HOW TO STICK TO ONE PLAN

[ISAnoob]

Hi all,

I love this forum.

I've spent about 100hours reading through it since lockdown began whilst I'm "working". Part of me wishes I had gone into finance instead of engineering but I do love my job so can't complain.

I would like to hear what people think about my situation and plan. I am 29 years old and currently make about £60k'ish a year. I owe £170k on a £260k house with my partner and I have £30k in my ISA, £10k in cash in my holocaust fund and about £60k in my pension. I pay 15% into my pension and the company pays 10%. The pension has done quite well, averaging about 6% but I haven't always paid in so much. To have managed to save this amount I drive a 14 plate focus whilst all my colleagues drive range rovers. My plan is to save like a trooper without lowering our quality of life and then retire at 55 at the very latest but hopefully go part time at 50 after paying my mortgage off at 45 at the latest.

In my mind that 15% pension contribution comes off pre-tax so I am saving paying 40% tax on it? I could afford to say put 30% into my pension and company would still pay 10%. Am I better doing that than continuing to pump money into my ISA? I know my ISA dividend payments and gains are tax free but I am 40% down on it on day1 compared to my pension.

Would be glad to hear what anyone has to say.

Cheers

[Alaric]

In my mind that 15% pension contribution comes off pre-tax so I am saving paying 40% tax on it? I could afford to say put 30% into my pension and company would still pay 10%. Am I better doing that than continuing to pump money into my ISA? I know my ISA dividend payments and gains are tax free but I am 40% down on it on day1 compared to my pension.

Some key points. You are saving 40% tax on the pension contributions, but it's not totally a free lunch. There's an annual limit of £ 40,000 and a lifetime limit on fund value of around a million. Also you cannot use the funds until age 55 or older and will be taxed on much of the withdrawals as if it's income. So you might get taxed at 40% on the way out. Money in an ISA doesn't get tax relief on the way in, but you can take it back out free of tax at whatever age you like.

There's almost certainly lots of material out there on the relative advantages and disadvantages of pensions v ISAs.

[GrahamPlatt]

a) congratulations on being so financially astute at your age. wish I’d been so.
b) depends a bit on the terms of your pension, which you’ve not explained (company scheme, defined benefit?). notwithstanding, you’re probably better off funding that to the max than ISAing for now. Probably.
c) may be better paying the loan off on the house. you never know what’s around the corner...

[monabri]

Well done for paying attention at your age..brilliant. 15% + 10% is also great and pretty unusual nowadays. Keep going..it will pay dividends in the long run.

Remember to have some fun too! Don't stick it all in a pension or ISA...you don't know what the future holds.

No one knows what is best for you...I'd try to save rainy day money into a shares based ISA using a global tracker such as Vanguard VWRL fund. Hopefully this will build up and give you some flexibility closer towards your planned retirement date. It might be that as you approach retirement your attitude towards work/your immediate management/ health might change such that you want " out" asap. The cash in the shares based ISA might provide this option. Flexibility...more options.

So,
1. Keep doing what you are doing.
2. Maintain a cash fund in an ISA as you are doing ( perhaps a bit more than you have at the mo so build it up)
3. Consider a slow drip feed into an ISA in a global tracker.
4. Don't forget to have some luxuries.
5. Maintain a spreadsheet of plans, savings.

[EthicsGradient]

It's reasonable to assume you won't be a higher rate taxpayer once you've retired; when you are still working, it's worth paying in enough to use all the excess above the higher rate tax threshold, ie about £10,000 this year. If you're paying in about £9k now, you're nearly there. After that, the tax advantages of a pension over an ISA aren't so much (the tax-free amount helps a little), and since your employer won't contribute any more, the flexibility of an ISA (you won't be able to withdraw from your pension until you're 57, under current rules) probably wins out.

Well done on resisting the Range Rover (who wants one of those in your 20s anyway? It's a middle-age toy. If you're going to splash out, get something sporty ..)

[fca2019]

Try not to get divorced or have too many children if you want to retire early!

Personal decisions in terms of investing. I find over long term helpful to have regular automatic savings. I had an offset mortgage in 30s, and SIPP direct debit in my 40s now.

[Itsallaguess]

Even if you've got a good rate on your current mortgage, don't just fixate on the fact that it might be 'easily manageable' at this time..

It's still a massive amount of money to owe, and the huge, long-term emotional benefits of knowing it's finally paid off should never be underestimated..

Knowing that large debt is gone just makes everything else 'easier'..

Well done with everything that you're doing - keep it up...

Cheers,

Itsallaguess

[ISAnoob]

Well done for paying attention at your age..brilliant. 15% + 10% is also great and pretty unusual nowadays. Keep going..it will pay dividends in the long run.

Remember to have some fun too! Don't stick it all in a pension or ISA...you don't know what the future holds.

