House vs. Pension: Which Comes First?
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- Опубликовано: 9 июн 2024
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Damien is a (fairly) young guy with the sensible head of an experienced 60 year old financial adviser. He speaks so much sense. It's not always what you want to hear, but he has a deep understanding of how the financial world works.
I completely agree. The years it can take saving for a deposit could deprive you of a golden pension pot versus a bronze one. Even if you start with a little you should get started on a pension as early as possible. That’s not to say you still can’t make saving for a home your priority but just ensure you get started on your pension and into the habit.
If there is one bit of advice i would give to my younger self, its to save in pension & invest in ISA instead of squandering my money on rubbish that i couldn"t live without at the time.
Common sense would say house first then worry about pension, but like you said... thats wrong! You need to start saving into a pension as soon as you start working. Even if its a low amount just start as the compounding will pay off by the time you retire.
Need both. I stay in a good area, property values are going up and demand will continue. I prioritised that over pension (50% of salary for 8yrs). Where I stayed 15yrs ago was working class and single pensioners, now it’s young doctors and other professionals on 6 figures between them. Rent is 2.5x in 10 years. You need factor in quality of life and being priced out of market for good. High property prices are here to stay.
I hear you & today saw a video of OAPs - British couple who worked & retired in Canada- who sold their house ( they had no work pensions - Norman and his wife (Shirley?)) to fund their retirement saying a shortfall of late boomers in tears to come - who will buy their house in the future.
Your area sounds it might be OK, but I'm left thinking to myself;' don't move!'.
Your property is not going to pay for you retirement. You will always need somewhere to live and house prices rise together in areas so its a false economy. What about leaving your kids some inheritance?
@@queensberryrulez5306either you have a mortgage, own the home outright or alternatively rent. So why would not owning the house and spending your pension on rent be any better?
@@rkent06 well if you do what I have done and released as much equity as possible and had 10 houses with circa £500 per month profit then you will see the answer. Or you could lock your money in your house which you cannot sell to live on equity, unless you want to live in a tent or do equity release and leave absolutely nothing to your offspring. You do what everyone else does though and I’ll stick to whats working for me!
@@queensberryrulez5306 exactly, I agree with you there - personally speaking I can earn more additional income than £5k a month utilising my time in my chosen industry. Housing doesn’t interest me as an income stream, but if it interests you fine.
Werther's Originals lol 😄
I purchased a house and paid off my mortgage first before investing or sorting a proper pension. I know 100% that financially I would have been better investing than overpaying the mortgage, and I can't justify it on a spreadsheet, but on the psychology side, it's the best decision iv made and one I have never regretted. Finance is such a personal thing.
I'm with you on Fisherman's Friends!
Invest at least 15% of your income and then any extra pay your mortgage off early
I do both. I think these should be mutually inclusive.
The reality is most people don't have the surplus wage to spare for more than one thing. If you're going to prioritise anything it'll be the roof over your head now, not some unclear unknown future. I'm not disagreeing with this advice, just saying the reality I experienced and know within my circles didn't allow us to focus on pension above everything. I'm pre auto enrollment btw.
Thanks for the comment and yep we get this isn't true for everyone. One benefit of auto-enrollment is that it is taken out before you get your money and for those with defined contribution pensions the compounding effect from starting young can make a massive difference.
@@MakingMoneyPodcast Simple interest only mortgage - the rest bung in your pension - it's a no brainer to pay off the mortgage with the tax free cash
They would have surplus wages if they weren't so eager to give their money to people richer than them. How many people in this country now see a car payment as being normal and the average of those is now £400 a month? Back in the 80s/90s when I was in my late teens, 20s, 30s, you bought what you could afford with the money you had which typically meant a well used car. Nowadays people are passing their test and then it's straight down to the dealership for a brand new car on PCP which they then replace with another on PCP when that deal ends and just end up in a cycle of car payments for decades. They're also buying Audis, BMWs, Mercedes and VW, cars that were typically bought by people in managerial positions, even though they're in low wage office jobs. The car park at my spot is majority German cars, the vast majority of all cars being new/nearly new....the workers are on £13/hr.
@@conorturtonI drove a battered vauxhall nova, had an ancient phone, and budgeted ruthlessly. I could still only afford one, it's hard to claw your way up without the bank of mum and dad. It took me 10 years to build a deposit, starting pre 16 with saturday jobs. I'm not saying you're wrong in general, but for me this wasn't the case and I'd guess I'm not the only one.
