Me and Mrs-g have 2 kids and live in London, and just bought the best house we could afford on our average London earnings last year at 35. My plan to for retirement is as follows.

Spend the next 20-25 years as a wage slave paying off the mortgage on the house, kids leave home, then when we hit say 60 we can sell the house and buy a smaller place, as there will only be 2 of us, and we can buy that anywhere as we wont need to live in London anymore. use the rest to buy another small place to rent out and live off that rental income.

I like this plan as I think it is inflation proof, the only way I see that it could fail catastrophically is if the price of housing everywhere else rises much more then the price of housing in London, trapping me in the house.

Is this a good plan, what else am I missing?

I’m gambling on the collapse of the NHS reducing life expectancy to the level that us hardy fit cycling types will be able to pick up the savings of the dear departed. Alternatively, if I’m not in that group, I won’t care.

One of our directors did a meet the people day at our office a few years back when civil service pay freeze and pension reforms were kicking in. I suggested the best thing I could do for my families short to medium term financial security was to die in service, and got a round of applause from my colleagues. My boss was less keen on my intervention, apparently.

Currently in my early 30’s I have three pensions!

So.

I’m early 50’s and have 5 defined benefit, 2 defined contribution and a private one. It would’ve been more but I consolidated a couple in the 90’s. Changed companies a lot plus a Contractor.

Eggs and Baskets.

If you want to retire at 60 and have a £20k a year pension for life (just example numbers), then given you could live to 100, you’ll need something like 40 years x £20k = £800k fund. You’re not going to get that putting £50/month in for 40 years (£24k total), even if the fund charges were zero…..

This, with annuity rates at +£35k for £1000 pa you needs loads.

Where I work now (I’m a Contractor here) they’ve just implemented auto-enrolement, I’m quite amazed of the number of employees who have no (or very little) existing pension provision.

Also because of life-time limits it may be worth for a couple to start putting money into the one with the lesser pension provision.

its not a very diverse plan ?

I like this plan as I think it is inflation proof, the only way I see that it could fail catastrophically is if the price of housing everywhere else rises much more then the price of housing in London, trapping me in the house.

The price of housing in areas which are not easily commutable into london (or other big city) will always be much lower than in commutable areas.
Nothing is going to change that.
So I’d say you are right as long as you are happy with moving to such an area.

I guess the question is what shape will the housing market as a whole be in when you decide to cash out? If the whole UK housing market has collapsed massively then you might get a lot less than you think.
My personal (completely uneducated) opinion is that a long-term collapse will not happen. Prices in London and the SE will have to level off at some point but I think will always remain high within our lifetimes.

ff said:

Not illegal at all

It was a long time ago, and I have a poor memory, yet I believe it was a pensions chap who told me that. I wondered why he’d said it.

A workmate’s pension vanished when his previous employer was taken over by an entrepreneur who promptly did a Maxwell with the pension fund. That’s one of the reasons why I kept the two separate.

We’ve moved from an era of lower life expectancy and defined benefit, guaranteed pensions, where employees were “on the books” of the company long term, even after retirement. you could see it that employees have been taken “off the balance sheet” of employers, and are now more short term costs. That’s freed up corporate growth, flexibility etc but placed the risk and liability of employees retirement funding in their hands. We’re now in a position where employers are being required to put tiny percentages under auto enrolment into employee pensions, which really don’t amount to a hill of beans.

I’m not sure what the answer is…. I have friends who have no retirement savings at all and rely on property. I take the view that I’ll need at least £500k in a pot to give me £20k pa retirement. When the average pension pot is nearer £35k in total, where do you go from there?

I think the Government are seeing this, leading to lifetime ISAs and the ability to extract funds from a pension outside of the annuity regime…but when its gone its gone.

“We’re now in a position where employers are being required to put tiny percentages under auto enrolment into employee pensions, which really don’t amount to a hill of bean”

but importantly its enough to reduce/eradicate the benifits they would have been entitled too when it comes to the crunch.

