My financial situation - pls assess

[Wonkyredfruit]

Would anybody be able to give me a sense check of my situation, as I don['t have anyone in real life to ask about financial stuff and I worry about it. Last few years have been tough money wise. I haven’t got much leeway to change things, but I’m worrying about pension especially.

Current set up: age 54, lone parent to DD 14. No child maintenance for 3 yrs now but salary not bad at 55k. I work FT and will continue to do so, job is reasonably secure.

Good stuff: salary. Secure job. Child getting older. Own my own home with mortgage of 150k, house worth around 535k. Have around £20k in cash savings, which I guess are quietly depreciating.

Not so good stuff: Mortgage is long, at 14 years. I only have £55k in pension, as I started late. Never had enough money before! Owe about 1.5k on a car loan, will be paid off this November. I have high outgoings, high mortgage, life insurance etc, and no real spare cash each month.

Pension is obviously very poor. But I can continue to work, which should get it up to around 100k in 5 /6 years time. My plan is to downsize on my home at some point, and use the equity to buy something small and cheap outright, which will also give me savings of around 100k for an annuity, to bump up pension. The income gap is probably 64-68, until I get state pension, and I haven't figured this bit out yet. I won't want to use savings as income.

Does this all sound reasonable or am I kidding myself? I have no idea about investments, and would be very wary of investing savings.

thanks for any advice

It sounds like a plan to me - especially prioritising your pension.

Do you think you can work to 68 when the mortgage gets paid off? Or do you mean you want to retire at 64? Have you checked what this will do to your pension? You could benefit from specialist advice.

I personally would move a good chunk of the savings - maybe half? - to a stocks and shares ISA. Do you have a view as to what the savings are ‘for’ apart from they’re not for income? I think ‘security’ is a reasonable answer though as I am battling the elderly parent years, my savings now are labelled ‘care costs’ in my mind.

I’m allergic to big loans after lots of financial worries in the past so chose to buy a 2nd hand car outright last time, I believe for me that was a better choice though there have been some big bills! Are you going to pay a balloon payment and own outright after this loan?

How old is your dd? Are uni costs looming?

Could you take on a lodger /exchange student /?
My dm was a single dm and when I moved out she took in a student.. Or she wouldn't have managed...

I agree about a lodger.

Could you overpay your mortgage if you had that additional income, or after the car loan is paid off? What difference would it make - I’m pretty clueless about the impact of small overpayments, it might well make more sense just to throw everything at your pension, if your plan is to downsize anyway.

Is there an argument against downsizing now, in fact?

Thanks so much for your replies. It’s a bit of a relief to write it down and see it in b&w!
Yes, the savings are really for security, in case I can’t work or something bad happens. I had a S&S isa many years ago, but it lost half the value and it put me off ever since tbh. Bought the car second hand, and it’ll be mine outright in November.

I’m weighing up a move, for that exact reason Heatingneedstobeontoday. Even weighing up the costs of moving, £7.5k pa tax free income would help hugely as I get older. The lodger income pays for stamp/moving costs in 3 years. Next year post GCSEs I can move out of school catchment, basically getting a larger house (only have 2 beds at mo) for the same price, but adding the income.

I second the idea of taking in a lodger. I've done this over a long term, since my children left home and it makes a huge difference to my cashflow. I'm guessing your mortgage might be £600/m? which could be covered by rental income. You're allowed to rent a room free of income tax too (see the gov.uk) website for info. I'd use the first few months rent to pay off the car loan, thereby reducing the interest due on that and then use it to cover the mortgage, possibly overpaying if that's affordable.

I'd also second the idea of transferring your savings to a S&S ISA and put the funds into a low-cost tracker fund. I've done this with my pension and an ISA and the growth is very much worth it. As you are aware, those savings are currently depreciating, so instead, make them work for you.

Your daughter has 4 years before uni/college/employment so that's when I'd be ploughing as much income as possible into the pension.

Oh sorry I see your dd is 14. So better to stay where you are, and yes you perhaps will need to think about uni costs.

At least with a relatively modest household income your dd will be eligible for most of the maintenance loan if she does want to study for a degree.

OK so you can't take a lodger yet. Is there anything else you can rent out? A garage/storage/driveway parking (if you're near a station for example)?

What kind of job do you do? If it’s transferable (and you wouldn’t take a hit on your income) you could look at moving to a similar role in a local authority or somewhere that offers a decent DB pension for the next 10 years?

