45 years old an unsure what to make a priority

QrizB

r6mile said:
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.

I haven't seen it mentioned yet, but the rough rule of thumb is that (if starting from scratch) you should try to save half your age as a % of your income into your pension. So, if starting at 45, 20-25% of your income is a good goal.

This includes any employer contribution. With 7.5% from your employer, that's maybe 15% from you, about £10k per year.

Giving up £10k pa before tax will cost you about £6k pa after tax, so just over 1/3rd of your £1300pm disposable income.

beeemm said:

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?

Relax. A mainstream pension invested in a passive global multi-asset fund isn't really a gamble. Its value will reflect the state of the world economy, so might go up and down, but over 30 years the humps and bumps should even out.

Something like this:

https://www.trustnet.com/factsheets/o/g1hh/hsbc-global-strategy-dynamic-portfolio

In the past five years we've had a global pandemic, a land war in Europe, an energy crisis and 15 years of bond price increases have unwound, but HSBC GS Dynamic is still up 30%.

And I haven't cherry-picked; similar funds from other providers have performed similarly.

xylophone

No Pension/no mortgage/home ownership

You have sorted out the pension.  Have you checked on the tax relief? If your scheme operates "Relief at Source" rather  than "Net Pay" you will need to claim higher rate relief from HMRC.

See https://www.litrg.org.uk/tax-guides/tax-basics/do-i-have-join-pension-scheme/do-you-know-how-tax-relief-your-pension

Are you in a position to start building a deposit  to buy a home?

State Pension Forecast here

https://www.gov.uk/check-state-pension

af1963

I was curious how your figures would work out for paying off more of the loan, compared to putting it in the pension. (11% loan charges can add up quickly).  But the pension seems to still come out ahead for a 40% taxpayer, even if it didn't grow at all.  Looked at two scenarios:

1) If you were able to find enough "spare" cash to allow you to pay off the loan up front. You'd need to have £11K after tax, which is about £18K pre-tax.  If you did this, you'd start with nothing extra in your pension, and have a zero balance on the loan.  You can then save the loan payments you'd otherwise have made: about £13K by the end of the 3 years.

If you put the £18K into the pension instead, you'd have £18K in the pension, and an outstanding £11K loan.  Then you need to keep making the loan payments for 3 years, paying off the 11K but costing you about 13K including interest.  End up with a paid off loan and £18K in the pension.



2) More realistically, suppose you could find a spare £1K per year and could choose to either put it in your pension or pay off your loan quicker.

In the pension, assuming no growth, you'd have saved £3K by the end of the three years left on the loan.

If instead you took it as income, tax would take it down to £600. Adding that to your loan payments, you'd clear the loan about 5-6 months early and could then build up some cash from what you'd otherwise be paying in loan payments. But that only comes to about £2K.

In practise, you might have to pay tax on the some or all of the pension (usually works out at 15% currently) which could cut it to £2550.  But it's also likely to achieve some investment growth.

Albermarle

beeemm said:

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

6. Be rich and retire to an island? 

Probably you can forget about this goal.....

If you read this forum, you will see many/most have either retired early, or plan to. Probably in your situation this is an unlikely prospect, so if you want some realism then you probably need to reconcile yourself to working until at least state pension age.
On the positive side that gives you over 20 years to build up your pension, clear all debts and build up any other assets. So at least when you do retire you should have a decent income.

beeemm

Albermarle said:

beeemm said:

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

6. Be rich and retire to an island? 

Probably you can forget about this goal.....

If you read this forum, you will see many/most have either retired early, or plan to. Probably in your situation this is an unlikely prospect, so if you want some realism then you probably need to reconcile yourself to working until at least state pension age.
On the positive side that gives you over 20 years to build up your pension, clear all debts and build up any other assets. So at least when you do retire you should have a decent income.

Yeah, the retiring to a private island was a joke

It's clear that Pension > Emergency Savings > Finish paying loan are the first three steps.  I'm just not sure what options there are once those three things are underway. 

So assuming I aim my pension to be able to live a comfortable lifestyle when I retire (going to be 68, if I'm lucky.. so 23 years) but still want to be able to not live on a shoestring now, or maybe take some higher (not crazy) risks to either increase my wealth of possibly bring retirement forward a little.  For example, within the next few years, I'll be 700 a month better off due to no Child Maintenence plus 400 a month better off when loan clears.  Is it worth increasing my pension contribution a little but holding some back to put/invest elsewhere or I just better off finding the highest interest savings account I can and building that up?

I feel like most are feeling that dumping everything into pension is a no brainer, but how much of my income would I realistically need to be dumping in there before early retirement is possible.  Also then I worry about living costs when I retire, is it worth me getting a 20 year mortgage ASAP so I don't have to worry about rent when I retire?  Or would I be better off just making sure I have enough pension to cover any rent for my retirement?

Kicking myself for not taking this seriously 20 years ago but I can't roll back the clock so I'll keep asking dumb questions until I get it right.

QrizB

beeemm said:
It's clear that Pension > Emergency Savings > Finish paying loan are the first three steps.  I'm just not sure what options there are once those three things are underway. 

