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!

Yes, kept up all my NI contributions. Also get child benefit, which I believe links in. But I made voluntary contributions, think it’s called class 4 or something. Oh god, I need to educate myself!

Did you not have a plan to pay off the mortgage from the start? How did you think you were going to do this?

God it's depressing how someone so financially illiterate still is sitting on £600k equity. There is such a vast age divide now where just 10 years younger means you're 100s of thousands pounds more in debt for the rest of your life and you certainly wouldn't be sitting on £600k equity at the OPs age. You have no idea how lucky you are.

And, @Devilledmeg if I’d bought in my 20s and not late 30s, as I did, I’d have zero mortgage right now (my present house was worth about £50k in the 1990s, cost £550k in 2010)… and if I’d bought a property in 1999, for the amount I spent in 2010, I’d no doubt be sitting on a house worth a couple of million, not £800k, such were house price raises.

yes, it is a shit situation for those younger than me. All anyone wants to do is to have a house and a decent standard of living. But loads can’t. At least I can sell, yes. God I know I am fortunate.

re financially illiterate, I’m a great saver, hence I had enough of a deposit to buy this gaff in the first place, supplemented by a small inheritance; also not been in any debt, despite my own low wages while raising kids. So I’m ok with money, compared with many; I’m just not great at it, compared to those looking forward to a nice retirement. I’ve got no provision for the future, bar selling this house. That’s crap planning!

This whole aibu is because I want to know how others do it. So we can all discover how to be better-off on retirement and how to invest what we do have, while we have time. Whether pensions are a good idea, or not, at this stage and in my position. Pensions have long been on my mind , it’s only now that I have a regular steady income that i feel able to lock away money. I need a financial advisor!

@Salsi you asked what happens to your pension if you die.

If you die before you've started drawing it, your beneficiaries inherit the value - so your kids or husband - you should nominate beneficiaries when you set it up.

If you've retired and are using it as a draw down - would be same as above.

If you've retired and bought an annuity (guaranterd annual amount for life) then it will depend if you bought an annuity with a spousal or dependent annuity. Some pay 50% to spouse or some amount to dependent children. Others don't pay anything. There are often some exceptions for death within a year or so of retirement where beneficiaries would get something of the fund value rather than annuity.

You seem to be thinking that it's not worth building up a pension of a few thousand a year. I don't think that's true. An extra £5k or £10k or (between you and your dh) £20k a year on top of state pension would be a vastly different retirement lifestyle.

If you can count on a few thousand of royalty income a year, a few thousand of private pension a year, a few thousand of workplace pension a year and state pension. Plus fully paid housing through downsizing. You're not in such a bad place.

No. If you do the calculation and your adjusted earnings are less than 50k then there’s no return needed.

Just for info, OP: DH and I needed to do some financial planning (different situation - we had some money to invest). Initially we approached our bank, Santander, for advice. They set up a meeting and sent us a lengthy form to complete before the meeting. Just filling in the form - which took ages! - forced us to collate a lot of information about our current income and outgoings, discuss our future wants and needs etc (holidays? cars? move house? helping our adult DCs?). It was a very useful exercise, and the form was more useful than those from other organisations that we approached. We knew their advice would be limited to their own products, as they are not a substitute for a proper review by an IFA, but it was entirely free and we ended up with very useful snapshot of our situation which was helpful for discussions with other advisors.

I think that you need to crunch some numbers

ISAs were recently only paying less than 1% interest
Your mortgage was probably more than 1% interest, so it would be better to pay extra into your mortgage & have less ISA savings

Similarly, if you pay into a work pension, you should receive tax relief (free money) ontop of what you contribute. This should also be worth more long term, than ISAs.

The difference is that ISAs are easy access
Versus
Pensions usually have a set date that you can access the money

You could use some of your pension to pay off your mortgage in the future, because nobody has to buy an annuity any longer.

I assume your state retirement age will be 67 or 68

Suggest see financial advisor

Make sure you’re married for tax breaks and to inherit the house free of IHT.

Both join workplace pensions - these will be either defined benefit (career average, used to be final salary) or defined contribution - DC - (where you and employer put cash in a pot and it gets Govt tax relief- you need to claim the latter via tax returns if you’re a higher rate payer, but they’ll add it automatically if you’re not). Make sure a combined total of 20% (inc yours, employers and tax relief) is going in to your DC pensions if you have one. Or put in max they allow you to at work if it’s defined benefit.

Don’t freelance again. Overpay the mortgage, pay off any debt, live very frugally and save HARD for the next 18 years.

Check both your entitlements to state pension. DWP website enables you to do this.

When were you with your old boss? Were you there when automatic enrollment came in? He was wrong about ISAs.

Workplace DC pension may let you pick where your money is invested, on a scale of 1-5 for risk pick 3- you’ll get growth but shouldn’t risk losing too much.

Good luck, OP. It’s not terrible, don’t panic - but do get sorted now. And save save save.

I think a lot, if not most people, in the arts are in a similar or worse position as they age. At least you are thinking hard about it and attempting to do something about it. It's a hand to mouth existence, and then suddenly even that is taken away by events like the pandemic or by illness and/or old age.

We had an interest only mortgage on our house for 17 years but we paid extra off when we could. You can pay up to 10% of the outstanding balance each year. we managed to pay off £120k over that time. we are now both retired but managed to remortgage with the Nationwide. They do mortgages for retired people. We have a 22 year mortgage even though DH is 72 and I am 66! We have a 10 year fixed repayment mortgage and are aiming to pay it off in that time. So if I were you I'd suggest you pay extra off your mortgage and stay where you are at the moment.

