275k and no pension…

[Rossetti47]

I have a lump sum of money from the sale of my house. My world has turned upside down recently because of a relationship breakdown. I am currently training to be a counsellor, so have very little income. Would you guys buy a flat and rent out, or something else? I’ll need money to supplement me for the next few years until I start earning, but then I’ll not touch it for 10 years or so because I’ll be earning (I hope!) I’ve got an appointment with a financial advisor in a week or so, but I’d love an idea as to what might be feasible.

You could sell your house and use the extra money to buy a property with an annex or spare room for a lodger or air bnb potential. You'll get capital gain on this over time and can make an extra £7k per year tax free from renting a room. If it has good air bnb potential you could make a lot more than that as well. You might also be able to claim UC on your part time salary which would top you up until you start earning more.

I put all my money in at once which is fine. I split mine but only to see how they performed and test them out. It updates every night so can see values every day. Takes a few days to go in. I did the 100 one as I have cash in bank and also when I looked at bond performance on there it did not look great and some negative years. But most people go with less than 100. 100 has been fine for me though it initially went down before going up which was scary but fine now and as long as you can time when you get money out and leave in say 5 years plus its fine for me at least.

@Silkiescatz thanks again. Ok so you went for 100 as you had funds for an emergency as 100 might be down when you need the money. That makes sense.

You're very brave to put money into funds to see how they perform!

I might put £10k in 100 and try and find another fund for £10k and keep £5k for individual shares. I'm keen on tech stocks, might try and find a fund that invests in tech stocks.

I need to check on my state pension as well. I also contracted out. I think I've got about 6 more years to contribute to get to the required 35 years.

Have also got various small pensions from previous jobs that I need to look at.

Have been burying my head in the sand about finances, but need to get to grips with it before we retire.

I really appreciate your input, thank you!

I need to check on my state pension as well. I also contracted out. I think I've got about 6 more years to contribute to get to the required 35 years.

I think it's now 40 years. Mine says I have 2 more years to make it up and have 38 years of full contributions. Also contracted out.

@SwedishEdith is it?! I need to go and check.

Mine (I'm 49) says 29 years of contributions and 6 more needed to get the the max = 35 total.

@SwedishEdith I've just checked mine. It definitely adds up to needing 35 years of full contributions. I've actually got 35 years of contributions now but because 4 years were not full years because I was at uni, I have another 4 years of contributions to make in order to get the full pension.

I'm going to end up making another 9 years of contributions anyway as I intend to work until 2030 so it will end up being 40 years.

Hmm, my says 38 years of full contributions, 3 years when didn't contribute enough and shows my state pension forecast is 2 years short. And contracted out. I mean, I'm happy if I have enough contributions but it doesn't say so.

Too lazy to get my head round the detail but more info on why more than 35 years doesn't guarantee a full pension

www.thisismoney.co.uk/money/pensions/article-7240605/Why-dont-state-pension-paid-39-years-NI.html

The main attraction of a private pension is that the money you put in gets topped up by tax which you can reclaim from your job. But it sounds like you are on a fairly low wage at the moment and therefore I doubt there will be any significant amount of tax that you can reclaim.

I would say it would make more sense to invest the money in a portfolio of shares. I would suggest a selection of high-yield "income trusts". These are companies whose shares are listed on the stock exchange. But they don't actually do anything other than invest in other companies. Each investment trust will have its own objectives and strategies. High-yield investment trusts aim to generate a decent level of income whilst preserving your capital. You probably can aim for 5% with those. And part of their objective is to maintain a fairly consistent and predictable level of dividend. And you you ought to get slow capital growth as well over the long term, although as with any shares there can be little bumps along the way.

If you invested £250,000 like this you could anticipate an income of around £12,000 year and that would leave you with a spare £25,000 in cash for emergencies. Also over the course of the next 12 years or so you could gradually shift the money invested into to the shelter of an ISA. You can put £20,000 per year into an ISA. In other words by the time you look at retiring the entire fund would be protected in that way meaning that all of the income would be tax free.

@SwedishEdith I've read that article a couple of times and still don't fully understand. But possibly because you contracted out you might need to contribute for extra years to get the full state pension.

I contracted out too, but possibly for fewer years than you. If you have to contribute for another 2 years totalling 40, you then have to deduct the partial years which is 37 years. I'm assuming the 2 extra years is because of the contracting out.

I can make an additional contribution for one year which was a partial year in order to make it up to a full year. But I don't think there's any point as I'll definitely have 35+ full years provided I work for at least 4 more years.

Ha ha @Amboseli - glad not just me. I'm not worried, I'll be working anyway so will catch up but I'd still like a clearer explanation just out of curiosity.

From what I could gather years you were contracted out are deducted from your state pension, the amount deducted is the cope figure, mine was 25.86 per week but depends how long contracted out for. This will be in a private pension or workplace one but likely to be a different amount depending on scheme. You can earn more years or buy them to buy back these years and have them count as full years to get a full state pension, think in my case its 5 years.

I read the article twice too! Then went and read the HMRC guidance on the subject, which I thought was clearer.
www.gov.uk/new-state-pension/how-its-calculated
Although as I have no idea how the pre 2016 amount is calculated I couldn't follow that through to the no. of years needed.

I do know that I was contracted out of SERPS for almost/all of my eligible years as I started a personal pension in the first year or so after leaving uni.
Which would imply my starting amount should be reduced and I'd therefore have to contribute for more years.
But my state pension forecast says 29 to date and 6 more to full.

Don't forget that you could lose money on the stock market - higher interest rates go with higher risk. My 20k in a managed stocks and share ISA plummeted to 17k during lockdown. It has since climbed to 25k but if I'd needed to liquidate it last year...? Nobody knows what'll happen next in the world.

I have a BTL and a s&s ISA and I get much better returns on my ISA. Also, the ISA doesn't need a new cooker urgently or to be repainted every few years. So my advice is to look at what a financial advisor can suggest for you, but be very careful and compare fees. A fund charging a 1.5% fee is very much more expensive than 0.25%.

@Silkiescatz when you say earn more years to make up for the contracted out years does that mean making contributions for more than 35 years equivalent to the number of contracted out years?

I think I contracted out for 3 years so I currently only have 28 full years and need to contribute for an extra 3+4(partial years) years for the full state pension.

It's all very complicated and would be very easy to get to retirement thinking you've contributed enough and then realise you haven't.

Yes I think so, so in my case 40 years. I think you can buy years for about 800 pounds or so per year if you do not want to work them or cannot. At 35 years you have full state pension less the cope amount.