If you raise your pension contributions to 15%, you'll still hve about £800 a month left from your £1300 disposable income. You can use that £800 to build an emergency fund (one common target is 3 months of basic living expenses) and mabe still have a bit of spare cash for other things.

Once your emergency fund is adequate, you'll have those payments available for other purposes too (at least, until you have an emergency and then need to re-build the fund).

beeemm said:

within the next few years, I'll be 700 a month better off due to no Child Maintenence plus 400 a month better off when loan clears.  Is it worth increasing my pension contribution a little but holding some back to put/invest elsewhere or I just better off finding the highest interest savings account I can and building that up?

How to save or invest this £1100pm will depend on what you want it for, and when. If you're thinking of saving for a deposit on a house or flat, you (hopefully) won't want it locked away for too long.

beeemm said:

Also then I worry about living costs when I retire, is it worth me getting a 20 year mortgage ASAP so I don't have to worry about rent when I retire?  Or would I be better off just making sure I have enough pension to cover any rent for my retirement?

I don't know the property market around you, but here (and most places I've lived recently) rent is more expensive than a mortgage. If you can save a deposit and buy, you're unlikely to be any worse off and you'll eventually own your home.

All the usual caveats apply; if you expect to move house regularly, the costs of buying/selling/moving might mean that rental still makes sense.

Dh6

If you can put that £1300 spare per month into your pension and receive 40% tax relief on it for the next 15 years you might be surprised at the outcome. Plug the numbers into a compound growth calculator to give yourself some encouragement!

Notfarfromtheborder

9 years ago at OP age I had £92K in DC pension, now it is £477K
A big difference can be made, I did have a generous employer scheme for half that time though

Albermarle

beeemm said:

Albermarle said:

beeemm said:

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

6. Be rich and retire to an island? 

Probably you can forget about this goal.....

If you read this forum, you will see many/most have either retired early, or plan to. Probably in your situation this is an unlikely prospect, so if you want some realism then you probably need to reconcile yourself to working until at least state pension age.
On the positive side that gives you over 20 years to build up your pension, clear all debts and build up any other assets. So at least when you do retire you should have a decent income.

Yeah, the retiring to a private island was a joke

It's clear that Pension > Emergency Savings > Finish paying loan are the first three steps.  I'm just not sure what options there are once those three things are underway. 

So assuming I aim my pension to be able to live a comfortable lifestyle when I retire (going to be 68, if I'm lucky.. so 23 years) but still want to be able to not live on a shoestring now, or maybe take some higher (not crazy) risks to either increase my wealth of possibly bring retirement forward a little.  For example, within the next few years, I'll be 700 a month better off due to no Child Maintenence plus 400 a month better off when loan clears.  Is it worth increasing my pension contribution a little but holding some back to put/invest elsewhere or I just better off finding the highest interest savings account I can and building that up?

I feel like most are feeling that dumping everything into pension is a no brainer, but how much of my income would I realistically need to be dumping in there before early retirement is possible.  Also then I worry about living costs when I retire, is it worth me getting a 20 year mortgage ASAP so I don't have to worry about rent when I retire?  Or would I be better off just making sure I have enough pension to cover any rent for my retirement?

Kicking myself for not taking this seriously 20 years ago but I can't roll back the clock so I'll keep asking dumb questions until I get it right.

When you have these multiple options ( and it is good you are thinking in this way) , the answer is usually do a bit of everything. 

 Is it worth increasing my pension contribution a little but holding some back to put/invest elsewhere

Your type of pension is an investment. The advantage is you get tax relief , so the government is adding free money that will not happen if you invest outside of a pension. The pension should be available to withdraw from at age 57/58.

r I just better off finding the highest interest savings account I can and building that up?

Having some cash savings is always a good idea, but for the long term ( > 10 years) you would normally get a better return by investing ( especially if you get the tax relief as well)

If you think you might need a slug of money available in the medium term, then you could consider investing outside the pension in a Stocks and shares ISA alongside a savings account.

or maybe take some higher (not crazy) risks to either increase my wealth of possibly bring retirement forward a little. 
Within your pension there will be a choice of investment funds. Higher risk ones usually have a higher % of equity ( shares) and with a long term outlook you would expect these to grow more, albeit with some ups and downs on the way. So have a look at how your pension is invested now and what other funds are available.

Kicking myself for not taking this seriously 20 years ago but I can't roll back the clock so I'll keep asking dumb questions until I get it right.

They are not dumb questions, you are asking the right questions. Reading this forum regularly can be quite enlightening on these matters.

PeteinSQ

I think two of your steps are the wrong way around. Step one should be the pension, you earn a similar amount to me and the costs to take home pay as others have said are made insignificant by the tax relief at 40%. 

However I'd clear off that 11% debt before you build the safety net, is your job really at risk? If it isn't then I'd be wanting to save on that interest by getting rid of the debt asap. Then I'd build the safety net in some sort of cash ISA (now that interest rates are so much higher). 

Then once you've got both of these in place and you and your employer are pumping 22.5% into your pension I'd just look at growing that savings pot - maybe you could get an offset mortgage with someone like YBS when you next come to renew it?