Mid 30s, new to pension and investments

shell145

Hi,

Background
I'm mid 30s, own a house outright which since moving into my partners house this summer, I am renting out to my friend. It's probably worth about £90-95k. I will likely sell this when my friend wants to move on, whether that's in 6 months or 6 years, it's not a particularly nice area, it's a cheap house and I don't want to take risks with the type of tenant I may find when my friend moves on. I would likely use this for hopefully a 'forever' home, when me and my partner hopefully relocate in 5 years or so (if  I sell sooner, probably pay off most of his mortgage, going on the deeds at that time).
I run my own gardening business, which I've made 40-45k per year, the last 3 years 

Pension
I actually don't have a pension. I have been saving hard and now have £13k ready to put into a pension, but I am so confused about what route to go with this. I will be paying in £600/month (at the moment this s/o goes into an account i have labelled 'pension', until i figure out what pension to actually open - i've given myself the end of this tax year to sort this). With my calculations putting in this amount each year until I am 60, but not drawing a pension until I'm 66, should give me a pension of approx 24k salary from state and personal (tho i'm aware state will likely start aged 70). I plan to do a very small portion of my business from aged 60-66, giving me enough to live on without pension contributions and mortgage payments.
However, I want to save up approx 100k over the next 25/30 years, because I want to travel, a lot when I retire.

Investments
I have 40k of savings, currently in a cash ISA. This is what I've used over the last few years to save up for my next house. Tho I have since met my partner and instead we will use most of this on an extension at his next year, when I will also go on the deeds. However, I want to put 5k into a stocks and shares ISA, and then contribute £100-150/month, potentially for the next 25 years
I was thinking either Vanguard or Open Money. At this stage I want something with minimal input from myself
Long term, after me and my partner have relocated, perhaps not for 10-15 years, I will likely get a BTL (wait until then, as I'll have sold my property and therefore we won't have additional STD to pay).

I have additional savings for maternity as I'm self employed and a healthy balance in my business account in case I have any financial issues regarding work, tool theft, accident, sickness etc.

Queries
Is a LISA worth opening as well? Perhaps S&S LISA rather than a general S&S ISA? I don't want to contribute much more than 600/month and the 13k lump sum into my pension, because I want some money that I can withdraw and use for other investments, and I believe £7,200 plus pension relief is a good amount for a pension, even starting at age 33.

I don't really see the point in seeing a financial advisor as I did last year and tbh he wasn't all too helpful, he basically said because of having no pension and the low amount I wanted to invest it was more cost effective for me to do myself rather than through him or another IFA, but I want to get another opinion on if what I'm thinking is a reasonable idea

thank you

Dazed_and_C0nfused

I run my own gardening business, which I've made 40-45k the last 3 years 

Is this self employment and if so what do you expect your taxable profit to be in the current tax year?

Is it £40-£45k in the 3 years or £40-45k per year?

shell145

Dazed_and_C0nfused said:

I run my own gardening business, which I've made 40-45k the last 3 years 

Is this self employment and if so what do you expect your taxable profit to be in the current tax year?

Is it £40-£45k in the 3 years or £40-45k per year?

yes, sole trader. And this year I expect approx 45k taxable profit
Next year I plan to cut back my hours somewhat, but some more profitable services, so an anticipated pre-tax profit of £42k. That's if I don't go down the employee route, which may see profits dip next year before increasing the following

Dazed_and_C0nfused

Ok, wasn't sure if you had sufficient income to contribute £25,250 (gross) into the pension in one tax year but clearly not an issue.

shell145

sorry, my wording wasn't the best

kangoora

Some disconnect in your savings projections

However, I want to save up approx 100k over the next 25/30 years, because I want to travel, a lot when I retire.
I will be paying in £600/month (at the moment this s/o goes into an account i have labelled 'pension',

Saving £600/month for 30 years (£750/month after tax relief), with no gains from investments = £270k (not £100k).

In fact, assuming 5% investment returns (after fees) and 2% inflation over 30 years (and increasing pension payment by inflation each year - Important) could possibly give you a pot of almost £800k. Obviously this relies on you keeping up payments and the stock market performing at a 5% average return, not inconceivable.

It's quite probable you could shave off a few years off your 30 year target. I think you should be able to afford a few holidays if you can manage to keep up this level of pension savings

shell145

kangoora said:

Some disconnect in your savings projections

However, I want to save up approx 100k over the next 25/30 years, because I want to travel, a lot when I retire.
I will be paying in £600/month (at the moment this s/o goes into an account i have labelled 'pension',

Saving £600/month for 30 years (£750/month after tax relief), with no gains from investments = £270k (not £100k).

In fact, assuming 5% investment returns (after fees) and 2% inflation over 30 years (and increasing pension payment by inflation each year - Important) could possibly give you a pot of almost £800k. Obviously this relies on you keeping up payments and the stock market performing at a 5% average return, not inconceivable.

