Financial Planning - Mum
Discussion
Afternoon,
Trying to help find some solutions to my mum's financial situation and help her plan moving forward.
Some facts:
Age 55
Full time employment by local government
Annual salary circa £26k.
Mortgage Free - Property value circa £225k.
Little in terms of £ savings.
I'm currently trying to untangle her pensions from her working life but looking likely her pension will pay out around £10,000 PA.
My younger sister still lives at home and not in a situation where as of yet she can afford to move out which is understandable.
Mum is looking to create some sort of 5 year plan she can work towards to find alternatives for income during retirement.
Any ideas?
My idea would be to try and release some of the equity within her home and use some of the cash to buy, refurbish and refinance some property with my help.
She's sacrificed most of her life to bring up my sister and I as a sole parent so not concerned about leaving any £ for us, just want her to now enjoy the next chapter of her life and get the right balance between needing to work and enjoying herself.
Any help or guidance appreciated.
Cheers,
Gilmore
Trying to help find some solutions to my mum's financial situation and help her plan moving forward.
Some facts:
Age 55
Full time employment by local government
Annual salary circa £26k.
Mortgage Free - Property value circa £225k.
Little in terms of £ savings.
I'm currently trying to untangle her pensions from her working life but looking likely her pension will pay out around £10,000 PA.
My younger sister still lives at home and not in a situation where as of yet she can afford to move out which is understandable.
Mum is looking to create some sort of 5 year plan she can work towards to find alternatives for income during retirement.
Any ideas?
My idea would be to try and release some of the equity within her home and use some of the cash to buy, refurbish and refinance some property with my help.
She's sacrificed most of her life to bring up my sister and I as a sole parent so not concerned about leaving any £ for us, just want her to now enjoy the next chapter of her life and get the right balance between needing to work and enjoying herself.
Any help or guidance appreciated.
Cheers,
Gilmore
When does she want to retire?
When will her employer force her to?
Are you suggesting she remortgages to buy a property to rent out, or to refurbish and re-sell? With those kind of income levels and at that time of life it isn't something I'd fancy. For instance one of my properties has has a £1k-ish disaster this weekend but I'm not going to lose too much sleep over it. If I needed that income to pay the mortgage on my residential property I'd not be so comfortable.
If £10k pa isn't enough then is downsizing or straightforward equity release an option?
Are you in a position to buy her property?
Has she done any kind of analysis to understand where her money currently goes?
When will her employer force her to?
Are you suggesting she remortgages to buy a property to rent out, or to refurbish and re-sell? With those kind of income levels and at that time of life it isn't something I'd fancy. For instance one of my properties has has a £1k-ish disaster this weekend but I'm not going to lose too much sleep over it. If I needed that income to pay the mortgage on my residential property I'd not be so comfortable.
If £10k pa isn't enough then is downsizing or straightforward equity release an option?
Are you in a position to buy her property?
Has she done any kind of analysis to understand where her money currently goes?
UpTheIron said:
When does she want to retire?
When will her employer force her to?
Are you suggesting she remortgages to buy a property to rent out, or to refurbish and re-sell? With those kind of income levels and at that time of life it isn't something I'd fancy. For instance one of my properties has has a £1k-ish disaster this weekend but I'm not going to lose too much sleep over it. If I needed that income to pay the mortgage on my residential property I'd not be so comfortable.
If £10k pa isn't enough then is downsizing or straightforward equity release an option?
Are you in a position to buy her property?
Has she done any kind of analysis to understand where her money currently goes?
Well, she'd like to retire as soon as possible but is waking up to the realities of this now.When will her employer force her to?
Are you suggesting she remortgages to buy a property to rent out, or to refurbish and re-sell? With those kind of income levels and at that time of life it isn't something I'd fancy. For instance one of my properties has has a £1k-ish disaster this weekend but I'm not going to lose too much sleep over it. If I needed that income to pay the mortgage on my residential property I'd not be so comfortable.
