Why the 5 Years Before Retirement Are So Important (You’re closer than you think!)
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- Опубликовано: 6 фев 2025
- Retirement could be closer than you think. It all hinges on those final few years before retirement and making the most of the tools you have available.
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At 56 years old and still working full-time this was just the video I needed.
Same 👍
check your investments. They won't have grown much, if at all in the past 2 years if you exclude additional contributions
@@stuwhite2337yep my overall pension investment has dropped in the last 2 years by around 8%. I’m 56 and was hoping to finish by 58. If this trend continues then this will be unlikely.
@@stuwhite2337no shit Sherlock
@@alrightdave6135 the point is your cash would have
Einstein once said: “half the quotes that are attributed to me online are false”
Love it
😂😂😂
Reminds me of Lincolns famous quote "Don't believe everything you read on the internet"
Yeah but the one in the vid is legit.
😂
James you've no idea how much I appreciate your videos. I've learned more from your channel in 2 years than 15 years of school studying. God bless you and your family.
I've only recently realised that 30% of my audience watches RUclips on TV. That's why I'm trialling the use of QR codes for links. Let me know if you find it useful!
Does it need to be bigger so you don't need to get up off the sofa ?!
(I realise that most people watching on TV won't see this comment!)
Works great for me James - watching on my sofa!
Yeah l don't like getting off my sofa unless I'm migrating to my chair.
So do you use the RUclips app on TV or do AirPlay from your phone?
Wondering why you’d also see the comments.
@@JamesShack I have a RUclips app on Fire Stick and Nvidia Shield connected to my two TVs. You can see the comments on the app but I have to use my phone app to add comments.
Just streamed to TV for the first time today. Android tablet to Fire TV stick. Commenting back on my tablet.
Very good video, I’m 53 and started watching your vids last year. I have always put a good proportion of my salary into the pension but have received some shocking returns over the past 20 years
100 % this sort of worked me the at one point putting 70% of my earnings into my pension. Just a side point my boss was not trust worthy in any shape of form and did not make my pension contributions for 3 plus mouths before folding the company yes it is being claimed back but in my experience you can not trust smaller companies to make payments to your pension on time even though they are quick with the deductions. Best to check your pension contributions very carefully. Keep up the good work James.
The concept of mini-retirement changed my life. I'm no longer waiting for some retirement paradise when I'm 65. It helps to know how to fund the lifestyle. You know, making money while you sip that piña colada by the beach does help. I wouldn't have been able to do it otherwise.
Yeah, people miss that part. You don't jet out to Puerto Rico with your life savings. Proper investing and a good business acumen are big pluses. Invest in the stock market, real estate, build businesses. That's just it.
Opting for an invest-ment advisr is currently the optimal approach for navigating the stock market, particularly for those nearing retirement. I've been consulting with a coach for a while, and my portfOlio has surged by 45% since Q2.
I might want to try out a manager this year, but the information on the internet is overwhelming. I know it's not appropriate, but you could mention a good one(s)?
Her name is Diana CAsteel Lynch. Hope that helps
Thanks for this, but I already have a 401(k). You think I'm still eligible to use a financial advisor?
You’re voided on NI gaps was useful. I just found out small gaps that I was not aware of due to overseas stay and this brought my retirement closer to 2040 as fully eligible for state pension. Thank you
Watching and thinking, how many people fit this model? In the U.K. most people have no or limited savings. Many rent! I’m 57 and have another 10 years of mortgage payments to make! Life didn’t go to financial advisors ideal life plans!
Colleges are doing exactly this. Not rocket science, but you need to be in the ideal financial position to do so. Meanwhile life goes on, bills have to be paid……
This is a very relevant video with essential information for those near to retirement to turbo charge their pension and give themselves the best possible retirement pot and it is free advice !
It does however depend on individual financial circumstances, but if you can afford to do so and have a DC pension with salary sacrifice then try and ramp up your pension contributions especially if you are a higher rate taxpayer. In addition, move any monies from taxable savings or investments into a SIPP if you are very close to or over the age in which you can take your SIPP.