It's quite probable you could shave off a few years off your 30 year target. I think you should be able to afford a few holidays if you can manage to keep up this level of pension savings

Hi, the 100k i want to save is extra to a pension pot, providing a pension of £24k with personal and state pension. Pension calculators I've used estimate with £600 contributions a month aged 33-60, drawing aged 66 with a state pension (when that kicks in) give me approx £24k

I'm figuring a S&S LISA is the way to go for any money I'm prepared to put away until retirement (£4k a year max until aged 50) and a regular S&S ISA for anything extra I may want to save for using in 10 years or so, though some years/months this could possibly be £0, if I'm putting £100+ into the LISA

I also want to allow £8-10k a year for travel, 3 months here, 3 months there and in more luxury than I currently travel with

steampowered

A few thoughts:

- I think it is madness that you are holding onto this property. You are locking up almost £100k of your capital in a property you don't need.

- Friends and money don't mix. How would you feel if your friend was unable to pay the rent? Or refused to agree inflationary rent increases? Or you disagreed with how he was keeping the property? You are proposing starting a lettings business, so best to treat it as a business and keep things arms length.

- Keeping this property could mean you are unable to buy a property with your partner in future - as you'll be liable for higher rate stamp duty. Furthermore, you should be paying income tax on the rent you receive from your friend.

- Do you have a mortgage on this property? If so, you will need to get consent to let or find a BTL mortgage. This will probably mean a higher interest rate.

- You say that you want to go travelling when you retire. Why wait until retirement? You can do more when you are young !! If you sell this property you could use some of the money to go travelling with your partner for a few months, and put the rest into a S&S ISA. 

- You should only contribute money into a pension pot on which you can claim tax relief - which means pension contributions up to your earnings or up to £40k, whichever is lower. Don't put the entire £100k into the pension in one go. 

- Personally I would put at least some of the money into a stocks & shares ISA - that gives you a bit more flexibility than a pension, as you have the option of selling the investment to fund a house purchase in a few years time if you decide to do that.

Dazed_and_C0nfused

Also, do you understand the tax implications of letting your property?

The rules have changed significantly in the past few years and mortgage interest is no longer an allowable expense.  You can still get some tax relief for the interest but for many it isn't as much of a tax saving as being able to claim it as an expense against the rents would have been.

Albermarle

If you are saving for retirement , then best to stick with pension or maybe a LISA as well .
The advantage of a S&S ISA is that you could take money from it earlier but if you intend to keep it for 25 years then better to just put more in pension due to the tax benefit. 
On the other hand if you are likely to want the money in less than say 7 years , you probably are better off staying away from investments anyway.
There is some disconnect between your pension projection of £24K including state pension and the calculation of Kangoora which indicates a pension pot of £800K . Normally this would give you at least £24Kpa on its own .
Some pension projections can be pessimistic .

shell145

steampowered said:

A few thoughts:

- I think it is madness that you are holding onto this property. You are locking up almost £100k of your capital in a property you don't need.

- Friends and money don't mix. How would you feel if your friend was unable to pay the rent? Or refused to agree inflationary rent increases? Or you disagreed with how he was keeping the property? You are proposing starting a lettings business, so best to treat it as a business and keep things arms length.

- Keeping this property could mean you are unable to buy a property with your partner in future - as you'll be liable for higher rate stamp duty. Furthermore, you should be paying income tax on the rent you receive from your friend.

- Do you have a mortgage on this property? If so, you will need to get consent to let or find a BTL mortgage. This will probably mean a higher interest rate.

- You say that you want to go travelling when you retire. Why wait until retirement? You can do more when you are young !! If you sell this property you could use some of the money to go travelling with your partner for a few months, and put the rest into a S&S ISA. 

- You should only contribute money into a pension pot on which you can claim tax relief - which means pension contributions up to your earnings or up to £40k, whichever is lower. Don't put the entire £100k into the pension in one go. 

- Personally I would put at least some of the money into a stocks & shares ISA - that gives you a bit more flexibility than a pension, as you have the option of selling the investment to fund a house purchase in a few years time if you decide to do that.

I am perfectly happy renting the house to my friend. My house is going up in value, it has even increased in value the last 6 months. It is much better than my money sitting in a savings account, it cannot be invested elsewhere as I will want it in the next couple of years. I will sell my house when me and my partner want to move, partly for STD reasons. I do pay income tax on the rent.

I have travelled A LOT. Several 2-3 month trips, I'm now not in a position to do travel more than 4-5 weeks every Jan/Feb and then standard 1 week holidays through the year. When I retire early, I will travel substantially again.

Isn't a S&S LISA is better than just a S&S ISA? Because of the government top ups