Tell me if this idea is good or bad.

SneakySpectator

FreeBear said:

Herzlos said: The reason pensions are so good is the tax free part in addition to the huge term.

You don't pay tax on the yield from the ISA, but you don't pay income tax on the money going into a pension.

If you are in a workplace pension scheme, there is tax relief on the contributions, and if you do salary sacrifice, there is a saving on national insurance contributions. Your pension pot is also boosted by employer's contributions (as long as you earn above a minimum level) - This could account for 30% to 50% of the total going in each month.

With a personal pension or an ISA, you'd miss out on the tax relief and employer contribution. Something to bear in mind when considering investments fr retirement.

I totally agree, currently my company only matches up to 7.5% so that's the max I am doing. I did think about doing more for the tax benefits but I don't want to lock too much money away in my private pension that I won't be able to access until 57, or it could even more 60+ by the time I get to private pension age.

Herzlos

SneakySpectator said:

Herzlos said:

SneakySpectator said:

Tabieth said:

I think your plan is highly risky and based on a lot of assumptions that may or may not work out for you. You may be happy with that level of risk but it would worry me.  I’d recommend a safer, more conventional route. Sort out whatever financial issues are stopping you from getting a mortgage now. Buy somewhere you are happy living in today (and that will probably meet your needs in the future) with an aim to be mortgage fee when you retire. At that point you’ll have somewhere to live that you can afford as well as a home and an asset. 

There are 2 problems with this. 

1. I am a single pringle on an income just shy of £30k so the amount of money a bank will lend me is ~£130k. Combine that with a £45k deposit that I can stump up and that allows me to buy a property for £175k, which will get me a very basic 1 bedroom flat if I'm lucky. I've browsed around and most flats in my area are in the region of £190k - £220k.

2. The mortgage calculator shows the interest rate after 2 years will be 6.9% or somewhere in that region. So after a 20 year period I'm going to end up paying back an tens of thousands of pounds in interest.

How does that compare with the rent on your existing 1 bed flat? I understand if it's a housing association it's subsidized so the math might not work as well in favour of the mortgage, but with a mortgaged flat you'll be rent free in 20-30 years depending on term with outgoings that may have been similar.

It's also worth noting that all mortgage figures assume that when the fixed rate expires you'll default to the variable rate that's always worse. You're unlikely to be be paying 6.9% apr for most of the mortgage, though I'd expect it to remain around 5%.

I certainly think retiring at 55 on a salary of £30k is optimistic. I'm on double that in a cheaper area and I'm not expecting to retire before 65 albeit I'm paying off a 4 bed house by then.

Have you accounted for what you want to actually *do* when retired and how you'll fund that?

You have a 4 bed house? So you probably have a partner and kids? That's where I am able to save compared to a higher earner. 

Someone might be earning £20k or £30k a year more than me but if they have 3 kids to feed, clothe and keep entertained, that's expenditure that I don't have, which I can direct towards investing. Also I don't go on holidays, I have only 2 hobbies, gaming and hiking / exploring. And both of these are incredibly cheap. 

I can buy a £40 video game that I'll play for 3 months... So per year I only spend about £160 - £200, some people have hobbies where they'll spend £200 per month!

Hiking / exploring is also very cheap because you buy the gear once and it lasts for years, the activity itself is free so I only need to pay fuel to get there if it's in the UK or bargain hunt for a last minute flight on skyscanner. Obviously I'm sleeping in a tent so no expensive hotel costs. 

But yeah, I've factored all this into my costs and retirement so I think for the most part I'm in a very unique position, granted by my natural frugality, low cost hobbies and no desire to have a family  

Oh and I don't drink alcohol, smoke cigs / weed or gamble.

Yeah, I realized it wasn't a fair comparison so went back and removed that part. If I didn't have kids I could have stayed in a 2 bed and retired earlier.

Are you confident that'll be your situation through the rest of your life?

My point still remains that you should do really careful math to see if it's going to be better to buy now and pay off over 20 years or continue renting to save and buy outright in 20 years. Of course there's always the possibility of moving somewhere cheaper when you retire. Your retirement budget will look completely different if you bought a £60k 1 bed flat somewhere like Wales vs a £170k 1 bed flat nearer the South coast.