How to plan for old age

[OneWithTheForce]

I'm 30, I work part time employed on min wage (hoping to be full time self employed very soon), I have no pension, no life insurance, no income protection, no savings, debt of about £5k, private tenant, no partner, two primary aged children. We're living almost hand to mouth. The bills are covered and we have the odd tenner here and there spare for a treat now and again.

Clearly this is not a viable long term plan if I hope to have any sort of comfort in my old age. I'm expecting to have at least another 35 years of working ahead of me. I'm hoping I'll be able to work full time or at least make the equivalent of a full time income for the duration of that time.

What smart things do I need to be doing now to secure some sort of income for my non working years? The new job is obviously not off the ground yet but that's my first step in trying to improve our finances. But I don't want it to go to waste by not using the extra to secure my future.

I have considered seeing a financial advisor but I am very much a deer in the headlights when faced with financial jargon and don't want to be talked into products that aren't the best option for me.

As your budget is so tight you need to prioritise.

The first thing that hits me is that you are single with two young children. I would strongly advocate some life insurance so that if you die whilst they are still dependent on you then there will be some money there to help look after them. At your age, assuming you are in good health and a non-smoker, you should be able to get a fair amount of cover for £10 a month or so premium.

Have you made a Will yet? This is important so that you nominate who to appoint as guardian of your children if you die.

Next priority should be to build up some savings as an emergency fund - a cushion in case your income falls if you're off sick for a few days, or for unexpected things like washing machine/boiler breakdown.

Then look at clearing debts so that you aren't having to make interest payments.

While you are working and paying National Insurance then you are building up entitlement to State Pension. (Assuming it's still around in 35 years time). And if you're claiming Child Benefit then you will also be getting some NI credits even if not working. So although it may not feel like it you are actively taking steps towards accruing some secure income in retirement.

You can't address everything because your budget at the moment just doesn't allow you to. But if you can build up more savings on top of your emergency fund, then you can review these from time to time and as and when you have some surplus that you can afford to lock away into a pension scheme then do so. The downside is that you can't touch them until at least age 55 (may increase as State Pension Age increases), but the upside is that you receive tax relief on the contributions which gives them an instant boost.

Thanks sunseed a will hadn't even occurred to me! are they expensive to do? Does it involve seeing a solicitor?

Good idea about the life insurance for the DC, I hadn't realised it could be so cheap so my plan for this evening is to investigate that.

I'm kind of working on the presumption that there won't be a state pension when I retire so as I don't leave myself depending on that solely.

So current plan is to arrange life insurance, a will, emergency savings and debt repayment. I have kind of been trying out some budgeting wrt clearing the debt (other than the minimum payments) so that's in the pipeline and will hopefully be easier when working more hours. I have also switched what I can to a 0% credit card.

Thanks this is all really helpful.

I completely agree with all than Sunseed said. I would just add that you should pay a visit to your Citizens Advice Bureau to make sure you are claiming all the potential benefits you might be entitled to. Do discuss your desire to write a will. There are many solicitors who will do wills for free.

You've got the right attitude. Once you have about 3-6mos of your expenses in a savings account as sunseed said, then try to get yourself into a job where the company offer a pension where they match everything you're saving. And keep living carefully. It's always the unexpected which sets you back so that savings account will be very helpful. People say they use their credit cards for emergencies but the costs are just so high over time that it really sets you back.

Good Luck - you really do have the right attitude!!

Have a chat with @Mumblechum0 at Marlow Wills. She is a MNer who comes highly recommended for sorting out Wills.

Thanks kaelle I never thought of CAB, will try and get down to see them next week.

Thanks for recommendation too sunseed

Op - if you cannot afford a professional will, and cannot access a free will writing servce, then there are some templates on line. Whilst I would generally advocate getting a professional one, especially where children are involved, a free template may provide a stop gap for you.

www.compactlaw.co.uk/free-legal-documents.html

We used the single man one for my DS when he came into an inheritence at 18. We suggested he leave it to his sister, in the spirit of my cousins will and as we dont need the money. But, more importantly, he wanted control over who gets the money if all 4 of us die together. He wants it to go to selected cousins rather than grandparents or aunties/uncles (we NC with my DB who my DS hates with a vengeance!).

