Private pension or buy an apartment

[Itsallgoingtobemagnificant]

Really rubbish at all this stuff as don’t like planning for boring things, but we’ve turned 40 now and wish I’d planned it years ago. Dh and I have worked all our lives and paid into the system, so should be entitled to the state pension when the time comes. We bought our own house around ten years ago and owe around £100 grand until it’s paid off, it should hopefully sell for around £260 when the time comes when we want to sell,
We don’t have a private pension each or savings 😬we have no debt as such, aside from the mortgage, our car is paid for.
Are we in a crappy situation for the future? I keep seeing sorted people with private pensions, life insurance etc and i’m feeling a bit panicky.
We could possibly buy a small apartment as an investment and rent it out (we live abroad, It’s commonplace here and fairly reasonable) or we could each pay into a private pension instead, we can’t do both.
Any advice on the best thing to do?
We have a small Dd to think about and possibly future university/house deposit too.

You also need to call the government pensions department in Portugal and check what the weekly state pension there is, what it might be likely to be (not likely to stay the same) and if they will pay it to you in the U.K (plus is it linked for inflation?) if you move back?

There isn’t an average that will be useful to you. I pay in £1000 a month (and get an extra £250 added by the government) to a SIPP, in addition to my Civil Service defined benefit pension, and my NI contributions to my U.K. state pension.

There is a back-of-the-envelope calculation that you should pay in a percentage of your wage equivalent to half your age when you start. So if you start aged 40, you need to pay in 20% of your wage.

Can i just check I understand ? Your plan to fund your retirement is the state pension plus a lump sum that you will get from selling a holiday apartment . Is that right?

So that lump sum ( after taxes and expenses ) need to be about 20-25 times what you need or live on each year, minus your state pension.

You say you don’t save anything now, so you know your total living costs now - it’s your whole net income. So let guess and say your total income is £40k.

Do you expect to spend more or less in retirement ? Will you cut your standard of living? Or do you want to travel , socialise etc? I’m guessing the latter.

So you need £40k per year. Let’s say your state pension is £8k per year, therefore you need £32k per year. £32k x 20- 25 is £640,000 - £800,000.

So the sale of your holiday apartment ideally needs to make you £800k.

I have no idea of apartment prices in Portugal but I’m guessing that’s not realistic. Thats why posters are telling you that you need advice. Your plans are unrealistic and you are not saving nearly enough.

And you’ve not even factored in anything for your child /ren, to support them through their education or help them onto the housing ladder.

Of course these are all just back of an envelope calcs with random figures and it takes no account of what you will do with that lump sum when you get it and protect it from inflation, what taxes you will pay on the capital gain from the sale - here in the Uk is 18%, so very high.

If you (upon consulting with relevant tax experts - assume there will be financial planners out there who specialise in these sorts of things) decide to use UK investment/pension vehicles, I can thoroughly recommend ukpersonalfinance on Reddit.

You're going to have to really get geeky about this though - no one will sort it out for you unless you pay an advisor, and no advisor will care about your returns as much as you do!

As you are resident in Portugal, it is unlikely that the British schemes being mentioned by others, such as ISAs and SIPPs, are available to you unless you have income from the UK and pay tax in the UK on this income.

As to which retirement planning option is best - investing, buying an apartment, saving or a mixture of all 3 (or more) options - it all depends on the risks that you are willing to take, and the final desired income. Nobody on here is qualified to give you this information without knowing more about you. You need to speak to a professional financial advisor who can explain the options and risks to you and to a tax advisor who knows about how taxes will impact on your plans both in the UK and Portugal.

I feel like I’m screwed

@Itsallgoingtobemagnificant

I feel like I’m screwed

You’re less screwed if you get some professional advice now, and do some reading up, than you would be in 10 years time moving back to the UK without fully understanding your position.

Knowledge is power! As you say, you have 25 years or thereabouts to sort retirement so get early advice now - from someone who understands the complexities of UK-Portugal-Brexit etc and make a plan.

@IM0GEN My plan is to sell our current house in the future and downsize to an apartment, we would have paid off our mortgage by then and would have around 270 (that’s going on today’s figures, obviously will change) we could get a nice, small apartment for say 140, leaving 130 thousand. We would also have the state pension and possibly either rental from the other apartment we bought if we were still renting it out, or we’d sell it and hopefully have a small profit, 40-50 thousand? I can’t obviously be sure on this. For arguments sake let’s say that’s 170 thousand. I’d then have money from the sale of my parents house (hate thinking about that) split between three of us at this time is around 130 each, taking it up to 300 thousand and a small apartment with no mortgage on it to pay.
I realise this might sound pie in the sky, but that’s my best case scenario,
Even if it was half that profit from homes etc, would it still be ok?

@SimonJT We’d only purchase a place that we know we could afford the mortgage each month in the event we didn’t have anyone staying in it.

If you don't pay UK tax, you don't get the benefits of a UK private pension fund. You need to look into private Portuguese pensions. I also wouldn't factor inheritance into a retirement plan. Unless it's been looked after carefully, there may not be a lot left after care fees, inheritance tax etc etc so treat anything as a bonus not part of the capital.

The half your age = % of your salary you need to put into a pension is a good starting point.

Does anyone understand this? I can never get my head around these things

I read that as you'll be fine with regards to getting a state pension. I don't think you'll lose out by working abroad within the EU.

I will repeat you need to see a professional.

