Retirement Planning / Pensions

[tinker]

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Spoiler

9 minutes ago, magnkarl said:

Invest, save and pay off your mortgage and credit, it’ll literally make the last 20-30 years of your life the best you’ll ever have.

Did I say that now is a good time to put away £100 a month into a solid index fund (emerging markets, 500, Europe index) to get going on becoming financially worry free by the time you retire?

If you are young, start listening to Dave Ramsey’s podcast (if you can get past the hallelujah stuff) and cut up your credit cards. I wish someone told me to do it when I was 30.

 

 

You can invest your sipp pension into whatever you want, emerging markets, 500, Europe index,  and get relief at your tax rate to boot, 20% or 40% extra per year is a hard return to match,  property doesn't get near it  but you can invest in property through a sipp as well if that's your thing.

Someone has actually sold their house to pay into a pension fund and get the tax relief, its on the pension page on money saving experts forums. The maths add up , it's a real eye opener on how some people play the pension system. 

Edited June 2, 2023 by tinker
Fat fingers marked it as a spoiler

[bielesibub]

I had it all planned out, pay debts and mortgage off by the time I was 40, then pump most of my income into a pension (at the time I was getting >£500 a day) Then I got ill, all plans went out of the window. As I am not earning now a pension is pointless. Best I think I can do is push as much as I can into various ISAs, stocks, bonds.

All I can suggest is don't put off putting into a pension, also get some income insurance and critical illness cover (these two are like lotteries you don't want to win) and be prepared income insurance doesn't cover 100% of what you were earning, its even worse if you happened to be paying yourself a low rate and topping up with periodic dividends. My monthly take home took a real hammering.

25 minutes ago, magnkarl said:

cut up your credit cards

take @magnkarl's advice.

Edited June 2, 2023 by bielesibub

[bielesibub]

14 minutes ago, tinker said:

Someone has actually sold their house to pay into a pension fund and get the tax relief

how does this work? Profit from your main residence is tax free, won't you be taxed on this when you take it from your pension? 

[Xela]

28 minutes ago, magnkarl said:

cut up your credit cards. 

 

Credit cards can be very useful. For big purchases, all overseas costs (hotels/bar bills etc), purchase protection and rewards/cashback. All my daily spend goes on my credit card and then is cleared when the bill lands. 

Just make sure you don't pay any interest on them.  

[bobzy]

9 hours ago, magnkarl said:

Invest, save and pay off your mortgage and credit, it’ll literally make the last 20-30 years of your life the best you’ll ever have.

Did I say that now is a good time to put away £100 a month into a solid index fund (emerging markets, 500, Europe index) to get going on becoming financially worry free by the time you retire?

If you are young, start listening to Dave Ramsey’s podcast (if you can get past the hallelujah stuff) and cut up your credit cards. I wish someone told me to do it when I was 30.

That's fantastic, but it's just fairly unrealistic for most people.  Our mortgage is about £340k - there's not a **** chance that gets paid off in 15 years or so  

[Rugeley Villa]

11 minutes ago, bobzy said:

That's fantastic, but it's just fairly unrealistic for most people.  Our mortgage is about £340k - there's not a **** chance that gets paid off in 15 years or so  

If you can double up your posts, surely you can double up your payments? 

[cheltenham_villa]

10 hours ago, tinker said:

I'm no expert but can't you pay back into a pension, at reduced amounts , and get tax relief on it even if you are drawing on it?  I'm certain the amount has been raised recently from £2800, if the money is sitting around getting poor returns then it might be an avenue to explore. 

Challenge is probably the other way round. Lots of money in a pension and working out the most tax efficient way of getting it out. 

We looked at buying an annuity but they are very poor at the moment. It probably needs him or my mum to live for 20 more years, that doesn't feel that likely unfortunately. 

If he passes first, my mum may need to pay c40-50% in tax. 

So many options and all quite complex. I'd prefer he just had the cash to hand should it be needed. 

[tinker]

5 hours ago, cheltenham_villa said:

Challenge is probably the other way round. Lots of money in a pension and working out the most tax efficient way of getting it out. 

We looked at buying an annuity but they are very poor at the moment. It probably needs him or my mum to live for 20 more years, that doesn't feel that likely unfortunately. 

If he passes first, my mum may need to pay c40-50% in tax. 

So many options and all quite complex. I'd prefer he just had the cash to hand should it be needed. 

I thought you had withdrawn the 25% tax free, if you pay this back into a pension then if he pays income tax he gets the tax relief back on what you pay in.  20k income, 20% tax paid on 8k = 2k tax,  pay in 8k( if you can there's limits) and his pension pot gets 10k paid into it. 

[tinker]

15 hours ago, bielesibub said:

how does this work? Profit from your main residence is tax free, won't you be taxed on this when you take it from your pension? 

This is a rough guide as to what I think he did.

You can pay into your pension 100% of your salary let's say 50k per annum, but you need that to live on so you remortgage your house interest only say 6% interest rate, you get out 200k, stick £150k in a high interest account and pay 50k into your pension.

