Looking to further optimise my financial position

Upbeat_84

Hi all,

Hope you're all enjoying the Bank Holiday weekend.

I'm looking for some advice on how I can try and better my situation over the next 10-20 years as far as finances go. I feel like I'm in a reasonable position although far from "rich". I'm in unknown territory at this point and have zero experience so want to try and make the best decisions possible.

Please let me know if I can provide further information.

• Age 40
• No dependents. Live with my partner of 20 years who works full-time. She contributes to bills but our finances have otherwise always been kept separate which works for us
• Own the house outright. I bought off-plan in 2007 and paid the mortgage off in September 2021. In hindsight not the best financial move on paper. I'd have been better investing the money but you live and learn. In any case I wanted it paid off to facilitate a career change into a new line of work which I did
• Own my 7 year old car outright. I only do 3k miles a year. It's on 36k miles now. It's a diesel and the road tax is only £20 per year so I plan on running it into the ground. I'm going to get the water pump/wet belt done soon as it's recommended to get it done early as otherwise it's new engine time
• Salary from FTE of £35.5k. I work in local government. I'm in the LGPS and pay the maximum I am allowed into the scheme including the recent APC. I can get my pension when I'm 68 and it'll be worth circa £29k a year. My net pay after deductions is about £2014 per month
• I also have a small business I run evenings and weekends that brings in around £2k per month on average. It varies as the fees I charge are based on performance. The only time I access this money is to pay my accountant or my tax. Other than that it doesn't get spent
• I have a separate PensionBee pot. It's small. Until recently I was paying in more until sorting out my LGPS and increasing that. There's about £47k in there and I put in about £50 now until I sort out what my forward plan needs to look like
• I have 2 cash ISAs. One is reaching the end of it's 1 year term this week and I have a transfer scheduled over to a new provider for another 1 year term based on who is offering the best rates. I opened it with the full 20k and that money is in there plus the accrued interest. My second ISA is due to mature at the start of June. I'll transfer that to a new provider on the same basis as ISA 1. Again, I opened it with the full £20k and it has that plus the accrued interest in there
• I have a "high interest" savings account that is also due to reach the end of it's term in a few days. I'm only allowed to put £250 a month into it. I have done that every month. It has £3k in it. Interest will be added at the end of the term
• I have another £24k sat in 2 different current accounts. I was thinking of opening a third 1 year fixed rate ISA but the returns aren't that great hence my post. 
• As part of my routine I put a small amount away each month. I worked out what I need over the year for things like birthdays, Christmas, insurances, car repairs etc and I put that away every month which just smooths out the unexpected costs we all get from time to time
• I'm also pretty good with bills - I always shop round for the best deals and anything we don't use gets cancelled (Netflix and Prime have both had the chop recently for that reason)
• I always have a couple of 0% credit cards. I just buy my fuel on them usually unless something big/expensive breaks. I never pay interest as I always get them paid off. Current cards due to expire in next few months so I have just applied for a new one. My credit limit is about £15k across both but I never get anywhere near that and generally have very low utilisation
• I've got a tax bill due around July of circa £5k - that money is set aside within the amounts described above. I could pay it now but I tend to wait until it's due

I've just turned 40. At present I'll retire at 68 but, without being morbid, I'll be very surprised if I get there just based on family history.

I should add that if I become unwell to the point where I'm unable to work my LGPS pension provides the full benefit if I am medically retired of £29k per year. 

I have a degenerative spinal condition which continues to get worse. I'm worried at some point in future I'll need to have surgery with a long lay-off from work as that's the way it normally goes. I've had back problems since I was in school so there's no possible way to get any sort of insurance cover which I think has coloured my outlook with money - wanting the house paid off etc as I don't want to become a burden no more than is essential in future.

Outside of medical retirement the prospect of retiring sooner seems unattainable - is there anything more I can be doing with my cash rather than sticking it in ISAs? I've done a bit of reading around things like index funds and putting a fixed amount per month into them. Just not sure if 10 years is going to be worth it - everything financially seems to be so negative at present but I don't mind taking a risk and would be happy to lock this money away longer term.

In short there's £60k ish sat between ISAs and cash in my bank and I'm earning £2k a month on the side and want to know if there's anything more I could be doing with it. Retiring early would be a dream but I also want to make sure my partner is OK should anything happen to me.