IF you can get some UK pension you may have to pay tax on it if you have other income.

You will not be getting a pension from the UK at 65, check your retirement age.

If we keep having Conservative governments you might not be entitled to as much pension.

I receive ESA, but this is reduced because I am in receipt of a private pension, I can see this happening with the old age pension.

If you do start to pay into a private pension then you need advice on tax relief, I have a small amount in NEST - this is the UK government's version of a private pension, for every £1 you put in the government at 25%, but as you are not paying UK taxes at the moment so who knows if you would be eligible. You need to also find out if there is something similar in Portugal.

I also have a SIPP which I have absolute control over, it's basically a wrapper for stocks and shares and I only have this to 'play' with.

[quote Itsallgoingtobemagnificant]@SimonJT We’d only purchase a place that we know we could afford the mortgage each month in the event we didn’t have anyone staying in it.[/quote]
The issue is if the property is cheap enough that you don’t need to rent it out to cover the mortgage, it is very unlikely to be worth enough to provide financial security beyong 4/5 years when sold (and mortgage cleared).

@Itsallgoingtobemagnificant

Does anyone understand this? I can never get my head around these things

This means if you leave the UK the NI years you paid still count, so a state pension can be claimed. So I’ve been paying NI for 15 years, so if I left the UK now when I retired my state pension would br based on 15 years of ‘stamp’.

So 10 years of stamp would bring 10/35ths of the pension, so I would get 15/35ths which is around £76 a week.

I wouldn't bank on property rental giving you the return you need. These days it very rarely covers the whole of the mortgage and the upkeep is frightening. The monthly expenditure can be so high. I say this from personal experience.

[quote Itsallgoingtobemagnificant]@IM0GEN My plan is to sell our current house in the future and downsize to an apartment, we would have paid off our mortgage by then and would have around 270 (that’s going on today’s figures, obviously will change) we could get a nice, small apartment for say 140, leaving 130 thousand. We would also have the state pension and possibly either rental from the other apartment we bought if we were still renting it out, or we’d sell it and hopefully have a small profit, 40-50 thousand? I can’t obviously be sure on this. For arguments sake let’s say that’s 170 thousand. I’d then have money from the sale of my parents house (hate thinking about that) split between three of us at this time is around 130 each, taking it up to 300 thousand and a small apartment with no mortgage on it to pay.
I realise this might sound pie in the sky, but that’s my best case scenario,
Even if it was half that profit from homes etc, would it still be ok?[/quote]
So that’s your best case scenario because it assumes that you will get all the inheritance you expect ( and it’s not used for care home fees etc or lost because one parent died and the other remarries).

In your best case, you have a lump sum of £300k. If you need £32k pa to top up your pension, that will last you for 9 years. So either you retire at 81 so it will last you to 90. Or you retire at 65 and run out of money at 74.

Of course half that amount means you can fund your retirement for 4.5 years.

Even in your ideal, it’s not enough to live comfortably in retirement for 30 years.

@IM0GEN Surely then so so many are in trouble? Lots have none of these things 🤷🏻‍♀️

@SimonJT It’s true, it would unlikely sell for a bigger profit as say the house will, but it may add extra and the rental will help, people rent out for 6 months of the year over the summer months for a large amount or we could rent out long time for a little extra. We could use that extra to live on if we were retired or try to save some from the rent each month in the meantime 🤷🏻‍♀️That’s my thinking but perhaps it’s not doable

@0DimSumMum0 Where we are, people can often make a lot from tourist holiday apartments

You need to purchase Life Assurance for each of you TODAY.

The sooner you buy it, the cheaper it will be.

You keep talking about selling your property in Portugal and downsizing, but you've also mentioned moving back to the UK.

Depending on where you want to live in the UK, the equity you currently have may buy you a 1 bed flat outright or it may not be enough to cover stamp duty, use as a deposit and get a mortgage on a 1 bed flat.

Therefore if moving to the UK is a serious consideration (& you want a decent sized house), then possibly don't put money into forgeign property (which would trap your cash) or pension (which you cannot access until you're 55) but each use up your £20k allowance per annum and start an ISA instead to save for your future UK property.

That said, you really should be starting a private pension ASAP, but without knowing your income and outgoings etc, it's really hard to advise.

There is fantastic tax relief into pensions in the UK

This. If you pay UK tax you can get 20% - 40% tax relief - so it's nearly half again free money if you're a top rate taxpayer!

We have both, I admit. DH made me re-think when I hit 35 and had nothing and after paying off the mortgage early the first thing we did was max out our annual pension contributions for 5 years, and only then did we start looking at investment (mortgage-free) properties.

@Morechocolatethanbarbara Sorry to jump in here, why is life insurance so important?

[quote Itsallgoingtobemagnificant]@IM0GEN Surely then so so many are in trouble? Lots have none of these things 🤷🏻‍♀️[/quote]
80% of employees in the UK have a private pension (I appreciate not everyone is an employee)

@Flipthatpancakehighboy
Because for around £12-20 a month you can get a 6 figure sum payout if your partner dies. That monthly payment rapidly increases if you are diagnosed with any ailments, get a year older etc, so it's key to get it when you're young and healthy.

The OP is making assumptions about paying off her mortgage, buying another property etc and presumably this can only be achieved if she is part of a 2 income household.

How would the OP survive as a single parent, juggling work, childcare and pension provision on one income whilst grieving the loss of her partner/father of her child?