Head spinning, pls help! £300K home at 64years, retirement option?

Nebulous2

chapfromessex said:

dunstonh said:

A £300k property doesn't leave a lot of scope for downsizing.

Thanks for your response. Why would it not leave much scope? Currently there are smaller properties in my area for about 60% of the value of my one. I'm assuming this ratio would stay roughly the same over time. That would leave me a nice £100K or so to do something with. Do you not think this would be the case?

I couldn't make down-sizing work without moving area. We had a reasonably sized semi, with a garden and looking at moving to a two bedroom new build flat we would have been struggling to get a price differential of £50k. After legal fees, stamp duty, moving costs etc we could have been looking at under £40k cash. Then I looked at the loss of amenity, the additional space, the en-suite, the garden, the shed etc and it simply wasn't worth it. Prices tend to get compressed, because of what people can afford.  

Moving area, despite only being 50 miles or so, meant buying about the same floor space as the old house for considerably less money. 

chapfromessex

dunstonh said:

Why would it not leave much scope?

You say its £250k at the moment.  By the time you pay legals, estate agent, moving etc then you lose some there. 
I wondered if your location was essex (from your name).  So, even the cheapest Essex prices don't give you much scope for much of a reduction unless you move to undesirable areas.  And Suffolk prices are skyrocketing at the moment which makes the traditional move from Essex to Suffolk to free up money less viable than it used to be. 

That would leave me a nice £100K or so to do something with.

It may help but not its too low an amount.     If your state pension is £10k a year and you are used to living on 20k, then the £10k difference would see you run out in 10 years.

You also say you really like your home.  Downsizing is not as easy as you think as it usually means not only in size but also the area in question.     Most people who say they intend to downsize end up not doing so unless they have no choice.

I take your point about £100K not being that much, but to be honest there is zero chance I will have more than that no matter what I do (without inheriting something or winning the lottery)!

I wouldn't really want to downsize, but even just a quick look on Rightmove shows me there are flats available for about £160 right now, with mine valued at £250. I'm fairly certain I could free up some money this way. 

Also presumably if I had £100K in my pocket, would I not be best buy an annuity or something like that?

My other thought (and I've done it a few times) is getting a lodger in. Maybe now, save the money. Maybe later.

chapfromessex

penners324 said:

Why not only buy that new musical instrument every 6 months to every 12 months and put that amount in a pension?

Thankyou, yes I suppose just spending less could be an option. 

chapfromessex

marycanary said:

First of all, congratulations on making a living from music, you must have been through a difficult time with venues closed and no face to face teaching. Is your mortgage about £500 per month? If you are saving £166 per month for musical equipment it doesn’t leave much out of £1666 per month for everything else.

If you can achieve £12k a year and be mortgage free in retirement you would have about the same lifestyle (minus the instruments). In today’s money, you would have the state pension of £9339 so you would have to generate £2661 per year

In your place, I would forgo new equipment every 6 months and instead use the money plus everything else I could scrape together to build up a cash emergency fund (if you don’t already have one). As a single person (you don’t mention a partner) and without access to an employer's sick pay scheme, you are running the risk of being unable to pay the mortgage if you are ill or injured so an emergency fund is vital. If you have a partner who will pay the bills if you can not it is less of an issue.

Forget all about buy to let.

Once you have an emergency fund in a place open a pension, keep it simple and cheap. Pay in as much as you can as your income increases. Even investing over 20 years, it won't grow to a huge amount but then you say you don't need much. If you don't want another higher paid job you might have to supplement your income in retirement by part-time giggling or teaching.

Thankyou, and thankyou! It was a bit tricky to be honest - lol! But it's all good now  

Yes mortgage around £550, and I do have some in an emergency fund. Also, I've been pretty good with the bank and probably have a bit of flexibility there for a while if I needed it. 

I really like the 'forget all about buy to let' advice. I want to hear this, and want to be convinced that I'm not somehow missing out by NOT aiming for this. 

I wonder how much I would need to have saved to buy some kind of annuity that would pay that extra amount each year. Any idea how I might work this out? I just need something to aim for!

Many thanks again for your help. 

Albermarle

I wonder how much I would need to have saved to buy some kind of annuity that would pay that extra amount each year. Any idea how I might work this out? I just need something to aim for!

Annuities are very poor value at the moment , so most people keep the pension ( or other investment sums ) pot invested and draw from it in a process called drawdown . It is more difficult to manage and is not risk free, but it should generate a better income than an annuity .

However when you reach that stage , situation may have changed . As examples in current situation

£100K would buy an annuity for life , increasing each year with inflation of approx £2000 pa 

Without the inflation link you might get about double .

From a pot of £100K , you should be able to drawdown an income of £3500 pa , with little chance of the pot running out if it is invested correctly. You could take more , but the chances of the pot running out before you die will increase. 

Regarding downsizing , I think one issue can be is when you actually start looking at cheaper properties , they are inevitably smaller/less attractive / less nice area, so you may find yourself raising your sights and then the downsizing bonus starts to get smaller....

chapfromessex

Albermarle said:

I wonder how much I would need to have saved to buy some kind of annuity that would pay that extra amount each year. Any idea how I might work this out? I just need something to aim for!

Annuities are very poor value at the moment , so most people keep the pension ( or other investment sums ) pot invested and draw from it in a process called drawdown . It is more difficult to manage and is not risk free, but it should generate a better income than an annuity .

However when you reach that stage , situation may have changed . As examples in current situation

£100K would buy an annuity for life , increasing each year with inflation of approx £2000 pa 

Without the inflation link you might get about double .

