Best option for investment today?

Gingswab

Hi everyone, and new to the forum.

I'm in the process of selling my house and will have equity of around £130,000 after buying a small flat. I'm 58 and have £107,000 in my personal pension and £10,000 in my workplace pension. I just need to know considering the economic forecast and low interest rates what would be my best option for investment at this stage?

Albermarle

The economic situation is of less importance than what plans you have for the money long term.
Is it to supplement your pension ? To retire early? Buy an Aston Martin with some of it? Leave it as an inheritance etc 

It would also help if you could say if you are still working and if you are married, does your partner have any pension, financial assets etc .Also how do you feel about taking ( controlled) investment risk?

In other words you need to tell us more about yourself, and what you think the money may end up being used for, before any suggestions can be sensibly made.

Linton

Your pension levels seem low so the obvious place for some of you money is either of your pensions.  The downside is that you can only put up to your gross earnings into pensions in any one tax year, so I guess you would have to do this over more than 1 year.

If you are to put all your earnings into a pension you need to work out which pension you should use.  If you use a personal pension you would effectively get tax relief for tax you never paid because it was covered by your tax allowance.  This may or may not apply to an employers pension depending on whether your contribution is paid before or after tax.

Do you have an emergency fund of say 6 months  living expenses in cash to use if , for example, you lost your job?  If not that should be your first priority.

Gingswab

I'm working and not married but definitely risk averse and don't really know anything about investing. Don't think an Aston Martin would last long on my driveway in sunny Birkenhead though.

So what are my long term plans... well I don't particularly want to retire at state pension age (67) and if I could retire at say in my early 60's and not struggle I would be happy with that. I've three daughters, 27, 24 and 13 who I would like to leave something to but apart from that and maybe a mobile camper van.

Do you suggest combining my pensions and putting a lump sum into it say?

AlanP_2

At the moment you have about £247K + State Pension) for the rest of your life from when you retire.

How much do you want / need in retirement - the starting point would be what you are spending today adjusted for things that you won't be paying for (commuting for example) and what you will be paying for in retirement and not now (camper van capital and running costs for example).

Then, work on say 5% withdrawn from assets per year (adjusted for tax as applicable) pre State Pension and say 3.0% post State Pension.

Does your likely income meet or exceed your wants / needs?

Don't forget your pension is invested and you must have chosen what in, even if it was the standard default they offered at the time.

How much are you / employer contributing to the pension? Can you increase it? Will they increase to match?

Have you checked your SP forecast - don't just look at bold, headline number but read it through.

Albermarle

Do you suggest combining my pensions and putting a lump sum into it say?

Combining them, will maybe make things neater, but what is much more important is how much is in them !

The advantage of a pension is the tax benefit. The tax relief you get on contributions, will always be more than the tax you may pay on withdrawal. So if you want to invest doing it via a pension is the best way . The maximum you can contribute in a tax year = your gross ( pre tax ) salary . However this maximum includes the tax relief and of course you will also have made some contributions on a regular basis. So yes a lump sum in the pension is probably a good idea but you may have to spread it over two or three tax years depending on how much you earn.

but definitely risk averse and don't really know anything about investing.

You have some quite significant sums to manage now, so I suggest you decide to learn about investing on a basic level at least ( as mentioned already your pensions are in investments already) OR you think about employing professional help in the form of an Independent Financial advisor.

Being 'risk averse' can actually damage your finances if it is taken too far. For example savings accounts are 100% safe, but with interest rates at 2% and inflation at 10% , their value/buying power is being eaten away. So maybe not so risk free after all.