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Just now, every financial supplement and radio program is hammering on and on about pensions. I'd love some advice from the hard working folks of STW about what someone starting on an average graduate wage like me should be doing with their money. My parents have no savings, are old and still haven't paid-off their mortgage so no role-models here!
I know all employers have to have a pension scheme, should I use that or opt out? Should I be putting money in a pension or a stocks/shares ISA or both? Retirement seems so far away!
Do you have any regrets or things you would have done differently?
Any thoughts would be much appreciated.
I know all employers have to have a pension scheme, should I use that or opt out?
Depends on the pension, pay into it but at a minimum rate and they should offer you something decent theses days.
I opted for a low pension as I inherited enough to get a second property (small flat) which the rent covers the remaining mortgage and what I would pay in a higher pension goes on maintanence. For me this way seems logical as if I die my wife gets the flat, were as with a pension the money goes.
Build an ISA up, I wish I had done that sooner. If you have not already get a credit card and buy and pay back on time stuff you were going to buy anyway such as fuel or food, build up a good borrowing record so you have a nice clean credit file which shows your responsible with money.
Don't lease a flash car unless you can afford it. I've seen so many mates struggle but have a flash car on the drive and worry if they lose tiger job the car still needs paying.
Add what you pay in tax to the cost if something you see. So if you see for an example something you want at £100 say to your self that means I need to earn £120 to buy it. This has been my biggest deterrent against impulse buying.
This advice is based on mistakes I've made or seen others make. Others may very well disagree
Save, use as much tax free saving as possible and convince the rest of your generation to keep it out of property until the market corrects for the massive price hikes over the last 15 years.
What is your company pension like? For mine I put in 6% off my wage and they add 12% on top. You aren't going to find a better rate than that in an ISA!
So if they are adding to your contributions it may well be worth while. Problem is can't get the money till I'm old so no use in the short term. You will need to consider what funds to put it in. I would suggest passively managed trackers, not paying a fund manager but you need to read up on that yourself. Try moneysaving expert or any of the broadsheet personal finance sections online.
You should start to save (probably in cash isa) for unplanned expenses. A couple of months wages up to 6 months should anything expensive break and need fixing (like household stuff, cars etc.) or you get made redundant.
If you have any cash left over then save more into an ISA, drip feed into a stocks and shares isa but only if you don't want the money back in a hurry.
I'd suggest cash for a year or two while you find your feet. If stocks drop and you need the money back you could lose out short term.
convince the rest of your generation to keep it out of property until the market corrects for the massive price hikes over the last 15 years.
Like the goverments gonna let that happen. Any party that did wouldnt be in power very long.
Not that i agree with it but the voter public would lynch em.
trail_rat - Member
convince the rest of your generation to keep it out of property until the market corrects for the massive price hikes over the last 15 years.Like the goverments gonna let that happen. Any party that did wouldnt be in power very long.
Not that i agree with it but the voter public would lynch em.
Well Osbourne's doing his very best but prices are already falling in parts of London and if a government had that much control over the markets, why did they let 2008 happen? And the housing busts in late 70s, early 80s and early 90's ?...
To the OP - first thing to do is pay off any debts, and don't get any more, be disciplined and live within your means and any spare, put into a private pension a) you get 25% straight back as tax relief and b) by the time you retire, state pension is likely going to be dead and buried after the current ageing population makes it unaffordable for taxpayers to fund at anything like current levels.
Please for God's sake don't get suckered into the the idea that UK house prices only ever go up and that they're some kind of investment. The last 15 years are unprecedented - before then prices have bust roughly every 10 years with each bust bottoming out only marginally higher than the last one:
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Where I agree with Trailrat on this is just how badly the electorate will deal with a house price crash - so many people seem to have staked their current lifestyle and pension on ever-increasing prices.... but note the pattern and symmetry of the graph above!
live as cheaply as you can - rent is dead money, do a houseshare or whatever you have to do to make it as cheap as possible
drive a cheap car, cycle commute on a ratbike, food shopping at aldi etc
save hard, get a deposit together and get on the housing ladder - rent a room if you have to
pensions; whatever your employer offers, go in with as they are giving you money to go with your input. yes retirement is a long way away but future generations will have many years of old age to fund and there will be bob-all assistance from government. If you can afford it, get a SIPP (Hargreaves Lansdowne 🙂 ) and put something away because the earlier you get started it pays off in the long run. Pensions may not be trendy per se, but so what? last laugh on the guy who plans ahead
Ignore all that shite above and spunk it on drink and drugs. You're only young once.
is possibly partly correct imo. When you are young you can also invest in yourself quite effectively by travelling, taking courses, doing things. It makes you much more interesting to employers and often will help you see things differently which will help you get up the ladderIgnore all that shite above and spunk it on drink and drugs. You're only young once.
