I read an interesting article recently about how the Treasury's answer to the problem of not getting in enough cash to cover all the state pension payments needed in the future was to shrug its shoulders and say it will dip into other sources of money.
Is it just me or does that sound like robbing Peter to pay Paul?
The trouble with that attitude is that I would think that the other sources of money they are talking about are currently being used, so what is going to happen to those things that are being paid for when the Treasury starts raiding the coffers?
That kind of thinking can drive you nuts, so I'm trying not too. However, the fact that there might actually be a problem in the future with the state pension makes me nervous. Very nervous.
The state pension is currently about £140pw which, while not massive, is not to be sniffed at in the overall mix of how Martin and I are going to fund our retirement. It works out to be over £7,000 a year, which combined with Martin's pension as it will be at 65 pretty much takes him up to his current level of earnings. I cannot foresee a time when those who are currently 50+ will be deprived of it, although I can see the government messing with the age they can claim it. However, I am sure for me, at 40+, they will have messed with it to such a degree it will barely be worth having. That means there may be a shortfall in our retirement income, and we'll have to plug the gap. After putting it all down in a spreadsheet and looking at the gap, I know that savings alone won't be enough because of inflation taking a huge chunk.
It took writing everything down to realise how much up a creek Martin and I could be if we don't do something to address this and now I've been gripped by an irrational fear of having nothing to live on in old age. Given the kind of changes that are being made by the Government to secure the popular vote, I am positive that either they or the next lot that get in will endlessly mess with the system until it no longers works properly.
Over the last year I have been increasing my knowledge of investing to the point so I can do something constructive, and this current silliness with the pensions changes in advance of the election has now pushed me to the point of readiness. For the last year I've been reading investment books, magazines and the business sections of the broadsheets daily, and have been religiously reading investing blogs and forums. I have narrowed down an incredible variety of ways to invest to a strategy that I think will see us through the ups and downs of the stock market over the next few years.
Martin recently opened a Self Invested Personal Pension, into which we are currently transferring 17% of our income. I reluctantly agreed to start working four days a week (at some point in the future - hopefully after Christmas) and will be putting the extra few hundred pounds increase straight into the SIPP. Add in the 20% tax relief that will take us to 29% saving. My new aim in life is to find a way of getting that up to 35% a month without working five days a week at the new job.
The plan is:
- Overhaul our spending to see where more savings can be made without sacrificing the work we are currently doing every month renovating the house.
- Declutter and sell the clutter off. We have so much stuff hanging around, some of it expensive, that would probably liberate hundreds, if not thousands, of pounds when sold.
- The odd extra overtime for shift for Martin each week. Every little helps.
More freelance work for me every month. At the moment, I'm not doing as much as I could simply because I can't be bothered, however, I recently did a four day stint for an old client that brought in more money than I earn with my part-time job in a month. I won't get it regularly, but three times a year would add a significant amount to our investment funds (by the way, did you see this in the press this article about hobby businesses. Very interesting. The first thing I thought of was all those bloggers whose websites I visit that have little businesses on the side).
Anyway, my goal is to increase that money in the SIPP consistently every quarter for the next seven years and hit £60k by Martin's 60th birthday. I suspect we will hit it long before that. Then we drawdown enough of the fund every year between 60-65 to replace most of his income, but crucially not go above his personal allowance so he won't pay tax. I will still be working at aged 48, and any surplus income we have each month will then go into a new SIPP as new savings and investments for my retirement, which I'm planning will be - at maximum - 60. If we have enough in the SIPP, I might very well take the 25% tax free lump sum and put that into an ISA to ensure we have some ready cash available, but that will depend on how well the SIPP grows.
If we had a sensible government, if society wasn't able to sway political power based on popularity instead of arguing on the principles of sound policy I wouldn't be as concerned as I am. But our MPs are vain and preening popularity hunters, always worried about the next story in the press or negative comment on Twitter or Facebook.
And that means they can't be relied upon to make sound decisions for my and Martin's future.