Midlife Crisis Pension/Investment Worries..long post warning

[drainbrain]

DSLiverpool said:

superkartracer said:

sidicks said:

Yipper said:

It's really not hard to calculate.

You just need £500-800k of pure cash in a private pension or savings account by 60 or whenever you wanna retire.

Very important, however, to keep in mind that health-adjusted life expectancy (HALE) for men today is only about 70 years of age. That's when most folk start talking about the war and dribbling on their shoes.

Thus, if you retire at, say, 60, then chances are you will only need ~10 years of money to go rollerblading, swinging and cruise-shipping. In reality, you could get away with saving as little as £200k and still have a decent decade of retirement.

Do you really think you are helping the OP with the above nonsense?

Some truth in there , this year alone I've seen a few people in their 40's and one 51 drop dead , all had lots of wealth ( far more than above ) they were all working crazy hours towards retirement.

Father in law just turned 70 , used to play football for Liverpool back in 20's , can just about walk 10 mins before needing an oxygen tank . Was fine a couple of years ago.

My dad, bro and uncle never saw 60 so my pension is getting pillaged at 55 (this year)

Quite right! Plus there's a helluva lot of things and things to do that you really can't be arsed with when you're older so you don't need nearly as much as you think you will.

[RL17]

Or if want to maximise ISA use excess cash now into non- ISA stocks & shares account rather then pension

Can use this as first source of cash at early retirement (way before 55) and use to continue ISA subscriptions (and leave ISA untouched with income retained).

Plain S&S account - for 4 or 5 years, 2 people can accumlate using this and use annual cgt exempt limits carefully and £2k div exemption (provided doesn't hit personal allowance limit) in much same manner as an ISA - normally lower cost than ISA, And then recycle into income/ ISA.

[BoRED S2upid]

OP you really don’t have anything to be worried about. Mortgage free before your 40 if you don’t like it at B&Q there is scope to go back to the daily grind and earn a few more shackles. Your in a very strong position.

You done mention kids. They could eat into your pot if Uni needs funding but I’d say leave them to it they can have it when your dead 😉

[jeff m2]

Eggs in more than one basket.
It's difficult to know how the tax system will operate in the future, so putting stuff in one basket could be disastrous as governments look for new income streams for themselves.
I use three, taxable, tax deferred and tax free.
Because of the different tax treatment of Cap gains in the US, I find taxable is actually working out better than tax deferred which is treated as income when tapped. Tax free is obviously best, but that route is limited.

OP Down sizing twice????
Maybe once, don't overdo it, moving is expensive and disruptive, and don't forget changing you house also means changing your neighborhood, you could end up living next door to a PHer

[Testaburger]

jeff m2 said:

Eggs in more than one basket.
It's difficult to know how the tax system will operate in the future, so putting stuff in one basket could be disastrous as governments look for new income streams for themselves.
I use three, taxable, tax deferred and tax free.
Because of the different tax treatment of Cap gains in the US, I find taxable is actually working out better than tax deferred which is treated as income when tapped. Tax free is obviously best, but that route is limited.

OP Down sizing twice????
Maybe once, don't overdo it, moving is expensive and disruptive, and don't forget changing you house also means changing your neighborhood, you could end up living next door to a PHer

Do you mind me picking your brains on US CGT?

In my 'plan'; I intend to buy some US property over the next couple of years. I am not currently UK resident for tax purposes, but will be in retirement (call it 15 years time).

On eventual disposal of these properties, would my UK CGT exposure be based on the purchase price, despite not being UK resident foremost of the ownership period?

Obviously, I'll seek professional advice, but if you're willing, I'd be keen to learn a bit from your Knowledge of handling US assets.

What is it that's favourable re. CGT treatment in your instance?

[Burnham]

Thanks Testaburger, sounds like you thought about doing this long before I did. Its nice to talk about these things on a level plane. I don’t have anyone I can really discuss this with, and I don’t really trust accountants or financial advisors…but amazingly I’ll take snippets of advice from people I’ve never met on a web forum!

oyster said:

Good financial planning you might need, but financial worries you don't.

That's the thing though oyster, I'm practically the sole bread winner and I’ve made some poor financial decisions in the past and I don't want to again...so I do worry! I certainly don't expect any violins to come out, but I don’t want to waste any opportunity as my ability to save will be diminished soon. I'm not going to get any inheritance or golden handshake so I need to be clear on where I am in my head I guess. You were not being harsh btw. Ive been lucky and worked hard, but whereas most peoples earnings tend to rise, I can see mine diminishing in the future.

