Old age money, help!

[Salsi]

I’m 50, just started a new job. Finally, we have some financial security. But I’m anxious about the future and old age poverty. AIBU?

For context, have spent past 15 years of freelancing, while the kids were little. Over this time, almost no spare cash, but I am a careful saver, so I tucked some away in isas, over the past 25 years. My former boss (25-15 years ago, when I was last in non self-employed employment) explicitly told me not to bother with a pension, but to to save in isas, which I did. Saved about £50k.

But I’ve had to draw down those isas during covid, and up to now (husbands business not recovered yet) so I only have about 10k saved now. (Btw, Am now wondering if former boss was simply fobbing me off - he’s a small business owner who wasn’t liable to support employees pensions…)

Anyway, long and short: I have no pension provision, and nor does my 53 yo self-employed husband. Our combined income has been very low, esp during covid (£18k joint during past couple of years) but now I’m getting roughly 45k/ year. He’s maybe on £40k/year, but it’s hard to tell, it goes up and down, depending on the jobs he secures.

obvs I’ve signed up to the work pension. But I’m so confused.

my husband has his head in the sand. He hates communicating about money, like it’s a slur on his soul (his work is a vocation). He thinks he’ll work until 70 (quite likes his work!) but what the heck do we do?

It was grim living on £18k (ie our joint earning in covid, which is equivalent two state pensions), hence we drew down my isas by about £20k per year during that period. We are in London. We have a house, with £250 k left on mortgage. But no assets otherwise. AIBU to be very worried? Any advice? Where do we start? What have you done? How do I learn more about investing? I’ve maxed out the work pension, but can I put even more away? If so, how? I can do some extra work on the side, c. £5-10k per year, which I’m thinking I should invest!

Don't throw up your hands and give up on pension saving. But the truth is that starting relatively late you're unlikely to get together enough to generate more than a few thousand a year. Check on a website calculator. Still tax efficient and well worth having.

I would start trying to get your working incomes and your retirement incomes to converge. In other words, if realistically you're going to have about £25k pa in retirement (including state pension) then start adjusting towards that level now. That means you won't have a sudden cliff edge to dread, you'll be putting more into your pension (because you're spending less of it now) and you'll smooth out your income over your remaining life times.

Another possibility is releasing equity in your house by downsizing.

Start off by getting independent advice but I'd say the obvious answer would be to relocate and make use of the housing differential. Maybe you could even purchase 2 smaller homes and rent one out.

Whatever you do though you really need to do it as a couple. Start off with the appointment. If he show disinterest give him 2 options...either he's on board with you and gets involved in the planning or he hands over total responsibility to you. Doing nothing is not an option.

Can I please urge you to see an IFA. Its all very well getting peoples opinions on the Internet, and although well meaning many are not financial advisers and qualified to advise you.

Not only will seeing an IFA be beneficial to give you a clear path moving forwards if you go with your husband it may well pull his head out of the sand too.

You're not in that bad a position with the equity you have but you must check you've got your NI contributions lined up. An IFA is a good idea.

@BanjoKnickers I was told (by my old boss), 25-15 years ago, not to bother with a pension. He owned the company that I worked for. I’ve changed the details in my previous post so not to be outing. But it was a small company, with us, a team of very dedicated, but low paid specialists, in a poorly paid industry.

He said he didn’t have a pension. However he has a business background, and invested in property, as inherited the business he ran. He advised me to focus on isas. He was adamant that pensions were not a good idea, that isas worked better. But my Isas were nothing more than a savings account, of sorts. It was good to be able to access it during covid, when most of our combined work dried up.

Anyway, I have also put my head in the sand where all this is concerned. I have read books on investing, but I still need to get my head around pensions. I need to work out what I’d need to save in a pension to generate an income of say 20k a year. Whether that would even be possible at this stage.

but then, I also need to spend about £20k a year on paying off the mortgage! And we need a bit of the money to live off, especially since my husband’s income changes month on month. So yes, it has all gone a bit wrong, the maths are out.

IFA - your advice is unanimous. I’ll do so. I did have one. I could go back to him (or rather, his son now). Or any recommendations for advisors in London. Mine was from my old home town.

First thing to do is check your state pension forecasts - both of you. Here is the link:

www.gov.uk/check-state-pension

It's not clear to me if you have both paid class 2 national insurance while being self employed. Check the link above to find out how many more years, or missing years, you have to gain your full state pensions. Being self employed means your NI contributions cost a lot less than if you were employed, so it is very cost-effective to make up any missing years. Or as you have 16+ years to go you may not need to make up for lost years, just make sure you pay (via your tax returns) in the coming years enough to qualify for the full state pension.