Great advice here, and I say this as somebody who works in payroll, it’s refreshing to see we have a better opt in rate for those under 22 than compared to those who opt out, so people are definitely taking their pensions seriously.
Also, Fisherman’s Friends are just straight up vile 🤢
Out of interest, roughly what percentage of your workers stick to the bare minimum 5% employer contribution? I'm guessing it's a lot unless they are 40% tax payers trying to save on some tax. Interested to know.
@4:10 Fisherman's Friends are like licorice meets eucalyptus meets a kango hammer going through your sinuses...
They aren't for the faint hearted!
I'm expecting pension funds and rules to change for the worse in the coming decades. Wouldn't be surprised if they end up worthless
Fishman friends, the thought makes me want to be sick......force fed them as a kid and still gives me shivers.
On the other subject, I'm in my 40's and people told me I was nuts for not wanting a bigger house as "brick and mortar was better mate" was the saying I heard constantly, I concentrated on a moderate house, and put the rest into Pension and ISA's so I have some accessible. Now the same people are realising its all just on paper and unless you downsize something which I'll not need to do at all, you'll not be able to use that money at all. Therefore now they're all ramping up the pensions and ISA's but its all a little too late.
The pension rules can always change. Labour had in their manifesto that they would re-instate the lifetime limit. Then they said, "no, we wont". But what if they see the spending getting out of control and then they want to tax your pensions again? I don't trust the pensions. Period. I don't. They are way too tempting for all these politicians and only getting increasingly so.
Australia is finding not owning your own home by retirement the biggest leading indicator of old age poverty.
It’s important to add to your retirement account but not at the sake of not owning a place outright by the right age.
Depends on everyone’s personal circumstances of course.
But definitely stay auto-enrolled in your pension as a minimum. It’s literally free money.
Example, you earn £35k = £2,356 per month net. If you auto-enrol your take home pay is now £2,254 per month So the pension has cost you £102 actual cash per month, and for that £102, £233 is put into your pension. Over 35 years, that compounds to £534,000 - over half a million quid!
And that’s the average salary, and minimum contributions. You might have a more generous employer who contributes more, you might earn more as you get older, you might put more in yourself…
Seriously, cover your pension first, then what’s left can go on your mortgage.
You might want to review those figures and edit your post.
@@clarkeysam Elaborate please
@@Banthah your take home pay cannot increase by paying into your pension.
@@clarkeysam Good shout thank you. Should read £2,254 not £2,554. Corrected
I make it £264,000 at 5% real rate of return after 35 years. If you get lucky and get 7% real rate of return over 40 years you'll hit £600k. In reality there should be promotions in there somewhere that you can leverage to increase contributions.
I don’t know, I am 43 and I doubt I will have millions in my pension (I’m just over 100k now). I did buy a house though but I will l have a mortgage until I’m 65. I’m planning to buy another property (this time in Spain) around when I turn 50 or so (also with mortgage), if everything goes well. Hopefully one day these will pay off. Still I’m not sure that it will be enough (especially because I don’t really want to work until 67). I recently decreased my pension contribution to the maximum that my employer is matching to (5%) because they keep increasing the pension age and the age where you can get access to your money, so for now I prefer to save up for another property and just contribute 10% in total to my pension. Might change it when I get closer to pension age.
And it's gone
I am going to add something else. I know a 75-yr old, went to prison most of his life, no hoper, but did stint in RAF in his younger days. He is on full pension credit and gets so many perks becos he's on benefits. He actually gets more than other Pensioners who worked all their lives. So are Pensions really worth it?
Isnt Labour going to tax our pensions even more?
None, the house will be a asset bubble, the pension will be worthless after inflation.
Buy gold instead or invest in a business.
Gold is a shiny unproductive rock. The tick market indices at least produce things
BEWARE SOME PENSIONS.
Had a private one for 30 years with a company.. let's call them Scottish Weirdo's. And its returned an average of a whopping 3%. A year. Fighting it at the moment but not holding out much hope. Seems the company you use is as important as time/investment.
Be sure to check performance regularly.
Certainly people signing up to these pensions were not told anything about risk apart from being asked their 'risk appetite' which put most people into low risk plans for a 30 year investment timeframe. There was nothing like the plethora of RUclips videos explaining these things back then, people trusted the advisors and the schemes.
