LISA for retirement

For most NHS workers, especially doctors, there may be less consideration for financial planning for retirement. There may be a thought that the NHS pension will be enough and actually with annual allowance considerations for high earners, further contributions will be not tax efficient. However there is another savings vehicle that could be used that seems to be often ignored for retirement, that is the Lifetime ISA (LISA).

LISA's is similar to the normal ISA in that any growth inside it is tax-free. However, LISA's only allow a maximum of £4,000 every tax year to be deposited, providing you don't deposit over £20,000 across all your available ISAs. The main attraction of a LISA is that the government will top up any deposit by 25%. So if you put the maximum deposit in of £4,000, you'll get it topped up to £5,000. Importantly, you can only open one from the age of 18 up until 39, once you are 40 and over, you are unable to open one. Additionally you cannot deposit any money after the age of 50.

There are only two ways you can withdraw from this account without penalty. One is if it for a purchase of your first property and secondly, when you turn 60. Withdrawal outside of these times will mean a 25% penalty. For example, if you had £5,000 in the account and decided to withdraw, the penalty would be £1,250 - £250 or 6.25% less than what was initially deposited. 

You can have a simple cash LISA or a Stocks and Shares LISA (S&S LISA). For retirement purposes, it probably is preferable to have a S&S version, and for the house purposes, a cash one. 

For example if you opened one at the age of 25, depositing £4,000 a year and getting the £1,000 top up to make £5,000. Assuming a conservative growth investing in an index fund of 4%, if you did that consistently until the age of 50 (when you can't deposit anymore), you'd have a pot of £216,558.72. Then letting it sit for the next 10 years until you can withdraw it penalty-free at 60 would give you a pot of £320,559.81 - a good sum for retirement. Considering the cost to you of £100,000, that is 220.56% return on investment (ROI). 

If you not wanting to add more to a pension, getting a LISA may be a good way to go to help fund your retirement. Please share below if you found it useful.