Fortunately, i was given the above ideas when in my late 40's by a very knowledgeable work colleague who was at retirement age.
Thanks to him, I retired at age 55.
Encouraging video James. I’m early 50s and feeling behind just as you’ve described. Thanks for showing there is a way to succeed over the next years. Encouraging!
That’s good to hear! To be honest, I was watching this back getting motivated myself!
It’s nice to have a short term target like that to aim for.
Behind?! I haven't even started yet....
@@JamesShack Many thanks for this video James. I found it amazing that we actually came up with a similar tactic. You in your video, and me guy in his 40s who likes investing and eagerly takes control of his own finances.
James a quick question for you. As I mentioned my strategy is slightly different so I wanted to ask you what do you think of the following tactic.
Instead of waiting until someone is in his 50s, I suggest person should be putting as much as possible into ISA. Preferably into dividend paying stocks and ETFs. The idea being: build a second stream on income so by the time you are in your 50s you can salary sacrifice max of your employment income, which in practice means leaving you with a salary at the level of National Min Wage/National Living Wage and everything above that threshold gets directed into pension. This means you can effectively pay very little tax and NI conts whilst the rest gets accumulated in your DC pot (assuming that you are a member of DC pension scheme).
It should be possible to do if you have a second income from your ISA (dividend payments) that are tax free too...
Obviously by the time you can start doing it, you need to have your mortgage fully paid off and your monthly expenses kept on a short leash.
What do you think James ?
Thanks James. The scenario you gave is very similar to my own. This has been food for thought indeed.
I’m disillusioned ( and affected by) by the whole financial system… pension transfer values halved, share of funds drying up , the property rental ( retirement plan ) model obliterated and sooooooo heavily taxed at every turn…. At this point I admire the individuals that spend as they go .. as soon as everyone puts their cash into banks for the safe attractive 5% returns then the government will tax that as well ..
Sorry for grumping… thanks for doing your uploads.. they are helpful and informative
We can still have a rental property ,especially with no mortgage they do OK , Tax free ISA allowance is £20k per annum ,so smash the limit of this for 10 years and you've got £200k tax free to draw off (PLUS INTEREST ),Put a few quid into a private pension to get the 20% allowance..Add a 2 bed Rental paying £700 a month AND a state pension @67 ,small private pension and £200k Tax free Stocks and shares ISA to draw off .. Boom ,Not so bad ? thats a nice Tax free passive income of over £2000 a month . Thats how I see it anyway .
The compounding interest example at the start of this video is very powerful. Good stuff.
There’s a lot of basic ideas that people don’t seem to be aware of. I’m 51 now taking it easier than ever based on this sort of investment plan. The ISA > pension I hadn’t thought of though - thanks
It would be great to do a video on “side stepping” the mortgage, renting and taking you £60k “deposit” and investing it over 20-30 years
The question I would ask is where is the money coming from? Wealth has to be created through time and skill in creating things or providing services. Some risk is also involved.
If you aren't putting in time or skill or taking a risk the only explanation is you are acquiring wealth from other people losing wealth.
I am close to retirement and some years ago I set an amount of money I would require to live comfortably on once I stopped working. It's not a vast amount, but I will live as comfortably in retirement as I did when I was working.
3:26 The example assumes that you have £10k to invest. BUT we are encouraged to smooth out the market by investing smaller amounts regularly, say £1000 per month. The effect of this is to maximise fees and yield much poorer returns.
Great video, lots of very interesting information. We are heading to retirement and cannot wait, I am in the process of saving to retire early. Thankfully my English father knew the benefit of super and my husband and I have paid into super since we were 18, ie 35 years. Small amounts over the long term have meant we have never had to push lots of money into super/pension. Sadly in Australia we cannot access money tax free until 60.
So moral of the story you need at least 30years to start seeing serious gains im a retirement account.
Great advice, already at 22% AVC and hoping to up it to 31% next year, there is one thing you missed, you can use any future wage rises to increase your AVC each year you get a pay rise.