@@AgileSnowWeasel Had exactly this conversation with my wife at the weekend, we hate to think how much growth we missed out on when we were younger by being put in the default low-risk funds and how much we paid in fees to the blood suckers. Took control of our own finances a couple of years ago by opening Vanguard SIPPS and moving pensions into them.
Good luck, hope you get recompense from the robbing bastards.
I think we need a more nuanced conversation around this. I agree, that you need to contribute and you should max out your employer match, but there's something else to be said for how you prioritise them. Easiest to explain with an example: I max out my employer match and then I prioritise a house. Once I've bought a house, I may decide to prioritise my pension and contribute more than my employer match. Other people could do different things.
I dropped out of my fore service pension to buy my house. I have about 100k equity now. And invest in a stocks and shares ISA and i over pay my mortgage. Works for me really well.
@Chat__with__Damien-Jordan i guess this is spam ?
RAWR
When I was a kid I genuinely thought only a fisherman could buy fisherman's friends
1. Own your house
2. Be mortgage and debt free ASAP
3. Now with expeience and higher salary - pension
If you do it the other way round, you could find in 10-20 years time, property prices may double.
IMO never too early to fill the pension and benefit from the growth, which should on average be more than your mortgage interest rate. But maybe right at the beginning if you have a high LTV it's worth clearing more of the mortgage ASAP.
50yo(ish) GenX'er here. My out-of-focus advice to young folk is this: Just accept that you're screwed and turn to drink. It really is the cure. But... if you can afford to buy and save/invest and pay into a private pension, you're doing really well and you should do all three. Just don't do all three in equal measure (and accept from the outset that your health profile and family history need to influence how you weight those three things). Generally tho, weight paying off the mortgage early first - trust me, the security of being mortgage free is phenomenal. You'll start feeling different when you wake up. Do that, and once it's paid off switch your primary focus towards investments and pension. Investments will almost certainly give you a better return and you can "dip in" in a pinch, but a pension means you don't have to worry about later. Weight those according to your attitude to risk. But the most important thing is don't forget the drink - it's life's lubrication. I give out this advice for free you know.
no thanks old timer. Record numbers of gen z are shunning the vices of your generation.
@@blahbleh5671 Wot, not even at Christmas?
@Chat__with__Damien-Jordan Faw cough scammer
The thing is you might save for a good pension but if you forced to pay for absurdly high rent because you don’t own your home surely it defeats the object, Catch 22 surely ?
Don't under estimate the power of compounding and time. Ok so might not get 40k a year out of your pension like mentioned here in the example, but every little you can add to the pension even the different from the minimum to the highest match some work places will do, 8 to "11% 'ish" over the course of your work life it will make a massive increase. Either way a traditional retirement probably wont exist by the time we get there.
Yeah we're not saying it's a bad idea to save for a house, just that pulling out of auto-enrollment will mean losing out of compounding (and tax benefits) so for most people it'll be better to stick with the scheme rather than putting that money towards a house.
@@MakingMoneyPodcast really appreciate the content and knowledge to help others give yourself a pat on the back. I’m definitely taking full advantage of my auto enrolment and will continue to do so 20% all in all, it’s just soul destroying trying to save for a worthwhile deposit while paying extortionate rent, £360,000+ thats a cheap 2 bed house down here its criminal.
@@TelscombeTerrorI feel you… same situation and house prices similar down here!
A lot of people should.. pay off your debt, become debt free, then Invest in a house .. try to pay it off in 15-20 years .. then invest in index funds… I get this may not be the best option or even an option for some.. but for many it is a good route …
Wrong
Rent a room and invest in your ISA the rest. Match your employer contribution on pension.
@@michaelhutchinson2854 Why?
@@DevineOne that’s a good way if you are single and don’t have children… that’s the route I would take if I was single … and younger and starting out
@@John-ty3sf absolutely. I've told my children the same but they spent all their ISA instead! All those years of struggle to put money into their child ISA account! I've told them to put 50% paycheck into ISA. Then they could be in a position to be financially free at latest 40 and potentially much earlier.
I wish Lifetime ISA’s were around when I was younger, I would be paying something into one as well as a pension, as much as I could spare as early as I could. You only get one proper chance to compound, don’t waste it!!
