AIbu to wonder how I’ll cope when I retire?

[HurricaneZeldaAndToto]

Oh wise Mumsnet, I really need your help as I’m getting increasingly worried about the future and how we’ll support ourselves when we retire.

I’m 48. I currently work part-time and my income is 60k pa. DH earns the same and pays 50% of all bills etc. We have a mortgage with 20 years left to run at £1.5k per month. This will increase to £2k when our deal ends next year.

Neither of us have any savings, we used them all to buy our house 7 years ago and for various repairs since.

I only have £6k in a pension pot, as I’ve worked for myself most of my adult life. DH had
has only £4k.

Foolish, I feel like we’ve left it too late to properly plan for retirement and we have no idea what we should be doing!!

DH and I have only approx £60k inheritance in the (hopefully long distance) future.

What should we do? Neither of us have the kind of families who could help out with advice and this is not something I’d feel comfortable speaking to my friends about, as they will all inherit enough to never have to worry.

AIBU to think I’ve left it too late?

Where do we start?

What? They have living expenses and will pay tax on their earnings. But I am also not sure this is what the ops playing it as and assume to some extent lifestyle plays a part.

Start by looking at your costs

You can save loads!

Put some in pension, some in ISAs

You'll be fine

If you look at the figures calmly you will see that.

@Catza £120k after tax is not £100k after taking out all expenses and the amount we’ve had to put aside for the house work, we’ve really not had much left over at all.

Anyway, I can’t change the past, but I can try to plan for the future.

Can you both salary sacrifice everything over 40k so you don't pay the higher tax rate. Both take a 40k salary, the rest in a pension? I assume self employed people can still do this.

not sure why you're worried about it being too late, you have another 20 years or so before you retire. You should start saving now though - the whole reason people encourage contributing to pensions early and throughout their working life is because the compound interest can be so significant.

As others have said, if you can't get more hours in your current job, get a second one to make it up to full time if you need more money.

You could downsize to a smaller house/cheaper area when you retire which could give you several hundred thousand pounds. You'll also both have the state pension so you'll hardly be destitute. You both earn nearly double the average wage so have nearly 4xwhat the average a single person is earning so you should be able to put something into a pension, even if it's just a LISA, every month. But start now!

General rule of thumb is to save a percentage of your gross earnings into a pension equivalent to half of your age when you start contributing. So if you start at age 20 you pay in 10% of gross earnings (right up until retirement), if you start at 50 then you pay 25% etc. This roughly evens out the effect of compound interest.

HOWEVER many people find this puts them off as it seems unachievable. The other thing that put people off is feeling that the money is locked away and inaccessible and therefore “lost”.

At your age, think of your pension as if it’s a special high interest savings account with amazing tax breaks. You can access it from mid-50s so it’s not locked away for long, but any money you put in it is tax free! So even if you only save £10k, that’s £10k you didn’t pay tax on.

Trying to keep up with questions, so will answer some here:

We can save £2k between us per month.

We’ve worked up to £60k each pa, but being self employed has consequences such as no maternity or sick pay and 10 years go we both earns less etc.

Is overpaying the mortgage the best option? How does that help with retirement? Other than allowing us to potentially downsize sooner. But we can’t do that until the children leave home.

I think we probably need proper financial planning. I’ll look at pensions advisers.

I’m not probably from the UK but have lived here a long time, but family don’t have the ingrained knowledge of who to speak to/ask re this kind of thing. So apologies if I seem very ignorant.

I’m genuinely very grateful for the suggestions.

@owlsinthedaylight that is exactly how we feel! Like we’ve left it too late and it’s really scary to think about.

I can save 25% that is only slight more than the £1k I save now.

I really need to also work out how to do what @Cramlington567 suggested re the salary sacrifice over the £50k as we’ve been paying the 40%.

Ok so if you save 2k a month habe you spent it all or do you have savings ?

@Jf20 so far spent it all.

But from end of Feb we can finally save again.

The only other savings we have are the ones we put away for our tax bills, but that’s not our money as it’s earmarked.

Personally I will have to carry on working unless my circumstances change drastically. No retirement for me.

As I understand it, OP, any payments into a personal pension are taken off your salary BEFORE tax. So the more you pay in, the less tax you pay. You should be aiming to pay in enough to take you into a lower tax bracket.

Do you have an accountant for your businesses? Probably worth a chat with them to see if they can help, they are likely to have other clients who do this successfully.

I'm going to be honest but it's in the spirit of wanting the best for you.

