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mrdonuts
29th December 2011, 12:00
how to build a pension of £25k a year when contracting is likely to have gone the way of the dodo in the next 18 months so need to build it with contractor earnings in this period

the stock market has been essentially flat for the last 12 years so is investing into a SIPP worthwhile?

do you instead try and start/fund a plan b

do you stash the cash and then try and move somewhere with a low cost of living upon retirement

get some BTL leverage and hope the arse doesnt fall out of the property market

whats the best option/mix or are there some options i have overlooked

MarillionFan
29th December 2011, 12:03
how to build a pension of £25k a year when contracting is likely to have gone the way of the dodo in the next 18 months so need to build it with contractor earnings in this period

the stock market has been essentially flat for the last 12 years so is investing into a SIPP worthwhile?

do you instead try and start/fund a plan b

do you stash the cash and then try and move somewhere with a low cost of living upon retirement

get some BTL leverage and hope the arse doesnt fall out of the property market

whats the best option/mix or are there some options i have overlooked

1) Trade the stock market up to your capital gains allowance.
2) Set up a few little Plan B's - Web Business/Sell Online/Mail Orders/IT Services
3) Put cash in high paying bonds and use up your ISA allowance each year
4) Buy a BTL property
5) Carry on contracting.

Piece of pish. :smokin

milanbenes
29th December 2011, 12:27
question is, firstly the fundamentals

1, sit down and write down what your operating costs would be per year when you retire, that means, house - heating - lighting - insurance (assuming mortgage paid), car payments/depteciation + running costs, food, holidays, clothes, children etc, plus extra-ordinary costs

this is a very interesting exercise, I did it 18 months ago, once you've got the yearly costs on paper, then you can play with the numbers and see which item is the highest percentage of the total etc and where if needed you could shave extra costs

for my exercise I did a very conservative estimate ie with higher costs, eg new (decent) car every 5 years, decent family holidays 2 x a year etc, budgeted a lot for diesel etc

so immediately, I could see cost reduction potentials with the car etc

so as a result of item #1 you know your best prediction of annual running costs

then,

2, calculate the total £££ needed for retirement fund


dependency,


you need to know when you want to retire

so if we say you want to retire at 55, and you expect to live until 90 then you will
need....

90 - 55 * (the answer from item #1) = Something To Chew On

good luck

I've done mine


Milan.

mrdonuts
29th December 2011, 12:32
thanks milan thats where the £25k pa comes from

SimonMac
29th December 2011, 12:34
I don't think there is a hard and fast answer, my opinion is its probably best to do a little of most of the options you suggested to give a balanced portfolio, with low and high risk. I am fortunate that I bought a house just before the housing boom so even with a massive crash and the time till I retire I think its the best option to throw as much money into paying off what's left of the mortgage and going the letting route

milanbenes
29th December 2011, 12:36
I don't think there is a hard and fast answer, my opinion is its probably best to do a little of most of the options you suggested to give a balanced portfolio, with low and high risk. I am fortunate that I bought a house just before the housing boom so even with a massive crash and the time till I retire I think its the best option to throw as much money into paying off what's left of the mortgage and going the letting route


do you mean your pension fund will be to sell your house and live in rented accomodation and spend / live off the difference ?

Milan.

MarillionFan
29th December 2011, 12:44
And when is the expected age at which to retire these days?

milanbenes
29th December 2011, 12:48
from your calculations when will you be in a position to choose how you spend your days ?

Milan.

swamp
29th December 2011, 12:49
... contracting is likely to have gone the way of the dodo in the next 18 months

What makes you say this?

nomadd
29th December 2011, 13:03
how to build a pension of £25k a year when contracting is likely to have gone the way of the dodo in the next 18 months so need to build it with contractor earnings in this period

So if you expect contracting to be dead in 18 months, why lock away £25k you just might need? I expect contracting to at least be around another 5 years (so I can retire. :)) Or maybe you meant years?


the stock market has been essentially flat for the last 12 years so is investing into a SIPP worthwhile?