If you've already been through this, do you have any words of encouragement for others behind you on the journey?
Great advice James. I am near the end of this journey being a year away from retirement. The only things I would add is that you should pay off debts first and carefully reviewing your budget to cut out unnecessary costs. By 55 I had accumulated all sorts of subscription costs, memberships, service charges etc that together added up. Also look at your service providers insurance, banking, telecoms etc. these may once have been the best and cheapest providers but you can almost certainly now get better deals.
@@peterhoughton3589 it doesn't even have to be a mini budget. Anything could cause the stock market to collapse, or the value of bonds to fall.
@@peterhoughton3589I assumed that the average rate of return of 7% accounted for a partial derisking of the portfolio.
I only started my pension at 30 after a couple of temp roles and redundancies. After 13 years i'm about 12% towards my end aim. My company does SMART and I have been ratcheting up my contributions and hope to hit target for retirement in about 15-18 years.
Glad to be here watvching smart blokes like you at 37, while I wish I would of done this at 20 it's better now than some of the others in the comments that are saying they're 50+ (no disrespect). I used to worry about it but now I have done a hell of a lot of financial study I feel as prepared as I can be, lets just hope the markets aren't too rocky over the next 20 years.
I really enjoy your videos James, you’re very entertaining, knowledgable and easy to watch.
I think the weird economic circumstances of the last 15 years are changing the life journey for a lot of people. Instead of the 50s being a time when they are free of mortgages and kids, many "millennials" have found that they were saving for a house until middle age and, consequently, didn't have kids until their late 30s or early 40s. So the late-career time of high saving potential is truncated. But, on the other hand, if they made the right sacrifices, they had a chance to build up some savings in the their 20s/30s (while their parents were busy with kids and houses). Thanks to the miracle of compounding, modest savings from those early years can pay-off big time while they are busy spending middle age on child-rearing. At least, that's how I'm hoping things work out! This could also be a reason why it's more important than ever to start saving early and consistently, even if only modestly.
I’ll tell you what I consolidated a lot of my pensions and some have had for thirty years - they have no where near grown at 7% a year - the pension industry has only looked after itself for all theses years and have charged their customers all the profits
You fancy doing a wee video on the MPAA and when it gets activated?! I want to crystalize my entire pot at 55 into drawdown, taking the 25% tax-free lump sum, and using it to pay off my mortgage, however I wont touch the rest, which will remain invested, and I will keep working and keep contributing. Prob need to speak to an adviser, but the info I seek should also be in the public domain, not seeking advise, just facts!!
- Have I activated the MPAA? eg can I now only contribute £10K/year to my pension?
- Are future earnings on my existing (now crystalized) investment crystalized or uncrystallised?
- Are future contributions to my pension uncrystalised (I assume so!), ditto the earnings on same?
You know your stuff mate! Advice that will help the everyday working man. Well done!👍
My pension provider changed the investment type as I'm approaching state pension age in a few years time. Unfortunately due to Liz Truss financial issue in the UK, my pension pot lost a heck of a lot of money. This is scary as I now have a lot less than I had 3 year ago, even though I had put extra in over the past 4 years via my work pension
same here! Financial advisers always talk about pensions going up every year usually 5 or 7%. They have a vested interest in people paying into these investments but like you my private pension has lost around 20% in the last few years. I now channel all my spare cash into my isa and buy high dividend shares and funds. That way you always have a rising stream of tax free income regardless of how the market performs
Well that was extremely helpful and thought provoking. I hadn't appreciated the extra saving of NI contributions that salary sacrifice provides.
Worth also mention the carry forward rule which if they are downsizing or have savings on retirement can net a quick boost.
got my first mortgage at 21y old. 21years later lost the house in a divorce.. now i have a new mortgage that i will be paying until 67y hold. i am almost 59y old and i wanna retire early. challenging
Great video James. I can relate to this. I’m 54 and only a few years ago didn’t have a lot invested. Now I’m up to around 500K and hope to have 1 million at around 63 which is when I plan to retire.
