Retiring

[Manchester33]

Because when its paid you can divert your free cash into pensions etc and if times get tough/circumstances change, then you can stop paying into a pension, but if you have a mortgage you still have to find the dosh

The point you've made is accurate, but only if the investor chose a SIPP over an ISA. If they were concerned about tough times/change of circumstances, paying down your mortgage actually ties up cash that could offer you more financial security/flexibility if it were in an ISA.

 

[Manchester33]

Totally agree with this.
ive paid off my mortgage once already and what a great feeling that was however taking sound financial advice is the best way forward.
I really appreciate this post mate as I am wanting to make my payments to clear what’s left oc it but maybe that money is best invested in a SIPP instead.

Yes, when I first read about the subject it blew my mind. I think we're hard-wired to consider 'all debt is bad' and that one of your major financial milestones is to become mortgage-free.

I can completely understand people wanting their house paid off, but there are so many better (in my opinion) arguments against it.

If you offered most people an option of owning a house worth £500k or having £500k invested in index funds whilst living in a house with a £500k mortgage, people tend to go for the former. But when you tell people that they should expect to earn around £35k pa from the later option, they start to change their tune! :P

 

[Manchester33]

I’m working towards a date of 2030 to retire / slow down at which point I’ll be 56

i have a DC pension with work which will be worth around £200k by then, I have also started to invest spare cash each month into a S&S ISA with Vanguard, I’m hoping this will grow by at least 6% each year which should give me another £50-£80k depending how much I continue to put in

the question I have is that I also have enough in cash that i was going to use to put down on a buy to let , kind of a hedge against any inflation rises we may see over the coming years

am I sensible doing this or should I just plough this cash into my vanguard account ?

If I went this route the cash would be worth around £42k by 2030

A buy to let I would have 9 years rental income of around £3.5k after tax plus any gain in price I pay on the house , about another £20k by 2030

I'd ask yourself whether you honestly want to become a landlord.

I've asked myself that question previously and thought:

- the property industry seems to be chasing landlords out through taxes and better rights for tenants (Is it really a safe bet for the future?).

- Could I really be arsed being on the end of the phone at any hour to angry tenants?

- Are the tax implications worth it? You either pay tax on it personally or have to set up a limited company which comes with accounting costs and the like.

I'm sure there's still plenty of money to be made (especially if you do it at scale and build a large portfolio), but I'm not sure it's worth all the hassle. My view on becoming a Landlord is that you're buying yourself a job. It might be a very well paying job in some cases, but more often than not I think it's a lot of work, with more stress, for less money than what people think.

If I were you I'd chuck any spare money in your ISA until you hit the annual limit, then have a bit more of a think at that point.

 

[Manchester33]

Does anybody have experience investing in wasting chattels ?
i know there have been some ridiculous gains in fine wine and whisky over the last few years but it requires a certain amount of expertise to pick the right vintages etc....

As a rule of thumb, I always think it's sensible to avoid investing in anything speculative. At the end of the day, fine wine and whisky generate no money, they have no real value - their value is based on what another person thinks they're worth.

You're better investing in real businesses that are generating money and increasing their real value.

(I do appreciate some people like to flutter money on speculative things though. But it's literally the same as gambling and consequentially shouldn't be a serious part of a retirement plan - and shouldn't be done with the money that is relied upon).

 

[Wafty Cranker]

I’m working towards a date of 2030 to retire / slow down at which point I’ll be 56

i have a DC pension with work which will be worth around £200k by then, I have also started to invest spare cash each month into a S&S ISA with Vanguard, I’m hoping this will grow by at least 6% each year which should give me another £50-£80k depending how much I continue to put in

the question I have is that I also have enough in cash that i was going to use to put down on a buy to let , kind of a hedge against any inflation rises we may see over the coming years

am I sensible doing this or should I just plough this cash into my vanguard account ?

If I went this route the cash would be worth around £42k by 2030

A buy to let I would have 9 years rental income of around £3.5k after tax plus any gain in price I pay on the house , about another £20k by 2030

Stamp duty and various fees will easily wipe out the first 12 months of rent. Then if there is a high tenant turnover your rental income is quickly reduced. I wouldn’t really be banking on that rent.

Would you use the a mortgage for the BTL? If so, I don’t really see it particularly risky. I reckon we’ve got a few years growth in the market yet, with a drop in house prices around 2026. That ties in with the 18 year property cycle and also makes sense for a few years of growth given all the QE that has taken place recently.

I would think if you bought somewhere now then in 10 years the capital growth would be such that you could remortgage it and get your original deposit back and then some. By remortgaging you could take the money out with no tax due on the gain and keep the property.

 

[Wafty Cranker]

I'd ask yourself whether you honestly want to become a landlord.

I've asked myself that question previously and thought:

- the property industry seems to be chasing landlords out through taxes and better rights for tenants (Is it really a safe bet for the future?).