Incidentally, the growth in my S&S ISA far outweighs the cost saving if I were to pay my mortgage down. So that's worth bearing in mind.

I do get the fear with S&S - I’ve had the same experience in the past, and the very healthy growth at the moment does feel a bit insecure/bubbly.

I would certainly aim to bite the bullet and as soon as the car is paid off, channel that money to your pension if you can.

Mortgage is currently £1200 a month 😞14 yrs, 4.41%. Which is why I don’t have a lot of spare income. I basically break even each month. Psychologically that means the savings feel important as I’ve got no real leeway.

I’m hoping to get through the next 18 months while DD finishes school, then potentially move, so I can add income. From everyone’s replies, this seems to add up.

The downsizing sounds sensible, but if you won’t have any/enough income at 64, you’ll have to keep working until 68. I know that’s not an appealing prospect.

No, carrying on working till 68 is not remotely appealing. But realistically that’s what I’m looking at. Am trying to reframe it as staying young/mentally alert!

I know I’m fortunate in many ways, but it’s frightening when the years for catching up financially from divorce seem to be disappearing.

Will you be able to live with your current car for a few years once you've paid for it? Although you'll obviously also need to plan for when it dies and you need another one.

Any idea what your DDs career plans may be? If she doesn't have to go to university, it could be worth her considering an apprenticeship or even a degree apprenticeship where her employer pays her a wage and tuition costs.

If you can move to a cheaper area when you downsize, you can release a lot more than £100k - in many places you can get a nice 2/3 bed in a nice area for £2-300k so could release more like £200-300k

Any chance of increasing your income? Although due to the 40% tax threshold, you'll lose quite a bit to tax. However this means that it's worth looking at limiting your take home pay to around £50k and putting the rest in a private pension, as this is topped up by 40% tax relief, although you'll need to do a tax return to add the extra 20%.

“Can you take a lodger” - honestly this is the most frustrating line that gets wheeled out every time someone enquires about finances, as if it’s just as simple as opening up your home to a random to “lodge”.

“Can you take a lodger” - honestly this is the most frustrating line that gets wheeled out every time someone enquires about finances, as if it’s just as simple as opening up your home to a random to “lodge”.

Why isn’t it simple? If you have a spare room, which some people do, you can advertise it and find a lodger, maybe full-time, maybe 5 nights a week. This could mean upwards of £500 a month income which you wouldn’t otherwise have - it’s not a derisory amount.

Re the S&S ISA suggestions, if £10,000 had been invested in a S&P 500 tracker fund in Jan 2016, it would be worth approx £34,000 now. There have been dips in that time, but investing is for the long haul, not for funds you may want to take straight out again in a few months’ time.

I’ve hosted language students before in my old married home and it always worked well. The money is certainly very useful. As a LP, there are even some benefits to having another adult in your home, assuming there’s enough space and you choose the person cautiously. It’s not for everyone but can be a good option.

Hi OP. I was in a similar situation. Downsized 11 years ago when 58. Both daughters independent at that stage. I had to work until I was 68 but I didn't want to pay a mortgage til that age, no savings etc. It gave me savings and a sense of relief. I think what you have described sounds reasonable, and you earn more money than I did. But think you should plan for working until you are 68. That will be 4 years of spending and no income and not adding to pension. I am glad I did not retire earlier. It did give me purpose. Being retired is not as dreamlike as it sounds! It needs working at too. But everything else sounds fine.

Just to add, i did go down to 4 days a week the last few years, perhaps something you consider?

My recommend is anything over £50,270 put into your pension to avoid the 40% tax. It will therefore cost you less than 60% to supplement your pension.

I’m in a very similar financial situation to you overall, especially in terms of pension. I have a similar plan of moving to become mortgage free and release equity, probably in around 5 years when my youngest will be 18

I was in a similar position to you at one stage, and I remember feeling very stuck and glum about the future. What I didn’t factor in was the fact that life changes. Small things happen. Big things change. Even just my son leaving home and my food bills reducing made a difference to my disposable income. I started earning more. I did get into investing although I had never had more than a saving account before and have seen my investments grow.
i hope I can make you feel a bit more positive about the future. I wish I hadn’t spent so much time worrying. Take small steps, one at a time, to change your situation and you will be fine.