The benefits of a LISA

[Roy]

Good decision. Owning property was never a good idea.

 

[Roy]

Thanks Dad 

Btw, Grant Cardone is an idiot who can't string a sentence together. It was painful to watch.

[richatthecroft]

1 hour ago, MrGeorge said:

@richatthecroft no I understand what it is its just not very good but a suppose even my kids junior isa with vanguard are 💩 the now i can only put 4.5k in for them each year so have to put gold a side for them each month too. Cant wait till its a full isa so i can help them out faster and still think that thing van is on about is terrible. Who would advise there kids to get a mortgage my kids wont be buying the bank a free house. They will be told to just rent and stick all there money into stocks. My house was bought outright years ago and am thinking about selling it when market finally goes tits up and sticking the lot into stocks and just renting, would end up much better off when I retire.

I perhaps interpreted your initial post out of its intended context- Got you now and I absolutely agree with your points.  

[Notafront4adragon]

You know he is American right. We live in the U.K. the maths is different. Sure if renting is cheaper vs buying it's a good move, in America that's the case fairly often especially when the choice is a massive bought house or a modest rented house.

I doubt there are many places in the UK where you can rent for less than having a semi decent mortgage, and far fewer where renting plus investing will beat buying and accumulating equity. Unless you have a job where moving often pays a great deal more renting is hard to justify here.

Also with a LISA that shouldn't be the only way you'd save but why do you not want a 25% return on 3k? 

[Roy]

@MrGeorge Just an idiot I guess ☹️

[KDave]

At the other end of the scale it's different, rent can be 800 a month for a house that would cost 650 a month capital repayment mortgage 20% down. It doesn't really make sense to rent when the math is that way around. Factor in the longer term, why rent for your entire life when you can reduce shelter cost to negligible over a couple of decades. What are you missing, 10 years of compounding in exchange for much higher cash flow in later part of working life. 

[QStack]

If you can buy why would you want to rent?

[Notafront4adragon]

8 minutes ago, MrGeorge said:

I bought my house in 2010 didn't know anything about the stock market or investing at the time, so like most uninformed people I thought buying a house was a good investment. If I had put what I paid for my house into a s and p 500 I would be worth so much more than I am today. 

I watch a lot of that valdtv channel and follow his stocks page on Instagram and almost every person he interviews all say the same thing. They rent and why the hell would they want to own a house.

I found this strange at first so looked more into it and did some research and it just makes more sense to rent for me and put more money into the stock market.

Now I do own my home mortgage free but I am seriously thinking of selling when and if this bear market ever comes and just rent a big home and stick the lot into stocks. Would fast track my retirement by a lot.

I guess in your situation it makes sense.

You can rent mine and pay my mortgage.

[KDave]

1 hour ago, MrGeorge said:

Compounding at hundreds of thousands of pounds each year yes ill take the compounding over hoping my house will double in value to a make a very small profit. 

OK let's compound throwing 3K a month away for life against 3K a month for 25 years without overpayment, see what the math says. Like I say it's different this end of the scale, house ownership is a necessary part of retirement planning, if you are renting at 60 you are going to be needing multiples higher cash flow to an owner. I can't think of what is capable of generating cash flow to the same risk as a paid off house. 

[KDave]

Rent for 25 years at 3K a month after 25 years you don't have 380K, you have nowt.

The man paying off a house in 25 years has a house, renter then has to arrange cash flow for the rest of their life or cough up 760k by your doubling calculations, while the house owner has significantly reduced shelter costs and a house worth 760K.

Our situations are so different perhaps not comparable? In my world 800 rent vs 650 mortgage it doesn't add up to rent even if I have to spend 150 a month on maintaining the place, which I don't. I assume on 1.5 million house the maintenance is a lot higher? 

[KDave]

Yes good points, my perspective is a house to live in isn't an investment it's servicing the need for shelter primarily, any capital gain is offset by the continued need for shelter. Comparably someone paying down a mortgage is reducing the cost of shelter significantly once the mortgage is paid off and then has something of value to sell worst case, where as the renter is not reducing shelter costs or gaining anything from the expenditure.

For me buying makes sense because renting costs more and buying is primarily about reducing the cost of shelter to the point I can retire. I see for you it makes sense because it's more expensive to buy/maintain than rent and the difference in saving by renting can be put to work and compound. For my end of the market it's the other way around, I think because of job insecurity, moving for work and perhaps because for lower income folk, saving even a small deposit is difficult so people are forced to rent at the higher price, they have no choice, rental demand for family homes is high. 

[vand]

On 17/08/2019 at 07:52, Michal said:

I was thinking about LISA at some point but it is very bad in long term. It is only 25% per year might look impressive for one year return but in 3 years most of share save plans offered by employers beat that. The point about status of savings is very good as well that can be crucial in some life situations. Remember about inflation in long term as well. And as a deposit it is not best option as well coz as fare as i remember ( i might be wrong ) you can use only money from LISA as a deposit, it cant be joint with ie cash saved and put together as a deposit.

It's 25% relief on the way in AND 0% tax on the way out (under the already discussed scenarios). Other schemes only give you of one of these benefits, not both.

