Reduce mortgage term OR start a pension?

apples1

We are married (age 37 & 39) with 2 young children. We have £10k (just!) in savings (isas) and £180k repayment mortagage (about to go on 5 year fix at 4.69%). We don't have any pension. House currently worth £325k.

Due to the death of my grandfather I am soon to be given £50k. I have never had this sort of money and want to make absolutely the right decision what to do with it.

We run our own business and take enough to make a reasonably good living but don't have any "spare" for investing.

What should I do with my £50k? My thoughts were pay it off the mortgage reducing the term but keep paying same amount each month to clear my mortgage faster OR pay it towards the mortgage but use it to reduce monthly payments (keeping term as now) and use difference to put into a pension.

StuartGMC

Apples
I think you may want to get professional advice in consideration of you both, family and the business.

For example, do you perceive that you would sell the business as a going concern at retirement giving you a lump sum to use for pension etc. Fixing mortgage seems prudent to help plan ahead for the next few years.

I assume you have a detailed household budget and really the mortgage, pension, savings and living expenses should all be considered together. If you don't have such detail I'd recommend it. Pensions need time to grow so the sooner you start the better, and of course you get tax benefits over that for savings, but the money is then restricted to your pension. An ISA investment would give more flexibility on use of the money, but, may leave them exposed to being drawn down in future?

To put things in context, I'm in a company scheme so contribution is deducted at source, and in my case is 10% of gross salary.

Hopefully you can look ahead for increase in income which you use to increase OP, savings and pensions, as well as increasing costs as your two children grow.

I hope you can get some detailed advice and as noted, would recommend professional input. Best wishes

apples1

Our business is a franchise and won't be sold on. It provides us with an income for the term of the agreement (total 10 years).

I would like opinions of MSE users to give me a range of views I can reflect on(possibly along with that of a professional). I know most IFAs work for a fee, commission etc and as I don't know an IFA I like to get a few thoughts first which is why I posted here as I value others insights.

Thank you for your input and suggestions. I hope some others are happy to post their thoughts. (Oh and no we don't have a detailed budget for our personal finances - it caused too much stress when we did!)

StuartGMC

Apples
I think most here would agree that the secret to our plans is knowledge of our finances. Without this, it will be very difficult indeed to plan and make progress. If you want a copy of my spreadsheet which I have sent to others here, just PM me with your e-mail address.

If you want a personal view, then I'd put at least some into a pension now so it can start working for you to build the pension you'll need in 20-25 yrs time and the rest to OP mortgage. Presently £100k will buy you a joint annuity of about £6400 per year fixed or £4000 if escalating with RPI (Money Observer has a review this month) for example. This same edition talks about the equity release possible if you can do so on the property once retired, but could you also downsize at that time to release money to support you both in retirement?

littlemissbossy

My personal opinion is that pensions scare me It feels like a big black hole that me and hubby chuck money down every month.. Having said that we have both been paying into them since we were in our teens but I dont think I could put a lump sum in. When I got an inheritance (not as much as you) I put it against my mortgage, I wanted to be able to see it if you know what I mean. As usual I agree with Stuart, proper advice is best due to the large amount of money involved.