At the moment I have a well paid stress free 9-5 job home every night and weekend so will stick this out until it’s time for me to call it a day maximising my isa and pension as much as possible. Even a few hundred in a pension goes a long way.
Don't know you managed that. Care to share assuming if you had nothing invested at 50, how are you now up to £500?
@@kaxar6954 yeah I pretty much max'd out my ISA and Pension. This yeah I've paid 60k into pension and ISA from my salary. I have cut back on spending for the next 5 years.
It's doable.
@@kaxar6954”didn’t have a lot invested” isn’t nothing. Maybe he had 200k and felt it wasn’t that much at his age
@@kaxar6954 Maybe had another source of income say from rental property and had paid all the salary into their pension.
@@kaxar6954By doing that they can reduce their self assessment tax bill by using their personal tax allowance.
I presume you mean ‘paying off your mortgage’ (not pension) - otherwise I thought this very good - you’re right financial literacy is so important
Time will tell but I worry more about negative growth over the next 5 years. Despite what history tells us, all my savings outside of pension is going into cash now while I can get >5%. We’ve seen good growth in the 3 months to May 24 but I’m betting that will be the peak for a long time to come. Delighted for someone to tell me I was wrong in the months and years to come. FTSE peaks on 15/5/24 at 8473,as a point of reference.
Yes - I am looking at options now. I had assumed pension provided could pay one the interest on the fund yearly and give lump sum back to my estate when I am gone.
Some say assume makes an ass out of u and me.
I prefer the Under Siege 2 - the mother of all F**K ups..
Time to do some real financial planning g
James one thing I would like you to address is the phasing out of national insurance & thereby increasing of the income tax that would result. The end result is that Pensioners will be paying more income tax.
At the moment Pensioners are taxed on income tax & not national insurance, my question would be would ISA now be a better investment than a pension?
I’m lucky enough to get a reasonable bonus each year (nearly £20k) and for the last 5 years I’ve had this paid into my pension as salary sacrifice. This has made a big difference to my pension pot (almost x2) and saved losing a big chunk of my bonus in tax. I wish I’d done this many years ago.
It really adds up!
You will be laughing during retirement mate. Good luck 👊🏽
I've done the same with my bonuses and share options, my pension funds have really taken off.
@@owensmith7530 Nice. Shame I only started doing this when I turned 50! When I was younger the idea never crossed my mind, but then retirement seemed far away 😉…time flies!
Does your employer allow you to pay your bonus directly into your pension? Wish I had that option. I could take the bonus and increase my monthly pension contributions, I suppose. Just takes a little bit more discipline...
I am 65 this year and I will max out my pension as much as i can for the next 10 years i am a higher rate tax payer becuse of BTL income and i have 12k a year self employed earings and i own a SPV when i do get my state pension i am putting every penny into my pension rather then pay 40% tax I am lucky pensions for me are not for my pension they are just a great place to park tax with the tax mans help and are fantastic for IHT planning you should do a topic on this i am sure i am not alone with frozen tax allowances
Hi James , your are an excellent dynamic presenter who has a real impact.. Keep up the great work...😊
Thank you! Will do!
Good guidance but (a) predicated on clearing mortgage while working and (b) seeing fund growth: uk fund growth has been ~0 for 3 years.😢
U can change funds if urs is underperforming. Part of my pension was in UK equity and wasn't making money then I switched it to a global equity fund which was galloping.
Easy! All u have to do is...
1) pay off your mortgage by 55.
2) pray, in the 5 years, the stock market(pension) grows at 7%pa.
These 2 things are very very unlikely.
If you get a mortgage between 25-35 htf are you still paying a mortgage after 55?! People aren't planning ahead in this country.
Very helpful thanks. I'm early 50s and this has given me a bit more optimism following what's happened in 2022.
Great sentiment and message with this video. Just need to be aware of dratted inflation and pension/advice charges which spoil the maths a bit. 7% pa after charges and inflation feels a bit of a racy assumption for a balanced portfolio.