At some point though you do need to do the rest of that stuff though
Slight hijack but when is the best time to buy a house? From that graph above, are we about to see house prices plummet? Need to buy a new one soon. Should I hold off for a bit?
As for pensions, I think that once these final salary pensions have all been exhausted, the concept of retirement will change. I'm not old enough to have a gold plated pension and not young enough to have spent time on an effective alternative.
I'll be working in some form or another until I drop.
Contribute up to what your employer will match in your pension. A lot of rubbish talked about their performance but if your employer is offering say 5% and you pay in 5% then depending on your tax rate you are getting a lot of free money.
Then maybe buy property but to live in. Buy to let returns arent great in my experience unless you are in one of the "hotspots" like London and you are unlikely to be able to afford one anyway. I dont agree that prices will correct and people always incorrectly spout rubbish about this etc but unfortunatley house prices will continue to trend upwards although the rise wont be consistent. We live on an island with a growing population after all.
Alternatively invest in Isa's and tie up what you can each year.
My single biggest piece of advice would simply be to budget. Plan out your incoming and it going each month, work out what you have, save for what you want. I similarly has parents who weren't great examples with money, so I've had to learn for myself.
I'd also advise you to not put off paying into a pension, I have and I don't think it is the most sensible thing to do.
Brooes- despite all your points about house prices...you seem to be ignoring the red line which is showing house price rises? Despite all the 'busts' over the short term, the overall trend is / will be increasing house prices. Probably not exponentially as we have seen, but they're still going to increase. (Over the long term)
Fundamental market forces - we simply do not build enough houses for the demand in this country. Couple with stupid governments trying to buy votes for FTB by offering finance / credit solutions' instead of building enough houses.
A big thing about pensions is that the length of time you contribute into one is as important as the amount. Even if you can only make a small monthly contribution - do it.
My parents have no savings, are old and still haven't paid-off their mortgage so no role-models here!
Au contraire. Try to put enough aside and make a plan, so that this isn't you in 30/40 years...
depends if your buying a house for investment or a place to live........ even if it losses money your still quids in from paying rent.
sounds like you want an investment like every one else in the uk brooess
Use all tax efficient structures to the max - Isas and pensions but be carful where you invest.
Remember the main instrument of policy is to deliberately mis price risk in investments and to steal of savers, so you have a conundrum. The opportunity cost of consuming is low (as intended) even if this may not be a good idea.
Like most things in life - balance is required. Don't tie yourself into debt though. The unknown is when and if rates normalise. Then watch the housing market 🙁
Don't bother with pension for the time being - wait until a higher rate tax payer at least but mostly save to get a property if that's an aim - property is still good value in many parts of the country, interestingly Brooess's graph seems to show that. Saving v investing is always a difficult decision but max out your ISAs if you can.
I'm in the blow the lot while your young camp.
I'm 44 and don't/won't have a pension. I'm capable of investing my own money where I see fit.
I once took a policy out that I paid £500 up front then £100 per month.
It had dropped by half in the first year (took it out just before the twin towers) took another few years of paying my £100 just to get my money back.
You maybe capable of investing your own money but pensions have people invest their money for you.
I'd be happy if they invested thier money for me!
I'll put in zero and when can I retire?
I've always looked at pensions as "what can I buy for £100 today, what could I have bought for £100 40 year ago and what might I be able to buy for £100 in 40 years time."
My answer has always come out as "not a lot, lots and **** all"
So I have to put lots away to hopefully get not a lot or maybe even **** all.
Pensions are good but don't underestimate how much you need to be putting in it to make it worthwhile.
I was one of the younger generations that was shafted by the endowment mortgage promises, paid into that for years and got sweet fa out of it.