If £10k pa isn't enough then is downsizing or straightforward equity release an option?
Are you in a position to buy her property?
Has she done any kind of analysis to understand where her money currently goes?
Nothing in her contract about enforcement of retirement.
Will get her to go over where she's spending her £ currently.
Only just taken on my own mortgage last year but in the next 5 years, yes I could buy her house.
Plan would be to release some equity, use that as a deposit for a BTL, would need to be something unmortgagable to then refurbish and refinance to in effect, recycle the money.
Don't want to sound negative but wouldn't consider equity release,can't see how you could get enough to get another property,do it up make money off it?
Might be best off with current pension,downsize when she retires,look at some hobby/pert time work to make bit extra?
Can sister not contribute?
Might be best off with current pension,downsize when she retires,look at some hobby/pert time work to make bit extra?
Can sister not contribute?
Yup, equity release is the last thing I'd be looking at. And in my opinion she's in no position to undertake "risk projects".
Get a lodger - excellent suggestion made above. Under the rent-a-room scheme she'll be automatically exempt from tax on the rent received so long as the rent doesn't exceed £7,500 p.a. (About £144 a week) Seems to tick all the boxes in one hit and at zero risk. Nice.
What age does her state pension begin? Must still be quite some way in the future. Don't forget to take it into account when reviewing the overall situation. And don't forget state pension is taxable insofar as total income exceeds the personal allowance, currently £12,500 p.a.
IMO "downsizing" is a lot more attractive than "equity release" in almost every situation. The catch is that in today's world even if that realises cash of £100,000 it's extremely difficult to get any worthwhile return on it. And if she spends £5k a year the £100k has all gone after just 20 years. Which brings us back to the attraction of £7,500 tax free from a lodger. To put things in perspective, £7,500 is worth £9,375 of earned income to a 20% taxpayer. To make £9,375 from relatively safe investments returning 3% p.a. you'd need to hold investments worth over £300,000. To make it from bank interest at 1.2% you'd need to have more than £750,000 on deposit. (Ignoring the small tax free bands.)
Remember that while she's still working she can benefit from chucking any spare cash into pension. 20% tax relief going in, tax free returns and, on your figures, 25% can come out tax free with the other 75% possibly coming out tax free - at least until her state pension commences. So,
Get a lodger - excellent suggestion made above. Under the rent-a-room scheme she'll be automatically exempt from tax on the rent received so long as the rent doesn't exceed £7,500 p.a. (About £144 a week) Seems to tick all the boxes in one hit and at zero risk. Nice.
What age does her state pension begin? Must still be quite some way in the future. Don't forget to take it into account when reviewing the overall situation. And don't forget state pension is taxable insofar as total income exceeds the personal allowance, currently £12,500 p.a.
IMO "downsizing" is a lot more attractive than "equity release" in almost every situation. The catch is that in today's world even if that realises cash of £100,000 it's extremely difficult to get any worthwhile return on it. And if she spends £5k a year the £100k has all gone after just 20 years. Which brings us back to the attraction of £7,500 tax free from a lodger. To put things in perspective, £7,500 is worth £9,375 of earned income to a 20% taxpayer. To make £9,375 from relatively safe investments returning 3% p.a. you'd need to hold investments worth over £300,000. To make it from bank interest at 1.2% you'd need to have more than £750,000 on deposit. (Ignoring the small tax free bands.)
Remember that while she's still working she can benefit from chucking any spare cash into pension. 20% tax relief going in, tax free returns and, on your figures, 25% can come out tax free with the other 75% possibly coming out tax free - at least until her state pension commences. So,
- £7,500 tax free from the lodger.
- While she's working an additional £7,500 p.a. of her earnings are used to make pension contributions - on which she gets 20% tax relief - so the lodger's £7,500 buys her £9,375 of investments, with the prospect of another great tax position when pension is eventually drawn.