I would prioritise paying off your mortgage. You said it is interest only. That means at the end of the approx 12 year term you will still owe the full outstanding amount that you owe today. Can you convert your interest-only mortgage to a repayment one? If so, I would do that.

Re your private pension. Yes, pay what you can into that and the government will top it up by adding 25% to whatever you pay in. This means that for basic rate taxpayers, the government adds £25 for every £100 you pay in, so you only need to make a £100 contribution to add £125 to your pension pot. Being self-employed you don't benefit from an employer's contribution but it is still well worth it for the government top-up alone.

I would plan to downsize outside of London before retirement, and make sure it is mortgage-free. Perhaps when you are around 60. Somewhere like Reading will get you a decent house for £500,000 at today's money and excellent train links to London.

Just realised you are now employed, not self-employed. Take whatever employer contributions are being offered. It doesn't matter if it is a new pension scheme - no need to merge with existing ones.

It’s great you have such a lot of equity in the house but you will struggle to pay off 240k in 12 years on your salary unless your husband also significantly increases his earnings. That is 20k a year without any interest payments!

they might let you extend the term to 20 years, when you are 70, and you could try to overpay if your freelance work allows.

I get why you don’t want to move out of London at the moment but maybe in actual retirement it is an option and depending on where you go could potentially give you several 100k to live off in retirement. The more you pay off now then the bigger the pot would be obv.

good luck!

I need to work out what I’d need to save in a pension to generate an income of say 20k a year. Whether that would even be possible at this stage.

Astronomical!

To simplify everything a little bit, pensions involve building up a lump sum which you use at retirement age to buy an annuity. An annuity is a financial product which turns your lump sum into an annual income. How much annual income you get from a given lump sum is determined by the annuity rate. For a fixed income for life, in other words one which does not go up as inflation rises, the rate is currently around 3 or 4 percent. In other words a lump sum of £100,000 would buy you an income of £3,500 pa. To generate an income of £20,000 per annum you would need to save around £600,000.

In fact it would be much more sensible to buy an index-linked annuity where the income paid does go up with something approximating to inflation each year. But the the annuity rate for those products is much worse, I think around 2%. In other words to buy an income of £20,000 per year which would go up with inflation over the course of your retirement rather than leaving you worse off each year you would need a lump sum of around £1,000,000!

There are alternative ways of arranging your pension, in particular something called drawdown, which might be more efficient but more risky. But unfortunately those fag-packet calculations do give you some idea of how expensive pension planning is.

What was your original plan for paying off the mortgage?
Examine why that hasn't happened and whether you can make changes. Clearly you need to be rid of the mortgage before you retire, either by repaying it or (maybe more achievable) downsizing/relocating.

Then think about how much money you will actually need in retirement. Again make a plan as to how to achieve that.

With a household income approaching £100k a year you are a whole lot better off than many others, so make your money work for you!

I would start trying to get your working incomes and your retirement incomes to converge. In other words, if realistically you're going to have about £25k pa in retirement (including state pension) then start adjusting towards that level now. That means you won't have a sudden cliff edge to dread, you'll be putting more into your pension (because you're spending less of it now) and you'll smooth out your income over your remaining life times.

Start here.

2x state pensions = £18,000, as you know.

You need to pay off your mortgage. That’s the next thing. Make a plan for that, either paying it all off in 12 years or extending the term by at least 5 years more - or make a plan not to do either and accept you’ll need to sell up and move out of London when the mortgage term ends.

Then you need another £6-8,000 per year in retirement between you to be just about comfortable. You need to figure out how to live on £24-26K a year. What will you cut to achieve this?

(Btw you didn’t ‘live on £18K’ during Covid, you lived on more like £38K if you spent £20K of saving per year to top up).

What was the original reason for going for an interest only mortgage rather than a repayment one? So that the monthly outgoings would be less?

I only know one person in RL who has one & it was so they could afford a larger house when there kids were small with the idea that they would sell to downsize later & would gain a lump some due to rising house prices.

Realistically I can’t see how you can avoid selling and buying somewhere cheaper in a few years. It sounds very unlikely you can save £250k in that time. If your children go to uni that is potentially an expensive period of time.

If it’s any consolation, we (mid 50s) have paid off our mortgage & will have work as well as state pensions but the amounts are ridiculously low considering how much we and employers are paying in each month.

Your husband needs to get a job.

All that and then you announce you have £600k equity. You aren’t going to starve, you will be fine.

Start paying into a SIPP now. You'll immediately get 20% tax relief added to what you pay in. You won't get that from an ISA. If you had no other savings and were younger, ISAs make some sense as you can access them if you need to (as you did) but assuming you have something to draw on in an emergency stick all you can in a pension.

