45 years old an unsure what to make a priority

beeemm

Hi, I couldn't quite decide which section to put this in and landed here.  Hope it fits.

45 year old divorced male - starting to wonder how to best manage my life between now and death.

Currently, after payiing all essentials, including bills, food, fuel, child maintenence etc.  I have around £1300 disposable income each month.

Current financial situation:

Disposable income ~£1300
PCP with 1 year remaining @ £252pcm
Personal loan (£11000) @ 11%APR £378PCM  (2 years, 11 months remaining)
No Pension
No Mortgage/Home Ownership
No investments

I just need to know where I should be directing some of my cash.

I've seen a few things saying "Emergency funds is priority" so I've started dropping some into an easy access saver (Currently £1500 @ 7.5%), for 3 months survival I'd need around £7500

Work also offer a decent pension scheme (I don't yet have one) - So I'd figure next step is starting to pay into that?  Or would clearing the loan off early be more sensible?

Basically, 45 snuck up on me and now I'm in a mad panic to sory the next 30 years of my life out.  Do I gamble on investing to give me a boost?  Do I play it safe?  If so, is playing it safe going to be quick enough to give me an easy twilight?  Or do I just start partying hard and have a true mid-life crisis?

Apologies for rambling, and any advice is appreciated

r6mile

I guess my first question is how come you are not already in your work pension scheme? That's free money (as they will be contributing too) so at a bare minimum you should be joining and contributing enough to get their maximum contribution. What sort of pension do they offer?

Pat38493

If you have opted out of your work pension scheme, for sure it should be a priority to join.  Paying into a pension offers significant tax relief benefits (especially if you are a higher rate taxpayer which you don't make clear).  The sooner the better as the money has longer to grow inside the pension.

Also - if you are an employee your employer is obliged to make a contribution as well so you are effectively throwing away money by not being a member.

Did you actively opt out - I think these days employers are obliged to enroll you into the pension scheme unless you proactively opt out?

In fact I would consider this just as important as building an emergency fund, if not more so.

Have you checked your state pension position on the HMRC web site?  You should also check how many more years you need to contribute to get the full state pension at your state pension age.

You probably don't want to read this but if you have no savings and no pension at age 45, you have some catching up to do so you should really make it a priority to save as much as you can into a pension.

You are probably not surprised to get that input since you posted on the pensions board .

beeemm

r6mile said:

I guess my first question is how come you are not already in your work pension scheme? That's free money (as they will be contributing too) so at a bare minimum you should be joining and contributing enough to get their maximum contribution. What sort of pension do they offer?

I was, up until this point, wanting every penny I had to get my debt under control.  I started with about 30k and it was a mess.  I now have the 11k loan and all credit cards are clear and stored away for break glass.

Pension offered is 3% Employee contribution + 7.5% Employer contribution 

MallyGirl

Do you have a plan for the end of the PCP - will you have the funds to make the balloon payment or will you be handing the car back and trying to buy one (if you need a car at all).
11% loan - is that the best you could get?
Pension - as others have said. If you need £2500 a month to live off now then the £10k a year state pension isn't going to be enough and you need to do something about that.
While you have left it a bit long, anything you do now 'pension wise' is a step in the right direction.

beeemm

Pat38493 said:

If you have opted out of your work pension scheme, for sure it should be a priority to join.  Paying into a pension offers significant tax relief benefits (especially if you are a higher rate taxpayer which you don't make clear).  The sooner the better as the money has longer to grow inside the pension.

Also - if you are an employee your employer is obliged to make a contribution as well so you are effectively throwing away money by not being a member.

Did you actively opt out - I think these days employers are obliged to enroll you into the pension scheme unless you proactively opt out?

In fact I would consider this just as important as building an emergency fund, if not more so.

Have you checked your state pension position on the HMRC web site?  You should also check how many more years you need to contribute to get the full state pension at your state pension age.

You probably don't want to read this but if you have no savings and no pension at age 45, you have some catching up to do so you should really make it a priority to save as much as you can into a pension.

You are probably not surprised to get that input since you posted on the pensions board .

Yes, I did initially put my salary in but wasn't sure it was relevant and was trying to keep it trim.  I'm on 60k+4k(on call)+1500 approx yearly bonus so around 65k

And yes, I actively opted out (see my above post) as I was really struggling before and was crawling out of a debt hole.  I'm in a much better place financially now so that brings me looking for the right direction.

So, I've emailed HR and the pension ball is rolling.

So far I have

1. Start Pension Scheme (In Progress)
2. Build up 3 month survival funds (In progress)

Then

3. Clear loan more quickly?
4. ?
5. ?
6. Be rich and retire to an island? 

beeemm

MallyGirl said:

Do you have a plan for the end of the PCP - will you have the funds to make the balloon payment or will you be handing the car back and trying to buy one (if you need a car at all).
11% loan - is that the best you could get?
Pension - as others have said. If you need £2500 a month to live off now then the £10k a year state pension isn't going to be enough and you need to do something about that.
While you have left it a bit long, anything you do now 'pension wise' is a step in the right direction.