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hstewie said:
hstewie said: I think first steps would be do some basic simple spreadsheeting of what she's spending now and on what.
Be careful how you approach this as it can be a delicate subject
MSE have a downloadable spreadsheet here:Be careful how you approach this as it can be a delicate subject
https://www.moneysavingexpert.com/content/dam/mse/...
coming from a web site makes it a little less confrontational hopefully.
Anything she can drive out of cost of living is a double win - more money for pension contributions, and less expenditure the pension needs to cover.
Left field idea; could you and your Mum sell your houses, then buy a big house between you? My friends parents and grand parents did that. Your mum could chip in say £150k and then invest/spend the rest.
It worked very well for my friends family. The have a lovely house with a big garden in the nice part of their town. In order to maintain their own space, there is a metaphorical "glass wall" between the grandparents part and the rest of house. The grand parents have about 1/3 of the house, with their own lounge and kitchen.
It worked very well for my friends family. The have a lovely house with a big garden in the nice part of their town. In order to maintain their own space, there is a metaphorical "glass wall" between the grandparents part and the rest of house. The grand parents have about 1/3 of the house, with their own lounge and kitchen.
She is in a pretty good situation i think. If she is wanting to wind down, I don't think risky projects will give her a stress free retirement.
Does your sister pay any rent? She should. Even if just nominal amount.
With no mortgage, she should be able to save a lot. (In fact, being a little harsh but to help, if she has had no mortgage for a while, why doesn't she have much savings?)
cutting back spending and saving is a lot easier thatn renovating property to chase your outgoings. She should be able to save a nice chunk in 5 years with no mortgage to pay!
Does your sister pay any rent? She should. Even if just nominal amount.
With no mortgage, she should be able to save a lot. (In fact, being a little harsh but to help, if she has had no mortgage for a while, why doesn't she have much savings?)
cutting back spending and saving is a lot easier thatn renovating property to chase your outgoings. She should be able to save a nice chunk in 5 years with no mortgage to pay!
Edited by covmutley on Monday 17th August 08:10
Thanks everyone.
I moved t'North a while ago now and she's still down South with my sister.
I think after discussing a little more in detail her plan is to either move or spend a lot more time abroad with her partner who has a place in Spain. Think her idea is to rent her house out at circa £850-950pcm and use that to live on too.
Only problem then is my sister and where she lives etc.
Renting a room out is a possible option, it's only a 2 bed house mind but if my mum does vacate then that's an option.
She suggested she sells her house, gives my sister a sizeable deposit and then buys a place up north near me for considerably cheaper to rent out / fall back on if things don't work out with this guy (she's known him years and they've been together quite a while now and seems happy!)
The delicate bit is my mum doesn't want to make my sister feel like she's being forced to leave but my sister also needs to accept that her life and circumstances will change too (she's got a BF, been with him just over a year, seems to be going well etc) so although she might not have the £ to buy somewhere just yet, that'll change.
And worst comes to worst she'll have to do what the rest of us do and rent for a bit first if she's not ready.
I moved t'North a while ago now and she's still down South with my sister.
I think after discussing a little more in detail her plan is to either move or spend a lot more time abroad with her partner who has a place in Spain. Think her idea is to rent her house out at circa £850-950pcm and use that to live on too.
Only problem then is my sister and where she lives etc.
Renting a room out is a possible option, it's only a 2 bed house mind but if my mum does vacate then that's an option.
She suggested she sells her house, gives my sister a sizeable deposit and then buys a place up north near me for considerably cheaper to rent out / fall back on if things don't work out with this guy (she's known him years and they've been together quite a while now and seems happy!)
The delicate bit is my mum doesn't want to make my sister feel like she's being forced to leave but my sister also needs to accept that her life and circumstances will change too (she's got a BF, been with him just over a year, seems to be going well etc) so although she might not have the £ to buy somewhere just yet, that'll change.
And worst comes to worst she'll have to do what the rest of us do and rent for a bit first if she's not ready.
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