Roman Rhodes said:

For the OP, and it's really only minor in the scheme of things and you may already know this: regarding the ISA, you say about putting the £70k house proceeds into it- that will take over 3 years as the current maximum is £20k per year. You also suggest saving another £75k over the next 4 years into the ISA (splitting £150k between pension and ISA). You can't save a total of £145k into an ISA over the next 4 years.
Apologies if I've misunderstood!

You didn't misunderstand, I just didn't explain very well! My wife and I have a joint ISA feeder currently, with £40k in ISA’s each and £91k in the feeder pot. In April the pot will drop to £51k as we use the years allowance (as xeny suggested below). So the £70k from the house proceeds will go to topping up the pot. Any additional monthly savings I squirrel away can either go in the pot too, or it may be more sensible to get it straight into my workplace pension before Im taxed.

xeny said:

Between a couple, you can ISA wrap 40K/year.
Do the pension/vs ISA arithmetic based on the ISA being a bridge to the pension, simply to get as much benefit from pension tax relief as possible. I'd guess based on your age you'll be able to get at a money in a pension from 57.

Thanks xeny, the ISA being somewhat of a bridge before the pension is the plan, hopefully it will last. The dream would be for us to be able to live off the ISA pot if we were to take 5% a year (or 4% as RL17 suggests below, to be on the safe side), but that all depends on how much it goes up. Realistically I don’t think we’ll have enough. Would I be able to get at both pensions at 57 (even the one I only started more recently?)

RL17 said:

Re OP
Workplace pension tied up to 66 - better to have something that allows funds/income to be accessed earlier as when workplace pension kicks in you'll also be getting 2 state pensions.

Do some calcs as to when you can take 4% income out of ISA value and hit targets - if want more certainty then a switch into a range of income paying assets when you want to draw money from ISA (can still take income or most of it even if market swings down). (3.5% to 4% from investments trusts/funds etc or 5% from a range of income stocks, REITs etc achievable). Taking income out rather than capital - although if you more than happy with growth funds and their prospects stay with them or a mixture.
Also factor in inflation into you retirement income need - at say 2.5% its £34k in 5 years, at 3% £35k.

Will I not be able to access the workplace pension before 66? This is where I’m confused…im 41 now and that seems a long way off still! This is why I think I need to split any future savings across the investments as well as pension. I’d not factored in inflation…this is why I need help!

DSLiverpool said:

Spend your money whilst your young enough to enjoy it - whats the point being able to buy a DB11 when your 70 and cant get out of it!! My dad, bro and uncle never saw 60 so my pension is getting pillaged at 55 (this year)

Sorry to hear that DS…but you may buck the family trend (so remember to keep some of that pension back just in case)! I totally see your point of view in your situation. I don’t want a DB11 when Im 70, I just want to be able to put food on the table and have a few trips abroad.

EddieSteadyGo said:

You have shared a lot of financial detail but the one which is most important is the fact you don't feel able to work at your current level at this point in time.
If you are in your early 40's, and you feel this way, I would suggest finding a counsellor who you can share your thoughts with and who can help you find a good way forward. You may also need help from your doctor.

I honestly don't think the answer is to be found in discussing savings, ISAs, pensions etc.

Having said that, there is point of detail. You sound as though you have sufficient 'rainy day' money available to you. Therefore my suggestion would be to maximise your pension contributions to gain maximum tax relief rather than using taxed income in which to invest in ISAs. This way you gain the compound growth of the tax relief as well in your total savings.

Thanks Eddie. Ive had concerns about my mental health recently (my wife too). This is one of the reasons why I feel I need to put an end-date on my work in a few years time. This would also have an effect on my physical health too. We’re going off topic, but you are right and its something I need to address. Thanks also for the last line in your reply, that’s my thought too, but it seems a long way off!

BoRED S2upid said:

You done mention kids. They could eat into your pot if Uni needs funding but I’d say leave them to it they can have it when your dead ??

We don’t have kids unfortunately. We’d have liked to, but its not been possible. I’ve a massive hole in my bank account that’s marked IVF, and an empty space on the driveway because of it!

jeff m2 said:

Eggs in more than one basket.
OP Down sizing twice????
Maybe once, don't overdo it, moving is expensive and disruptive

Good points, but having the ability to do it twice does mean we have eggs in more than one basket! I’m not sure we’re ready to go into a smaller home right now, and if we did we’d have cash which is obviously I won’t know what to do with

[jeff m2]

Testaburger said:

jeff m2 said:

Eggs in more than one basket.
It's difficult to know how the tax system will operate in the future, so putting stuff in one basket could be disastrous as governments look for new income streams for themselves.
I use three, taxable, tax deferred and tax free.
Because of the different tax treatment of Cap gains in the US, I find taxable is actually working out better than tax deferred which is treated as income when tapped. Tax free is obviously best, but that route is limited.