> as a deposit it is not best option as well coz as fare as i remember ( i might be wrong ) you can use only money from LISA as a deposit, it cant be joint with ie cash saved

Really?? I find that very difficult to believe.. please link your source? 

[vand]

On 17/08/2019 at 08:28, MrGeorge said:

Why the hell would you want to invest in anything that’s limited to 3k per year for retirement. People are trying to retire rich 3k a year wont get you 💩 

What a a$$hole thing to say.  £3k is a big commitment to a lot of people. You make the most of what you have to work with, and not everyone earns your wages, MrGeorge. 

[tallyhojim]

This could turn into an interesting thought exercise.

Lets assume the average worker (in this instance a single person with no dependents) is employed on minimum wage full time at £7.83 Monday to Friday. Full time in this scenario being 42.5 hours per week (40 hours paid and 2.5 hours in the form of unpaid breaks).

£7.83 x 40 hours = £313.20 per week before tax.

£313.20 x 52 weeks = £16,286.40 annually before tax.

Take home pay for £16,286.40 based on current tax brackets is £14,612 using the Money Saving Expert Income Tax Calculator (https://www.moneysavingexpert.com/tax-calculator/). That gives them a monthly take home pay of circa £1,217.

Chances are, minimum wage workers will be renting. Minimum wage workers are also unlikely to be renting houses that are £600+ per month and will most likely be renting property in the region of £350 to £450 per month. Other monthly expenses they will incur are gas/electric/water//council tax/food/car + insurance and fuel (depending on distance to work etc)/internet/mobile phone.

Based on people I know in my own area that are paid minimum wage, their monthly expenditure is roughly £850 per month.

Again, the more luxuries people spend their money on the less they actually have spare each month.

So if they have a take home pay each month of £1,217 and expend circa £850 each month, they should in theory have roughly £360+ spare each month, assuming there are no sudden financial nasties awaiting them.

All going well, saving £3,500 to £4,000 each year technically shouldn't be that difficult providing they refrain from making any rash purchases or over indulging their personal gratifications.

It's not a grand lifestyle to have but it is still achievable to save a reasonable amount of money.

Another aspect is that if they are only working 8.5 hours a day with no more than a 45 minute journey in each direction (minimum wage workers tend not to travel that far), they will still have approximately 14 hours of available time remaining every single weekday. Take off an average sleeping cycle of 7 - 8 hours and they still have 5 hours of useful time remaining. If they utilised just a couple of those hours each day to working somewhere else at the same minimum wage rates, they could very easily bring in a further £250+ each month. And remember we haven't even looked at the available time from the weekends. If just one weekend day was utilised the person could in effect have a total disposable monthly income topping £700+.

And even if none of that spare time is used for earning more money, it can definitely be used to further ones education and employment skill sets.

Now there is a flip side to this. If you're 40 years old onward's and are still working for minimum wage as a factory skivvy or warehouse operative then sorry but you've made some crappy life decisions. By that age you should be one of the people running the damn place.

Be interesting to hear other peoples thoughts........

[Roy]

Is that right? You would only pay £9 per week in tax?

£1217/4 = £304?

[tallyhojim]

23 minutes ago, Roy said:

Is that right? You would only pay £9 per week in tax?

£1217/4 = £304?

According to the salary calculator that is roughly correct give or take a pound here or there. But if your £1217 is based on a 40 paid hour week pre deductions, that would work out as someone being paid circa £7 per hour which is against minimum wage lawss (age depending).

Unless your £1217 is after taxes?

[Roy]

1 hour ago, tallyhojim said:

That gives them a monthly take home pay of circa £1,217.

I just used this.

If a minimum wage worker is only paying £9 per week in tax, no wonder the country is going down the toilet.

Add that to the unemployed, the sick, the disabled, the single mothers and the bone idle and I wonder who is funding the country?

[tallyhojim]

I'd completely forgot what I wrote!!

Bear in mind that most minimum wage jobs are either 5 days per week on a 40 hour week, or 12 hour shifts on a 4 on 4 off rota. Also not including any potential overtime. 

But yes, that why the country has nigh on f all in terms of tax revenue. That's what happens when the State get's involved in what people can be paid. Minimum wage laws actually prices poor people out of a job and pushes them onto welfare - which is exactly what the State wants - subservient welfare voters. If I had my way I'd completely abolish minimum wage laws and welfare and let the free market decide, but hey ho that'll never happen with our current crop of spineless politicians. And yes, I spent many a year as a minimum wage worker and quickly learned how such laws hold people back.

[vand]

2 hours ago, MrGeorge said:

But its not a a$$hole thing to say its just realistic and people dont like to hear the truth. 

If 3k is all you can invest a year my advice would be forget about investing and find a new source of income or get a second job. Or better still start your own business its alot easier than people would have you believe.

 

The best way to get rich is to have both a great offence and a great defence. The LISA and tax efficiency is about optimising your defence. 

Of course I advocate that people always try to increase their earning power, but doing one doesn’t come at the expense of doing the other. You can and absolutely should do both.