We’ve moved from an era of

One of the biggest changes is the distribution of wealth, the middle / lower classes have a lot smaller share now……

<I> One of the biggest changes is the distribution of wealth, the middle / lower classes have a lot smaller share now…… </I>

…a consequence of taking the employees “off balance sheet”, with the resulting flexibility, growth and profit flowing to the stakeholders. I think its much more complicated though than this, as general standard of living, disposable income is so much higher, and flexibility re who and how we work has lots of benefits.

One thing that has taken a hit though is the retirement income, which has shifted to individual responsibility. The problem is individuals haven’t adjusted for it – partly because we aren’t able to, as wages didn’t increase to fully compensate the loss of defined benefit pensions, and partly because putting a roof over our heads (rightly) takes first charge on our income…

Your pension is worth jack shit because you paid jack shit into it.

No, my pension will be shite cos the company I worked for at the time decided not to pay f### all into it for more than a decade, during the good times, then whined like a banshee and paid people off when they realised they weren’t just going to have to put their hands in their pockets again, but actually quite deep into their pockets.

Dicks.

Your pension is worth jack shit because you paid jack shit into it.

cos the company I worked for at the time decided not to pay f### all into it for more than a decade

I rest my case…

Is this a good plan, what else am I missing?

Probably pretty good but:-

I don’t think it’s tax efficient (Capitol Gains Tax vs pension relief).

You may expire prior to reaching 60 – do you have life insurance that would allow your wife to pay off your part of the mortgage

Buy to let is getting a lot of attention ATM – as in a target for additional taxation.

An unholy alliance of interest rate rises, redundancy and downturn could lose your current house.

I don’t think it’s tax efficient (Capitol Gains Tax vs pension relief).

You don’t pay capital gains tax on a main house. Given that a house is needed anyway, buying one (with a view to later downsizing) in an expensive central area where employment prospects are good and commute times short seems like a reasonably strategy to me.

And the choice between buying the buy to let or otherwise investing the leftover cash doesn’t need to be made for years. The tax/investment landscape could be anywhere by then.

Difficult to predict pension funds in the next 20 years, but here is my real life take on the expectation right now.

I’m 61 and have worked all my life, always paid into a pension, even did top up contributions ( I’m not be self righteous here).

Reasonably well paid, but did make a lot of sacrficies.
Three kids, no car for about 5 years once when we had just £500 in the bank,

Recently retired from work , earned the most money I was ever paid, and it took quite a leap of faith to just walk away.

If you have no debt, mortgage free, kids grown up etc, then the amount of money you need to live reasonably well on is considerably lower than a salary to fund kids, mortgage, new cars, expensive holidays etc.

My opinion, or should I say expectation, is that my quality of life without work is much better. Having to adjust to lower income has been a little difficult as two kids are still at home.

£20,000 a year as an income in today’s value, would be more than enough for me and my wife.

The trouble is that now that annuities are very poor, drawdown is a good long term option, but care is needed as the temptation is to buy expensive shiny things right now.

I rest my case…

Your case allows for a £0 contribution from Her Magesty’s Government.

Even if pensions are frozen at the current levels , or are set at say £150 pppw that is £8k a year you wont need to find , and the magic £20K figure from your PPP becomes £12k

I think there is more to this than just having enough cash at the right time, my father worked till he was sixty five had a very physical (but very steady away) job and stress was non existent, 20 mins to work, tea on the table, only investment in children was preventing starvation until 16 and out to work you went – me on the other hand all the stuff that goes with “modern” life big house, sharing parenting, business, four kids into university, providing all the stuff we “need” and at 52 I am completely knackered both physically and mentally (my Father is 84 nearly 20 retired years) and if I was retiring at 68 on a state pension I think I would top myself – anyway just say that I think it is a very difficult world we are heading into and us 50 somethings all seem to end up looking after ageing parents (just as the kids leave home) I am lucky to have a good lump of property, a business, pensions that means I can more or less retire from full time work at 55 (the truth is I doubt I could continue after this in a proper job) I really worry about my kids having to work into their 70s

Not as screwed as a divorce….

Been paying in between 11 and 15% for the last 6-7 years, add to that the company share schemes hopefully we will be ok.
Wife has been in the same company for 18 years paying in the whole time so she is far better off.

Not sure if divorce is not a better bet long term as I could live very well on half my income the missus on the other hand