How to save for retirement?

[daveindales]

 Your always going to get loads of different answers when you ask a question like this. A lot depends on the level of risk you want with any savings.

 

 

a cash isa is safe, but pays rubbish interest rates.

 

a stocks and shares isa is riskier and you may lose money. Stock markets are at all time highs at the moment, and many predict a correction happening.

 

if you start a personal pension, you can manage that yourself if you feel competent. This is called a SIPP. I do this and invest in funds mostly.

 

Perhaps the safest way to invest in shares and funds is to drip feed your money each month. 

 

Or you could just put it in the bank, and use it when needed. Deciding on your level of risk is the first thing to do. Once you answer this, your half way there. Hope this helps.

 

 

 

 

 

 

 

[htb]

Don't spend it

[AA Teccie (Paul)]

Too late to invest in "bricks and mortar," i.e. property...perhaps "Buy-to-Let" basis (not that I know anything about it but some friends of mine, well acquaintances, seem to do okay and be happy they've got investments for later life...albeit probably subject to Capital Gains taxation???)

 

[openspaceman]

46 minutes ago, Woodworks said:

We did get a free consultation and it was ISAS ISAS ISAS. Then he talked about the returns on ISAS and I am sure he said 1% . Sure it's tax free but it wouldn't even get close to keeping up with inflation. Got a bit in Funding Circle and that makes 6.5% but dont want to have all our eggs in one basket. 

As you suspect this is probably not the best place to discuss it and I'm not the best person with money but my experience:

I didn't save enough but had a pension mortgage (big mistake) when I converted this to endowment I kept the original pension on and took out another.

 

The pension at 65 was a little over 100k but would only bring in £5k a year if I bought an annuity  as interest rates are low. I will try not to "crystallise" this till I have to at 75 as my daughters will receive it as an IHT free sum if I die before then. Even then I could draw £25k tax free and then take the difference between the state pension and  the income tax threshold of £11k (£4k)tax free and thus the pot would take 40 years to reach zero. I don't expect to reach 105.

 

If I bough an annuity and died soon the annuity provider will keep the remaining capital, annuities suck because the providers pay themselves so well.

 

I was owed a fair amount of back pay when I had to leave my job and am living off that, the very occasional odd job when someone asks, and my £155 state pension. I am spending about £200/week in excess so I guess I should have budgeted for a pot of about £300k but I am not unhappy with my situation as I seem to be in good health. Indeed when I started work I never expected to reach 65 and generally in my family our generation is not surviving as well as our parents.

 

The way the pension age is increasing should mean the average life expectancy after pension age remains similar but the state pension will not be worth as much.
 

[Matthew Storrs]

Good thread - this is something I’m starting to think about more often. I’m 30 in January so reckon it’s best to start early- whatever I’d invest I’d want it to still be valid for my family should anything happen to me and being a basic sort of person (!) I’d prefer to invest in something tangible rather than something floating around in cyberspace at the mercy of the ‘system’!

 

As you say Beau, keeping your fingers in many pies is got to be the safest bet. Buy to let has got to be a consideration can’t see bricks and mortar ever going down in the long term- but letting out property can be a pain in the backside, as some of my family have found out what with a tenants and worse still ‘tenants rights’

 

small invests in the right machinery can even be a good sideline if you know what your looking for.

 

building a buisness that can run itself after your retired is another way or sell it I think some people do it but requires a lot of initial time and work and hard in line of work where you are essentially the buisness.

 

will follow this thread with interest.

[Paul in the woods]

1 hour ago, openspaceman said:

The pension at 65 was a little over 100k but would only bring in £5k a year if I bought an annuity  as interest rates are low. I will try not to "crystallise" this till I have to at 75 as my daughters will receive it as an IHT free sum if I die before then. Even then I could draw £25k tax free and then take the difference between the state pension and  the income tax threshold of £11k (£4k)tax free and thus the pot would take 40 years to reach zero. I don't expect to reach 105.

 

If I bough an annuity and died soon the annuity provider will keep the remaining capital, annuities suck because the providers pay themselves so well.

You can shop around for an annuity and not all providers make huge profits on them. £5k a year from £100k sounds about right as your life expectancy at 65 will be around another 20 years (100 / 20 = 5). The problem at the moment, well for the last decade, has been low interest rates.

[spudulike]

Here's my tupenth -

First the bad news - the stock market has had a good old run and at the end of a run comes a correction, you DON'T loose money UNLESS you SELL!!!!