Leaving £1k of free money on table each year is 1k on the table each year. Over 40 years that kinda snowballs up. If you are think it’s not worth doing then whip out £1000 from your wallet once a year and set fire to it... same thing.

 

 

[Roy]

[Michal]

9 hours ago, vand said:

It's 25% relief on the way in AND 0% tax on the way out (under the already discussed scenarios). Other schemes only give you of one of these benefits, not both.

> as a deposit it is not best option as well coz as fare as i remember ( i might be wrong ) you can use only money from LISA as a deposit, it cant be joint with ie cash saved

Really?? I find that very difficult to believe.. please link your source? 

20 years in Lisa gives you 75k, 20 years on any given investment at 3% gives you 82,280 pounds. If you have LISA you cant contribute full amount on to sharesave ( your allowance -250 pounds paid in LISA)

45 years 168 750 in lisa, 45 years in any 3% investment 285 805.

Not including inflation. So tax relief is invalid in long term.

Go and browse internet about lisa and cash in house deposit. I think it was on hallifax website, but as i said don't remember where was that. It was final thing which put me off from lisa. There are much better options than lisa (locked on x years).

[Pipers]

On 09/08/2019 at 11:59, KDave said:

Be careful with the LISA if you ever need help from the state in terms of out of work benefits the LISA is not treated as a pension but as savings. The government will force you to liquidate, claw back the 25% and charge you for the privilege (you get back less than you paid in) and draw it down until you are eligible for the bennies.

It's genius really. Get people saving for the rainy day, covers both pension, reduces bennies for those who actually need it and haven't made a lifestyle out of claiming, and I reckon it will be means tested later, reducing state pension output. But I'm a pessimist.

It's a good deal if it all goes to plan in life.

If this is true, and with the low saving limits.  I would say this is a stay clear saving plan unless you are going to buy a house.  With Job insecurity increasing in the future because of AI its my view it a 50/50 you will see the benefits agencies forcing LISA savers to use there small fund instead of claiming  benefits. Remember the system is set up in favour of the rich and against the masses. Before anyone states well they are out of works and they have savings, I will state They have paid f-cking taxes plus NI for donkeys years what is the point of paying taxes if you do not get anything when you lose your job but so and so's spent all their money and get looked after!!!!!!      

[KDave]

35 minutes ago, Pipers said:

If this is true, and with the low saving limits.  I would say this is a stay clear saving plan unless you are going to buy a house.  With Job insecurity increasing in the future because of AI its my view it a 50/50 you will see the benefits agencies forcing LISA savers to use there small fund instead of claiming  benefits. Remember the system is set up in favour of the rich and against the masses. Before anyone states well they are out of works and they have savings, I will state They have paid f-cking taxes plus NI for donkeys years what is the point of paying taxes if you do not get anything when you lose your job but so and so's spent all their money and get looked after!!!!!!      

Yes we pay NI and now there are plans to push pension age to 75. Its pretty clear what the LISA is, keeps the pressure of the benefits system first, transfers tax payers wealth to the house builders second and reduces the state pension burden last. It is ingenious, and also some other words.

[tallyhojim]

Only option left is to earn as much dollar as possible, stash it someone safe and KEEP YOUR GOD DAMNED MOUTH SHUT, even from your Wife. Never EVER put it into a bank.

Simply makes precious metal hoarding even more attractive as there will always be private buyers and sellers (if you catch my drift 😉).

[vand]

10 hours ago, Michal said:

20 years in Lisa gives you 75k, 20 years on any given investment at 3% gives you 82,280 pounds. If you have LISA you cant contribute full amount on to sharesave ( your allowance -250 pounds paid in LISA)

45 years 168 750 in lisa, 45 years in any 3% investment 285 805.

Not including inflation. So tax relief is invalid in long term.

Go and browse internet about lisa and cash in house deposit. I think it was on hallifax website, but as i said don't remember where was that. It was final thing which put me off from lisa. There are much better options than lisa (locked on x years).

 

I personally never invest directly in the company I work for as a rule of thumb. You exppose youeself to double risk of your investment underperforming and your job being put at risk if the company underperforms. 

The  out-bound tax relief is entirely valid; I advocate it as a tool to use alongside other forms of retirement savings. That way it reduces the amount of taxable income you need to draw from those other sources. If you can build a LISA pot from which you can draw £x amount on, that reduces the need for you to draw £x amount other taxable sources of income.

Eg, in scenario 1 if I need on £20k/year after-tax income to live on  after retirement then I would need to draw £21,875  gross from my pension of which £9375 is taxable at 20% from which I get:

£21875 breakdown:

12500 (pension @ personal allowance) + [9325*0.8] (taxable pension income) = 20,000

 

 

However in scenario 2 if I had built up a LISA to be able to draw on alongside my pension and could withdraw, say 5k a year from that, I would only need to withdraw £15,625 from the pension, for a lower total of £20,625 overall

£20,625 breakdown:

12500 (pension @ personall allowance rate) + [3125*0.8] (taxable pension income) + 5000 (LISA) = 20,000