And to go against the grain, I've made, and continue to make, more money out of property than investing in a pension.
Having been paying in for the last 40 years and wondering whether I'm going to get a worthwhile pension out of it after all, the thought "should have done coke and hookers" sometimes springs to mind.
It had dropped by half in the first year
Common though with long term investments, especially pension funds. The drop can be down to initial fund fees and low fund balance.
(took it out just before the twin towers)
In this case yes more down to shares dropping, but it's a long term investment and you are constantly investing, plus funds may be reinvesting, so it's buying up loads of low price shares which over a long period should generally rise.
They're not amazing returns though, but some pensions allow you to control things and set to take a higher or lower risk.
My own investments haven't come close to my pension returns, and even then the pension returns aren't great.
Think about this though, I was looking an annuities now I've got 20-30ish years before retirement and some projections are saying you need £500k pension fund to get about a £15k pension (including state). That's based on what I'd get in today's money but for when I retire. It would actually be more like £25k but by then £25k will buy what £15k does today basically.
If things in the world don't go tits up.
Like you I had the same decision to make many years ago.
Back in the mid 90 ' s I went for a brand new house, £80,000 but in the end decided I was too young and wanted to live so pulled out. The same house went up for sale 5 yrs ago at 300k. I guess buying that house at 18 and not a series of superbike, mountain bikes and 6 holidays a year would have made far more economic sense. But and it is a big BUT, I have seen the world, I thoroughly enjoyed my 20 ' s and the playboy life style. I meet my wife when I was 26 and towards the end of my 20 ' s we had kids and bought a house.
But I did start a pension as soon as I finished my apprenticeship and that has built up into a big pot that will make me a massive difference later in life, and my advice to anyone would be to do the same with a pension.
Property is a good investment if it works out.
However...
If you are young and not settled on a career be aware that you will likely want to move somewhere. Post Uni I changed jobs 4 times in 4 years, had to move 3 times to make that work so buying/selling houses would have been very expensive. Since then work took me to a few different places. Each time you move the government, solicitors and estate agents want a bit of it.
The rent is dead money thing is a bit too simplistic, most places I have lived rent was similar or less than a mortgage. But you have no maintenance, repairs, aspirational upgrades or tax and commission t0 pay for. Add in the interest and renting can work out similar but with more flexibility, the only thing that you need to do is invest/save the difference rather than buy bikes.
Save what you can, build up some funds and if you do want to buy a house make sure you plan to live in it for a few years at least.
"Save what you can, build up some funds and if you do want to buy a house make sure you plan to live in it for a few years at least."
good advice. forget the ladder system. If Mystic Brooess is right you dont want to be in negative equity in a tiny flat/house when the music stops.
Many thanks for all the really useful replies. Certainly a lot to consider and more reading to do. I hope this thread can be helpful to someone else in a similar position.
I rented most of my life and my money went in to pension and life. At retirement I bought a place where I wanted to live and have a tidy pension. Sinking all your money in the housing game is just restricting your life. I moved around constantly with my job. Would have lost most of the money sucked up by estate agents, mortgage and council tax. IVe settled now and I'm not maintaing some four or five bedroom property empty of children devouwrting heating, council tax and electricity. People get stuck in the property climbing the ladder to ever more expensive houses whilst life passes them by.
Ignore all that shite above and spunk it on drink and drugs. You're only young once.
This...well not quite but I agree with the sentiment..
I'd rather enjoy my money now than wehn I'm to old to have fun. That said I still have a pension that'll keep me from starving, but I won't be rich in my old age. Pretty well of now however 🙂
About pensions stopping when you're dead - not necessarily true. My spouse gets a widows pension plus a lump sum on my death (whether I'm working or not) so check your employers scheme before writing it off. I also pay 6% and employer pays a further 12%, I'd like to see rates like that anywhere else.
It's all well and good to go the DIY route but unless you have made SERIOUS investments then it all counts for nothing when you're old, needing care and have blown the pot.
Also, in my experience rent > mortgage even after "aspriational upgrades", maintenance etc. But don't settle down till you're ready, as said moving costs money!