PCP - Haven't decided, won't be making balloon payment so either contining on with PCP or just grabbing myself a cheap car with cash and taking it from there (I'm not a car lover, as long as it moves, I'm happy)

11% yes, it was at the time, my credit score is getting better though so I'm hoping I can drop the interest rate in 6 months or so

Pension is a go   I think I have a whopping 1000 I can transfer over from a lost pension so it can have a very very tiny kickstart 

beeemm

As a note, I know I've been foolish with my finances by getting to 45 before "growing up", I'm here for harsh truths, best case scenarios and no sugar coating.  Realistic goals and options are what I need right now, so I thank you for any bluntness provided

r6mile

Keep in mind that as you are a higher-rate taxpayer, anything you contribute over 50k will benefit from Higher Rate tax relief.

I appreciate you may not be able to up your contributions to 20-25% (on the basis that your annual salary is around 65k) - but this is to illustrate that a pension is incredibly tax efficient. Obviously it will be locked in until you are in your late 50s.

Great that you have signed back into the work pension scheme - once your debt is more under control and you feel you have enough of a cushion in easily accessible cash, my suggestion is that this should be your priority.

Secret2ndAccount

If you earned 50k you would be a 20% taxpayer.  For the bit from 50k - 65k you are a 40% taxpayer. So that 15k earned only ends up as 9k take-home. Ouch! If you put the 15k into your pension, the whole 15k ends up in the pension, and you save 40% tax. So your aim should be to pay in 15k/yr to your pension.
If you put in 15k/yr and your employer adds about 5k, that's 20k/yr for 20yrs. Then you should be able to draw it out at 15k/yr for 25 or 30 years. Add in the state pension, and you've got your 25k/yr for the rest of your life. So, with your decent salary and modest needs, there is a path to salvation here.
(the future prediction is a very approximate guess. Nobody knows what inflation, investment growth, or your personal circumstances will be for the next 20 yrs)

Pat38493

beeemm said:

Pat38493 said:

If you have opted out of your work pension scheme, for sure it should be a priority to join.  Paying into a pension offers significant tax relief benefits (especially if you are a higher rate taxpayer which you don't make clear).  The sooner the better as the money has longer to grow inside the pension.

Also - if you are an employee your employer is obliged to make a contribution as well so you are effectively throwing away money by not being a member.

Did you actively opt out - I think these days employers are obliged to enroll you into the pension scheme unless you proactively opt out?

In fact I would consider this just as important as building an emergency fund, if not more so.

Have you checked your state pension position on the HMRC web site?  You should also check how many more years you need to contribute to get the full state pension at your state pension age.

You probably don't want to read this but if you have no savings and no pension at age 45, you have some catching up to do so you should really make it a priority to save as much as you can into a pension.

You are probably not surprised to get that input since you posted on the pensions board .

Yes, I did initially put my salary in but wasn't sure it was relevant and was trying to keep it trim.  I'm on 60k+4k(on call)+1500 approx yearly bonus so around 65k

And yes, I actively opted out (see my above post) as I was really struggling before and was crawling out of a debt hole.  I'm in a much better place financially now so that brings me looking for the right direction.

So, I've emailed HR and the pension ball is rolling.

So far I have

1. Start Pension Scheme (In Progress)
2. Build up 3 month survival funds (In progress)

Then

3. Clear loan more quickly?
4. ?
5. ?
6. Be rich and retire to an island? 

That's already a great achievement that you've managed to get things coming back under control.  

If you paid into the pension at any point in the past, you should also find out what the current amount is - assuming it's a DC pension, anything you paid in in the past will have continued to grow in the meantime, so there may be some money already in there.

In theory, as a rough rule of thumb, you are recommended to pay in half of your current age into the pension each year, so if you are 45 you should be paying in 22.5% (that number includes the 7.5% employer part).  However as said above, every little helps so if you can't afford that, put in whatever you can afford and then try to increase it as much as you can each year e.g. by putting pay rises into the pension.

As a 40% taxpayer (England?), for example if you were able to put all of your income down to 30K into the pension, you would not longer be paying any 40% tax and it would only cost you £600 of net pay for each £1000 you put into the pension.  If your contributions are via salary sacrifice (best way for most people), it will be even better as you will save on NI as well.

When you eventually start taking money out of the pension, you will get 25% tax free and pay tax on the other 75%, but based on what you've posted above you're not likely to be a higher rate taxpayer in retirement so the marginal tax rate will be 20% less.

Once you've got the contributions going, you may want to take a look at how the money is invested inside the pension wrapper - most employers have a default option which may well be perfectly fine for you but it's a good idea to look into it a little bit.  

Also to warn you - pensions are usually invested partly in equities and this means the balances will go up and down and some years they might go up a lot, others they might go down - this is nothing to worry about if you have more than 10 years to go until you will need to access any of the money - it's normal behavior for pension investments and is needed to get long term growth.  It's a long term game over decades.

The other one for your list is as also mentioned above - make sure to check your state pension forecast to ensure you are on track to accrue a full state pension.  You can do this on the gov.uk website.