So we used the template and extended it with similar words from our (professional) wills. The original is in a file with copies of our wills.

My name is well known on this board.

I was in debt till I was 44
since then I've saved like billyo
every penny I used to spend on debt has gone into savings
I'm self employed so pensions are a "ha ha yeah right"

BUT
I'm now mortgage free and have a wodge put aside to help my kids at uni

retirement
Why ?
I like what I do, why would I stop ?
I plan to work till I'm 80
just not every month ;-)

I like your style talkinpeace Now if I had a job I loved that much I might not worry too much about retirement but currently I don't.

Little update, today I arranged life insurance for £8.57/month. A 15 year term which will see my DC to the other side of university.

I have also worked out a weekly repayment amount that if all goes to plan will clear my debts by the end of this year. I no longer have childcare costs as of the end of this month so I'm using that to clear these debts. Standing order has been set up and ready to go beginning of next month.

I guess a will is next on the list. Thanks kath for that link!

In your position I wouldn't worry too much about saving for your long term future until you are working full time. However, the main thing is to avoid debt and putting things on credit cards. Still it's a good idea to have some savings put aside for unexpected bills like car repairs and the like. And concentrate on buiding up your business in the long term so when you are ready to wind down a bit in your later years you can carry on but do less hours.

Thanks Vivienne. TBH I think I'm getting about panicky. I know I am only young now but I don't know what lies ahead. Accidents, illness etc. I have two ageing parents as well and I don't know what care they might need. I am kind of thinking along the lines of 'secure up as much as I can now because I don't know when I won't be able to.' Make hay while the sun shines kind of thing.

You are right to prioritise life assurance and then paying off your debt. Once that is paid off, then a pension really is a worthwhile way of saving, because of the tax advantages and the fact the employer has to contribute as well. I'm no financial advisor, but it's well worth thinking about once you've got rid of that debt.

You are doing great. You have a plan and are now following it.

Your key next step is arranging the Will and paying off debt.

Once you are debt free and have a good emergency fund established, you can then look at paying into something for retirement, something to help your children through college/university.

Your plan sounds very similar to the Dave Ramsey one, have you ever listened to his podcast or watched his videos?

I've used Mumblechum for wills and she is great.

The other thing I would do in your situation is look on MoneySavingExpert and do every single one of their money saving tips - review all utility bills, insurance, change bank accounts, switch credit cards, everything. If you follow their advice I even manged to negotiate discounts on standard things like my RAC membership by threatening to leave - I'd never have done this and it turned out to be very easy.

This saved me a lot of money plus sorted the debt, as well as making me a lot more money savvy in general.

Once you are debt free, the next thing is to have an emergency savings fund, and after that plan for the longer term.

I too think you are doing great Op, you know what needs doing and are working your way through them as a priority.

You do need to start a pension, but get the debt paid down first and then look at the long term. You may want to consider both a pension and a Stocks and Shares ISA when you have more money to invest. Although not as tax efficient, the latter allows you access to the money when you want, rather than when the Government says you can!

You still have plenty of time on your side.

Your plan sounds very similar to the Dave Ramsey one, have you ever listened to his podcast or watched his videos?

No but I will now, thank you!

review all utility bills, insurance, change bank accounts, switch credit cards, everything

I think I have switched and reduced everything I can but will check on money saving expert just in case there is anything I'm missing.

Have you checked the pension that your employer offers? They might match what you put in. Even if you don't have much spare money, I think it might be worth paying a bit into a pension- even if it's only £25/month.

I haven't jojo but I don't expect to be there after the next few months. Also, my employer does not have a good reputation for looking after employees and I haven't heard any colleagues mentioning a pension so I would be surprised if there is anything worthwhile there.