Two million quid seems a bit of an extravagant target for a pension. The Pensions and Lifetime Savings Association says that each half of a couple needs £30k to get a "comfortable" (rather than minimum or moderate) retirement. Roughly speaking, sustaining an inflation-adjusted income of £30k should require assets of about £600k, and that's assuming no state pension at all (perhaps a safe assumption, to be fair).
I'm worried that telling people they might need a £2m pension pot will make them think it's hopeless and i duce them to give up when, in reality, even half of that would give them a lifestyle comfortably better than the median worker's £35k/year.
Can’t agree that pension is more important than a house. Housing is expensive if you don’t own it. Mortgage is cheap. Pension compounding / tax doesn’t change it. The order therefore needs to be a BUY HOUSE > PENSION > MORTGAGE. Mortgage interest is likely to be much lower than what you’d make through a pension. If you don’t buy a house you’d never have enough to pay meaningfully towards your pension.
Thanks for your comment. We're definitely not saying it's a bad idea to save up for a house but pulling out of your auto-enrollment scheme will mean losing out on tax benefits and compounding.
@@MakingMoneyPodcast my 5min math says losing that is ok. £6k payed into pension is around 10k after tax relief and 16k after employer contribution (very generous example. That’s £10k made, even if you don’t factor in taxation on the way out. 10k is £833 per month. It’s good but you’re losing even more on rent. With mortgage you can be spending only £400 on interest. The rest is repayment which can be 0 in some cases. With renting your payments could be £2k per month. Compounding is a thing in both pension and mortgage (where you don’t pay repayment).
I'm 67. This is what I did.
I secured the roof over my head, ie bought my first mortgaged house at 24.
Started my stakeholders pension at 30.
Paid my mortgage off at 40.
Took until 48 years old to save first £100k into to my pension.
54 years old to £200k
59 years old to £300k
63 years old to £400k
67 years old to £500k
Bought a second home for cash at 59 years old.
Looking to cash in the second home & take 5% net increase in value soon.
Average pension return over 37 years 7% per year gross compounded.
I took a similar route… but not as impressive as yours..
Paid for my house at 50
Debt free at 50
Semi retired at 54… just work two 12 hour shifts a week
Worked on good strong family relationships, .. I have four children and seven grandchildren..
Today for example, I attended a play session with my 2 year old granddaughter…. I visited my soon to be 1 grandson and played with him.. carried my granddaughter on my shoulders while out for a walk, had a meal out with my wife and two daughters, and Face timed another daughter, and two other grandchildren while they were at the airport to wish them happy holidays, read a book, listened to an educational podcast, watched RUclips, invested £200, and had a few text messages with my 19 year old granddaughter… this is a typical type of day for me .. happens a number of times in a typical week..
When I semi retired I worked on my hobbies and I going the gym 3-5 times a week..
I go on several holidays a year… last year I went to France, Spain, Italy, turkey and England ( this year nothing as wife nearly died three times…. But she is on the mend now)…. Health is more important than money
Got my first 100k portfolio this year… aged 57
now at 104k.. still 57
Aiming for 200k by 63, 300k by 67
@@John-ty3sfThanks for posting your investment journey. Sounds like your on track too.
Genuinely worrying what will happen to all the millenials who haven't been able to save for a pension/buy a home when they reach retirement age.
You're stuffed if your parents have little and you're struggling along too. It's hard to get out of the trap of not having assets or family assistance.
Also in my 30s, so in response…
Hypothetically let’s assume I’ve focused on my pension and I reach retirement with a nice pot but no housing asset - presumably a big chunk of my pension is now going on rent?
I’m just playing devils advocate here but for me the simple answer is you can’t ignore either, you’ve got to find a balance that works and ideally you need to hit an income level which allows you to do that - easier said than done I understand.
My own income has risen over time but for a long time was below average, my plan was to buy a family home which could be downsized in the future to release equity, alongside making large savings contributions into ISAs/pensions etc… and being disciplined to put any wage rises into those schemes and just maintain the same standard of living.
Should be mortgage free by approx. 50 and with a pension growing healthily. Each to their own but I’m 100% happy not to have a larger pension pot BUT own a house - my rent would literally be more than my mortage
If you want to rent all your life and have to pay half, or more of your monthly pension earnings in rent then invest in pensions only. Watch Gary’s economics, house prices are only going one way in the long run.
