Early 30s and not sure what's best to do for the future

[Craikeybaby]

Yipper said:

Buy a Lotus.

Yipper in sensible answer shocker!!!

Seriously, at the very least I'd be increasing pension contribuitions to the maximum matched by your employer. They I'd look at how much tax relief I am getting on that and if it is worth increasing slightly.

Unless you've got a super low interest rate on your car loan, I'd focus on paying that off before the mortgage and I'd certainly look at having a "rainy day fund" - some cash you an get your hands on quickly.

[anonymous-user]

Only issue with a pension is the age at which you can use it, if you want to retire early, perhaps look into index trackers and ETFs.

[thenortherner]

Thanks guys.

I owe £6.5K on a personal loan I used for the car. It has 3.5 years to run. I'll pay this off first before any mortgage overpayments.

I'll also up my pension to the 2.5% contribution. I still need to get my head around putting earning past £45K (£5K in this case) into a pension. As I understand it, if I continued as I am then I'd lose 40% of the £5K through tax, so I'd only benefit £3K.

This way I'd benefit from putting the full untouched £5K into pension.

Will my tax code change? And how does the government contribution work?

Ref. savings, you're right, I've always had a bit put away for a rainy day but I've always had it in my mind that if I lose my job I'd probably get PILON. Or if worst came to worst I'd flog the car as the loan isn't secured.

I also thought about getting a second property once this one's paid off too. But for now I'll clear my loan and up my pension to 2.5%, then take further advice once I'm free of the debt.

Thanks for your input.

[red_slr]

What age would you like to retire?

[thenortherner]

red_slr said:

What age would you like to retire?

Mid / late 50s would be great but with no pension pot to speak of it's not likely possible.

NutMeg shows I need to put away £1K a month from now if I want to retire at 58 on £20K a year.

[Condi]

If you're on 50k, and paying a total of 1300/m on a mortgage, that must be somewhere around 40% of your income after tax on the mortgage.... um.... wow! Plus paying off a car loan as well, must take your committed spending to nearly 50% of take home. You say you dont live off bread and water, but there must be some things you want to do while you're young enough and stupid enough to do them?


My advice would be to live a little and enjoy yourself. The house will still be there in a few years, your health and quest for adventure might not be.

[xeny]

thenortherner said:

Mid / late 50s would be great but with no pension pot to speak of it's not likely possible.

NutMeg shows I need to put away £1K a month from now if I want to retire at 58 on £20K a year.

Have you played with the numbers if you put £1K into a pension, reduce your mortgage payment correspondingly - when does that see the mortgage paid off?

If you fiddle the balance back and forth so the pension reaches your desired value when you pay the mortgage off, you'll get best use of money and earliest retirement.

[grahamm]

1. Pay enough into employers pension to maximise employers contribution.
2. Pay into a SIPP or other private pension to bring taxable income below higher rate. £5,000 into a pension will only cost £3,000 take home pay.
3. £4,000 pa into lifetime ISA. Government adds 25%. You can start LISA up to age of 40, pay in up to age of 50 and take out without penalty from age 60.
4. Pay off car loan.
5. Over pay mortgage.


In the above order of priority. You may also wish to put some of your disposable income in an ISA. Priority 4, 5 or 6.

I am not qualified to give financial advice. I am 58 years old and think you will be glad you did this when you reach my age!

Take advice from experts on which investments to buy within pensions and ISA.

As others have said, don't forget to enjoy life along the way!

[LDN]

Firstly; the broad strokes and assumptions on property values when talking north V south always frustrate me. There are properties in Manchester and Cheshire that are as expensive / sometimes moreso, as similar down south.

Aside from that; everyone’s different... I like to feel that banks have little to no hold on me and so I’d be just getting the mortgage paid off, with one eye on the next move. I know that the chess game of finances would say otherwise but we’re all different. I’d rather have five properties I own outright than ten owned by the banks. They are a necessary evil of course, for the most part.

[red_slr]

thenortherner said:

red_slr said:

What age would you like to retire?

Mid / late 50s would be great but with no pension pot to speak of it's not likely possible.

NutMeg shows I need to put away £1K a month from now if I want to retire at 58 on £20K a year.

In which case blat off the mortgage as that will make you happy then drill down on pension.

Your 20k PA is c.£500k pot so lets say you start your serious pension savings at 40 with a fair wind you should be able to get there with £1000 ish a month contribution for 18 years which will take you to 58.

Other option is to use an ISA.

Personally, if I was you I think I would be considering drip feeding an ISA now to try and get some better compounding later.

You could also have a really good run and get to your target by 55, for example. Where as pension is locked away.

I also like that ISAs are tax free at the end makes life simple.

[thenortherner]

I appreciate all the responses. Just a few bits to update on as of today.

I got reimbursed circa £4K worth of expenses through work today. The expenses were funded with an existing credit card. Last week my application for a zero % balance transfer credit card lasting 36 months was approved.

I've transferred the £4K balance from the existing card to the 0% one now. I will keep chipping away at this as and when, but since it's 0% for 3 years I'm not too fussed.

I've then used the £4K I've been reimbursed through work to take the personal loan from £6.5K to £2.5K. I reckon I could clear the balance in 2 months and that's what I'm aiming for.

Paying this off also means I'm £175 per month better off, net the small amounts I'll be chipping off against the card.