Sorry for such a long post. I wanted to ensure I provided as much info as possible.

Thanks in advance.

El_Torro

It's refreshing to see an opening post with this much detail, most new posters don't seem to realise that little to no information means little to no useful suggestions.

So you'll get £29k a year when you're 68. Great. Is that enough to keep you going through retirement? If so you are in a good position, if you stay in your current job until then that is.

Since you're mortgage free you're probably in a better position than most to think about retiring early. If you open a SIPP this is the most tax efficient way to save for retirement. The only real downside is that you can't access it until you're 57 / 58 (the age might increase in future). Still, that's 10 years before your LGPS pays out. I wouldn't ignore Stocks & Shares ISAs, they have their place too. As I say a SIPP is more tax efficient as long as you're willing to wait.

To make the most of your money only keep between 3 and 6 months worth of cash in the bank (including Cash ISAs), the rest should be invested in Stocks & Shares ISAs and / or pensions.

Bridlington1

First of all I'll echo the comment about how refreshing it is to see so much detail in the opening post.

The first thing that jumps out at me is that you have £24k sat in current accounts. I'm unaware of a single current account that pays more interest than the top easy access account so I would move all of this money this into savings accounts ASAP as you're currently in effect throwing away a lot of interest. On £24k every 1% extra interest you can get is an extra £240/yr interest in your pocket. Going forwards I would just move money to the current accounts as and when you need to use it. 

Whilst you're at it make sure your savings accounts are the highest paying ones you can get. Moneyfacts has a some very good lists of the best savings accounts of each type which may be worth looking at (remember to click ``rate order" when looking at the lists though and vary the amounts). See:
https://moneyfactscompare.co.uk/savings-accounts/

I see that you also have a regular saver already, which is good to see, but it could be worth opening some more for your easy access savings to be drip-fed into (moneyfacts has a long list of accounts) to take full advantage of this type of account. 

Also if you've got 0% credit cards it would probably be worth doing all of your spending on them and indulging in a spot of stoozing. Rather than paying 0% credit cards off in full, just make the minimum payments and leave the rest of the money in savings accounts so that you can earn interest on the money the banks are lending you for free.

Upbeat_84

El_Torro said:

It's refreshing to see an opening post with this much detail, most new posters don't seem to realise that little to no information means little to no useful suggestions.

So you'll get £29k a year when you're 68. Great. Is that enough to keep you going through retirement? If so you are in a good position, if you stay in your current job until then that is.

Since you're mortgage free you're probably in a better position than most to think about retiring early. If you open a SIPP this is the most tax efficient way to save for retirement. The only real downside is that you can't access it until you're 57 / 58 (the age might increase in future). Still, that's 10 years before your LGPS pays out. I wouldn't ignore Stocks & Shares ISAs, they have their place too. As I say a SIPP is more tax efficient as long as you're willing to wait.

To make the most of your money only keep between 3 and 6 months worth of cash in the bank (including Cash ISAs), the rest should be invested in Stocks & Shares ISAs and / or pensions.

Thanks very much for the advice.

£29k a year from 68 is correct unless I end up medically retiring before then. If that happens I will get the full £29k a year from whenever that happens even if it's tomorrow. I can also choose to retire early which would reduce the figure, of course. The pension pays out as long as I'm alive to take it

I can live very comfortably on the £29k per year. It's much more than I need. I'm a homebody and don't really have any big expensive interests etc. I'm happy with a book or pottering around the garden so I'm not worried about that at all. It's the main reason I bought the additional pension as it's basically a guaranteed income provided I stay there and continue to pay in or have to medically retire so it's just a bit of peace of mind.

Also worth noting there's a benefit to my partner in the event I die in retirement. If you die within 10 years of retiring and are under 75 at the time of death, your beneficiary/beneficiaries will receive a lump sum payment equal to 10 times your annual pension less any pension already paid. If you elected to convert some of your pension to lump sum at retirement. An adjustment is made to the death grant to take this into account.

There's also the option of survivors pension. This will be 1/160th of my pensionable pay multiplied by the total membership I would have built up to your Normal Pension Age.

As you've alluded to I'm just looking at options that might serve as a financial bridge (bit of a moon shot/dream) until when I'd be able to take my work pension. This is where it gets messy i.e. if I chose to retire at 58 then that's 10 years of contributions I wouldn't be making within the LGPS so the pension would reduce accordingly. I'm not thinking about that too much yet as I just want to get the additional saving/investment decisions made and then I can review it over time. I wouldn't impoverish myself just to retire a bit earlier if it isn't workable but it would be nice to be able to retire earlier.