No one knows what is best for you...I'd try to save rainy day money into a shares based ISA using a global tracker such as Vanguard VWRL fund. Hopefully this will build up and give you some flexibility closer towards your planned retirement date. It might be that as you approach retirement your attitude towards work/your immediate management/ health might change such that you want " out" asap. The cash in the shares based ISA might provide this option. Flexibility...more options.

So,
1. Keep doing what you are doing.
2. Maintain a cash fund in an ISA as you are doing ( perhaps a bit more than you have at the mo so build it up)
3. Consider a slow drip feed into an ISA in a global tracker.
4. Don't forget to have some luxuries.
5. Maintain a spreadsheet of plans, savings.

Thank you all for the advice and comments!

I should have said that my HL ISA is a stocks and shares ISA and 65% of it is currently in VWRL and the rest split between various funds such as Fundsmith/LT and also 10% in GBDV. My plan is to set up a DD for £500 a month into VWRL and then top up the ITs whenever I have some free cash and apart from that basically don't touch it for 5 years and then reassess.

The £10k I have in cash is in a cash ISA with not bad returns.

Thanks again for your comments!!





I do

[GoSeigen]

Hi all,

I love this forum.

I've spent about 100hours reading through it since lockdown began whilst I'm "working". Part of me wishes I had gone into finance instead of engineering but I do love my job so can't complain.

I would like to hear what people think about my situation and plan. I am 29 years old and currently make about £60k'ish a year. I owe £170k on a £260k house with my partner and I have £30k in my ISA, £10k in cash in my holocaust fund and about £60k in my pension. I pay 15% into my pension and the company pays 10%. The pension has done quite well, averaging about 6% but I haven't always paid in so much. To have managed to save this amount I drive a 14 plate focus whilst all my colleagues drive range rovers. My plan is to save like a trooper without lowering our quality of life and then retire at 55 at the very latest but hopefully go part time at 50 after paying my mortgage off at 45 at the latest.

In my mind that 15% pension contribution comes off pre-tax so I am saving paying 40% tax on it? I could afford to say put 30% into my pension and company would still pay 10%. Am I better doing that than continuing to pump money into my ISA? I know my ISA dividend payments and gains are tax free but I am 40% down on it on day1 compared to my pension.

Would be glad to hear what anyone has to say.

Cheers

What to do?

1. As others say, keep doing what you're dong.
2. You're one of the 2% if not one of the 1%. Every day thank the gods or whoever put you in that position for your good fortune and don't forget the average man who was born to different circumstances.
3. Pay down the whole mortgage if possible. Being shot of the bank is a great feeling and it gives tremendous flexibility for your next property move.
4. "my holocaust fund": are you planning to fund a holocaust -- or just go and experience one?? Maybe buy a book about the actual holocaust, read it and help other people your age understand what happened. The last person in our family who had to flee the holocaust has few years left -- if he doesn't succumb to coronavirus in New York.
5. "14 plate Focus"? Luxury! I drive a 05-plate Skoda! But when I was your age in your position (after paying off 2 mortgages) I splashed out on a new Audi convertible and don't regret it at all. As others have said use your cash wisely to do things that bring you and others around you joy.
6. Regarding pension vs ISA etc. I've always done this: maximise my employer's contributions to my pension, matching if necessary; but for own savings I focused first on debt reduction (pay off mortgage), second ISAs and only then pensions. The problem with pensions is you can't touch them till you retire. So you tie up your funds and you become a hostage to law changes. The point of saving and investing is to attain freedom of action, not to be rich but bound. You can still use the 40% relief later when you are closer to retirement age.

Good luck.

GS
[Retired since age 37...]

[TUK020]

Hi all,

I love this forum.

I've spent about 100hours reading through it since lockdown began whilst I'm "working". Part of me wishes I had gone into finance instead of engineering but I do love my job so can't complain.

I would like to hear what people think about my situation and plan. I am 29 years old and currently make about £60k'ish a year. I owe £170k on a £260k house with my partner and I have £30k in my ISA, £10k in cash in my holocaust fund and about £60k in my pension. I pay 15% into my pension and the company pays 10%. The pension has done quite well, averaging about 6% but I haven't always paid in so much. To have managed to save this amount I drive a 14 plate focus whilst all my colleagues drive range rovers. My plan is to save like a trooper without lowering our quality of life and then retire at 55 at the very latest but hopefully go part time at 50 after paying my mortgage off at 45 at the latest.

In my mind that 15% pension contribution comes off pre-tax so I am saving paying 40% tax on it? I could afford to say put 30% into my pension and company would still pay 10%. Am I better doing that than continuing to pump money into my ISA? I know my ISA dividend payments and gains are tax free but I am 40% down on it on day1 compared to my pension.

Would be glad to hear what anyone has to say.