Decent video but a tad misleading as 7% returns are at the extreme end of a likely return - doable but not if you definitely need that return in 5 years ....5 % is a better guideline for a moderate risk return ......the UK pension market and sadly most if not all company pension schemes are typically overly cautious in their "default funds" so this is where James input is very valid take control of what works for you - most company schemes are flexible enough but you need to go and get them working for you
I’ve been aware of compounding for a good period of time (early 30s), but never came across the 1p example. It makes it a lot more tangible!
I can attest to this in practice. I stopped work in 2019 and it really was those last 5-6 years that pushed me over the line.
I maxed out my pension contributions at 40k for me and 20k for my wife. Using a combination of earnings and previous cash savings.
COVID then slashed my fund by 35% and now we have rampant inflation.
However, the secret is, you don't need to withdraw all your money at once. I keep a cash buffer of three years to smooth out the volatility
Could you perhaps please do a video on the most tax-efficient way to retire using an *annuity* vs the tax-free lump sum combo? It's just that in recent years, annuities have suddenly become much better value than they were, and so are becoming much more attractive to the risk-averse amongst us......?
Omg its so complicated & over optimistic but great videos thanks i wish i could get my head around it as well as you have
Ken I feel the same. I think I'll just stick to saving whatever I can and shop at Aldi. I'm 55 and wish I could retire early too 😢. Good luck to you..
Great video. I worship my Salary Sacrifice pension :).
I noticed @9:34 you mention John turning £50K of ISAs into £62,500 by paying the ISAs funds into his pension which would add the basic tax relief, but if John were to instead sacrifice £1000 of his take home pay each month and supplement his living costs using £1000 from his ISAs, he could empty out his £50K ISA in just over 4 years, but contribute a total of £78,600 (an extra £16,100) to his pension via his salary due to the additional NI and 50% employer NI that would be added each month (providing he earns enough over the basic rate to cover this).
Many employers don't add their NI to your pot but just keep it as a saving.
@@TotalBuffoonTrue, but at 8.35 James explains that John’s employer shares their NI saving with John 50:50
@Vacheron7 lol. Saw that later. It's free money 💰 🤑 anyways.
This is especially important for anyone who earns 100-125k per year. That 25k over 100k has a notional tax rate of 60%. I have been doing this rather being robbed by HMRC.
Why move money out of an isa that could be in stocks and shares to then have to potentially give 20% back to the taxman when you pull it down? I use pensions to lower the gross income and taxband and nothing else. Rest is in isa where i can access with no tax. Thoughts?
Regards the salary sacrifice, I think you still need to be paying tax on at least the minimum wage for the hours you work after the salary sacrifice is deducted. That could come into play for a lower earner.
If you are hourly paid it can mean that the same percentage contribution could qualify for salary sacrifice one month and not the next. With my employer it is an all or nothing scenario where if you select too high a percentage, the whole contribution gets hit with NI.
There is a more extended explanation and if anyone is interested, I will post.
I opt to contribute the maximum possible under salary sacrifice to my employer pension (changing the percentage in appropriate months) and put anything else I want to put away in a SIPP.
hi james, please can you make a video discussing the pros and cons of defined benefit pensions?
as a public sector worker the majority of my pension is in DB schemes
id love to know what i should be doing along side my workplace pension to make the most of my income in retirement
keep up the good work!
Im in a DB but top up each month with AVC's - check if your employer offers this through salary sacrifice but just make sure your total AVC pot plus any lump sum you want to take isn't more than 25% of your pension or you will have to pay tax when taking it out when you retire. Also note the annual allowance currently £60k a year, above this and again you will have to pay tax back
I think you should be able to transfer AVCs into a SIPP and then you would be allowed to take 25% of the SIPP value, as well as 25% of the DB value, tax free. If your AVC value is less than, or equal to, 25% of the combined pension pot (AVC + main DB pension), then you may be permitted to take the AVCs as the tax-free lump sum, leaving most, if not all, of your DB pension to be taken as an annuity. Even if your AVCs are greater than 25%, if you are allowed to use them to fund the tax-free lump sum, then you may be allowed to make a partial transfer-out of part of the AVCs, as mentioned previously, to have this work to your advantage. It sounds as though you need to do some investigation, or pay an IFA to investigate and to provide advice.
