my net worth how to divide it

olb81

hi all

currently i am aged 44 single living with family

i have a full time job earning about 28k

i have 35k in a nest pension

i have an ISA with 20k and another 20k ready for next years ISA allowance

I also have another 140k in instant access savings

thats my entire wealth

i need some help with what to do next.

i want to keep some in case i decide to buy a property for a deposit ( i was thinking at least 100k) . its likely a property i buy would be 200-250k. so the 100k -150k i could get a mortgage for.

im going to put 20k in next years ISA as mentioned above

the remaining 40k:

i am planning to rent for 6 months with 10k (gives me time to look for a place to buy )

keep 5k aside as emergency fund ( in case of new car etc)

then put up to 15k lump in my pension as i'll get immediate tax uplift from that., to get it up to at least 50k

any thoughts or changes i should consider?

Exodi

Just my 2¢:

Your pension is on the lower side (though maybe I'm biased from this forum, it's probably OK compared to the general public… also I hate Nest as a pension provider but that's another topic). Note the pension wrapper beats the ISA wrapper (you could see them as equal as while you generally don't pay tax on the way into a pension, whereas you don't pay tax on the way out for an ISA and growth is tax free for both… except you also have the TFLS which pulls the pension wrapper ahead).

You will have £40k in ISA's soon - are these cash ISA's or S&S ISA's? Hopefully the latter…

You also have £140k in an easy-access account which isn't great, the taxman will likely come down on you like a ton of bricks at the end of this year. Is this from inheritance? You're extremely cash heavy.

You seem indecisive with regards to buying a property e.g. "in case I decide to buy a property", I think this is really something you should either commit to doing or not… else you'll be sitting with six figures in savings accounts for even longer. Are you living with parents or other family members? Are they charging you £20k rent per year, or are you planning on moving out soon?

On your income, you could get a mortgage for ~£125k. This means a property of £250k is affordable with your cash savings + some to the side for legal fees, renovation, etc.

On your plan, good idea on the emergency fund (though I wouldn't count 'in case of new car' as a sufficient reason for dipping into an emergency fund, unless you meant a new used car if yours breaks down beyond economic repair), also not a problem to exhaust your ISA allowance, but I would be prioritising your pension and getting a house (for several reasons).

Really I think you need to sit down and have a long hard think about when you want to retire, what income you think you'll need to live the lifestyle you want, how far you have to go, etc. You also need to decide whether you want to buy a house or not.

olb81

yes temporarily with parents but i was assigning 10k to rent for 6 months before deciding to buy anyhwere or not again

as i am early days with a partner, one option could be move in with them, then i wouldnt necessarily need a property

my one isa is cash 4%, my next one i was planning s&s

if i moved in with partner i could then pay a lot more into the pension or buy a flat to rent out, while maxing the isa's each year

Exodi

olb81

yes temporarily with parents but i was assigning 10k to rent for 6 months before deciding to buy anyhwere or not again

Is that because they'd want you to move out sooner, or that you plan to buy in a different area that you might want to scope out first by renting?

Ideally you'd avoid private renting all together, not only to save £10k but also because it can be difficult to predict how long buying a property will take.

olb81

as i am early days with a partner, one option could be move in with them, then i wouldnt necessarily need a property

Appreciate it's early days, but is that because they own a property already? Even in that situation, surely the plan would be to invest in the property - whether that's formally buying in, or selling and combining your money on a new property together?

It's very risky to be solely reliant on your partner for housing, and the question of fairness gets raised all the time where one person owns the property, whereas the other has invested the money in something which they receive a return from… it's not uncommon that the partner that owns the house might want to start charging rent.

olb81

my one isa is cash 4%, my next one i was planning s&s

Ahh it was as I suspected - so you have £160/£180k in cash? You can appreciate you are significantly overweighted on cash, you will be paying tax on the interest. You need to employ it somewhere - leaving it carries it's own risk (you are losing value to inflation + paying tax on it).

Is it a flexible Cash ISA? You could consider this as meeting your emergency fund requirement, no reason to deliberately put £5k somewhere in another cash pot.

olb81

if i moved in with partner i could then pay a lot more into the pension or buy a flat to rent out, while maxing the isa's each year

Is this on the assumption they allow you to live there rent free for the long term? We've seen the exact situation you describe on this forum - the partner begins to complain that it's not fair that their money is stuck in bricks and mortar to provide you free housing, whereas your money is put towards something you receive a return from, unless you intend to share the rental proceeds with them?

To be honest, I am not onboard with the nonchalant strategy of just 'buying a flat to rent out' unless you have experience doing this. Far too many people get stung by this, far too many people think it is easier than it is. It has not been a path to easy money for a long time now, despite what social media says. It only gets harder when the Renters' Rights Act takes affect in a months time.

I think you have your priorities a bit off. You need to think long and hard about your long term plans and come up with a long term strategy for this money and then start working towards it - it could be put towards half a house or potentially early retirement. Instead I think you're letting the tail wag the dog by obsessing over the best place to tax efficiently store this large windfall, which is extremely inefficient in the medium-long term.

Obviously deciding what you want to do in the future is important, as it shapes advice.

olb81

thanks.. ok so the two priorities are:

decide within 6 months whether i need my own property or can move in with partner, which may involved investing in their property, possibly buying a share or paying down the mortgage

in the immediate i need to rent because i only have until end of april where i am

lastly i like the thought of increasing my pension as for every 1000 i add i get a free 250

eskbanker

i like the thought of increasing my pension as for every 1000 i add i get a free 250

Although pensions are tax-efficient, it's always worth bearing in mind that 75% of that money will be subjected to income tax when withdrawn from the pension, so the "free £250" effectively becomes a net free £62.50 if you pay basic rate tax when accessing it (and have no spare allowances)…

olb81

If that's the case then is it better to fill up the isa allowance first?

Or is there ways to access the pension tax free later?

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81945773#Comment_81945773

Pension will still generally beat ISA, by virtue of that net 6.25% uplift - the point I was making was that it isn't a 25% uplift as such when considering taxation on the way out as well as the tax relief on the way in.

25% of your pension money can be accessed tax-free, but the other 75% is subject to taxation when drawn down - this will only avoid tax to the extent that you have spare headroom within your personal tax allowance, e.g. if you retire before state pension age and have little or no taxable income for a while…

plumb1_2

imo

Stay living with your parents wasting £10 k renting is wasted money.

Open up a SS isa this tax year only a few days to go, ans put £20k into a money market fund paying about 3.75% and then another £20k in the new tax year. It relatively safe in a mm fund. And could be withdrawn in days if needed for a house deposit.

Another £20k into cash isa, so that’s £60k away from the tax man.

Regarding moving in with your new girlfriend/partner , maybe best to just contribute to the monthly living expenses. As living together may not suit either of you .
Regarding Nest pension personally I wouldn’t put any extra money into it, as I think they charge about 1.8% of any money you put in. And limited funds to invest in. Better to open a Sipp with a low cost provider, maybe the same one as the SS isa.

olb81

Interesting you said open up two s and s isas and a cash isa I thought I can only have 20k per tax year?

My cash isa for this year can I charge it to an s and s with another provider?

eskbanker

https://forums.moneysavingexpert.com/discussion/comment/81946458#Comment_81946458

Yes, you're right, the annual contribution limit for ISAs is £20K in total, not £20K each for cash and S&S variants.

When you say 'charge' your cash ISA to S&S, you presumably mean 'change', although 'transfer' is the usual term, but yes, you can transfer a cash ISA to a S&S one, by requesting the receiving provider to do this for you.