Yes. For the tax breaks. And companies still pay dividends, even if share prices are static. But such investments should be viewed as long term. I'm in a spread of low cost index trackers.


do you instead try and start/fund a plan b

Your call. But if done badly, you could lose your cash far faster than the stock market.


do you stash the cash and then try and move somewhere with a low cost of living upon retirement

You need a mixed investment strategy. Including the SIPP. You really do need to research your options and match them to your risk profile, timescales, and eventual aims. BTW, a pension of £25k a year would need a "pot" of roughly half a million pounds with current annuity rates (and even then we are talking rates for a 60-65 year old, not a 50 year old.) I've not got enough time left to build that, so I'm just "saving" a lot outside my pension. EDIT: And planning to retire somewhere much cheaper than London, where I presently live.


get some BTL leverage and hope the arse doesnt fall out of the property market

Very, very risky strategy in the current market. Opinions vary. Mine is: avoid.


whats the best option/mix or are there some options i have overlooked

A huge number of options. But, as has been posted: SIPP, ISA, ready cash in decent accounts, leave some in the company account, and maybe feed a little into a Plan B. Above all, don't lose sight of the fact that contracting is still easy money - so keep you skills up-to-date and at least some of your fingers in that pie.

OwlHoot
29th December 2011, 13:07
question is, firstly the fundamentals

1, sit down and write down what your operating costs would be per year when you retire, that means, house - heating - lighting - insurance (assuming mortgage paid), car payments/depteciation + running costs, food, holidays, clothes, children etc, plus extra-ordinary costs

this is a very interesting exercise, I did it 18 months ago, once you've got the yearly costs on paper, then you can play with the numbers and see which item is the highest percentage of the total etc and where if needed you could shave extra costs

for my exercise I did a very conservative estimate ie with higher costs, eg new (decent) car every 5 years, decent family holidays 2 x a year etc, budgeted a lot for diesel etc

so immediately, I could see cost reduction potentials with the car etc

so as a result of item #1 you know your best prediction of annual running costs

then,

2, calculate the total £££ needed for retirement fund


dependency,


you need to know when you want to retire

so if we say you want to retire at 55, and you expect to live until 90 then you will need....

90 - 55 * (the answer from item #1) = Something To Chew On

good luck

I've done mine

Milan.

As a favour I've done your calculation for you, Milan, assuming you'll live to be 90.

By my reckoning, to get all that lot you'll need to work until you're 88 :laugh

milanbenes
29th December 2011, 13:11
thanks mate :ohwell

Milan.

SimonMac
29th December 2011, 13:16
do you mean your pension fund will be to sell your house and live in rented accomodation and spend / live off the difference ?

Milan.

No my pension will be to sell the house in the UK and live in our Spanish property on the return, my mortgage will be paid off long before I retire (even retiring at a contractor friendly age) so the excess from the rental income will be invested at that time, but for now its all about paying down the existing mortgage.

Doggy Styles
29th December 2011, 14:32
1) Trade the stock market up to your capital gains allowance.
2) Set up a few little Plan B's - Web Business/Sell Online/Mail Orders/IT Services
3) Put cash in high paying bonds and use up your ISA allowance each year
4) Buy a BTL property
5) Carry on contracting.

Piece of pish. :smokinThat looks reasonable to me. Only two comments:

Probably best to pay down the mortgage first (MF, you've probably never needed one so can't blame you for missing that :D)

And as most of us don't know what we're doing with number 1, what about simple tracker ISAs?

MarillionFan
29th December 2011, 15:04
That looks reasonable to me. Only two comments:

Probably best to pay down the mortgage first (MF, you've probably never needed one so can't blame you for missing that :D)

And as most of us don't know what we're doing with number 1, what about simple tracker ISAs?