They say 20% increase expected by 2028, never mind 2038. They're not building enough to meet demand, so house prices rises will match pay rises (affordability) even if interest rates stay similar to now. Pay rises are near 6% allegedly, and a lot of that will filter through to house prices after a while.
Pay pension up to the match, buy a house as soon as possible - as to which one you pay the spare change into it's way more nuanced.
Rate dependent for example.
Also emergency fund and ISA, get filing some.
This isn't great advice. When my house is paid I can contribute 2x more to my pension catching up for any compound losses for example, it's net net the same if the rates of return are similar.
I wasn’t suggesting over paying pension I was saying I think it’s a bad idea to opt out of auto enrolment to buy a house. On the first paragraph I think we are saying the same thing.
Your point on paying off mortgage then 2X your contributions, what about lost contributions from employer?
@@MakingMoneyPodcast Losing Employer Contributions hurts.
Fishermans friends are dynamite
@3:00 You can't eat your house Nan! Think about the millions of people who are property rich & cash poor. Even boomers and silent generation with their mortgages paid off are reluctant to downsize (and equity release is a complete nightmare). [I don't have a solution, it's just a comment]
Better to be eating canned dog food with a roof over your head, that face the uncertainty of future property markets and predatory landlords.
@@weeeeehhhhhit is not one or the other, You can have both a pension and a home. But if I’m asked if someone should opt out of pension contributions in order to prioritise saving for a home, the answer is no.
I think those of us in our 30s,40s and 50s are factoring in downsizing (or relocating to a cheaper area) into their necessary retirement plans, especially if other things (market returns) don't work out. And it isn't a bad idea even if you don't need to, to move into a smaller, warmer, easier to look after, and cheaper house than the one you had in mid-life with kids. That's obviously assuming you get such a property to downsize from during mid-life, which will be the problem those in their 20s and 30s are encountering. Regardless, always contribute to the pension, your 5% is before tax and so in reality is more like 4%. It's £1k take-home out of a starter £25k salary to gain £2k in the pension, which may become 32k in real terms by retirement 40 years later (if things do work out).
But you can sell your house ,what’s the alternative rent all you life? You have to live somewhere, why not get a mortgage rather than pay the landlords mortgage ?
@@APW-ry2ok Agreed, better a 1 bed studio flat you own (hopefully we get flying freeholds instead of leaseholds one day) than anything rented. What do you do at home anyway? Sleep, watch TV, cook, work from home maybe. When you retire you care about living near a bus service (hey it's free!) and not spending your dyi... retirement years cleaning a house. The smaller the better at retirement IMO, if that's all you could ever afford, great, if you downsized because you stretched on the house instead of saving because *cost of living waves hands manically* then that's also great.
Couple of million to retire if in your 30’s 🥴🤷♂️
"You're going to need a million in retirement" is a perfect example of why this safe withdrawal rate nonsense needs to stop. All it's going to do for a lot of people is actually result in them saving for a pension at all as they'll have the "there's no way I'm going to be able to get that so what's the point in even trying, I may as well just enjoy the money now" mindset.
The SWR's aim is to maintain the retirement investment fund so that on the day you die you die with the same that you started your retirement with. That to me is absolutely asinine. You can't take the money with you so what's the point? The most optimal retirement would see your pension and bank balance hit £0 the day you die or leaving just enough in for the funeral. You'd leave behind a property to pass on as an inheritance.
If you throw that whole SWR rubbish in the bin where it belongs then the amount of money you need for retirement is considerably less, especially if you don't take a lump sum at the start.
The reality is that peoole under 40 need 1 million plus in pensions just to live normally
The idea that you need £1-2 million to pay for retirement is totally wrong - how much you need depends largely upon your planned living expenses - £40k per year is quite high. Most people will tend to spend less as they get older and less capable with a potential short spike at the end for personal care. This really sounds a lot like fear mongering. I wonder if you have spoken to people who are actually retired and living happily on a lot less than you claim is required.
£1m (individual) is still (in 2024) a middle-class pension pot aspiration, possibly even higher than that. But £500k, that should be reachable for many if you start young, even with bare minimum salary sacrifice, if the plan they are in gives some decent returns. This is why I think that this policy is good, except for allowing opt-out.
nothing more cringe than a milennial culturally appropriating Zoomer culture. Emphasis on that pause before he said GOATED
Am i too old to say Goated?
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