I'm aiming to retire in 7 years from now (currently 53). Already maxing out pension contributions, looking to build a fund outside of that. Any advice for next tax year, whether to go all in to S&S ISA or settle for literally building cash reserves?
@idiana I would say max your S&S ISA. You’re not looking to use all of this money in 7 years (like a younger person saving for a house deposit) and hopefully it’s more like 20. Even then it will be dribs and drabs.
@idiana It's a very tricky question to answer without a lot of extra information, such as what type and amounts of pension income you're expecting, how much cash you need (or want) to spend every year in retirement, what existing savings or investments/assets you currently have.
It's true to say that a S&S ISA should be considered more suitable the longer that you don't need the money, but in retirement you may (or may not depending on your pension income) need cash buffers to draw on for living.
I would say that many retirees will expect a combination of both, some stocks for longer term growth and eventual drawdown, but also a series of cash savings (aka a bond ladder) in various accounts such that this cash is available to use if it's necessary to draw it. The balance of these types depends on your answers to the first questions and is not an easy question to answer on Reddit.
This is probably a scenario where a good paraplaner is worth considering, or failing that, some time spent in excel estimating your income and outgoings for each year, with interest/growth and inflation taken into account.
@idiana Prioritise your tax savings strategies. Premium bonds are tax free, even though they have inferior returns to cash at the minute. You can do the maths and see what the delta is between tax free expected premium bond returns and what your returns after tax are on cash at your current available interest rate. I think in most cases the tax savings on the premium bonds are expected to come out on top but you need to run the numbers.
ISA is always a great choice as gains are tax-free even if your contributions are post-tax.
I am of course assuming by "maximising your pension" you mean you've hit your annual contribution limits rather than "I am putting a lot into my pension" - if not, contribute more and/or get a SIPP. Salary sacrifice to work pension is superior to SIPP because of the NICS savings.
Given your time horizon is greater than 5 years, you ought to invest. If I were you, I'd probably put any remaining non-tax advantaged money into a S&S ISA and just do a tracker portfolio with some global and US exposure with a small amount of UK exposure to hedge the currency risks.
@oyile Yes, pension is maxed out to annual limit for this year (I have previous years I can use if needed). Premium bonds are maxed already. I will likely go for S&S ISA over cash, but I'm wavering and there's still a month before I can pull the trigger.
Thanks for your thoughts.