This would be true if interest rates were high, but as mine is a 0.98% offset I've drawn it all out and stuck it into ISAs, Bonds, RPI Linked Bonds at an average 5%(& tax free) and bought a BTL & a building plot which will return 7% p/a when complete. So I'm paying £4200 per year in interest payments but making £21,000 on the invested equity.:freaky:

Who said low interests was bad? :happy

mrdonuts
29th December 2011, 15:06
This would be true if interest rates were high, but as mine is a 0.98% offset I've drawn it all out

what do you mean you have drawn it all out?

i though the idea of an offset was that you parked your cash with the mortgage benefit being you dont pay interest on mortgage

mrdonuts
29th December 2011, 15:10
BTW, a pension of £25k a year would need a "pot" of roughly half a million pounds with current annuity rates (and even then we are talking rates for a 60-65 year old, not a 50 year old.)

see that is what annoys me there are loads in the public sector who are getting this and retiring at ~55 its just not right and the fckers have the audacity to complain theyre getting half a million pound paydays and often a lot more

mrdonuts
29th December 2011, 15:34
aaaaaaaaaaaaaarrrrrrrrrrrrrrrrrrrrrrrrrrrrrghhhhhh hhhhhhhhhhhhhh

Civil servants take 15 extra days off every year whilst four ministry staff miss 37 working days | Mail Online (http://www.dailymail.co.uk/news/article-2079597/Civil-servants-15-extra-days-year-whilst-ministry-staff-miss-37-working-days.html)

milanbenes
29th December 2011, 15:35
BTW, a pension of £25k a year would need a "pot" of roughly half a million pounds with current annuity rates (and even then we are talking rates for a 60-65 year old, not a 50 year old.)


who said anything about 'buying' an annuity ?


Milan.

MarillionFan
29th December 2011, 15:48
what do you mean you have drawn it all out?

i though the idea of an offset was that you parked your cash with the mortgage benefit being you dont pay interest on mortgage

Lets say you want to buy a property for £250k and have £150k in the bank.

In theory you need to borrow £100k from the bank. So you could put down £150k and take out a mortgage for £100k, giving you a LTV of 60%.

Or you could put down £25k and borrow £225k(LTV 10%), placing £125k into your current account. In terms of the offset, the interest payments are the same in both cases. But, you could then invest the £125k elsewhere at a higher interest rate then you are paying for the £225k and effectively make money out of the whole deal.

Piece of mathematical pish. :smokin

SimonMac
29th December 2011, 16:07
Lets say you want to buy a property for £250k and have £150k in the bank.

In theory you need to borrow £100k from the bank. So you could put down £150k and take out a mortgage for £100k, giving you a LTV of 60%.

Or you could put down £25k and borrow £225k(LTV 10%), placing £125k into your current account. In terms of the offset, the interest payments are the same in both cases. But, you could then invest the £125k elsewhere at a higher interest rate then you are paying for the £225k and effectively make money out of the whole deal.

Piece of mathematical pish. :smokin

And then you come to the real world, firstly try and find somewhere that will give you a 90% LTV, most banks will not entertain you with a deposit that low, secondly the rates would be in excess of 5-5.5% so repayments of about £1400 a month, or £16,800 compared to £500 or £6,000 a year on a 60% LTV which on an investment of £125k would mean an annual return require of in excess of 8% just to break even and if you can guarantee to beat that after paying any tax on the investment you are a better man than I sir.

MarillionFan
29th December 2011, 16:19
And then you come to the real world, firstly try and find somewhere that will give you a 90% LTV, most banks will not entertain you with a deposit that low, secondly the rates would be in excess of 5-5.5% so repayments of about £1400 a month, or £16,800 compared to £500 or £6,000 a year on a 60% LTV which on an investment of £125k would mean an annual return require of in excess of 8% just to break even and if you can guarantee to beat that after paying any tax on the investment you are a better man than I sir.

If you're starting from scratch today then you are partially correct.

(1) and find somewhere that will give you a 90% LTV - Agree, you can't get them at the moment. You could a few years ago.
(2) rates would be in excess of 5-5.5% - No. Incorrect. Good rates at the moment of 1.98% + Base. Offset mortgages | Compare UK Offset Mortgage Rates Online (http://www.knowyourmoney.co.uk/offset-mortgages/?gclid=CLK-_4rWp60CFZMhtAodWC3Vug)
(3) to beat that after paying any tax on the investment - Can be spread over ISAs(build up), 5 Year Bonds using an R85 and your partner and RPI + 0.5% government tax free bonds + some share dealing.
(4) you are a better man than I sir - Yes. Yes I am.

mrdonuts
29th December 2011, 16:20
Lets say you want to buy a property for £250k and have £150k in the bank.