Why have you been paying an Interest Only mortgage when you could have actually been paying off your mortgage?

The interest rate was so incredibly low between 2008(?) and 2021.

I want to apologise in case this comes across as harsh or overly negative nut...

I just wanted to point out that there's no guarantee that you and your DH will be retiring together. He could pass away before you both retire or you could divorce. I think it's wise to also consider what your financial position would be like in either of these scenarios and factor that into your plans also.

Very good advice from @FabbyDab .

You need to make sure you will have enough monthly income in your own right, because you could end up single in retirement.

I will be collecting my state pension this year, unexpectedly as a widow. My retirement income will be less than half what we had planned. I think I'll just about scrape £15k pa after tax, made up of my state and a small widow's pension from late DH's work pension.

Please don't assume you will inherit anything, my DParents thought I would inherit their home, and its been sold to pay for DMum's care cost. She is nearly through that now, has about 2 years left (although she doesn't know this). They had superannuation, pensions, life insurance etc. Very conservative planning for retirement.

One of our neighbours is busy converting sheds into small single person flats on their small rural holding. it's not entirely legal, but its filling a need. Another has started a BnB type accommodation.

If you are close to public transport, major hospital or such like, it is possible to transform a bedroom into accomodation once the children have grown and moved out? (I'm reminded of the lodgers for codgers series).

You don't ''have'' to retire at the legal age, but it would be nice to be able to wind down or be more choosy of the work you do.

When you become really old, how about a reverse mortage? Are they available to you? They tend not to be huge, but help with any household repairs and replacements that you might need later on.

Another trusted (single) friend recently sold her home, paid off her mortgage and does house minding. She has a part time cleaning/caretaking position as well, so tries and fills the vacant not required bits with minding other people's houses and pets.

Ultimately though, please go and see a financial advisor, perhaps your local budgeting agency can refer to you one that is independent and trustworthy? the interest free loan is a worry...

This would hugely piss me off op. Your husband is banking on you to sub him not only now but in retirement given your inheritance is in the house and you're the only one with pension provision and a plan to improve things.

My husband isn't perfect financially at all but he does pay a chunk into a pension and spends almost all of his spare time doing work on our house to improve/protect its value.

I dont think your husband being self employed is enough reason for him not to have sorted himself out with a pension. I am self employed and granted I started my pension late at 30 but because it was late I ploughed extra in to make up as best as I could the time. Spent years with my husband and I overpaying our mortgage too. And I have life insurance and income protection insurance.

I think you need a serious chat with your husband and frankly he doesn't have the option to cruise along if you don't.

Thoroughly recommend a book called the Barefoot Investor. The principles in it are so simple but absolutely life changing if you are struggling with finances. It’s Australian but it’s pretty much all transferable.

OP, you’ve had really good advice in this thread, I hardly feel I can add to it, other than maybe to summarise and ti stress the urgency of it. You’ve slept through until now, but you CAN’T afford to waste any more time and every pay cheque is important.

1. Check your entitlement to a full state pension (35 years of contributions). If you are counting on the £9,000 x2 in retirement, you need to be sure NOW that you are on track for it. If not, make a plan to buy extra years.
2. Make lifestyle decisions and work out what you want to do regarding the house. Stay in London (need to pay it off before you retire) or sell, use the equity to buy cheaper and have no house payment in retirement. Either way, you need to have a plan to go into retirement owning your own home (security) and with no house payment (meaning your expenses are less).
3. Work out your expenses - how much you will spend in retirement. It sounds like you already have a ‘first guess’ of this number £38,000/year. As you have a plan to have no house payments, you can deduct these (£450/m = £5400/yr) from that number (=£32,600/yr) Ultimately, you need to have a second (or third!) go at this to get it lower.
4. Now you need a plan to get you income in retirement to equal your expenses (and preferably 10% more, for inflation, but that’s later). Step one gets you £18,000, your royalties get you, what £5,000/yr? This gets you to £23,000. So you need a source of income to get you another £9,400/yr. Using @BanjoKnickers figures, this would mean you need approx £300,000 to buy you a pension income of £10,500. Can you and your husband save that amount between now and retirement? If you retire in 15 years, that is £20,000/yr. Less if you use some of the employer matching schemes. You will need to look into this.
5. Realistically look at the numbers above. Can you save the numbers in Step 4, whilst paying off the house in step 2? If not, can you get more income from somewhere to do so? Do you need to change your house plans? Do you need to reduce your expenses? Go through the steps again until you find figures that work.
6. Take this information and see a financial planner. You’ve done some of the hard work, now they can suggest ways to achieve this
7. Whatever your expenses are, make a plan to start living on that number. It doesn’t have to be a sharp shock, and you can reduce it slowly (over a year), but you need to see the reality of what you are facing and live within your means. It may also help your husband see what you are facing.
8. Make sure you have no consumer debt and an Emergency Fund of 3 months expenses.

Goodluck OP. You can do it! Your 70 year old self will thank your 50 year old self and be so grateful you started today, and didn’t put it off for another 5 years because it looked scary or too hard.

Make the extra money, push for more royalties, Push your husband to make more - go for it!

Fantastic advice, and moving out of London to a cheaper property should pretty much address step 4.

Do I detect a Dave Ramsey follower? 😉

Any chance to monetise your house?
Rent out the driveway or Airbnb when you are on holiday- if you ever are ?