Lisa vs. Pension vs. S&S - for first time buyer (above 450K)

[nxcess]

I’m a freelance 29 y/o designer earning around £60K per year living in London.

I currently have a Moneybox account with about £15K split between:

• Pension (Global shares ESG)
• S&S ISA (FTSE, S&P)
• LISA (Cash)
• Savings account (4.4%)

I want to know how to best split my monthly savings (~£1,200) in order to save for a house and rainy day. I worry the LISA could be useless because I won’t be buying a house for less than the £450K threshold so therefore it’s pretty much only useful as a pension pot after age 60.

My strategy is go heavy on the S&S (50%), 15/20% for the others so I have access to cash if I need it.

Any recommendations or thoughts welcome.

Cheers

 

[nicholaste]

@nxcess What is your retirement plan? The age you want to stop working will help guide your answer.

Work out how much you would need in ISAs to bridge the gap to cracking open a SIPP/private pension.

Then you need to work out how much you need in your pension to bridge the gap to state pension/run alongside it.

Use a compound interest calculator to work out the potential amounts you would have in future for each pot. This should then help you to work out how much you should be putting into pension, retirement ISA and house savings ISA to reach the figure you need at the age you need it.

This is based on you running each pot down to zero, or at the very least heavily running them down, so if you’re wanting to create a self sustaining pot you would need higher numbers across the board.

The LISA is a great tool for certain situations, for example when one parent chooses to stay at home the maximum they can put in a pension is £2880, but they can save another £4000 to retirement into a LISA, more than doubling their allowance. Likewise if your earnings increase and you reach the maximum threshold for pension contributions the LISA gives you another £4k tax relief option from your ISA allocation. It also becomes wholly available to you at age 60, tax free, unlike your pension which only allows you 25%. So it has its uses depending on your plans for children, pensions and retirement.

The Moneyvator website has been my biggest source of inspiration for planning, it’s definitely worth a browse.

 

[miracle66]

@nxcess If you're not using full 20k ISA allowance then do that but put some into a cash ISA for quicker access if needed and rest into s&s.

It is scary you don't have much pension saved but if you have a plan to buy a property in next few years then focus on that first.

https://www.gov.uk/individual-savings-accounts/how-isas-work

 

[annemoon]

@nxcess What’s the time frame for the savings? Will you be buying that house in the next five years or is that a longer term thing?

If you are saving for a house and intend to buy within 5 years it best not to have your savings for that in S&S as a crash within the next 5 years could lose you 30-40% or more of what you’ve invested and 5 years isn’t long enough to expect to grow that back.

Better, especially now savings rates are higher, to keep those funds in risk free savings (ideally locked into high interest accounts) until you are ready to buy.

Longer term (pension and LISA - if you don’t think you’ll use it for the house) can be in longer term investments. As can any other savings you don’t need for your current goals.

 

[green520]

@nxcess You're not anywhere near being able to afford a house above £450k. Right now you can't afford anywhere more than £285k and you will need to save another £165k.

If you intend to buy a house in the future there's no point in putting extra in your pension. Put in enough to get your maximum employer match and put the rest in an ISA.

But even then, make sure you have at least six months of expenses in a savings account before you invest any money.