Author Topic: Should we be concerned about locking up our savings in a LISA?  (Read 832 times)

shelivesthedream

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Should we be concerned about locking up our savings in a LISA?
« on: September 18, 2017, 06:13:00 AM »
We recently moved house so took a break from investing for a few months for cashflow reasons. Now that everything’s settled down again we’re ready to invest a lump sum (in my name) and to set up a regular deposit (in my husband’s name). Just before I pull the trigger, I want to check that we’re not stupid to be locking our money in a LISA.

Details:
26 and 27
He works and thinks he wants to keep on working “forever”. This may well be true, but things they are a-changing. Gets a full pension at 68. Gets a house with his job so we won’t be buying (or renting) until he retires.
I’m freelance and a low earner but we’ve recently found out I’m pregnant (due in April) so am planning to be a SAHM for a while (couple of years?) and then see how I feel/what seems feasible.
Currently have 4x annual expenses saved (mostly in normal ISA, small amount in my SIPP). The deal used to be that we mostly spent his income and saved mine, but if I’m not working then we’re looking at saving around £4000/yr, but my grandmother also sends us the occasional cheque/envelope full of used fivers, so we’d max out his LISA from regular deposits and then contribute excess to mine.

Goals:
1. Prepare for conventional retirement.
2. Prepare for the possibility that my husband decides his job has changed too much and he wants to quit.
3. Prepare for children. (Husband is very anxious about this. I am not.)
4. Prepare for an earlier retirement if possible.
5. Possible future purchase of an investment property (NOT a first home).

Is there any reason I should be concerned about our future savings being locked in a LISA? Is the risk great enough to miss out on the bonus? I’m inclined to the view that we have enough normal ISA savings now that we could spend if we needed to, but I think my husband is a bit antsy, and it does well to check because whatever we decide now will be the default until big things change.

londonstache

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #1 on: September 18, 2017, 06:26:49 AM »
I think LISA is a great idea, providing:

  • You intend to use these funds for retirement or 1st property purchase ONLY and are disciplined enough to not want to 'raid the piggybank'
  • It is part of a broader investment portfolio with sufficient money in conventional (i.e. S&S) ISAs

I'd expect committed mustachians to fulfil both criteria easily. I'm pushing my LISA hard and Mrs londonstache is doing the same, although we are already property owners. The way I see it is a 25% guaranteed ROI is something to be snapped up. The downside is the restrictions around withdrawals, but I don't see this as materially different to a pension scheme in this regard. Much of the press negativity around the LISA appears to be a concern people will not fund their pension if they invest in a LISA, but again this doesn't seem to be a big issue for our happy tribe. I'm socking away 25% of my salary with plans to increase this into a pension, and the LISA is just a cherry on top of a larger cake.

However it does mean that if I am in the happy position to FI/RE, then the pattern would likely be:

  • Draw on existing investment ISAs and non-sheltered assets
  • Draw on LISA funds
  • Draw on company pensions/SIPPs
  • Draw on all of the above with a (possible) state pension added

Slightly complex and it appears I get richer as I go along, but happy to clarify this further as I continue to age like a fine wine.
« Last Edit: September 18, 2017, 06:29:12 AM by londonstache »

financialfreedom

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #2 on: September 18, 2017, 09:03:07 AM »
We aren't personally using as we are targeting early retirement at 40, and I don't like being told what I can't and can't do.

I do appreciate we are turning away 25% return, but we benefit from earlier access.

londonstache

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #3 on: September 18, 2017, 10:12:20 AM »
That I think is a critical part - what you are targeting for FIRE date. Not worth tying it up for 20+ yrs if you intend to FIRE well before then.

shelivesthedream

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #4 on: September 18, 2017, 10:23:32 AM »
My thinking is that it's going to be a fairly small percentage of our NW (for the moment, at least) so we can spend down the other investments first. We don't have a specific FIRE date in mind and are more inclined to downshift now than front load our working lives.

Roger D

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #5 on: September 18, 2017, 11:56:42 AM »
We aren't personally using as we are targeting early retirement at 40, and I don't like being told what I can't and can't do.

I do appreciate we are turning away 25% return, but we benefit from earlier access.
You don't need earlier access to ALL of your savings, so why not put some of your stache into a LISA to get the 25% bonus for your later years, and some into an ISA to get the increased flexibility for your earlier years.

The LISA limit is low enough that serious savers will max it out and will also need to invest outside a LISA.

TartanTallulah

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #6 on: September 18, 2017, 02:00:48 PM »
Many congratulations :-)

FWIW, the way events in my life unfolded, almost every long term investment I made in my 20s and early 30s (endowment policies, index-linked savings certificates, PEPs, individual shareholdings) ended up being cashed in early, often with the loss of a bonus payment. The exceptions were the £18-a-month savings plans for the children, which returned around the same amount as the total sum invested after 21 years, and my stakeholder pension plan, which I couldn't touch. So if I was giving advice based on personal experience, I'd say, "Don't put your funds in something that you can access early with a penalty, either choose something you can access penalty-free or something you can't access at all until the end of the penalty term.

But the 25% bonus is worth having, and if you have enough other investments to cover all eventualities a LISA seems like a very good idea.



BrokenBiscuits

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #7 on: September 18, 2017, 02:41:48 PM »
Surprised all the responses are so pro Lisa. If you or your husband are employed and you want to lock money away then a works pension is likely to be a better option than a Lisa.  A pension offers tax benefits at the front and a Lisa offers it at the end. Someone on a higher rate of tax would benefit even more from a pension over a Lisa.