I also looked into my pension from the job I left part way through last year. Until now I'd not looked at what I'd built up. It turns out I've £4.2K in there.

I also have £600 with my current employer's pension.

I was thinking about transferring it over, however I don't know enough about how well 'The Peoples Pension', my current employer's provider, perform. In my first statement from May to July of last year the value was less than I'd paid in, albeit only by £3!

I also made a mistake with the employer's contribution - it's up to 3.5% and not 2.5%, so slightly better. I'll ask HR to do the necessaries and go from the current 1%.

I'll wind the overpayments on house down a bit. If I half them to £500 then it'll still be done in 10 years and I'll be 43.

And of the remaining £500+ I'll have spare I'll look into putting it into an ISA and private pension that might perform better than the current provider.

[CaptainSlow]

You need to be putting at least 10% into the pension. This equates to £417 gross or £250 net off your take home.

[SJK]

I would consider property number 2 as a future income, and it seems even if you had a void of no tenant for a few months then you could pay both mortgages instead of over paying. So you have very little risk, if you buy in the right place you shouldnt get voids anyway.

[thenortherner]

I've opened a Hargreaves Lansdown Lifetime ISA and put 2 lots of £500 into different funds. I'm aiming to stick the maximum £4K a year to earn the government bonus.

I've also opted to join the work's pension scheme, Aegon, and have opted to stick 9% gross in there per month. So on my workings, that'll be:

£375 - my contribution
£145 - work's 3.5% contribution
£150 - government contribution @40%

£670 in total

Property is something I definitely want to look at in 3-5 years though.

I've knocked the mortgage overpayments down a bit to around £400.

An income tax rebate of £1K (I've been on the wrong code since May) plus my expenses reimbursed means I should be able to clear my personal loan in a week, so I'll be £170 a month better off too.

I'm enjoying watching what happens to the money I've stuck in the funds and definitely want to learn a bit more about how it all works.

[RL17]

Normal stocks & shares ISA (for sums up to max of balance of annual allowance) is very flexible and tax free (inside and income taken etc) & can be build up a useful sum if did want to go into something else. (or reduce mortgage later of hit with new high rates when coming out of a rate deal).

Paying off mortgage good (but so is being able to pay it off if you want to), especially as inflation has picked up the real value of the debt is reducing each year (RPI which includes housing costs is 4%).

Have retired early but still have a low interest rate mortgage as funds and other invests are earning more (after tax) than the interest cost.

So I don't regret not paying down more of mortgage when working but do regret not putting much in ISAs (stocks type) whilst working.

[red_slr]

thenortherner said:

I've opened a Hargreaves Lansdown Lifetime ISA and put 2 lots of £500 into different funds. I'm aiming to stick the maximum £4K a year to earn the government bonus.

I've also opted to join the work's pension scheme, Aegon, and have opted to stick 9% gross in there per month. So on my workings, that'll be:

£375 - my contribution
£145 - work's 3.5% contribution
£150 - government contribution @40%

£670 in total

Property is something I definitely want to look at in 3-5 years though.

I've knocked the mortgage overpayments down a bit to around £400.

An income tax rebate of £1K (I've been on the wrong code since May) plus my expenses reimbursed means I should be able to clear my personal loan in a week, so I'll be £170 a month better off too.

I'm enjoying watching what happens to the money I've stuck in the funds and definitely want to learn a bit more about how it all works.

Sounds like a good plan. Just remember to review performance on a regular basis and also keep up with the contributions in line with inflation at the very least.

[CaptainSlow]

thenortherner said:

I

I've also opted to join the work's pension scheme, Aegon, and have opted to stick 9% gross in there per month. So on my workings, that'll be:

£375 - my contribution
£145 - work's 3.5% contribution
£150 - government contribution @40%

£670 in total

Assuming the £50k in the OP is gross pay:

The £375 and £145 are both gross contributions, there's nothing more for the Govt. to add....(you're grossing up the gross!!)

[thenortherner]

CaptainSlow said:

Assuming the £50k in the OP is gross pay:

The £375 and £145 are both gross contributions, there's nothing more for the Govt. to add....(you're grossing up the gross!!)

That's based on gross £50K.

I thought I'd get 40% tax relief - 20% paid straight into the pension and then claim the other 20% through a tax return?

[Condi]

thenortherner said:

CaptainSlow said:

Assuming the £50k in the OP is gross pay:

The £375 and £145 are both gross contributions, there's nothing more for the Govt. to add....(you're grossing up the gross!!)

That's based on gross £50K.

I thought I'd get 40% tax relief - 20% paid straight into the pension and then claim the other 20% through a tax return?

No, because you're paying out of your gross salary; ie before any tax has been taken.

A pension is tax free in that you either pay into it before tax is paid, or if you have already paid the tax you can get tax relief when you do put money in. You can't pay into it before tax is paid and then also claim tax relief for tax you've not paid.

[thenortherner]

Condi said:

No, because you're paying out of your gross salary; ie before any tax has been taken.

A pension is tax free in that you either pay into it before tax is paid, or if you have already paid the tax you can get tax relief when you do put money in. You can't pay into it before tax is paid and then also claim tax relief for tax you've not paid.

Makes more sense now. I'd read a bit about it and still couldn't work out why I'd be getting what appeared to be the benefit twice over.

Thanks.