Cheers

What to do?

1. As others say, keep doing what you're dong.
2. You're one of the 2% if not one of the 1%. Every day thank the gods or whoever put you in that position for your good fortune and don't forget the average man who was born to different circumstances.
3. Pay down the whole mortgage if possible. Being shot of the bank is a great feeling and it gives tremendous flexibility for your next property move.
4. "my holocaust fund": are you planning to fund a holocaust -- or just go and experience one?? Maybe buy a book about the actual holocaust, read it and help other people your age understand what happened. The last person in our family who had to flee the holocaust has few years left -- if he doesn't succumb to coronavirus in New York.
5. "14 plate Focus"? Luxury! I drive a 05-plate Skoda! But when I was your age in your position (after paying off 2 mortgages) I splashed out on a new Audi convertible and don't regret it at all. As others have said use your cash wisely to do things that bring you and others around you joy.
6. Regarding pension vs ISA etc. I've always done this: maximise my employer's contributions to my pension, matching if necessary; but for own savings I focused first on debt reduction (pay off mortgage), second ISAs and only then pensions. The problem with pensions is you can't touch them till you retire. So you tie up your funds and you become a hostage to law changes. The point of saving and investing is to attain freedom of action, not to be rich but bound. You can still use the 40% relief later when you are closer to retirement age.

Good luck.

GS
[Retired since age 37...]

Would echo all of the above, and not much to add other than caution that at age 29, there is plenty of time for your personal situation to change markedly:
children, long term illness, something happening to prevent earnings/career bust.
Keep some flexibility in your plans.
tuk020

[jonesa1]

long term illness, something happening to prevent earnings/career bust.

You may want to consider whether to take out insurance to cover illness & disability (and death to protect your partner and any future children), both could make a serious dent in your plans, without a lot of options once they've happened.

[Urbandreamer]

My plan is to save like a trooper without lowering our quality of life and then retire at 55 at the very latest

Your pension savings may not help with that plan. Currently you can access your pension at 55 but not before. My wife planned on accessing hers at 50, but the government changed the rules when she was 49. In the past they have said that they intend to increase the age you can access your pension to 57 by 2028. You won't reach 55 before that.

My advice is to be careful when planning things that may change at the whim of the government.

As to tax on pension contributions, it's complicated.
If the money is contributed via salary sacrifice then the money goes in before tax and national insurance. You and your employer pay less national insurance, which means more money is available to contribute. In effect you get more than 40%.
If the pension contribution is not made via salary sacrifice then tax and national insurance is paid. The income tax that you paid on the contribution is then credited back. So yes, an uplift of 40% for you.

Personally at 29 I would be funding both ISA and pension, especially if you wish to fund the years between when you stop work and when you can access your pension. While you lose any growth on the income tax paid upon your ISA contributions you also pay no tax when you access the money.

Depending upon your risk tolerance you may also wish to investigate VCT's or EIS's.

It should be obvious from recent events that stock market investment is not free from risks. You might want to consider asset allocation to mitigate or control your risks.

[dealtn]

3. Pay down the whole mortgage if possible. Being shot of the bank is a great feeling and it gives tremendous flexibility for your next property move.

It's quite marginal but, perhaps counter-intuitively, having a small mortgage, and associated credit history, makes it easier to get a mortgage in the future for the next property move, than not having one.

In addition, as long as you trust them, should you have Title Deeds etc. having a small mortgage means the mortgagor is likely to be paying for safe storage of important documents, saving you the cost of doing the same.

[zico]

Just to provide an alternative view on paying down the mortgage. A mortgage is the cheapest loan you'll ever get (think rates are only around 1% or so now, which is historically low when compared with the last 50 years and unlikely to stay that low over the next 20 years), and I'd have thought you could easily do better than 1% with regular investments. Another way of looking at it is that you have a £170k mortgage, so if you build up other investments to the value of £170k, you can think of those as giving you the ability to pay off your mortgage.

Many lenders allow you to make chunks of one-off payments in addition to regular repayments, so if your investments have been going well and the mortgage rate is starting to rise significantly, you can then make extra payments to pay off the mortgage when it suits you.

[Bubblesofearth]

Just to provide an alternative view on paying down the mortgage. A mortgage is the cheapest loan you'll ever get (think rates are only around 1% or so now, which is historically low when compared with the last 50 years and unlikely to stay that low over the next 20 years), and I'd have thought you could easily do better than 1% with regular investments. Another way of looking at it is that you have a £170k mortgage, so if you build up other investments to the value of £170k, you can think of those as giving you the ability to pay off your mortgage.

Many lenders allow you to make chunks of one-off payments in addition to regular repayments, so if your investments have been going well and the mortgage rate is starting to rise significantly, you can then make extra payments to pay off the mortgage when it suits you.