OP Down sizing twice????
Maybe once, don't overdo it, moving is expensive and disruptive, and don't forget changing you house also means changing your neighborhood, you could end up living next door to a PHer

Do you mind me picking your brains on US CGT?

In my 'plan'; I intend to buy some US property over the next couple of years. I am not currently UK resident for tax purposes, but will be in retirement (call it 15 years time).

On eventual disposal of these properties, would my UK CGT exposure be based on the purchase price, despite not being UK resident foremost of the ownership period?

Obviously, I'll seek professional advice, but if you're willing, I'd be keen to learn a bit from your Knowledge of handling US assets.

What is it that's favourable re. CGT treatment in your instance?

The US tax system favours wealth over income (quite a lot).
Short C.G.s are taxed at your income tax rate, but long gains, over one year, are given beneficial treatment. Zero for the fisrt two income bands then 10&, 15% and up.
And of course that is only on realized gains.
So the game is too keep your taxable funds "quiet" not too much trading, do most of your adjustments for diversification in non taxable if possible.

Although it can be beneficial to do "gain harvesting" if you can manage to get your income income below about 70.and get it taxed at zero whislt increasing your cost basis.
Increasing the cost basis saves thousands later. It's not unusual to only have a tax liability of $500 on selling 40 or 50 K of well managed investments.
If you get close to the limits and need money just withdraw cash, or borrow from a line of credit.

Not that difficult if you only invest and don't have an actual job.(earned income) Trump has just shifted up AMT (lots of happy people)

I'm not a tax professional, but I think it is important to rid yourself of any real estate gains prior to becoming a US resident. There is a lifetime pass on a residence in the US, I'm not sure if that would be the case for a foreign asset even though it was your home. The catch could be "were you resident in this house during the current tax year, tick box yes or no".! Selling in the prior year would be safer.
Even though your Country may have a tax treaty...your State may not.
State taxes catch out a lot of people.

Any advice should come from a CPA or Tax lawyer in the State in which you plan to reside.

If you intend to bring in money, do it when you first arrive, it can be tricky later explaining where it came from. Not that having money is a crime, bu they will want to tax eiither the gain or interest earned since you first became resident for tax purposes. I had to refile three years, because we only intended staying a few years, (then we got a dog) I had to pay penalties.
I have heard that people often tag incoming money as repayment of debt!

Also, don't rush into citizenship, that would open you up to lifetime tax even if you later moved to UK (or anywhere), Green card works fine.

Intending to buy "some" US property as an investment is a whole different subject, phenomenal difference State to State. Florida, Nevada and Texas have bargains at present, something I looked at, but decided against. Maybe because I'm lazy and not much of a "go getter".
Cap Gees on investment properties, yep, and if not resident they would withhold.Taxes at about 30% on the gain. The formulars have changed over the years, in the past, the building could be depreciated on a 7 year straight line basis, I think that was made much longer a few years ago, and killed it as a tax break
The idea was the mortgage and prop taxes were taken care of by the rent with a small cash flow, but the depreciation would act to reduce your adjusted income.of your other earnings. After 7 years you would offload it, often quite cheaply and buy another one. As a non resident you would not have US income to offset it against .

So investors would pick up undervalued properties from the tax avoiders, everyone was making out like a bandit. Now it's all foreclosures. Caveat thingy.

[xeny]

Burnham said:

Would I be able to get at both pensions at 57 (even the one I only started more recently?)

Pass - you'll need to look at the paperwork for what the contract says. Remember that you'll almost certainly get more tax benefit out of a pension than an ISA, so make sure you've got enough in the ISA and as much as possible in the pension(s) rather than over concentrating on the ISA. Especially if either of you is a basic rate tax payer and still under 40 (I don't think you are counting dates you mentioned on my fingers) then a LISA is also well worth considering.

[trickywoo]

Testaburger said:

I've got a retirement date planned at 55. So, I've got 20 years to sort my st out.

In the UK those numbers put your private pension age at 58 - linked to the state pension age (68-10).

I’m just on the cusp so need to work three years longer too, assuming I have enough put away to do so.

[Testaburger]

trickywoo said:

In the UK those numbers put your private pension age at 58 - linked to the state pension age (68-10).

I’m just on the cusp so need to work three years longer too, assuming I have enough put away to do so.

My company retirement provisions are slightly different compared to UK pensions.

Mine and the company contribution basically get invested and are handed to me as a lump sum when I retire.

They get no different treatment in the uk. This is on the assumption that I liquidate the fund prior to becoming resident in the U.K. again...

JeffM2 - thank you very much for that response. I'll formulate a reply soon👍