Choosing Pension plan or paying loans

SeekHelp

I am 39years old. I have a housing loan. i have not chosen any retirement plan. What i would like to know is, whether
i can start investing in retirement plan or
i can close the housing loan first and then start or
Pay for both.
Please suggest me which is the best way.

atush

Do yo mean a mortgage? What % is it?

Does your employer have a pension scheme? what amount do they pay in?

dunstonh

I have a housing loan.

Do you mean a mortgage (cheap long term borrowing) or a short to medium secured loan (typically more expensive borrowing)?

i have not chosen any retirement plan.

What does your employer offer with regards to pensions?

Just for clarification as your wording gives some doubt... Are you based in the UK? This is a UK site.

R_P_W

Well you should be doing both! Whether you have sufficient income is another question?

jamesd

It seems likely that you are in the US but in general:

1. pensions offer better growth than the interest cost of long term mortgaged property loans.
2. paying off high interest rate debt is good.

If you have a property loan that is at a higher interest rate than 8% there's a good chance that it is as good or better to pay that off before pension investing.

If your employer makes matching pension contributions those would increase the interest rate needed to be better off by paying off the loan. If your employer matched your contributions 1:1 then you'd need 16% to be very sure of it being better to pay off the loan than do pension investing.

Then you need to consider the effect of tax relief on the pension. If you get 25% added to the pension for tax relief then that increases the loan interest rate needed from 8% to 10% to be fairly sure that paying off the loan first is the best way.

dunstonh

noah_herman wrote: »

Hi,
It's really good that from now you are thinking on retirement planning.
see both are very important now. Not every type of retirement plan allows participant loans. but you can take Retirement Plan Loan. Taking a loan through a work retirement plan means you're borrowing a portion of the money in your account and paying yourself back.

Thanks

None of them do that.

jamesd

There's no such thing as a retirement plan loan in the UK.