Edit: if you transfer-out part of your AVC or before taking the 25%, then the combined value of your DB+AVC is reduced, which reduces the 25% value. The maths could become more complex, so advice would definitely be required for this scenario.
Great advice BUT don't forget the annual pension allowance and also the maximum 25% you can take at retirement without paying back the tax you saved...
I asked my employer if they would pay the saving they make in SS into my pension. They said no as it was "part of their cost savings".
Really useful! Would be great to see how the process of using the money works and any possible pitfalls 😊
Interesting but there is an argument for keeping money in ISAs, cash or property because once you start taking your pension you then start paying tax on it, which is guaranteed when you also get you state pension
But you were taxed before you put in an ISA, it's a non issue.
What if you are self employed ? Yes you can put any isa money in a pension and ger 20 percent extra but you pay tax when you take it back out again
Well I was on plan for this with a company allowing salary sacrifice and diverting bonus into my pension. Sadly redundancy and a newer job at a lower salary scuppered this. Also a mortgage going 8 years beyond pension age but overpayments also being made on that.
Ultimately have re worked mortgage saving money which also has been saved so aiming to retire early next April
Hi James, can you please do a video which demonstrates the benefits of pensions. I know there’s tax relief going in, but you pay tax when you draw the money. So I get that there is tax relief on the growth, but I’d love to see what this means in terms of cash at the end. Are pensions really worth it?
A company I used to work at until recently refused to pass on any NI savings at all. Very annoying
Well you don't pay NI on the sacrifice. Company foenst control that. The 13.8% they save ... SMART companies can. Most are not. I had great fun getting my company to admit they were not SMART employers. Would have been nice to have got some of that 13.8% but oh well.
great vid, thank you, maybe a second vid on how to boost the pension on the last years before retirement (though to a lesser degree I presume, ha) when paying off of the mortgage is not in the near future (lets say beyond retirement age, 65+)?
The average retiree, I believe, should have been able to have enough to last the rest of his days. I t just depends on choices during your working days, just as I came to realize later. Surprising how I still netted more $2m. by retirement. And this is while living in New York!
New York is sure as hell an expensive place to live in. Were you affiliated to Wall Street? Because how could you net such a huge amount?
Not at all. I have just had a good savings habit from early in life. So when a friend introduced me to investing, I was intrigued. And this was just about four years before retirement, and I had only 480k to my name.
Do you mind sharing info on the adviser who assisted you? I'm 40 now and would love to grow my stocks investment portfolio and plan my retirement..
My financial advisor is "Pamela Helynn Kirchoff" she’s highly qualified and experienced in the financial market. She has extensive knowledge of portfolio diversification and is considered an expert in the field, I recommend researching his credentials further. She has many years of experience and is a valuable resource for anyone looking to navigate the financial market.
Thanks for this amazing tips, I found her webpage and booked a call session with her, she seems proficient.
I embarked upon this very policy back in 2011 thinking pensions were a good idea, but unfortunately it was with Scottish Windows, a hopelessly inept company. I didn't check it frequently enough thinking their balanced fund would be satisfactory. It is actually worth £80,398 less today than what I've paid in. I'm supposed to be retiring next year.
Scottish widows is shit.
That is absolutely shocking
Excellent once again James
Nah. Most of us will still be paying mortgages until we’re in our mid 60’s I’m afraid…..
Once again essential and useful advise, thank you for sharing this information.
I'm a bit confused on the step where paying your ISA into your pension works out better? Since then when you take from your pension it will be taxed as income whereas it isn't from your ISA?
He lost me there too.
You benefit from tax relief when you pay into a pension. This is even more useful if you’re a higher rate taxpayer. The money you pay into an ISA has already been taxed, so by moving it into a pension you effectively get the tax back. You can take your pension in chunks (personal allowance + 25% tax free) to avoid paying tax.