Your pension gets the 50k plus any income tax you paid on it so 2k for every 10k you pay in after the first 12k. So your pension fund gets rougly 58k paid in, you do this with the full 200k over 4 years and you end up with 232k

You get interest earned on the pension fund which is around 4% a year ( depending on what investments you or you financial advisor picks) . I can't be bothered to work compounds out of the £232k but 4% of it is £9280 per year going into your pension after the 4 years. 

You have to deduct the interest paid on the mortgage but you still get capital gained on the property,  its a win win as far as I can see.

 

 

[bielesibub]

12 minutes ago, tinker said:

This is a rough guide as to what I think he did.

You can pay into your pension 100% of your salary let's say 50k per annum, but you need that to live on so you remortgage your house interest only say 6% interest rate, you get out 200k, stick £150k in a high interest account and pay 50k into your pension.

Your pension gets the 50k plus any income tax you paid on it so 2k for every 10k you pay in after the first 12k. So your pension fund gets rougly 58k paid in, you do this with the full 200k over 4 years and you end up with 232k

You get interest earned on the pension fund which is around 4% a year ( depending on what investments you or you financial advisor picks) . I can't be bothered to work compounds out of the £232k but 4% of it is £9280 per year going into your pension after the 4 years. 

You have to deduct the interest paid on the mortgage but you still get capital gained on the property,  its a win win as far as I can see.

 

 

A remortgage makes sense, I'd read that the person had sold their house.

[tinker]

42 minutes ago, bielesibub said:

A remortgage makes sense, I'd read that the person had sold their house.

I'm not sure of the details tbh it was few months ago and I'm 55 years old so things tend to fade quickly.

The point is there are some very clever people out there that can help us all maximise our finances and pensions are an area where knowledge can make a world of difference, rather than  just plodding on and following the masses. 

[magnkarl]

23 hours ago, Xela said:

Credit cards can be very useful. For big purchases, all overseas costs (hotels/bar bills etc), purchase protection and rewards/cashback. All my daily spend goes on my credit card and then is cleared when the bill lands. 

Just make sure you don't pay any interest on them.  

In my own personal opinion this is a very slippery slope that requires real discipline. What happens when the car breaks down or someone wants a holiday?

I keep a credit card purely for work expenses, experience in life has shown me that I don’t have it in me to keep on top if I start using it for everything.

[magnkarl]

15 hours ago, bobzy said:

That's fantastic, but it's just fairly unrealistic for most people.  Our mortgage is about £340k - there's not a **** chance that gets paid off in 15 years or so  

Sure, 340k is a lot, but 20k might not be, then the next 20k, and by the time you’ve paid off 40k you’ll be spending less per month maintaining it, in which case your snowball becomes bigger and bigger.

Obviously the mortgage is the last debt people should focus on paying down, but you can do a lot by just wiping off other debts too and then focusing on that one big loan later.

In any case, get pensions into index funds, save a small amount per month on top, and get a buffer that can cover your expenses for 2-3 months scraped together. It’ll make you sleep much better at night.

[Xela]

6 minutes ago, magnkarl said:

In my own personal opinion this is a very slippery slope that requires real discipline. What happens when the car breaks down or someone wants a holiday?

I keep a credit card purely for work expenses, experience in life has shown me that I don’t have it in me to keep on top if I start using it for everything.

Oh yeah, it requires discipline of course. A lot of people don't have it, granted, but if you do (I do!) then it's not an issue. 

Always worth having an 'emergency fund'  if you can for those unexpected bills like broken boilers, car breakdown and ransom demands. 

 

[ender4]

What’s a decent amount to have in your pension pot when you retire (at say 65) to have a comfortable and money worry-free retirement?

[chrisp65]

8 hours ago, ender4 said:

What’s a decent amount to have in your pension pot when you retire (at say 65) to have a comfortable and money worry-free retirement?

I think that’s a bit ‘how long is a piece of string?’.

Will you be mortgage free in a well maintained house? Or still needing to pay rent?

Are you content with watching the TV and a bit of gardening, or do you need regular London weekends?

Will you need a car and are you a car badge snob?

We have an elderly relative, they get basic state pension and manage to save every month. That’s not going to work for me.

[sidcow]

Right. I've just sold the house. What is it I need to do next again? 

[tonyh29]

9 minutes ago, sidcow said:

Right. I've just sold the house. What is it I need to do next again? 

Fly to Vegas and put it all on red 

[mjmooney]

48 minutes ago, tonyh29 said:

Fly to Vegas and put it all on red 

Don't do it, @sidcow, that would be stupid. 

Put it on black. 

[ender4]

2 hours ago, chrisp65 said:

I think that’s a bit ‘how long is a piece of string?’.

Will you be mortgage free in a well maintained house? Or still needing to pay rent?

Are you content with watching the TV and a bit of gardening, or do you need regular London weekends?

Will you need a car and are you a car badge snob?

We have an elderly relative, they get basic state pension and manage to save every month. That’s not going to work for me.

Ok, mortgage will be paid off and want a nice lifestyle.  So say £40k for us as a couple, £20k each net cash in the bank every year. Holidays abroad will probably be the biggest expense.

What sort of pension pot do i need?