Strategy thoughts

Kinclad

Hi, any thoughts or feedback on the below would be appreciated 

56, full time employed, full state pension, hoping to retire at 60.

I'm currently salary sacrificing into my pension around 45%, it does leave me around 1K short a month of my living standards, but I have enough cash in my current account to allow me to continue at this level until around March/April of next year. (I know it can take an age, but hopefully i will have my inherited money by then - see below)  

Some time in the near future i will benefit from the sale of my deceased parents home, I'm looking for some thoughts on my strategy for that cash along with some guidance on areas I'm less familiar with.

My strategy once the property is sold....

Pay off mortgage, I'm aware there are different views on this, and emotions play a part. But I'm currently paying around 1% and its going to be a lot more than that when I renew when my 5 year fix ends in May next year. The thought of investing the money instead and there then being a downturn in the market, means I want to clear this one. This would account for just over 1 third of the inheritance.

Before April 2026, One off pension payment into my company group pension, I earn just over the current 'max into pension' threshold. So I am basically going to work out what I will have paid into the pension by the end of the tax year, minus 60K and make a 1 off payment from the inheritance pot.  I'm presuming the pension provider (Scottish Widows) will then automatically add 20% without any additional involvement from myself.

Max out ISA, will only be around 5K left in the allowance, but ensure I hit the annual 20K contribution, will then add another 20K, in the new tax year.

For arguments sake, if I then had in the region of 80K to 100K remaining, what would be my options? I'm not so keen on premium bonds as from what I have read they seem to becoming less and less attractive.

With my intended retirement age, I'm obviously going to be slightly more risk adverse with this cash. 

I know I haven't provided numbers regarding current pension pot and the investments etc, but that's because I'm not really asking for someone to help me with a full plan. 

It's really a question of ..... after I have maxed out pension, ISA and paid off mortgage. What sort of investment options are there and how are they managed.

Ie I use trading212 for my ISA, would I potentially use the 212 invest section on the app where you invest outside of your ISA? And if so, how are the investment gains taxed? Is it done automatically? Or is a tax return required?

Should i just try and find a bank or building society with the best interest rates? 

I like to think i have pretty good idea about the benefits of salary sacrifice, pensions and ISA's etc (but correct me if im wrong), its just what to do after that. 

Thanks for any help/guidance

Mark.  

SVaz

Pay off mortgage for definite.
I’m waiting till my 1.1% rate ends in 10 months then paying it off,  the money has been in an ISA earning 5% now 4% so it’s a no brainer. 

Live off the rest of the cash,  sacrifice all of your pay down to min wage,  invest whatever you’ll need to live on for 3-5 years after retirement in a short term money market fund,  currently paying 4%,  we use Fidelity cash fund and Royal London STMM funds.  You don’t say who your pension is with but they might have a similar fund. 

El_Torro

You can invest in a General Investment Account when you have maxed out ISAs and pensions.

 As mentioned make full use of you salary sacrifice pension while you can. You will probably also want a cash buffer when you retire, part of this 100k can be used for that. 

Woodstok2000

I'm not an expert in investing, but I would suggest looking closely at premium bonds, especially if they fit your risk profile.

Any stocks and shares investment carries a risk of losing money - with premium bonds your only risk is earning less interest than you might have done elsewhere, but on the plus side it is tax free.

For me they have worked out well as I have a low risk tolerance, and my premium bonds have averaged around 5% over the last few years.  With the tax consideration I'd need to be getting around 7% interest elsewhere to match that.

ali_bear

Is your pension saving currently on track to give you what you want in retirement? 

If so I have an alternative suggestion for you. Once the house is sold and you have the proceeds, do all of those sensible investment things you mention. Put some of what is left aside in a deposit account for sensibly investing next year. Then with what you have left, after all the dust is settled, is yours to enjoy now and however you see fit. Buy a new car - one that will last you years. Go on some really one-in-a-lifetime travel adventures. Enjoy what life has given you without too much regret about the past and without too much worrying about the future. We're only here once. 

Notepad_Phil

Woodstok2000 said:

... Any stocks and shares investment carries a risk of losing money - with premium bonds your only risk is earning less interest than you might have done elsewhere, but on the plus side it is tax free....

There is also inflation that you need to keep in mind, especially over the longer term, and over the longer term I'd rather have a diversified stocks and shares portfolio over just keeping it in cash, though of course cash does have its place for short and medium term needs.

