Mortgage Free v Savings

edited 30 November -1 at 1:00AM in Mortgage-Free Wannabe
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  • JonbvnJonbvn Forumite
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    dimbo61 wrote: »
    ISA,s must be considered as long term savings as its the only tax free savings account the taxman allowes.
    However no point paying a 4/5% mortgage rate while earning 1/2% interest on your savings

    Not true. NS&I offers several tax-free products, the best of which by far is the index linked savings certificates. You can save more than 30k a year in those.
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • JonbvnJonbvn Forumite
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    That is the fallacy which led to the BTL bubble.

    Rubbish! If your net worth is increasing, then your ability to pay-off debts also increases!
    In case you hadn't already worked it out - the entire global financial system is predicated on the assumption that you're an idiot:cool:
  • edited 30 January 2010 at 2:52PM
    jamesdjamesd Forumite
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    edited 30 January 2010 at 2:52PM
    DVardysShadow, you seem to have missed the context:
    jamesd wrote: »
    2. Sufficient savings to last you until you can take your pension income, then sufficient income until the state pensions start, then sufficient income for the rest of your life... I'm working on the second of those.
    Peelerfart wrote: »
    Even though I'm in the fortunate position of earning more interest on ISA's than I'm paying on mortgage,I just can't stop overpaying ... Logic and common sense tells me to pour into ISA's but I've got a graph of my mortgage and just love watching that line going down.
    jamesd wrote: »
    What I do is keep a graph that shows net worth as well as savings, investments and debts. Net worth going up is success even if debts are also going up or staying the same.
    That is the fallacy which led to the BTL bubble.
    I doubt that you really think accumulating enough savings and investments so that you can pay all of your bills for the rest of your life on the income from them leads to any sort of bubble. It's just about the most cautious personal financial planning there is, even more cautious than overpaying on a mortgage, because that only takes care of part of the problem.

    Tracking net worth without considering volatility of investments can lead to trouble, though. So can picking poor investments, like buying property at inflated prices at the peak of a bubble and being forced to sell (you can still make a profit if you can wait, just less than buying in the dip that follows). Or buying non-index linked gilts today, for that matter.

    However, even if you pick poor investments, so long as you're using accurate valuations, net worth going up means your position is improving. Maybe not by as much as selling the investments before they drop would produce...
  • getmore4lessgetmore4less Forumite
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    Paying off the mortgage should be done as part of retirement planning.

    If you plan to live of state support and benifits then becoming asset rich, income poor by focusing on the mortgage debt is the way to go.

    If you want to replace earned income with a decent income then you need to do something extra like save outside the main property asset.
  • jamesdjamesd Forumite
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    getmore4less, sometimes planning to keep the mortgage and investments can be best. It depends on the individual's risk tolerance. Investments usually return more than mortgage clearing over the long term but it's still a risk and most people wouldn't want to take the risk.

    It's also the case that sometimes clearing the mortgage in the short term can deprive you of enough income to live on. In those cases it's better to clear the mortgage over a longer time period so that you're able to live until it's cleared. The classic example of this situation might be a redundancy payout a few years from retirement. Clear the mortgage and you've just lost the capital to generate the income you need to pay the bills until you can get your pension. Or until you can add the state pensions to your other pension and investment income. Once you get the higher or ongoing income you can then take care of the mortgage at whatever rate makes sense.
  • edited 30 January 2010 at 9:47PM
    getmore4lessgetmore4less Forumite
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    edited 30 January 2010 at 9:47PM
    It is all guess work but many don't realise the numbers involved to make ends meet

    As a very rough guide to generate £5k(state pension ish) income you need to be thinking about £100kmin , £125k is safer, £150k in the current climate

    £20k will need a pot of around 1/2 million+. (those final salary pensions are worth a lot)

    As a rough guide if you put 1/3 in housing, 1/3 spending, 1/3 saving you can come out in 15-20 years(mortgage paid off) with the same spending income for retirement if you are ok with the investments, since most of us have 40y to earn it is easy if you don't spend to much or rely on housing(downsizing) for an income.

    Have kids and you are in a mess.
  • jamesdjamesd Forumite
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    getmore4less, 5% income is a bit cautious. I'd normally go with 6% assuming income drawdown. Your numbers are closer for a lifetime annuity purchase, though. For shorter terms you can use high yield bonds (paying 7-12% but with more capital drop risk) or even buy a term annuity that returns a mixture of capital and income over a fixed term like five years.
  • getmore4lessgetmore4less Forumite
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    jamesd wrote: »
    getmore4less, 5% income is a bit cautious. I'd normally go with 6% assuming income drawdown. Your numbers are closer for a lifetime annuity purchase, though. For shorter terms you can use high yield bonds (paying 7-12% but with more capital drop risk) or even buy a term annuity that returns a mixture of capital and income over a fixed term like five years.

    I use todays money so these returns are over inflation and used during the saving cycle as well.

    Drawdown at 45 is highly risky less so at 70.

    Cautious maybe but better to get ahead rather than be behind when there is a crash or two through your planned savings period or get hit by the odd mistake(drop in capital/income) or redundancy(loss of savings potential).
  • edited 1 February 2010 at 12:44AM
    jamesdjamesd Forumite
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    edited 1 February 2010 at 12:44AM
    Same here re inflation. For drawdown I agree about caution making 5% a nice prudent target. Personally I like to assume taking income at 6% following a 30% drop in markets. That ends up being even more cautious and gives a range of outcomes so I can see what the bad and good ends might look like.
  • James -with the Halifax you are able to make underpayments to the value of your overpayments if you wish and I suspect other building societies do the same.
    im tray not davey...pinched my hubbys account!!!
    :think:
    I must stop buying smellies..well until i spot a bargain!
    never turn a bargain /freebie down you just never know when you need it :D
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