I don't plan to leave my local government job although there's the cyclical restructures that happen every few years as we are always under pressure financially so I suppose nothing is a given. That said, I can't go off "what-ifs" else I'll just end up not doing anything out of fear I'm making the wrong choice. If my role was ever deleted I'd try and do whatever I could to remain within the organisation even if it meant a move to a totally different part of the workforce.

I'll have a look into S&S ISAs and SIPPs - I don't know much about either. Presumably the 20k annual ISA allowance stands whether I use a cash ISA or S&S ISA? Perhaps I could transfer ISA 2 into a S&S one when the current fixed rate runs up and then use my allowance for this next tax year to open another S&S ISA 3) and then take my £2k per month freelance income and push that into a SIPP.

I was potentially looking at putting a fixed monthly amount into broad index funds such as the S&P500 based on a longer term view so doing this via a SIPP such as Vanguard could be one way to do it. I'd probably want a couple of different broad funds in there to spread the risk & potentially look at what sort of funds they package as I'm very new to all of this.

Thanks again for taking the time to reply - certainly some food for thought here!

Upbeat_84

Bridlington1 said:

First of all I'll echo the comment about how refreshing it is to see so much detail in the opening post.

The first thing that jumps out at me is that you have £24k sat in current accounts. I'm unaware of a single current account that pays more interest than the top easy access account so I would move all of this money this into savings accounts ASAP as you're currently in effect throwing away a lot of interest. On £24k every 1% extra interest you can get is an extra £240/yr interest in your pocket. Going forwards I would just move money to the current accounts as and when you need to use it. 

Whilst you're at it make sure your savings accounts are the highest paying ones you can get. Moneyfacts has a some very good lists of the best savings accounts of each type which may be worth looking at (remember to click ``rate order" when looking at the lists though and vary the amounts). See:
https://moneyfactscompare.co.uk/savings-accounts/

I see that you also have a regular saver already, which is good to see, but it could be worth opening some more for your easy access savings to be drip-fed into (moneyfacts has a long list of accounts) to take full advantage of this type of account. 

Also if you've got 0% credit cards it would probably be worth doing all of your spending on them and indulging in a spot of stoozing. Rather than paying 0% credit cards off in full, just make the minimum payments and leave the rest of the money in savings accounts so that you can earn interest on the money the banks are lending you for free.

Thanks very much - I've thought about doing that with the stoozing. It can only benefit me if I do it correctly.

You're right about the cash sat in current accounts. I'm basically throwing money away at present so I have that on my list to get some more savings accounts lined up. I'll be doing that this week as my existing one is up. There seem to be some better options available now - the one I have that's expiring shortly limits my payments in to £250 a month but there are plenty now where that isn't the case (at least as far as it's not a limit I need to worry about). I actually run my "main" current account at a zero balance after bills so it's just daft I've not yet done this!

LHW99

Whilst you and your partner keep things separate, presumably you both contribute to bills? It would be worth considering how each would manage if on their own, and whether a degree of at least cross-subsidy would be acceptable / fair.

Heedtheadvice

Certainly  S&S ISA is a good bet for long term investment ( >5years). My choice would be collective investments for diversification and  few of them to further diversify geographically etc. I prefer Investment trusts but also like some of the better long term performing Unit Trusts.

You mention your partner and survivor benefits. You or your partner may not wish to or cannot but marriage has great benefits.....and do not discount spending on a will and Power of Attorney, both cheap in the scheme of things but have mutual benefits.

Upbeat_84

LHW99 said:

Whilst you and your partner keep things separate, presumably you both contribute to bills? It would be worth considering how each would manage if on their own, and whether a degree of at least cross-subsidy would be acceptable / fair.

Many thanks for your reply.

We split the bills pro-rata based on our earnings. If either of us were unable to earn we would be able to manage on 1 salary as our outgoings are so minimal and we don't have a mortgage or other debt.

I paid the mortgage off which was in my name only before I did the career switch but the house is held in both our names and for my pensions my partner is listed as the beneficiary. Only thing I've not done yet is a Will to make sure if anything happens all my other assets pass to her.