- Could I really be arsed being on the end of the phone at any hour to angry tenants?

- Are the tax implications worth it? You either pay tax on it personally or have to set up a limited company which comes with accounting costs and the like.

I'm sure there's still plenty of money to be made (especially if you do it at scale and build a large portfolio), but I'm not sure it's worth all the hassle. My view on becoming a Landlord is that you're buying yourself a job. It might be a very well paying job in some cases, but more often than not I think it's a lot of work, with more stress, for less money than what people think.

If I were you I'd chuck any spare money in your ISA until you hit the annual limit, then have a bit more of a think at that point.

Again, I agree with you for most of this. Even with a Management Company it is demanding of your time. Trying to find a property can do your head in. Manchester has gone nuts so if you’re looking further a field you need to spend your free time travelling to viewings, then it can be tricky to arrange viewings back to back. It means you end up waiting around for hours between viewings.

The main big plus I think a BTL has vs an ISA is that you can leverage your purchase.

 

[ChicagoBlue]

Back of the envelope:

How much do you need/want to live on annually in retirement?
Subtract any annual pensions or annuity income you might have.
Multiply the result by 25 (4% ROI), or 33 (3% ROI), or 20 (5% ROI), etc...

That’s how much money you need to have invested by retirement.

Then, double your annual target income and put that much in a bank account where you can easily access it, as a cushion against down markets and a few unexpected expenses. In good markets, replenish the account.

There or thereabouts gets you in the ball park.

 

[dickie davies]

Yes, when I first read about the subject it blew my mind. I think we're hard-wired to consider 'all debt is bad' and that one of your major financial milestones is to become mortgage-free.

I can completely understand people wanting their house paid off, but there are so many better (in my opinion) arguments against it.

If you offered most people an option of owning a house worth £500k or having £500k invested in index funds whilst living in a house with a £500k mortgage, people tend to go for the former. But when you tell people that they should expect to earn around £35k pa from the later option, they start to change their tune! :P

And what salary does one need to have to be accepted for a half million pound mortgage?

 

[stonerblue]

Retired 4 years ago at the age of 64 but had only worked 4 mornings a week from the age of 32.

Do as little as you can for as much money as you can and enjoy your freedom and your life.

If you are lucky enough to do it, it`s great.

Been part-time for last ten years or so now and it's given me the immense pleasure of seeing my grandkids grow and develop. Priceless.

 

[stevemacca]

Just to throw cat amongst the pigeons - has anybody any views/experience on the current spate of 'lifetime mortgages or equity release schemes' as a way of funding retirement.

It seems to me the major downside is the possibilitiy that offspring won't be getting full inheritance but my kids seem to be doing better than me anyway, so in 25 years time (hopefully!!!) it won't matter to them so much

Or are such products going to be the future 'PPI' scandal?

 

[r.soleofsalford]

Been part-time for last ten years or so now and it's given me the immense pleasure of seeing my grandkids grow and develop. Priceless.

It was the best thing I`ve ever did.

8-)

 

[vincent]

I'd ask yourself whether you honestly want to become a landlord.

I've asked myself that question previously and thought:

- the property industry seems to be chasing landlords out through taxes and better rights for tenants (Is it really a safe bet for the future?).

- Could I really be arsed being on the end of the phone at any hour to angry tenants?

- Are the tax implications worth it? You either pay tax on it personally or have to set up a limited company which comes with accounting costs and the like.

I'm sure there's still plenty of money to be made (especially if you do it at scale and build a large portfolio), but I'm not sure it's worth all the hassle. My view on becoming a Landlord is that you're buying yourself a job. It might be a very well paying job in some cases, but more often than not I think it's a lot of work, with more stress, for less money than what people think.

If I were you I'd chuck any spare money in your ISA until you hit the annual limit, then have a bit more of a think at that point.

I appreciate some people have sound investments in property and it is a smart way to make money. But there can be a downsize. I had a small 2 bed terrace that I let out a few years ago in Reddish. The whole thing was a nightmare. Even though I let it through a a well known property company the tenant didn’t pay for months, refused to leave and pretty much trashed the place. I ended up going to court after about 6 months and losses of £3500. I didn’t have much spare cash at the time so it was very stressful. I sold the house as soon as they left and made small amount of money. Wish I had kept it as it’s worth a lot more but I simply didn’t have the cash or energy to do the place up after the previous tenants left. Never again.

 

[dickie davies]

Just to throw cat amongst the pigeons - has anybody any views/experience on the current spate of 'lifetime mortgages or equity release schemes' as a way of funding retirement.

It seems to me the major downside is the possibilitiy that offspring won't be getting full inheritance but my kids seem to be doing better than me anyway, so in 25 years time (hopefully!!!) it won't matter to them so much

Or are such products going to be the future 'PPI' scandal?