Unless the mortgage rate is 1% or less then I'd pay it off asap. Most new mortgages are still north of 3% even with bank base at 0.1%. And you can't get 3% on savings. So that means finding investments giving over 3% and that means taking on risk whilst still having a large debt.

Plus there's a big psychological boost to clearing a mortgage.

It's also more difficult to remortgage to spend than it is to spend savings!

BoE

[GoSeigen]

A mortgage is the cheapest loan you'll ever get (think rates are only around 1% or so now, which is historically low when compared with the last 50 years and unlikely to stay that low over the next 20 years),

Is that a 25-year fixed rate? LOL. Few people get 1%, even if you do you are risking cash flow difficulties when rates rise significantly. Besides, mortgages are far from the cheapest or only cheap loans you can get: there is credit card borrowing, bank of mum and dad, futures markets, spread betting etc.

Point is, for a young person embarking on saving and investing, what could be better than achieving a status where you have no creditors?


GS

[zico]

A mortgage is the cheapest loan you'll ever get (think rates are only around 1% or so now, which is historically low when compared with the last 50 years and unlikely to stay that low over the next 20 years),

Is that a 25-year fixed rate? LOL. Few people get 1%, even if you do you are risking cash flow difficulties when rates rise significantly. Besides, mortgages are far from the cheapest or only cheap loans you can get: there is credit card borrowing, bank of mum and dad, futures markets, spread betting etc.

Point is, for a young person embarking on saving and investing, what could be better than achieving a status where you have no creditors?

GS

I've never understood how other financially-savvy people can invest regular amounts, but also complain they can't pay off their credit card balance in full. It just seems to be simple maths to me - rate of return % <<< credit card interest rates. Maybe I'm missing something.

Generally agree that paying down (or paying off) your mortgage is a good investment. My point is that there are particularly good times to do it, and if you do pay it all off, you should be pretty sure you won't need to do anymore major borrowing in the future for unforeseen life events. Not everyone has a smooth upward trend of increasing salaries and wealth accumulation - though I'd imagine Lemon Fool folks do a lot better than average!

[AleisterCrowley]

I can't really add anything to the sage advice above, but I will recommend Monevator https://monevator.com/- some really good articles covering investing in general, including pensions, ISAs, FIRE and much more
I wish I'd been as clued up as you at 29!

[ISAnoob]

What to do?

1. As others say, keep doing what you're dong.
2. You're one of the 2% if not one of the 1%. Every day thank the gods or whoever put you in that position for your good fortune and don't forget the average man who was born to different circumstances.
3. Pay down the whole mortgage if possible. Being shot of the bank is a great feeling and it gives tremendous flexibility for your next property move.
4. "my holocaust fund": are you planning to fund a holocaust -- or just go and experience one?? Maybe buy a book about the actual holocaust, read it and help other people your age understand what happened. The last person in our family who had to flee the holocaust has few years left -- if he doesn't succumb to coronavirus in New York.
5. "14 plate Focus"? Luxury! I drive a 05-plate Skoda! But when I was your age in your position (after paying off 2 mortgages) I splashed out on a new Audi convertible and don't regret it at all. As others have said use your cash wisely to do things that bring you and others around you joy.
6. Regarding pension vs ISA etc. I've always done this: maximise my employer's contributions to my pension, matching if necessary; but for own savings I focused first on debt reduction (pay off mortgage), second ISAs and only then pensions. The problem with pensions is you can't touch them till you retire. So you tie up your funds and you become a hostage to law changes. The point of saving and investing is to attain freedom of action, not to be rich but bound. You can still use the 40% relief later when you are closer to retirement age.

Good luck.

GS
[Retired since age 37...]

Hey, thanks for your comments. I would be interested to hear more about your background and how you managed to retire so young? property?

Taking your points in turn:

1. I will, thank you.
2. I do consider myself lucky. I have been lucky all the way along - just got the grades to go to Uni and then managed to get on a Graduate programme with a massive international company (I was by far the least educated and qualified of the 20 of us that started that year out of 1500 applicants) and then managed to end up in a well paying role that comes with a massive standby retainer, almost unlimited paid overtime and a car allowance. I could easily have ended up in a completely different situation as I was applying for jobs straight from school in case I did not get into Uni.
3. I only took a 19 year mortgage (1.99% fixed rate for 5 years) and do intend to pay this down sooner.
4. Apologies for my poor choice of words - what I meant was a disaster fund i.e. lose my job
5. haha how did you end up from the Audi to an old Skoda?
6. I will keep this in mind.

Thank you.

[bluedonkey]

Try not to get divorced or have too many children if you want to retire early!

I realise that this was a light-hearted comment but it is actually spot on. Those things will drive a coach and horses through your financial plans, even more so than redundancy.

Good luck.
BD
[old git who owns a 1997 Toyota]