Listen to Episode 535
On this week’s show, I reveal the small changes you can make that can have huge positive impacts on your finances. We also discuss the average "pension gap" between the age at which people want to retire and the age at which they expect they can afford to retire. Finally, we explain how to close the "pension gap".
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Episode 535 Podcast Summary
Small Changes that can have a big financial impact
Summary:
I explain how making small, manageable tweaks to your current finances can result in massive long-term gains. I cover mortgages, investment fees and debt repayment strategies that utilise the power of compounding.
Key Insights:
- Round up your mortgage - Rounding up a monthly payment on a £250,000 mortgage (5% interest, 25 years) from roughly £1,460 to £1,500 could save over £11,000 in interest and clear the debt 15 months early.
- Reduce the term - When remortgaging, reducing the term by just one year (e.g., 25 to 24 years) costs a little more monthly (approx. £48 in our example) but can save thousands in interest.
- Cut investment fees - Reducing pension and platform fees by just 0.5% can result in tens of thousands of pounds extra in your pot over a working life.
- Fix credit card payments - Instead of paying the minimum (which decreases as the balance drops), fixing your payment at the initial minimum amount can reduce a 26-year repayment timeline to under 5 years.
- The Debt Snowball - List debts by interest rate (highest to lowest). Pay minimums on all, but throw spare cash at the highest interest debt first.
Closing the reitrement gap
Summary:
I review a recent report by Standard Life that identifies the "retirement gap" - the difference between the age people want to retire (62) and when they expect to be able to retire (67). We discuss how to close this gap through various engagement and contribution strategies.
Key Insights:
- The retirement gap - On average, people expect to work five years longer than they would like. For renters, this gap widens to over six years.
- Engagement matters - People who engage with their pension planning early can significantly reduce this gap.
- Auto-enrolment limitations - Relying solely on the minimum auto-enrolment contributions (8% total) often leaves a shortfall.
- The "Half Your Age" rule - A good rule of thumb is to contribute a percentage of your gross salary equal to half your age when you start contributing (e.g., start at 30, contribute 15% total).
- Reskilling - For those over 50, learning new skills or starting a side hustle can provide the extra income needed to bridge the gap between stopping full-time work and accessing the state pension.
Resources
Links referred to in the podcast:
- HMRC data reveals almost 6 million people overpaid tax - Are you owed a rebate?
- Mortgage Overpayment Calculator
- Apps to help you overpay your mortgage
- Barclays Repayment Calculator
- Mortgage LTV Calculator
- Salary sacrifice to be capped at £2,000 per year from 2029
- How to make your child a millionaire
- Pension Calculator from Moneyhelper
- How to make your child a millionaire
- Standard Life Retirement Report
- PensionBee - Are high charges eroding your pension?
- Moneybox - Save for your pension using the 'Half your age' rule
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