In theory you need to borrow £100k from the bank. So you could put down £150k and take out a mortgage for £100k, giving you a LTV of 60%.

Or you could put down £25k and borrow £225k(LTV 10%), placing £125k into your current account. In terms of the offset, the interest payments are the same in both cases. But, you could then invest the £125k elsewhere at a higher interest rate then you are paying for the £225k and effectively make money out of the whole deal.

Piece of mathematical pish. :smokin


ok i see what you did , borrowed your offset from someone else in the belief you can get a better return elsewhere henceforth to be known as the MF carry trade

SimonMac
29th December 2011, 16:21
ok i see what you did , borrowed your offset from someone else in the belief you can get a better return elsewhere henceforth to be known as the MF carry trade

I think its technically a really badly constructed Ponzi scheme more than anything else

milanbenes
29th December 2011, 16:22
(3) to beat that after paying any tax on the investment - [B]Can be spread over ISAs(build up), 5 Year Bonds using an R85 and your partner and RPI + 0.5% government tax free bonds + some share dealing


MF,

you always look clever, until....

you mention that the overhang is overcome by some....

'share dealing'

and then you look like Delboy,

because for most of us, share dealing means throwing money into the stock market and not getting it back

the figures and explanation looked scientific until you described plugging the hole with share dealing

oh dear

next it'll be....

and some Christmas Trees and Sledges


:laugh

Milan.

milanbenes
29th December 2011, 16:23
I think its technically a really badly constructed Ponzi scheme more than anything else



you got it

dodgy dodgy dodgy

Milan.

MarillionFan
29th December 2011, 16:27
I think its technically a really badly constructed Ponzi scheme more than anything else

How is it a Ponzi scheme?

All you do is invest the equity you have in your property elsewhere at higher rates by not putting down a large deposit on your primary residence.

And the idea of investing is to spread that equity over numerous investments from low risk to high risk to achieve the highest return versus your own risk taking.

And as my mortgage is the lowest interest rate at 0.98% then I aint paying it off.

SimonMac
29th December 2011, 16:55
If you're starting from scratch today then you are partially correct.

(1) and find somewhere that will give you a 90% LTV - Agree, you can't get them at the moment. You could a few years ago.
(2) rates would be in excess of 5-5.5% - No. Incorrect. Good rates at the moment of 1.98% + Base. Offset mortgages | Compare UK Offset Mortgage Rates Online (http://www.knowyourmoney.co.uk/offset-mortgages/?gclid=CLK-_4rWp60CFZMhtAodWC3Vug)
(3) to beat that after paying any tax on the investment - Can be spread over ISAs(build up), 5 Year Bonds using an R85 and your partner and RPI + 0.5% government tax free bonds + some share dealing.
(4) you are a better man than I sir - Yes. Yes I am.

Your sums still don't add up, those 1.98% + Base are only for 2-3 years, but your plan relies on using 5 years bonds etc? Also if you look at the LTV applicable on those rates they are still only around 65-70% so you would need a perfect storm of ideal situations to make this work, which in reality will not likely happen, so although yes it can be done as you say, odds are I wouldn't feel safe relying on so many uncertainness. If you can get very good returns why not use invest your £150k to begin with, why add the additional complexities of buying a property too. Why not get the mortgage at 60% LTV and then rent out the property making a solid 4% return on the rental income after paying the mortgage and getting a £250,000 house out of it for £150,000 after the rent pays the mortgage

milanbenes
29th December 2011, 16:59
Simon,

it does work,

you're overlooking the key ingredient.....


'+ some share dealing'


That is MF's holy grail


Milan.

milanbenes
29th December 2011, 17:00
Why not get the mortgage at 60% LTV and then rent out the property making a solid 4% return on the rental income after paying the mortgage and getting a £250,000 house out of it for £150,000 after the rent pays the mortgage



Question, can you buy a house for £250,000 ?

Milan.

SimonMac
29th December 2011, 17:02
Question, can you buy a house for £250,000 ?