From a pot of £100K , you should be able to drawdown an income of £3500 pa , with little chance of the pot running out if it is invested correctly. You could take more , but the chances of the pot running out before you die will increase. 

Regarding downsizing , I think one issue can be is when you actually start looking at cheaper properties , they are inevitably smaller/less attractive / less nice area, so you may find yourself raising your sights and then the downsizing bonus starts to get smaller....

Ok thanks this is interesting, so do the amount an annuity might pay usually go up over time with inflation?

Albermarle

chapfromessex said:

Albermarle said:

I wonder how much I would need to have saved to buy some kind of annuity that would pay that extra amount each year. Any idea how I might work this out? I just need something to aim for!

Annuities are very poor value at the moment , so most people keep the pension ( or other investment sums ) pot invested and draw from it in a process called drawdown . It is more difficult to manage and is not risk free, but it should generate a better income than an annuity .

However when you reach that stage , situation may have changed . As examples in current situation

£100K would buy an annuity for life , increasing each year with inflation of approx £2000 pa 

Without the inflation link you might get about double .

From a pot of £100K , you should be able to drawdown an income of £3500 pa , with little chance of the pot running out if it is invested correctly. You could take more , but the chances of the pot running out before you die will increase. 

Regarding downsizing , I think one issue can be is when you actually start looking at cheaper properties , they are inevitably smaller/less attractive / less nice area, so you may find yourself raising your sights and then the downsizing bonus starts to get smaller....

Ok thanks this is interesting, so do the amount an annuity might pay usually go up over time with inflation?

With annuities there are a number of options . You can choose one with an inflation link , or without . You can choose one that will pay out until you die , or for a fixed term ( say 10 years ) . You can choose one that pays 50% to a spouse if you die before them , or not .
The more options you choose the less actual income you get for your money .

steampowered

You've had great advice from other posters.

Whichever way you cut it, based on your current finances, if you don't already have pension savings it doesn't sound like you'll be able to generate a lot more than the state pension - this is currently £9,339 per year.

I would just add:

- Please check your state pension contributions. As you are self-employed and will be relying on the state pension for almost all of your retirement, you should check now that you will be getting the full state pension.

- You haven't said what the interest rate on your mortgage is. Hopefully you are on a competitive rate, not a standard variable rate!

- Is there any way of supplementing your income by taking a second job or doing gig work? You might find it easier to do that now than later. 

Audaxer

chapfromessex said:

marycanary said:

First of all, congratulations on making a living from music, you must have been through a difficult time with venues closed and no face to face teaching. Is your mortgage about £500 per month? If you are saving £166 per month for musical equipment it doesn’t leave much out of £1666 per month for everything else.

If you can achieve £12k a year and be mortgage free in retirement you would have about the same lifestyle (minus the instruments). In today’s money, you would have the state pension of £9339 so you would have to generate £2661 per year

In your place, I would forgo new equipment every 6 months and instead use the money plus everything else I could scrape together to build up a cash emergency fund (if you don’t already have one). As a single person (you don’t mention a partner) and without access to an employer's sick pay scheme, you are running the risk of being unable to pay the mortgage if you are ill or injured so an emergency fund is vital. If you have a partner who will pay the bills if you can not it is less of an issue.

Forget all about buy to let.

Once you have an emergency fund in a place open a pension, keep it simple and cheap. Pay in as much as you can as your income increases. Even investing over 20 years, it won't grow to a huge amount but then you say you don't need much. If you don't want another higher paid job you might have to supplement your income in retirement by part-time giggling or teaching.

Thankyou, and thankyou! It was a bit tricky to be honest - lol! But it's all good now  

Yes mortgage around £550, and I do have some in an emergency fund. Also, I've been pretty good with the bank and probably have a bit of flexibility there for a while if I needed it. 

I really like the 'forget all about buy to let' advice. I want to hear this, and want to be convinced that I'm not somehow missing out by NOT aiming for this. 

I wonder how much I would need to have saved to buy some kind of annuity that would pay that extra amount each year. Any idea how I might work this out? I just need something to aim for!

If you are paying £6,600 per year for your mortgage, you are doing very well to cover all the rest of your living costs from £13,400 per year.

I would check your State Pension forecast to ensure you are on track to get the maximum SP of around £9,600 (in today's money) when you retire at 68. You then only need to generate around £3,800 per year in today's money to get to an income of £13,400 per year in retirement.  

For someone retiring now, £100k or slightly more invested in a well diversified portfolio, should enable them to draw £3,800 income per year increasing with inflation. In 20 years time, with inflation, you may need double that amount invested. Some could come from you downsizing, but I would suggest opening a SIPP and paying into it as much as you can from your earnings up until retirement as the government will add 20% tax relief to each contribution.

I'm not sure how you could save enough to build up a big enough investment pot, without finding a way to increase your earnings, but it is worth considering if you want enough for a comfortable retirement.

The money you save into a SIPP would have to be invested in a diversified portfolio, but you can get a lot of information on this forum about low cost, well diversified multi asset funds which may be suitable if you do wish to start investing.

chapfromessex

Thanks a lot for your advice everyone. Yes, I am due to get full state pension. 

Also, I have a plan!

Currently I pay around £200pcm in child maintenance payments, this will stop in 2 years. 

I'm going to put this money (and any more I can save if I remortgage around this time) into a pension until I retire. This will give me enough of a pension pot to supplement my state pension to an acceptable level. 

Of course, more would always be better. But for now this is probably the most realistic plan I've had. Thanks again for all your sensible advice everyone. 

For now. Case Closed.