PS pension is not liable to IHT under the current rules - if you wanted to leave money behind for loved ones.
I think that might be the only benefit with IHT otherwise I can't see the point of taking money out of my ISA to pay into my pension@@nasirmahmood5684
Man, I wish there was a financial advisor like you here in Australia
I agree
I havnt found one i click with
They all want to just sell insurance
I am self employed and 62. Have private pension but not sure if it's better to shop around as had taken my 20 percent last year.. and now in a retirement pension.
im 30 in the next 2 years i plan to maximise my pension contributions starting from march. I also want to maximize my isa contribution this year, next year, the year after and the year after. I want to leave that all in those accounts and not ever need to contribute again, will i have enough to reitire at 55 (35 years from now)?
Hmm, there are quite a few assumptions/presumptions here and even contradictions with previous advice. At first, my reaction to this video was quite negative but having taken some time to think, these are the issues:
First, the key message is about redirecting surplus funds into your pension. I'm afraid the discussion about compound interest and average growth rates is simply a distraction.
Second, a five year period is insufficient and average growth rates cannot be assumed over this short-term. That said, if you consider that really you are simply building a bigger and stronger foundation on which to grow your pension, then the growth during those five years becomes irrelevant. You will be consuming your pension over the next 20, 30, or even 40 years and that is when the growth really delivers... unless you buy an annuity at retirement. Even if you buy an annuity, then you still gained a considerable tax-free benefit through saving that surplus income in your pension. If an annuity is your intention, then you can save in low-risk investments (but you forego the possibility of significant growth; that is the trade-off between risk and reward).
Third, redirecting funds from ISAs into pensions if you are beyond 55 sounds sensible but there are risks - as I understand it, if there is an urgent need for cash before retirement, having transferred ISA investments into a pension, then taking drawdown from a defined contribution pension scheme, or SIPP, automatically places a cap on future contributions.
Another strategy for using ISA savings whilst increasing pension contributions is to consume the ISA in lieu of employment income and invest the income through deduction at source, as you already suggested for the surplus mortgage income, thereby also benefiting from the reduced NI contributions.
Perhaps you could mention the minimum income levels that it is not beneficial to drop below, i.e. the tax free personal allowance and the minimum NI contribution required to qualify for the state pension. Although most people viewing your videos are likely to be above these income thresholds, people of lower incomes should not be ignored and potentially have relatively more to gain.
In conclusion, it's another great video but as it stands, the distractions of compound interest and average growth rates do detract from the main message (theme) of the video.
@@alecdurbaville6355 I mostly agree. Certainly it works best for those fortunate enough to be higher rate taxpayers, however it also works for basic rate taxpayers. Even if you turn it around in 2-3 months (ISA-SIPP-Drawdown), you'll still gain about 5%, even if you are paying basic rate tax on 75% of the drawdown. The real benefit comes with longer-term investments because then, you also benefit from the investment growth on the additional 25% credited by HMRC.
I agree
I’m 53 and can access my pension at 55. If I want to invest for 3 years and draw down the cash in 3 years time would an ISA or pension be more efficient.
I'd just like to add this is possible to do. In the last 5 years I've managed to increase my pension funds from £209k to £459k.
Fascinating stuff. Would it be worth extending term of mortgage to fund that extra £1100 a month. Can't get interest only mortgage
all great but my pension has not moved in the last 18 months ?
First vlog that make sense, thank you 🎉
First?! 😂
I’d like to sign up for that 1p plan.
Anyone whos tried doubling down chasing losses on roulette knows how fast that penny thing gets out of hand.
If you invested 10k in 1975…. Yeah, when the average monthly salary was about £200 a month or £2.4k a year. That’s 4 years worth average annual salary. As of 2023 average uk salary is £35k so would need to invest about £140k starting out by the same assumption no?
Hi, I’m unsure on who to go to if I wanted to invest in compound interest- investment… can you help?
what about 1p at next to zero interest and significant inflation.