Milan.

I bought mine for £47,000 but then again I bought mine before the boom

sasguru
29th December 2011, 17:03
What is this "mortgage" thing of which you lot speak? :smokin

bobspud
29th December 2011, 17:13
My dad just embarrassed the hell out of me by showing me what is in his accounts. He never earned more than 20k in his life has been retired for 15 years. He only had a 15k per annum pension with every thing taken into account. He took my mother all over the world and has a bought a new car every few years (won't be buying another one though he's getting too old to get insured.) He's fscking loaded !!!! Mum just passed away and I tried to pay for her funeral. He said don't be silly and paid cash! His wise words are you need to take into account the fact that you do less as you get older. So if you think of it as the right hand side of a bell curve. Sort out loads of cash for between 50 and 70 then look to run yourself down from that point on.. there is little point living life to a mediocre standard now, only to leave 100k in the bank just in time to need a nursing home...

MarillionFan
29th December 2011, 17:13
Your sums still don't add up, those 1.98% + Base are only for 2-3 years, but your plan relies on using 5 years bonds etc? Also if you look at the LTV applicable on those rates they are still only around 65-70% so you would need a perfect storm of ideal situations to make this work, which in reality will not likely happen, so although yes it can be done as you say, odds are I wouldn't feel safe relying on so many uncertainness. If you can get very good returns why not use invest your £150k to begin with, why add the additional complexities of buying a property too. Why not get the mortgage at 60% LTV and then rent out the property making a solid 4% return on the rental income after paying the mortgage and getting a £250,000 house out of it for £150,000 after the rent pays the mortgage

My sums add up. Now bugger off permie boy.

MarillionFan
29th December 2011, 17:14
I bought mine for £47,000 but then again I bought mine before the boom

If you bought in the North, then it's probably only worth £35k now. :laugh

SimonMac
29th December 2011, 17:18
If you bought in the North, then it's probably only worth £35k now. :laugh

Last valuation was £105k, renting it out for £625 a month on a mortgage of £149 a month.

Now where is that :smokin smiley

SimonMac
29th December 2011, 17:21
Now bugger off permie boy.

How rude!

MarillionFan
29th December 2011, 17:37
Last valuation was £105k, renting it out for £625 a month on a mortgage of £149 a month.

Now where is that :smokin smiley

See, now that's a good return at 7%. So on my example, if you had a mortgage rate on your principal home of 1% then taking out the equity and buying another one for £105k would make sense. In fact, why not buy two at an LTV of 50% and take out a BTL mortgage at 5-6% for the other half.

Anyway that's my plan and that's why I've used my equity to go and buy some more BTL property.

Of course, if interest rates shoot up and there's a housing crash then I'm fecked. But that's the risk. :wink

SimonMac
29th December 2011, 17:42
See, now that's a good return at 7%. So on my example, if you had a mortgage rate on your principal home of 1% then taking out the equity and buying another one for £105k would make sense. In fact, why not buy two at an LTV of 50% and take out a BTL mortgage at 5-6% for the other half.

Anyway that's my plan and that's why I've used my equity to go and buy some more BTL property.

Of course, if interest rates shoot up and there's a housing crash then I'm fecked. But that's the risk. :wink

I want to know who you bank with that will let you have two or three risky mortgages on the go at the same time, hang on I can probably guess its Northern Rock :laugh

MarillionFan
29th December 2011, 17:52
I want to know who you bank with that will let you have two or three risky mortgages on the go at the same time, hang on I can probably guess its Northern Rock :laugh

Shhhhh! You don't tell your principle lender.

SimonMac
29th December 2011, 17:55
Shhhhh! You don't tell your principle lender.

And you wonder why we think you are dodgy :laugh

ChimpMaster
30th December 2011, 10:20
See, now that's a good return at 7%. So on my example, if you had a mortgage rate on your principal home of 1% then taking out the equity and buying another one for £105k would make sense. In fact, why not buy two at an LTV of 50% and take out a BTL mortgage at 5-6% for the other half.

Anyway that's my plan and that's why I've used my equity to go and buy some more BTL property.