Just a heads up if you plan to be self employed. If you claim national insurance exemption because you are not earning enough, this can affect your entitlement to the state pension. I am self employed and paid national insurance voluntarily in the early days.
I also have a private pension with Virgin Money. I pay in a set amount each month which can be easily changed, I make additional payments as and when I can, I can cease payments at anytime and start them back up again. Very easy to set up and I did not see a financial adviser beforehand. There are a lot of different private pensions though so it is worth doing your research and if you're unsure, see a financial adviser anyway.

Actually, there is another option worth mentioning - the new LIfetime ISA coming in from April. You'll be able to save up to £4000 per year and the government will give you a 25% top up. You'll be able to access the money at retirement age (after 55). You could also access the money sooner but at a penalty. It makes financial sense if earnings aren't very high (basic tax). If you're in the 40% tax bracket, it'll be a lot more efficient to have a pension.

Thanks delilah that's useful to know.

I hadn't heard of that either jojo so thank you. Will definitely look into that. Sounds like a good savings plan!

Aside from all the other great advice you've received, for what it's worth, I started at a company with a pension scheme when I was 26. I am now 47 and my pot is worth over £300k. There is NO WAY I would have saved that without it being contributed to by my company. I still have a way to go and my priority is to keep building it and making sure I am mortgage free before I retire. You are only 30 so you have time on your side, even if you feel you don't. I remember reading somewhere that if someone saved into a pension from 18-30 and stopped they would still end up with a bigger pot than someone who started at 30 and stopped when they retired. That's not to discourage you but to point out the power of compound interest. I do have this lingering fear that my pension might not be there for me when I'm old but I can't live my life like that. I guess what I'm saying - and this is SUCH a cliche - is that you are still young and you have many years in which to invest. Even a small amount over time is better than nothing. Keeping your costs low is key - corporations want us to spend loads of money on stupid stuff that doesn't matter. Once you are earning money, keep socking it away. By the time you are in your mid to late 40s, you will see the fruits of your labour and impending old age won't be so scary. I can't imagine being my age and having no retirement plan. It would be awful. Well done for even thinking about this.

Thanks foxy

that if someone saved into a pension from 18-30 and stopped they would still end up with a bigger pot than someone who started at 30 and stopped when they retired

That's incredible! 12 years of savings earlier are worth More than 30ish years worth of savings later!

On that note, in my reading of money saving expert I saw that parents can start a pension for their children. I didn't know this was possible. Do you think once I have organised my own I should set one up for each of my DC?

I think I'm your situation you also need to look at the longer term and how you can upskill so you can find better paid full time work when your children are older and you can focus on your career. Spend some time thinking about what you may want to do, and maybe talk to a career advisor, and look at courses offered through your borough library. Ultimately if you earn more you can save more, and all big employers will have to offer company pensions soon, and their requirements for contributions will increase.

Yes that's on the cards too. I went to college a couple of years ago and got into university but a few months in I was really struggling with the workload. I was doing accounting and just didn't have the time in the evenings I needed to do the work justice. My youngest also has suspected SEn (being assessed Currently) and his behaviours seemed to really hit a peak right when I was in university so I decided I needed to put university on hold and focus on getting him back on track so I left uni and took my part time job. I plan to start again in a few years when he is handling school a bit better and I can commit properly to it.

Yeah, that's the thing they don't tell the kiddies in school, is it? Or point it out to the parents. I agree with Applesauce. If you can get yourself a job where you are entitled to auto-enrolment, that will take care of the pension question. Then you can just sit and watch it accumulate over the years. I should add that I check my pension regularly using an app and it does go up and down. If the stock market crashes, I'm screwed but then so is everyone else! Your children will LOVE YOU if you set up a pension for them. What a lovely mother you are for even thinking about it. My parents wouldn't have even thought to have done that for us (that's another story). It's also an investment in your future and giving your kids the tools to help look after you in your old age (I'm a bit old fashioned and do think kids should want to do this!)