We both earn similar salaries give or take a few hundred pounds. My freelance income is in addition to that but as mentioned we dont treat it as spendable money as its purely for future planning for us both.

What do you mean by cross-subsidy?

Thanks again!

Upbeat_84

Heedtheadvice said:

Certainly  S&S ISA is a good bet for long term investment ( >5years). My choice would be collective investments for diversification and  few of them to further diversify geographically etc. I prefer Investment trusts but also like some of the better long term performing Unit Trusts.

You mention your partner and survivor benefits. You or your partner may not wish to or cannot but marriage has great benefits.....and do not discount spending on a will and Power of Attorney, both cheap in the scheme of things but have mutual benefits.

Thank you! I've just got the ball rolling with a will and LPA (both financial and health).

MX5huggy

Are you actually 40? If you have any days left in your thirties open a LISA before you turn 40. (You say you’ve just turned 40 so forget that). 

I think you’re over estimating the LGPS ill health retirement benefits, there’s at least 2 levels but I don’t think either would give you £29k per year now or in the next few years, I’m going to call on @Silvertabby the resident LGPS expert. 

Don’t dismiss or even start planing to take your LGPS early the reductions for early payment (ignoring that you will not build up so much benefit) are not penalising, basically you have to live to 84 (which is average) for you to “win” by delaying taking your pension at 68. Add in your state pension (check your SP forecast to check your on course) then you’re looking at good income at 68. 

Does your LA off Salary Sacrifice AVCs for additional pension saving? 

These are the cherry on the LgPS cake if they do and I would (and do) look at putting the £1000 a month into AVC’s. If it’s not available then I would be putting it into a Global Index tracker (which is broader than the S&P500 proposed). Probably in a SIPP wrapper. 

Investing for the next 15 to 20 years should see you able to retire early. 

FIREmenow

Hey @Upbeat_84

Looks like you're in a really good position financially and could be a bit more optimistic about retiring early

If it helps, I am in a similar position - nearly 40, small deferred LGPS pension and currently in a DB pension (USS), probably a similar salary combining your two jobs, no mortgage, husband on similar salary to me, one cheap car and no expensive hobbies.  Medical history is a mixed bag so I'm just using average life expectancy projections. I'm also overpaying pension but into the DC part of my pension, which is different to LGPS I think.

Our main differences - I have a small child, married, and your pension with LGPS is one of the best in the country, whereas USS is just ok for a DB pension!  I am definitely, positively, absolutely going to retire before I am 68, so I think you can too

If Silvertaby drops into the thread, you will get some expert perspective on LGPS.  I presume the £29k is not what you have accrued to date?  When planning I tend to start with what I definitely have right now, and then project from there - so I have ~£3k pa deferred in LGPS, and ~£3k pa so far in USS, with their respective index-linking conditions, and then I project from there, rather than banking on the full amount.

You should both also check your state pension forecast, to see if you are on track and whether it would be worth buying any previous part-years.

One thing that stood out for me - you mentioned that your finances are separate and you also seem to be keen to make sure your partner is provided for in the future.  It could be beneficial to you, as a pair and separately, if you together have a look at your partner's financial plans (if she is willing) and your plans as a unit going forward.  What is your partner's pension situation like at the moment?  She must also have quite a bit of disposable income.  You have two pensonal allowances, two ISA allowances etc, so it is sensible for her to also have some pension built up in her own name and her own savings.  If she doesn't have much going into pensions or savings, and doesn't have much left at the end of the month, then that suggests you have different hobbies, interests, outgoings etc - nothing wrong with that as it's her money - but that might also feed into retirement planning and how much you might need as a pair or separately.  Similarly, a will and power of attorney are something for her to get in place too.

There is a helpful thread about 'the number' on the pensions board that might be useful to skim - working out how much you will need in retirement per year is a key part of deciding if and when you have enough to stop working, or reduce hours if that is an option.  Some posters on there have huge defined contribution pots, which can seem quite daunting, but for someone with a DC pot to try and buy your pension as an index-linked annuity, would cost £xxx,xxx, so even though it looks smaller remember yours is guaranteed and funded by the government.  If you did want to retire or reduce hours before 57, then having money in ISAs for the years before you can access any DC pensions is also a good idea.

You might find that you can retire or at least reduce hours earlier than you think and then you are likely to have more time to enjoy your hard-earned retirement income for however long you have.