Woodstok2000 said:

...For me they have worked out well as I have a low risk tolerance, and my premium bonds have averaged around 5% over the last few years.  With the tax consideration I'd need to be getting around 7% interest elsewhere to match that.

You must have been lucky to be averaging 5%, but going forward the average person is looking at getting about 3.2% tax free per year (the current prize rate is 3.6% and you knock off about 0.4% for the vanishingly small chance of winning the big prizes).

Secret2ndAccount

If I'm understanding you correctly, you can pay more than 60k into your pension this year. Something like this:
Last year, total money added to pension = £40k
This year, employer contributon + sal sac = 37k.   Salary, after sal sac= 35k.  You make a payment of 28k into pension. 20% = 7k is added (tax relief)  Total added to pension this year =72k     That's fine because you have carry forward available from previous years.  You ony have to limit the tax relief part to match your eventual salary. You pay in 80%, and get the other 20% from the taxman.

As to what to do with your excess money:
T29 (index linked gilt) pays inflation+0.75%.  Guaranteed payout in March 2029. Zero, or virtually zero tax to pay, even if held in a general investment account.
or TG29 pays 3.8% fixed, a lump sum returned to you in Jan 2029
Higher rates if you can wait until 2030. Option to sell if you need the money, though the return is not then guaranteed.

Kinclad

ali_bear said:

Is your pension saving currently on track to give you what you want in retirement? 

If so I have an alternative suggestion for you. Once the house is sold and you have the proceeds, do all of those sensible investment things you mention. Put some of what is left aside in a deposit account for sensibly investing next year. Then with what you have left, after all the dust is settled, is yours to enjoy now and however you see fit. Buy a new car - one that will last you years. Go on some really one-in-a-lifetime travel adventures. Enjoy what life has given you without too much regret about the past and without too much worrying about the future. We're only here once. 

I agree...although I do think i need to do another 3.5 years in work, Im final at a point where my children are older and i dont have the cost base i had when i was younger. So the next 3.5 years is the first time i can put more into my pension than what i have ever been able to do before. 

I agree about taking the opportunity to do the things you mentioned, I haven't traveled that much in my lifetime (have been in full time work since 17), so very keen to do that. I passed my full motorcycle test this year and have friends in a similar position, so i'm hoping there are some adventures there.

If i can stay in the job for another 3.5 years and continue to sacrifice at the level im at now. At a 5% growth rate, I will hopefully have around 830K in DC by the time i'm 60.

As always i have to consider that risk balance in my pension, I'm reasonably diversified with regards to region and sector, but im still around 80% equities to 20% bonds.

Thanks Mark


  

Woodstok2000

Notepad_Phil said:

Woodstok2000 said:

... Any stocks and shares investment carries a risk of losing money - with premium bonds your only risk is earning less interest than you might have done elsewhere, but on the plus side it is tax free....

There is also inflation that you need to keep in mind, especially over the longer term, and over the longer term I'd rather have a diversified stocks and shares portfolio over just keeping it in cash, though of course cash does have its place for short and medium term needs.

Worth considering for sure, but i would argue for  a 56 year old retiring at 60, inflation is not a huge concern. With 100k it would only be 5 years before it's all in ISAs - you're not going to lose much to inflation  in that time, but you could lose a lot than ill-timed market crash.


I don't know how my premium bond luck compares to others, but even with 3.2% gains, thats 5.4% before tax for me which would still be very close to market leading.

cfw1994

ali_bear said:

Is your pension saving currently on track to give you what you want in retirement? 

If so I have an alternative suggestion for you. Once the house is sold and you have the proceeds, do all of those sensible investment things you mention. Put some of what is left aside in a deposit account for sensibly investing next year. Then with what you have left, after all the dust is settled, is yours to enjoy now and however you see fit. Buy a new car - one that will last you years. Go on some really one-in-a-lifetime travel adventures. Enjoy what life has given you without too much regret about the past and without too much worrying about the future. We're only here once. 

I agree with this.
Do (or buy) something your parents would approve of - travel/watch/car/etc.  When you use it or look back at the memories, it will remind you of them!

Also: although they are obviously not an “investment”, I disagree with Martin Lewis’s dislike of PBs.  They have a place: as mentioned above, the no-tax winnings would probably average more than you can get in a GIA, plus the chance of a big win (I got 1K at the start of this year when I only had 5K holdings!).  And you can get your hands on the cash within a couple of days.  Great “emergency fund” money 💪