You have buried your heads in the sand about this for a long time and you are not in a good position. If you really want to face up to how not good, then you still have time to make it much much better, but you need to understand how much time you've lost to understand how to make up the time as best you can now.

To get £8k of pension income in retirement, you need about £200k of capital. So if you want something you can not just live on, but enjoy life on, you need at least £600k in your pension pot.
Two can live more cheaply than one, so you wouldn't necessarily need £1.2m as a couple, but you'd definitely hope to have about £800k-£1m between you. That sounds absolutely wild but it's premised on starting to save in your 20s. The rule of thumb is that you take the age at which you start saving into your pension, halve it, and then save that % of your pre-tax income. If you work for an employer, they usually contribute something for you, which is why if you are self employed you need to factor that shortfall into your target earnings.

That system might be a bit late for that now for you, perhaps, but you need to get as close as you can to it. What would saving 24% of your income look like?

Then, since you don't work full time, could you get another job and put all those earnings into your pension? There must be work of some sort that you can fit around your primary part time job, I'd just treat all your earnings from that job as pure pension savings. You can only put £60k into a pension per year, per person, but you probably aren't at risk of exceeding that.

Basically - you've lost a lot of time and you're going to need to work really hard now to make it up, but even something at this stage is better than nothing, and the sooner you do something, the better!

And as others have said - downsizing is a good way to release capital. But it probably won't give you all the capital you need given how much time you need to make up.

Oh and - because you're self employed, you will need to open a SIPP rather than paying into a company pension. You get tax relief on pension contributions. If you're a PAYE employee, that means, generally, that the pension is taken off your pay and then only what's left gets taxed, and your payslip reflects this. As a self employed person it's more complicated, you need to reclaim the tax relief on your personal pension contributions each year. But this is why a pension is so much more efficient than a savings account.

I admit it's so complicated that I don't understand it fully, but essentially, for every £1 you put into your pension the govt will give you some money back off your tax, so you basically get extra money for free. And then that money is invested so is growing for you over time.

I assume you have an accountant for your business anyway, so once you have a SIPP set up, make sure you speak to them about it.

Goodness, at knocking on 50 , no pension and no savings, that’s concerning, I’m not sure I’d have taken the route of spending everything I had.

if you save 2 grand a year for 15 years into a pension you will have about 180 k each in a pension, not much, but something to see you through retirement,

@ICouldHaveCheckedFirst yes, we both have an accountant. But he never gives us advice (or perhaps I never ask the right questions).

@laclochette thank you. I welcome your honesty. The figures are absolutely terrifying, but we need to face up to where we are and what we can actually do. Makes me think of the quote “The best time to plant a tree was 20 years ago. The second best time is now”.

I can do 25% before tax. I will speak to my accountant and see if using the money I’ve put aside for tax is better used in a pension, then resaving for tax. So we get in before the April deadline.

And will ask about a SIPP.

Thank you so much for your help.

@HurricaneZeldaAndToto exactly. "better late than never" is such a cliche we sometimes forget how true it is!

As long as you can meet your tax bill, whatever makes the most sense for you...

I would probably speak to a pensions advisor as you said, because it is more complex as someone without a company pension. An expert to guide you on this will be really welcome and reassuring I'm sure.

Good point about the April deadline. I think as self-employed you are allowed to pay into your pension for previous tax years, if you haven't used all of your allowance. Please check first with your accountant, HMRC or some other responsible person/organisation! I'm just recalling what DH did when he was self-employed a few years ago. He's now retired, but he threw as much money as he could into his personal pension for only a few years, and it's been very worthwhile.

Op, if you save a grand a month each you will have about a 2 grand a year pension by the age of 67, so you really need advise now. 4 -5 grand a year between you. It’s better than living off state pension, and it’s over an extra 100 pounds a week between you . The state pension is about 200 a week each. So you’d have 500 a week between you and 2k a month to spend on retirement,sorry edited to Correct the number,

https://www.moneyhelper.org.uk/en/pensions-and-retirement/pensions-basics/pension-calculator

Seems like a little, tbh. My DH and I were just discussing how we need a couple million for retirement (he’s early 40’s , I’m mid 30’s). He’s smart with money, and so thinks about inflation, etc…

Oh and this is a good tool for putting numbers in and figuring out what different monthly contributions will (as an estimate) net out at in terms of retirement income

https://www.hl.co.uk/pensions/pension-calculator

You work part time on 60k? i want that job! Can you overpay the mortgage as your income is so high or downsize? If you are 48 and still 20 years on a mortgage to go thats not good