Have a high-paying job for the first time - what to do with excess income??

jane054848

After years of part time work & childcare, with moderate earnings, I've just started a job earning c.£200K a year.  My husband earns around 30K and our total outgoings are around 60K a year.  Mortgage is paid off, no other debt, we have 40K in ISAs as our total savings.  I'm intending to pay the yearly max into my pension and my husband's pension (we are 45) - but what should we do with the rest of the money?!  We have 2 kids but I'm not mad keen to put money in a trust for them to get when they are 18, in case they spend it on crazy things, although my ultimate goal for savings is help with their uni costs and a home deposit for them.  I don't have time to manage an investment property (or anything else time consuming).  I'm thinking just ISAs and normal savings accounts, but am I missing anything better we could be doing? Thank you! 

DireEmblem

Spend it on enjoying your lives?

MalMonroe

Agree with DireEmblem!  And when coronavirus is truly under control, I'd go travelling again. But this time, I's certainly do it in style!

steampowered

Put the full £40k a year into your pension.

Make sure you and your husband both put the full £20k a year possible into your Stocks & Shares ISAs.

The excess beyond your emergency fund should be in unwrapped stocks & shares investment.

As you will be a top rate tax payer you can look at other tax efficient investment options such as VCT and EIS/SEIS investments. While these can be very tax efficient and can generate good returns, they are much higher risk than conventional stocks & shares investments so you would need to go in with your eyes open.

When you have money, the absolute best thing you can is to learn the basics of investing. Make use of sites like Monevator and the information available online. Educating yourself will be worth hundreds of thousands of pounds, if not millions, to your long term wealth.

greyteam1959

£50 000 each into Premium Bonds.
Then contact a recommended Independent Financial Advisor for some guidance.
I know it is a bit of a boring suggestion compared with some of the above but it will stand you in good stead in 25 years time.

El_Torro

You seem to have most of the most common bases covered, i.e. pensions, Stocks & Shares ISAs and mortgage.

Have you thought of your husband putting all his earned income into a pension? A big pension for you is all well and good, though if your pensions are more or less equal in size when you retire that will be beneficial for tax reasons as opposed to having one big pension and one small one.

To be honest most people on this forum come unstuck when it comes to looking beyond pensions and ISAs. Simply because most people don't earn enough to have to look beyond that. With an income of £200k per year it may be worth speaking to an IFA or two to understand your options. You don't necessarily need to invest with them and pay them ongoing fees, one off advice may be enough.

jane054848

These suggestions are so helpful. Thank you! 

mark55man

So firstly well done!!.  There are some things you can do early that will help get you kick started

* If you have not been contributing significantly to your pension then you will have some annual allowance (£40K per year that you can carry over from previous 3 years), but only if you have taxable income in this year.  For example, say in the last 3 years and this one you have contributed £5000 to pensions.  Then this year you could contribute  that £5K, with £35K left from this year allowance, plus £35K leftover from each of 3 years ago, from 2 years ago and one year ago in that order.  ie £140K in total on top of the £5K already in each of the years.  If your salary is £200K then you probably have enough income to use up all this allowances this year (depending on when you started), and if you did leave some behind, then you can pick it up the following year.

The challenge with the pension is that it is locked away until 55 or later depending on your age.  You should also contribute to you and your OH ISAs.     I would say you should read some of the many threads on here on what sort of investment strategy you need to follow.  This may involve buying premium bonds to act as an Emergency Fund, whilst still returning a little interest.

For your kids, you have enough to give them money in a saving product for when they are 18.  and you have enough time before then to teach them the value of it.  Even the value of leaving alone.

It sounds like you need to a lot of reading about planning your total affairs, eg the advantages of all the different vehicles and the different assets/investments you can make. 

Cus

After income tax you get approx £120k. With husbands earnings that's another £25k (all very roughly). And you spend £60k a year.  So you have £85 k to save.  £40k in your pension, and then 2 X 20k ISAs plus filling the husband's pension and you are more than done. No need to see an IFA, no need for EIS etc in my opinion.

El_Torro

Cus said:

After income tax you get approx £120k. With husbands earnings that's another £25k (all very roughly). And you spend £60k a year.  So you have £85 k to save.  £40k in your pension, and then 2 X 20k ISAs plus filling the husband's pension and you are more than done. No need to see an IFA, no need for EIS etc in my opinion.

This is a good point. I don't disagree, but just thought I'd crunch the numbers a bit:

An income of £200k a year with 20% salary sacrifice into a pension (i.e. £40k a year) will net about £96k a year. 

Assuming £60k is spent on living expenses that leaves £36k which can go into Stocks & Shares ISAs. For two people that's fine since it's below £40k. 

We can ignore the husband's salary if we assume all of it will go into his pension (especially since it's below £40k a year). 


So assuming things stay as they are for now it's possible to manage all the spare money using just pensions and ISAs. Some of the money going to ISAs can be saved instead of course, if saving up for a kid's house deposit, or whatever.

MoJoeGo

Cus said:

After income tax you get approx £120k. With husbands earnings that's another £25k (all very roughly). And you spend £60k a year.  So you have £85 k to save.  £40k in your pension, and then 2 X 20k ISAs plus filling the husband's pension and you are more than done. No need to see an IFA, no need for EIS etc in my opinion.

Tend to agree, although it's a very personal thing. I've not yet found the need to use an IFA and our household income is above the OPs - I have no specific aversion (before the usual IFA bashers here decide to pile in), it's just that with some fairly basic financial research, you can find a sensible home for a lot of disposable income.

OP - do you have any unused pension allowance from the past 3 years? If so, you'd get much more tax efficiency from paying >40k into your own rather than putting extra into your OHs (unless his employer has some good matching incentives). In fact if you had the headroom to pay in a full 100k this year, you'd avoid the effective 62% tax trap that comes on the slice of income between about 100-125k. 

There's also noise (some would say 'the usual noise') in the press about potentially reducing tax breaks on pensions, so I'm of the view that you fill your boots now if you are able!

Only other thing I'd say is that I'm still an advocate of maxing out JISAs as well as ISAs... yes you can't guarantee your little darlings will be financially prudent from their 18th birthday, but you will certainly be incentivised to give them a good financial education!