouse).

enthusiasticsaver

You seem to be in a good position for someone of your age.

You have a pension where 22% of your salary will go in every year. Have you thought about when you want to retire? Get an annual forecast and make sure you keep below the LTA.

We used a three prong approach to long term savings.

Overpaying the pension which you seem to be doing although you could up the percentage you pay for the tax advantages.

Overpay the mortgage to get it paid off before retirement. Some prefer only to invest due to interest rates being low but our purpose in overpaying was to minimise outgoings in retirement.

Open a stocks and shares isa so you can access that when you want and not have to wait until 55 or whenever you will be allowed to access your pension if the government changes the rules.

Well done on the emergency fund. That is a must.

enthusiasticsaver

The other thing about your employee share plan is that it is not at all diversified and relies on your company doing well. Whilst there are obvious advantages to doing it like the discount and the employer matching I would be wary of putting too much in due to the pitfalls of your company going through a downturn. Usually the key to minimising risk in investments is to diversify and spread your money across funds or a basket of funds. Having it all in one company even your own employer is risky. Research stocks and shares isas. Many people start with a multi asset tracker fund. V@nguard Lifestrategy, blackrock consensus, legal and general multi asset. Or even a global tracker which is 100% in equities as you are young.

Patrol

If you have property costs planned in the next year or two I would say hang onto the cash until then. I had an offset mortgage where I could hold saved cash, it was easily available, provided a return comparable to inflation and was tax-efficient. It's the only thing I miss about not having a mortgage.

As mentioned above there is a risk to holding lots of shares in your employer. Consider selling some of them when they become available. Invest the proceeds in an ISA to diversify beyond your employer. Start a new share plan and continue with the match as both will be on generous initial terms that you should not miss out on.

Once you don't have known property obligations you can use any spare cash to top-up the ISA.

[Deleted User]

enthusiasticsaver wrote: »

The other thing about your employee share plan is that it is not at all diversified and relies on your company doing well. Whilst there are obvious advantages to doing it like the discount and the employer matching I would be wary of putting too much in due to the pitfalls of your company going through a downturn. Usually the key to minimising risk in investments is to diversify and spread your money across funds or a basket of funds. Having it all in one company even your own employer is risky. Research stocks and shares isas. Many people start with a multi asset tracker fund. V@nguard Lifestrategy, blackrock consensus, legal and general multi asset. Or even a global tracker which is 100% in equities as you are young.

Employee share option plans are “free money” without any risk. He should always take up the offer at maximum. Once the shares are purchased, then he should sell them right away for the reasons you describe.