What Should I Do?

mnt99york

Hi!

I'm at a crossroads, and not sure what to do for the best.

I'm 45
I work full time
I rent, and don't own any property.
I'm paying 5% of my income into a workplace pension, but I've only been doing this since 2017 and the balance is £14k - obviously nowhere near enough to live on continuing at that rate even with another 23 years before I reach state retirement age.

I don't have any debt, or any credit cards. I won't be inheriting anything. I've had bad credit in the past but it's all been paid off for a long time.

I'm been living the high life for a few years but realise this can't continue.

I have £500-£600 a month I can save, I've been putting half into a stock & shares ISA and half into a 3.5% interest savings account for the past couple of months.

I KNOW I now need to urgently make plans for retirement. Should I massively increase what I'm paying into my pension or continue saving into my ISA/savings?

My thought is that I don't really have much choice but to continue paying the bare minimum into my pensions and cram everything I can into saving towards a mortgage deposit? I've calculated that I can achieve around £50k in 6-7 years when I'll be 51-52.

What would you do in my situation?

Thanks
Matthew

El_Torro

If you're an employee then is the 5% going into your pension just your contribution? How much is your employer contributing? It's worth playing around with a free pension calculator (plenty of them can be found online) to see what your pension could look like in 23 years time. It's worth understanding the assumptions made in the calculator too, and changing those assumptions if you think it's appropriate to do so. 

I agree that your two priorities should be buying a place to live in and building up a big enough pension pot. This might be an ambitious plan but might also be doable. You have left it a bit late to build up a decent pension but 23 years is still a solid amount of time to get going, if you're serious about paying in to your pension every month. 

I wouldn't focus on building up too much money outside of a pension. Yes, you need to have a big enough deposit but when you retire you can for example use your 25% tax free lump sum from your pension to pay off remaining mortgage debt. 

Exactly what I would do in your situation depends a lot on your financial specifics, which you haven't provided.

Bostonerimus1

I'd be putting as much as you can into your pension, but before you do that understand how your pension is invested and make sure your asset allocation is right for your circumstances. If the last sentence makes no sense to you, urgently read up on pensions and how you can control where the money is invested inside the DC pension wrapper.

mnt99york

I'm paying 5%, then employer's contribution and tax credit on top of that.

I guess my question boils down to whether my priority should be buying property OR massively increasing my pension contributions (I can't really do both).

I was assuming the former was the better option, given that if it comes to retiring and I'm still renting, all the money I save now will simply go to paying rent? 

So pumping as much money as possible in the next few years into get on the housing ladder and hopefully have made huge inroads into paying off a mortgage by the time I retire.

HedgehogRulez

What does your wife think?

LHW99

Where are you expecting to buy? Some areas you'll be fine with less than £50k deposit - London (on the whole) not a hope.

mnt99york

HedgehogRulez said:

What does your wife think?

I'm single

mnt99york

LHW99 said:

Where are you expecting to buy? Some areas you'll be fine with less than £50k deposit - London (on the whole) not a hope.

I live in York. I'd like to move over west to be nearer the Lake District - Lancaster eg.

Marcon

mnt99york said:

LHW99 said:

Where are you expecting to buy? Some areas you'll be fine with less than £50k deposit - London (on the whole) not a hope.

I live in York. I'd like to move over west to be nearer the Lake District - Lancaster eg.

Looking at prices in Lancaster, purchasing a property should be viable. Might be worth having a look at park homes and static caravans, of which there are plenty for sale in the area for under £30K. There are always caveats to buying such a property, but provided you do your homework thoroughly and understand what you're getting, that might be a particularly affordable way to proceed - possibly in the near term rather than 5 years or so away?

Also worth considering if there is anything you can do to boost your income/lower your spending (perhaps cutting out the high life!) to free up more to save.

mnt99york

Marcon said:

mnt99york said:

LHW99 said:

Where are you expecting to buy? Some areas you'll be fine with less than £50k deposit - London (on the whole) not a hope.

I live in York. I'd like to move over west to be nearer the Lake District - Lancaster eg.

Looking at prices in Lancaster, purchasing a property should be viable. Might be worth having a look at park homes and static caravans, of which there are plenty for sale in the area for under £30K. There are always caveats to buying such a property, but provided you do your homework thoroughly and understand what you're getting, that might be a particularly affordable way to proceed - possibly in the near term rather than 5 years or so away?

Also worth considering if there is anything you can do to boost your income/lower your spending (perhaps cutting out the high life!) to free up more to save.

Oh I already have cut out most things - and I have taken in a lodger to my 2 bed flat (I'm allowed to sublet) which has boosted my income considerably and allows me £500-£600 spare a month to put away.

I thought buying a 3 bed and taking in one or two lodgers was the best way forward - I'm not expecting to buy outright in 5 years, more be able to afford a decent enough deposit.

Storcko14

First thing - don't be too tough on yourself.  You've presumably had a good time living the high life and that can't be taken away.  Some scrimp and live what many would consider to be a parsimonious life with a plan to do 'fun stuff' (usually travel) in retirement and life (or ingrained habits) gets in the way.  

Regarding the increase pension or save for deposit debate.  There's a lot we don't know about your financial circs but if you pay higher rate tax today you could see if increasing your pension contribution would avoid that.  Also check you're getting the best matching deal from your employer.