It was mentioned earlier in the thread and seems a fair way of raising capital

Lifetime mortgage simplified
If you borrow 50k against your house , you pay interest on that amount every month for life.
When you die, the 50k is repaid from the sale. The lender has made money from interest payments

I think equity release is when you sell a percentage of your home and when the house is sold, the equity release company is entitled to that percentage of the sale.
They make their money on an initial low valuation of the property (eg house is worth 340k they value at 300k. They take a 25% stake at 75k instead of the true value of 85k) and then the house increasing in value over time

Lifetime mortgage | MoneyHelper

www.moneyadviceservice.org.uk

 

[Citizen of Legoland]

Yes, when I first read about the subject it blew my mind. I think we're hard-wired to consider 'all debt is bad' and that one of your major financial milestones is to become mortgage-free.

I can completely understand people wanting their house paid off, but there are so many better (in my opinion) arguments against it.

If you offered most people an option of owning a house worth £500k or having £500k invested in index funds whilst living in a house with a £500k mortgage, people tend to go for the former. But when you tell people that they should expect to earn around £35k pa from the later option, they start to change their tune! :P

You're viewing it at the end of the savings plan though. That £500k house on a 25yr 90% LTV mortgage attracts interest of £13k pa but if the saver was to put the mortgage payments of £2000 pm into such funds that would gain just £1700 max in year 1. So they need to first get that mortgage down to nearer 60% to avail the best rates (60% mortgage would currently reduce payments to £14k from £24k, interest would be nearer £5k pa).

Obviously it's different if you suddenly have £500k to spend/invest, but then if the housing market crashes and you have a £400k house on a £450k (90% LTV) mortgage, perhaps not so good.

 

[denislawsbackheel]

Just to throw cat amongst the pigeons - has anybody any views/experience on the current spate of 'lifetime mortgages or equity release schemes' as a way of funding retirement.

It seems to me the major downside is the possibilitiy that offspring won't be getting full inheritance but my kids seem to be doing better than me anyway, so in 25 years time (hopefully!!!) it won't matter to them so much

Or are such products going to be the future 'PPI' scandal?

A lifetime interest only mortgage was the best thing my mother in law ever did.
She had to downsize in the 90s housing crash and could not afford a capital repayment mortgage but an interest only lifetime mortgage allowed her to buy a bungalow in Poynton. She lived in absolute security knowing she could afford the repayments and when she died her two daughters still got over £100K each after the capital sum was repaid.

 

[Manchester33]

You're viewing it at the end of the savings plan though. That £500k house on a 25yr 90% LTV mortgage attracts interest of £13k pa but if the saver was to put the mortgage payments of £2000 pm into such funds that would gain just £1700 max in year 1. So they need to first get that mortgage down to nearer 60% to avail the best rates (60% mortgage would currently reduce payments to £14k from £24k, interest would be nearer £5k pa).

Obviously it's different if you suddenly have £500k to spend/invest, but then if the housing market crashes and you have a £400k house on a £450k (90% LTV) mortgage, perhaps not so good.

I get your point, but mathematically (depending on interest rates your mortgage provider offers) it would still make sense to invest in an Index fund (presuming you trust the research behind that 7% figure) over paying down the mortgage no matter what the LTV is.

Basically, any interest rate on your mortgage lower than 7% gets beaten by the historical average in the stock market.

Presume you bought a house at £100k with a 90% LTV and an interest rate of 4% (which is purposefully high) and after paying your regular mortgage payments you had £1,000 to invest. Paying down the mortgage would save you £40, whereas investing it into the stock market would earn you £70. That £30 difference will also snowball at a higher rate if invested so the real loss would be somewhat higher.

It might attract better rates and be less risky, but mathematically, investing in a sensible index fund would earn more in the long term.

(again, I'm talking purely mathematically. I personally have an LTV well below 90% on my property as the value of my house has risen since I bought it - so I naturally get better rates now which makes the equation more straightforward for my personal circumstances).

 

[East Level 2]

Quick question: people often talk about wanting a pension of 2/3 final salary. Are they referring to 2/3 of final gross salary or 2/3 final take-home pay?
I know everybody has different requirements in retirement and both, one or neither might be suitable but which are they usually referring to?

 

[Blue Maverick]

Quick question: people often talk about wanting a pension of 2/3 final salary. Are they referring to 2/3 of final gross salary or 2/3 final take-home pay?
I know everybody has different requirements in retirement and both, one or neither might be suitable but which are they usually referring to?

Gross salary for me I get 2/3rds

 

[East Level 2]

Gross salary for me I get 2/3rds

Cheers for the info: I thought that would be the case.

 

[dickie davies]

Gross salary for me I get 2/3rds

Where as I'd say net if you're not renting

In general, people lose 25ish percent of their gross salary in tax and NIC contributions and then there are all the saving policies (mortgage, pension etc) to deduct.
So if you're a home owner then two thirds of your net salary SHOULD leave you comfortable