The blow it while your young approach is irresponsible and in other countries will have you homeless in your elder years and probably will do in this country the way things are going. Why should you be able to get away with not making reasonable and sensible provisions during your life and expect others to pick up the tab when you're in your old age and run out of money. Pensions may not be the answer right now, or in the future for today's young people, I don't know, but you should be making some provisions, and if you're not sure what provisions to make or what your options are then that's what a Financial Advisor is for.
IMO a financial advisor is one in a long line that is filling his pockets from your hard earned!
And yes we are picking up the tab right now.
Buy 4 flats and rent them out.
Interesting comments on house buying. Depending on where your job is should affect if you buy a house. If you are career motivated* then you may end up moving to further your options. I find it strange when people at our place are mad keen to buy after a few years. If you have no ties to an area (partner, family, mortgage) then you can up and leave when a good opportunity comes along.
Much harder and more expensive if you have a mortgage to fund. Buying a house is only cheaper if you are in it for the long haul.
I moved from Somerset to Newcastle after 2 years. MY wife moved up from London. Got friends who've gone to Germany, Dubai, US and all over. Life is easier when you are flexible.
I've put into pensions all my life (I'm 50 now) and will be able to retire at 60 (if I choose) with enough to get by comfortably - but that is through a combination of final-salary schemes and earning good money.
I'm putting in the auto-enrolment pension scheme at work next year and tbh, for the 'average' worker they'll get pretty much bu99er all if only putting in the minimum, and even with the state pension will still be poor and in need of benefits/credits etc to get by.
Whilst pensions probably shouldn't be relied upon by themselves, they can be an effective way to save, and some have extra benefits too. If you contribute from gross salary you're saving tax directly (vs putting the net salary in to an ISA), and many companies contribute an equal or greater amount. You may find there are life assurance perks which can save you money when getting a policy to cover a mortgage too.
being canny with your hard earned money doesn't necessarily mean being boring
same rationale for example, riding a 26in wheel bike is still out riding and having a good time
if you enrol into whatever staff pension scheme you have and start a SIPP it will pay back in the long run and doing it now means that you don't miss it from your disposable income cos you get into the habit of proportioning your wages into expenses, saving, disposable
was thinking about this last night.
i understand being flexible , hell we all gotta be flexible to an extent but i think the major 2 advantages of buying a house are ......
1 - you aint getting evicted at the landlords whim.
2- your mortgage assuming you dont have aspirations above your means or do silly things like remortgage and buy a car with the extra...... the payments will go down over the years - rent is only going one way. My last foray into the tennent side of rentals resulted in 100 viewings for one property and a bidding frenzy on the rent !
but id lived in this area for 3 years prior and knew i wasnt going anywhere soon...
The bit you don't get about mortgage, there are several studies showing that depending on the market renting and buying are break even long term. Taxes, fees and repair/improvement are a significant cost along with the interest. BUT it does involve saving the difference not spending it.
"BUT it does involve saving the difference not spending it."
im not sure saving the -300 quid a month difference between my mortgage and a similar rental of a more dated interior finish will result in a difference.
i guess it depends if you think 15grands an acceptable price for a new kitchen
your paying for all the same things in a rental your just drip feeding it to the land lord over time and sharing the bill with previous/future tennents - while havin t oput up with landlords interior design !
its all a gamble.......that much is certain.
I'm strongly in the mortgage camp.
Your mortgage payment will follow the interest rate and won't be affected by inflation/house price rises etc.
Rent will always go up, as house prices increase the loan costs to fund them increase, most landlord use high leverage as it removes their cash and leaves the banks money invested in the property.
I have a few rentals and don't have any of my money invested in them any more, I have equity tied in but no physical money.
The bit you don't get about mortgage, there are several studies showing that depending on the market renting and buying are break even long term.
Having paid off my mortgage many years ago and effectively living rent free indefinitely now, I'm pretty much a fan of the mortgage route.....
Well done Footflaps I guess you started when house prices were much less that current. The point being that what was good in the past is not necessarily goof for the future, a lot of people have made significant profits in housing, getting on the ladder now is very different. It's important to asses in the now not the past.
In the now my mortgage is less than any similar rent by at least £350 a month. Thats money in my pocket so its cheaper each month amd I dont get fleeced for a months rent at the end of the lease because I stood on the carpets and my dog is free to dig as many holes in the lawn as she likes and in 17 years I'll have nowt to pay each month.