With £600k equity in the house, if you're open to relocating somewhere cheaper either once the kids finish school or when the mortgage term ends, I'd probably plan on that rather than trying to pay off a £250k mortgage in 12 years and start a pension.

I'd track down my other pension and as long as it's not a final salary one transfer that into the SIPP.

If your mortgage is only £450 a month you should be able to save a fair old amount on 2 £40k+ salaries.

The old rule of thumb used to be half your age as a % when you start paying in. So would be 25% for you. If you and your employer are already paying in that's probably around 10% - so another 15% would be good.

It should be possible for you to build up a pot to pay another £9-10k pa by retirement age, so combined with state pension £18-£20k pa. So joint £36-£40k pa. But you need to start saving now.

Your husband needs to take some responsibility too. You should both see the IFA and not let him leave it to you to plan for both of you.

There are really useful podcasts that walk you through all the above issues, such as the Meaningful Money Podcast and Money to the Masses.

Some Meaningful Money episodes deal in detail with self employed pensions etc.

The fact that you’re worried about this and making plans puts you in a better position than lots of people.

You could downsize to a flat maybe

My Mum uses Lawrence from Throgmortons. I think he is based in Essex but he does visit my parents who live in Lincolnshire, so I wouldn't rule him out.

He has made them a LOT of money over the years. He was recommended to them by my Uncle so been advising my family for a long time.

Cash ISAs are a waste of time.
Husband needs to open a Sipp and pay into it every month.
I would say you need to be quite aggressive with your investments inorder to make up lost ground.
But first you need to do your homework
Checkout Meaningfully Money podcast,Pension craft and Money to the Masses all good sources.

@Orangesandlemons77 true and selling is my husband, and his father’s, only solution to this issue. I’m wondering what else we can do, to make our money work for us, and to plan for the future. Our house is very simple, nothing fancy, but I’m happy here.

@ZeldaWillTellYourFortune He won’t work for anyone else, won’t abandon the business he’s built up. He’s very good at what he does, works very hard, but his industry was hit during covid. His accountant has been sympathetic and congratulated him for even keeping it going. But yes, even before covid, he wasn’t planning for the future, in terms of pensions or investments. Very hand to mouth.

mortgage. I suppose we might possibly inherit enough to pay off the mortgage. So I’m trying to work out whether we can keep living here.

pension. if I start paying more into a pension, it appears that it’s not going to generate very much in 15 years. What happens if we both died a year after we retired, do pensions just go poof. That’s where I get stuck, whether there is much point to them, versus other methods of investing (over the next 15 years). Or maybe they are always the best way for most people.

Other solutions in old age. I already get royalties on some of my work, and part of me has always thought I need to focus on this way of generating income. Sort of along lines of my old boss’s way of thinking. But maybe that’s wrong headed. Unless I were able to get really successful. At present my royalties add up to a few thousand a year (not dissimilar to what I’d get from a pension if I squirrelled away 10% a year?). That said, frankly I don’t see how I could generate more royalties, until retirement at least, now so much of time is spent on an admin type role. But a little part of me has always thought royalties are my personal solution. Although maybe that’s magical thinking since I’ve not generated high royalties to date, despite being reasonably successful in my area.

Thanks @Toooldtoworry and @Bucks67 i really appreciate these tips, and will investigate!

Sounds like you need to do some budgeting. £20,000 is a lot to spend from savings a year. Presume you got some covid help and your incomes. You will need to be paying £20k a year plus the interest for mortgage so at least £25,400 if your paying £450 on interest only. Then any money you want to pay to pension. Presume while you where self employed you carried on paying your NI.

You have ahoyse worth £600k once the mortgage is paid off. Plenty of lovely places in the uk where you could buy anice big house for half of that.
That's what i would do.

@Weedoormatnomore my husband took out a government loan, I had some government grant help.

Actually, I’m misremembering here. D’oh. I actually put £30k of my isas into the mortgage… you are right to pick up on that. We didn’t spend it. The extra £20k we had during covid was the loan my husband took out (i wasn’t happy about that) but he was generating nothing. I was generating £9k.

See how good I am with accounting (not). I sometimes despise my inability with numbers, and have horrible unclear thinking when it comes to accounting. I was just thinking about how little was in my isas, and worrying about old age provisions. But paying off the mortgage with the isas is why there is so little. (Was a bit miffed at a pp saying I was living beyond means, I really wasn’t, but now I can see how she’d think so!)

anyway, bottom line. There’s still a massive short fall. £240 k to pay off. Might get some of it paid through inheritance. Maybe the only solution is to leave London and live off proceeds from the house sale, assuming no house price crash, once I’m at retirement age.

in meantime, maybe there are bonds and other things I should be doing… as well as a sipp for husband, more money in sipp from me too?