The good news is that if you time it right, buying when the stock market has collapsed a bit is a damn good thing to do as is the drip feed as of when you can.

BTW - 50 years is late to be thinking about your financial welfare but better than reaching 60, 20-30 is far better as the money has much greater time to grow....same as a tree from an acorn!

 

Pensions - the positives are that for any money you pay in, the government give you tax relief so you can pay in untaxed money and then declare it as pension payments or pay it in after tax and the pension provider will get the government to stump up their bit so you are really making payments without paying tax on them. Downside is you pay tax on drawing the money out apart from 25% of the fund initial drawdown after 55 years of age.

 

Pensions are OK, they can be a bit safe (a good thing if you are approaching retirement), performance never seems to be as good as other investments and watch out for the size of fees.

 

ISAs - Cash ISAs are not worth a bean in my opinion unless you are terrified of life.

 

Equity ISAs which invest in stocks and shares are the cookies, you pay in money from typical taxed savings, the money buys shares in a fund that may invest in a large number of big companies in the sector chosen - UK, Europe, North America, Japan, Environmantal, Property etc. The companies pay dividends and these purchase more shares and also the shares typically grow in value over time - known as compound growth and ALWAYS reinvest unless retired.

 

The really good thing about ISAs is the profit is completely tax free where a pension will be taxed. A good Equity ISA may do 30% growth in a year but don't expect that every year but they work and are an investment must in my opinion. The 1% you were given was probably a CASH ISA and fodder for the 75-85 year old!

 

There are other types of investment with Property being one. A buy to let would work out about 6% in a tail wind and then there is the property increase in value but depends on property prices growing and tenants can be a right PITA.....I could tell you about an acquaintance, his buy to let and a cannabis farm!!!!

 

The sobering fact is that most people only have £30-100K in their pension pot and the industry standard is that £100K will give you around £5K earnings per year when in a pension so keep up with the government pension through your NI contributions.

 

That's about it - good thread and glad you are seeking advice but a good financial adviser may be worthwhile.

[openspaceman]

14 minutes ago, Paul in the woods said:

You can shop around for an annuity and not all providers make huge profits on them. £5k a year from £100k sounds about right as your life expectancy at 65 will be around another 20 years (100 / 20 = 5). The problem at the moment, well for the last decade, has been low interest rates.

I'm over 65 and doubt I'll reach 85. Actually WHO seem to consider any death before 86 premature (which is interesting in its own right when considering air pollution).

 

Yes the annuity provider will be making a profit if I die before then but also they will have the benefit of investing my pot, and a decent fund will return far more than the current interest rate. Remember all insurance started out as bets between gentlemen.

 

So my bet will be to keep my pot and pass it on whole or else eat into it in dribs and drabs. Worse case will be having to pay for a care home and I don't know how to hedge that other than a trip to Switzerland or something messier.

[Paul in the woods]

8 minutes ago, spudulike said:

The really good thing about ISAs is the profit is completely tax free where a pension will be taxed. A good Equity ISA may do 30% growth in a year but don't expect that every year but they work and are an investment must in my opinion.

In Woodworks' case a pension might be better as he may not be saving a vast amount and with savings and state pension may not have much taxable income in retirement. It would be worth getting an estimate of his state pension and doing some sums.

[devon TWiG]

Always a hard question , as retirement is a bit like going on a holiday but you have no idea how long for !!!  therefore no idea how much money you will need ...having a job in the public sector seems the best way to a guaranteed generous pension but obviously this is not for everyone .   ISA's are a bit redundant now as interest on any savings up to £1000 is now tax free , and almost all "safe " investments have very poor returns at the moment . If you are mortgage and rent free by the time you are in your 50's then you should have plenty of disposable income , but the temptation to dispose of it is high !!  Buying  commercial property or land is one option , especially if it is of use to yourself .  Really though how much money will you require for a reasonable standard of life ??   the state pension is not enough but topped up by savings / some investments and perhaps some part time / temporary work should suffice if your lifestyle choice is realistic  , however if you are sold the retirement dream of endless holidays / cruises / dining out /  classic cars /lady boys etc then ask yourself  do you really believe you will want this when you are 70 plus , even if you are lucky enough to still have good health or even be alive ????  it is all a gamble really ???     

Edited December 12, 2017 by devon TWiG