Of course, if interest rates shoot up and there's a housing crash then I'm fecked. But that's the risk. :wink

House price crashes are irrelevant if you ride them out. If interest rates go up, put up your rent. :eyes

Paddy
30th December 2011, 10:39
how to build a pension of £25k a year when contracting is likely to have gone the way of the dodo in the next 18 months so need to build it with contractor earnings in this period

the stock market has been essentially flat for the last 12 years so is investing into a SIPP worthwhile?

do you instead try and start/fund a plan b

do you stash the cash and then try and move somewhere with a low cost of living upon retirement

get some BTL leverage and hope the arse doesnt fall out of the property market

whats the best option/mix or are there some options i have overlooked

Write a book titled “The secret of how to make a pension of £25k per year” and sell it on the Internet.

mrdonuts
30th December 2011, 13:47
more gloom

Newly retiring over 55s warned of income crisis on back of Bank's money printing | Mail Online (http://www.dailymail.co.uk/money/pensions/article-2046468/Newly-retiring-55s-warned-income-crisis-Banks-money-printing.html)

Jeff Maginty
30th December 2011, 14:25
more gloom

Newly retiring over 55s warned of income crisis on back of Bank's money printing | Mail Online (http://www.dailymail.co.uk/money/pensions/article-2046468/Newly-retiring-55s-warned-income-crisis-Banks-money-printing.html)


Doom doom doooooooom, let me hear you say "Whay-oh"!
Whay-ohhhhh!

:happy

MarillionFan
5th January 2012, 12:29
I want to know who you bank with that will let you have two or three risky mortgages on the go at the same time, hang on I can probably guess its Northern Rock :laugh

:emb

Looks like you were right and I was wrong.

Just tried and failed four times to meet the criteria to remortgage the property I just bought outright for BTL so I could build the second.

Penalised on

1) Time of ownership - Looks like you cannot buy a property outright and then try and remortgage it a month later - money laundering rules stop you. Got to wait a minimum of six months and then...

2) Even then one would not allow me to remortgage to build another property. The second didn't like contractors and a third didn't like contractors and also included your primary residence in it's affordability calculation of lending criteria which was 3.5 x Net Profit <= (Everything you owe on your primary mortgage, other mortgages and credit cards).

Nobody considered the rent versus mortgage interest on the property(like they used to).

And I can't even sign on! :tantrum:

SimonMac
5th January 2012, 12:37
:emb

Looks like you were right and I was wrong.

Just tried and failed four times to meet the criteria to remortgage the property I just bought outright for BTL so I could build the second.

Penalised on

1) Time of ownership - Looks like you cannot buy a property outright and then try and remortgage it a month later - money laundering rules stop you. Got to wait a minimum of six months and then...

2) Even then one would not allow me to remortgage to build another property. The second didn't like contractors and a third didn't like contractors and also included your primary residence in it's affordability calculation of lending criteria which was 3.5 x Net Profit <= (Everything you owe on your primary mortgage, other mortgages and credit cards).

Nobody considered the rent versus mortgage interest on the property(like they used to).

And I can't even sign on! :tantrum:

#WorldsSmallestViolin

Mich the Tester
5th January 2012, 12:38
I'm sure that if you give some significant part of your income to a banker or pension provider every month he'll be able to provide himself with a pension.

eek
5th January 2012, 13:43
:emb

Looks like you were right and I was wrong.

Just tried and failed four times to meet the criteria to remortgage the property I just bought outright for BTL so I could build the second.

Penalised on

1) Time of ownership - Looks like you cannot buy a property outright and then try and remortgage it a month later - money laundering rules stop you. Got to wait a minimum of six months and then...

2) Even then one would not allow me to remortgage to build another property. The second didn't like contractors and a third didn't like contractors and also included your primary residence in it's affordability calculation of lending criteria which was 3.5 x Net Profit <= (Everything you owe on your primary mortgage, other mortgages and credit cards).

Nobody considered the rent versus mortgage interest on the property(like they used to).

And I can't even sign on! :tantrum:

So take the loan out on your main property. You don't need to have the loan against the btl property for you to deduct the loan interest against the rent.