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?

Speak to your accountants- there are good incentives for business owners to pay into their pensions directly from the company and not from personal income.

Open a SIPP pension and everything you pay in the government tops up by 25 percent. Also anything you put into your pension gets deducted of your income tax so you are being very silly not paying into a pension. You need to be paying £300-£400 pcm each to try to make up for list time. Instead of paying higher rate income tax on £20k of your £60k salary you'd pay between £3600 and £4800 less in income tax per year. It's really a no brainer.

I would really recommend the I Will Teach You to be Rich Podcast (which isn't as cringe as it sounds but American) and/or the Meaningful Money Podcast (solid and UK based) to get you head around some options you have.

Remember to factor in inflation when you’re working out how much you should be sticking in your pension (and also where interest rates sit in relation to the inflation rate). That’s more or less done for you if you have a workplace pension because monthly contributions are based on percentage of salary. If people are getting payrises each year then that means the actual AMOUNT they’re paying into their pensions each month is also going up too, each year. It might be in small amounts each month but it’s still going up.

It’s part of why an annual COL pay rise is so important and why there has been such uproar in the NHS, education and some civil service depts over the past 10 years when some people didn’t get ANY pay rise at all for a few years running. It’s not just how that affects your disposable income each month, but what effect it has had on your pension when it comes to retirement age.

If you’re self-employed you’re going to need to increase your pension contributions each year a bit. So don’t just work out a calculation of 20 years at X amount, where the X doesn’t change. Because in 20 years’ time that X will buy you a lot less (because inflation has had an effect)

Of course it also depends on how well the stock market performs in the next 20 years but generally you want to try and protect yourself from the effects of inflation by building it into your contributions.

Apologies if people are already conscious of those consideration and thinking it’s obvious, but so often I see posts on MN where people just aren’t interested in personal finance until crisis point and then they find out there is a lot they haven’t considered.

I think things could turn around pretty fast for you on that income. Glad to hear you're getting advice.

I'm guessing your self employment requires flexibility, meaning that it's not that easy to just pick up other jobs. But it's definitely worth considering. Particularly if your children are going to go to university - that's a time when it will be harder to save a lot as your joint income means they'll only get minimum funding.

@CurlyhairedAssassin i think that’s a really good point, and something that confused when I was originally planning my pension (which luckily for me was in my late teens).

I would get pension projections of eg £20k per year at age 65, and be asking “yes but what will that £20k actually buy 45 years from now? What does it mean in today’s money?”

I am finding it easier to get my head around now that it’s only 10-15 years away.

most pensions and annuities are index linked not all so it is sometthing you need to ask but the investment of the amount you put in with compund interest should increase the pot so if you put in £1500 a month for 20 years
1500 x 12 x 20 =360,000 but with compound interest at 3% this will be 492,000 at the end of 20 years
if you took an annuity it would give you approx 21,000 index linked
if you use drawdown you could decide to take a 1/30th ie 16,400 but of course the remaining pot would continue to grow via compound interest so even though you plan to make it stretch 30 years because of compound interest you can actually take about 1/20 as the amount you need in 30 years time will be earning interest for a further 29 years so you could probably take 25k a year and it still last 30 years
it alos depends on whether that pension is going to pay a widow/widowers pension too

I wouldn't go into panic mode. You have your house and 6k so far and possible inheritance. You have time left to sort things out. 20 odd years or so. Just get the right advice. Martin Lewis is great. Follow his guides. Cut back any expenses you can without living miserably. Downgrade to own labels, food is massive bill etc, plan meals to cut waste, cancel extra subscriptions, lots free apps on fire stick TV. Do gas and electric and insurance comparisons to get best deals. You can always do side hussles with passive income like templates to sell or design some t shirts or gift cards with canvas app to sell on Etsy and have some service to fill the order. Google side hussles. That once set up. Can tick over. Or do carboots to boost income. Rent out drive ways. All sorts of ways nowerdays to boost income. Be aware of tax restrictions with these. You have time and circumstances change. You may be able to work more in coming years. Or extra income may pop up. You are doing better than many who don't plan at all.

Generally it is better to not pay down the mortgage and to put the difference in investments. You need that money to compound and grow for you. However it's good to first save some money in an emergency fund before you start investing. You don't want all your savings to be high risk if you need access to the funds.

I'm not in the UK but it's probably better to pay into a pension or a tax deferred account rather than the mortgage, unless your interest rate is very high. That being said, you can always do a bit of both. Saving 25 percent is an excellent savings rate, you'll probably be fine.

Gently- two bedrooms are good in case someone is ill or turns into a snorer/poor sleeper.

Thanks, this thread seems to have become live again, so time for an update on what I’ve changed.

I’ve managed to secure a pay rise for £15k that I am funnelling straight in to my pension. I am not missing it, as I never had it! This was great and such a relief!

I’ve now got a monthly budget and am increasing my personal savings slowly.

Our tutoring bill will reduce by £400 per month this month too, so this will be saved (again as we won’t miss it).

I feel much more positive now and not so helpless. I got some great advice on this thread, thank you to all who helped 😘

I wouldn’t be panicking, just planning. On £60k I’d be looking to put £10k a year into a pension to avoid 40% tax. It’ll therefore cost you just £6k, or £500 a month. If you both do that for 20 years then there’s £400k plus 20 years of growth. Can’t be bothered to actually work that out, but surely it’d be a total of £700k or so. In the mean time overpay the mortgage without stretching yourself too far, and build up a small cash buffer.

Roll forward to 68 (until the private sector hating party change that for all but sector employees ;) and you’ll hopefully you’ll both get a full state pension. That’s a combined £24k or so in today’s money. And then add 3 or 4% of £700k and you’ve doubled that. With a mortgage free home that should be doable. It’s less than some sites will say you need for a ‘comfortable’ retirement. But, combine your personal allowances and half of it will be tax free, along with 25% of the remainder (at the moment…) and so life should be okay.

You earn sufficient between you to claw this back I think…but you’ll have to work until state retirement age I think!

edited to say…posted while you were updating. Great progress - you’ve got this covered :)

This kind of thing literally keeps me awake at night, thank you to everyone that’s posted. I’m in a similar position and being terrified means it’s very easy to just completely avoid this stuff.

As with all enquiries of this type, you need to talk to a financial expert who will advise you of your best options.

Op mentioned kids too. If at 48 you are this uninformed about pensions, please do also look at how much support the government expects you to give your children in higher education if they go as you are expected to save to top up their very minimum loan.

I wanted to repost this for you OP, because it seems to me that most people are not picking this point up. If you are a higher tax payer, for every £1,000 you put into a private pension, £250 will be added immediately. So if you are going to put £15,000 pa into your pension, that will be £18,750 pa. On top of that, you will get additional tax relief up to 40%.

There is a possibility that the government may make this less attractive for higher rate tax payers from October, but we shall have to wait and see.

If anyone wants to understand pensions better, the Money Saving Expert website has a pension forum, which is excellent. If you are starting from a position of no knowledge, it can take a bit of effort to understand the terminology etc, but it is well worth trying.

In my view, kids should be taught this at school.