If you are not self employed or using the Lisa to buy a home then it's probably not the best option for you. There are a number of articles to be found from googling that will go into more detail for you.

AnswerIs42

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #8 on: September 18, 2017, 04:30:53 PM »
Pension is likely to beat the LISA if you're a higher rate taxpayer, have access to salary sacrifice or matching contributions, or are in receipt of tax credits. Otherwise LISA could well be better. Still worth having enough pension to use up your tax free allowance, though.

Putting money into a LISA rather than a normal ISA could be thought of as a gamble, as to whether you're going to need the money early or not. If you don't need the money before 60, then you win 25%. If you take it out early, then you effectively lose 6.25%. So, if you think you probably won't need the money early, then the odds are in your favour - but you do have the ability to take it out if the SHTF.

shelivesthedream

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #9 on: September 19, 2017, 02:33:33 AM »
I am self-employed. It said in the first post. My husband is a basic rate taxpayer and likely to remain so. He has a workplace pension (as I said above) and I do not want to put all our eggs in that one basket.

AnswerIs42

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #10 on: September 19, 2017, 05:40:48 AM »
True, I kind-of meant that as a more generic "you" for the benefit of other people that might be reading the thread. In your particular case, LISA does indeed sound like a good idea, for some of your stash at least.

financialfreedom

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #11 on: September 19, 2017, 11:14:25 AM »
We aren't personally using as we are targeting early retirement at 40, and I don't like being told what I can't and can't do.

I do appreciate we are turning away 25% return, but we benefit from earlier access.
You don't need earlier access to ALL of your savings, so why not put some of your stache into a LISA to get the 25% bonus for your later years, and some into an ISA to get the increased flexibility for your earlier years.

The LISA limit is low enough that serious savers will max it out and will also need to invest outside a LISA.

True. We've filled both ISAs this year, but I will bear this in mind next.

Playing with Fire UK

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #12 on: September 20, 2017, 06:28:15 AM »
I generally dislike LISAs, but I think they may be right for you.

Am I right that if your husband stopped loving work you would need to move out of the free accommodation?

And that if you both retired early you would need to find accommodation?

Do you foresee other big, non-home related spending that could cause you to need to tap the existing ISAs and then LISAs before age 60?

Are you planning on massively increasing spending when your child is born? Is this part of the concern your husband has (I'm assuming financial preparation).

How much of the current 4x expenses (ace work at 26/27!) is in ISAs rather than a SIPP? If you look at the likely growth of the ISA, versus your maybe-early retirement age, how does it compare and how does that make you feel? On the back of an envelope, at 5% growth above inflation, you'll have 8x AE before age 40, and 12x AE before age 48. Combined with a pension from ~68 and a LISA for a home and/or spending after age 60 that looks pretty good to me, but it depends on whether that feels good to you.

So a LISA would be solidly helping for goals 1 and 2, and be part of the puzzle for goal 4.

shelivesthedream

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #13 on: September 20, 2017, 07:15:09 AM »
I generally dislike LISAs, but I think they may be right for you.

Am I right that if your husband stopped loving work you would need to move out of the free accommodation?

And that if you both retired early you would need to find accommodation?

Correct.

Quote

Do you foresee other big, non-home related spending that could cause you to need to tap the existing ISAs and then LISAs before age 60?
Not really, but then that's the thing about unrelated expenses! The major thing could be school fees as we may be in a position to get a REALLY substantial discount on private school, to the point where it could be £1000-£2000 a year - which is a substantial amount of money over the course of secondary school but good enough value for money that we would probably do it.

Quote

Are you planning on massively increasing spending when your child is born? Is this part of the concern your husband has (I'm assuming financial preparation).


Potential (vastly reduced) school fees as mentioned above, food, clothing, the general cost of paying for an extra person when you do things (train tickets, restaurants, theatre), a bit of flexibility to let them go on things like school trips or buy them the odd big thing (I recall with regret my own childhood campaign for a trampoline). Nothing else leaps to mind. I think my husband has general "but children are so expensive!" concerns, not anything specific. He grew up much poorer than I did so doesn't want it/them to be held back by lack of money. I don't want us to think that we should just throw money at its/their problems. I can't imagine it being that expensive before the age of about seven, anyway.

Quote
How much of the current 4x expenses (ace work at 26/27!) is in ISAs rather than a SIPP? If you look at the likely growth of the ISA, versus your maybe-early retirement age, how does it compare and how does that make you feel?

About 10% is in a SIPP, 15% is in some managed fund my grandmother gave me, and about 75% is in an ISA. I do feel antsy about the SIPP.

MmatoO

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #14 on: September 20, 2017, 08:13:37 AM »
I do feel antsy about the SIPP.
May I ask why?
Haha, I can't believe I have a journal!

Playing with Fire UK

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Re: Should we be concerned about locking up our savings in a LISA?
« Reply #15 on: September 20, 2017, 10:11:18 AM »
I think the LISA is right for you.

I've seen my friends go through a "children are super expensive" phase followed by either "but I'm saving a fortune by going out less" or "but people give me so much free stuff" or occasionally "our baby needs three state-of-the-art prams and gold plated bottles." It seems to be part of the process. I'm excited for you both.