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

Sensible option if you are risk averse with savings I.e don’t want stocks n shares is use them to pay off mortgage/ debt check if you can overpay the mortgage. Use online mortgage overpayment calculator then in a few years monthly expenditure won’t be so tight.

Lots of supportive reponses on here – thank you.

I think it’s difficult to know a sensible route forward if a) you’re on your own b) you don’t have stacks of cash and c) you’re not in the bracket for financial advice. It ends up all rattling around in my own head. Nothing to say I’m right about any of it!

Pension remains the biggest worry, so I think I’ll look into moving next year, age 56. It does potentially mean another move at 64, to downsize and release cash, but that is still 8 years of lodger money which seems worth it. No idea about uni, but as a PP said, I think she’d be eligible for the max maintenance loan. I need to think about the savings too, although my main priority is more income so I don’t have to dip into it.

Congrats on your retirement hippydippysillybilly.

No idea about uni, but as a PP said, I think she’d be eligible for the max maintenance loan

What are you basing this on because Martin Lewis talks a lot about student finance and he (and the MSE website) says its starts to be reduced when parental income exceeds £25k down to the minimum when the parent earns £62k, which suggests she wouldn't get much more than the minimum.

Are you on track for a full state pension? You can check your own details on the gov.uk website to see your forecast. Full state pension is currently £12k pa.

As a bare minimum you should put anything you earn over £50,271 into a pension. You can reclaim the 40% tax so you actually only need to contribute 60% of the total with the rest coming from the tax man. If you can contribute more than that, even better.

You can check the details on the Student Finance website, but with household income of £55k your DD won't get anywhere near the full maintenance loan. Moreover, even full maintenance loans are often not enough to cover rent etc in many parts of the country. Parents normally have to cover the shortfall. So if your DD is considering uni, it'd be worth starting to investigate which ones would be feasible.

These days very few people buy an annuity with their pension savings so don't assume that's what you'll have to do.

Forgot to ask - why no child maintenance for the past 3 years? Can you do anything to change that? Would DD's other parent perhaps be more willing to give money direct to her to e.g. pay for travel to college / mobile contract / school meals?

There are some clear positives in your situation.

1.You have substantial housing equity. It's a much stronger position than many people approaching retirement who may well have large mortgages or rent indefinitely. Downsizing in a few years is likely to release a six-figure sum to support retirement.

2.The plan is flexible rather than risky. Property wealth can effectively act as a delayed pension pot and you're not dependent on market performance or a single pension pot today. You have choices over when and how to access it, giving you control over timing and tax planning.

3.£20K cash savings sounds about the right level for your emergency fund given your income as a lone parent (about 6 months of your net salary).

It's worth remembering that traditional pensions are not the only route to retirement security. Many people actually prefer tangible assets like property, which they understand and value differently from financial products.