James would some of that be cash to allow for a dip in the market? So put the last few years in cash inside pension?
Isn't you advice on moving ISAs into pension overlooking the fact that 75% (based on current situation) will be taxed at 20% when John comes to withdraw?
If you have a job and are a higher rate taxpayer and putting in less than £60k or total income per year then you are getting £100 in your pension for every £60 put in (through the gov contribution and tax saved). That will then grow and be taxed at 20% on the way out.
Very interesting video but only if you are not tapered which is likely to happen at the end of a career… is ISA saving the only option then?
How can I contact you to discuss financial planning?
Difficult to see how any current UK pension fund with a medium risk level will achieve this increase. Mine has the same value today as it did nearly 2 years ago even after paying In around 15k.
Think about it as a good thing. Increases are never linear, there are always swings both ways. I always think I’m buying at ‘a good rate’ when my ISA or Pension takes a dip. Then I don’t feel so bad! 😂 Ideally of course you want you pension value low until the moment you want to draw from it, then you want it to go crazy. Stay the course, it’ll work itself out!
Compare to other similar funds to see if it's underperforming. U may also need to think about increasing ur risk depending on how far from retirement u are.
Interesting...didn't know there was an option to salary sacrifice into a personal pension. Always thought it would have to only be the workplace pension!
I have a lump sum of money in my account that is not doing much, would I be better off paying the remainder of my mortgage off or putting it into my pension?
I thought it was good to have a reasonably large ISA in retirement to supplement pension drawdown, without needing to pay as much income tax? Maybe I’m thinking about that wrong?
Perhaps it is better to pay the isa into a pension, get the tax credit too, invest that tax credit, then when you withdraw and pay income tax you at least have had the investment returns from the tax credit while it was sitting in the pension. Is that the thinking that makes more sense!
Yes, generally pensions are more tax efficient than ISAs unless your over the pension LTA.
But the LTA is disappearing…
@@Ed_start But the tax-free 25% is now capped.
The capped tax free cash element of it remains.
Hi I currently have an offset mortgage that is fully offset so I am paying no interest. Would it be better to pay the mortgage off and put that monthly money into my pension?
I'm a 38 yo who left academia for an industry job in the UK 2.5 years ago with no retirement savings up to that point. I've been panicking about whether I can catch up or not. My first employer of 2 years contributed the minimum to my pension and so did I as my salary was not enough to contribute more while saving for other goals (a house). My second employer of the last few months is contributing 10% and I'm contributing another 10% through salary sacrifice and my current salary is much higher. Although I'm mathematically savvy, it had not clicked until this video that if I keep on this trajectory of aggressively putting money into my pension until I'm 50, I'll probably have more than about £200K in pensions in today's money which puts me on track for retirement by 60 (or 65 if I encounter obstacles including bad markets). Thank you for this video, it eased my mind a bit!
That's good to here!
The compounded effect is exactly what loan sharks count on when they lend money to people who can not afford to borrow money.
Its one of the reasons the poor can never get out of debt.
I don’t have a home, rented all my life how can I pay the rent after retirement 😮
Informative as usual but have you overlooked the impact of salary sacrifice on life insurance cover amount?
Generally it’s not affected, nor are other salary based benefits but always worth checking.
My employer has recently introduced a salary sacrifice arrangement but limited the sacrrifice to 15%, apparently on the advice of the consultants they used. When I queried this I was just told its because the company becomes liable for more pension contributions, which sounded odd to me as previous companies I have worked for did not do this. For what reason would they limit the sacrifice rate?
Assuming they aren't matching your then nothing. Stupid as well as they save NI
Your videos are precious
What about if you have a Defined Benefits pension? I would love to put it all in a DC scheme now, but the company pension is making it harder to do. I am about 9 years from when I retire.
only thing is in 1975 you could have purchased a large house for £10,000 not many had that much money sitting around
You are brilliant make me think I’m 63 and looking to boost pension fund great content 👍🏽😊