Pension calculation help to get me to 25k pa

AlwaysLearnin

To go through your points:

- yes, it's amazing how much 'other' expediture can mount up if unchecked. We took a while agreeing on our balance between saving for the future and enjoying today.

- there are some excellent contributors on the board, and across the forums (thank you all!). When I started lurking here I had some vague ideas, now we have some solid plans in place (albeit they have to remain flexible to circumstance, and perhaps learning something new that I hadn't previously considered...!)

- I'm with you there - I was thankfully signed up to our works DB pension

- again, I'm with you. A number of posters here make very good cases as to why it's better to invest rather than paying off the mortgage. I fully appreciate the logic of what they say, but I decided to cover off the mortgage, and it still feels great.

At the end of the day everyone's different, and it's about finding the right mix of the various (numerous) factors as best as you can for your personal circumstances. You look to be well on your way. :T

It_Aches

AlwaysLearnin - thanks for that - as you say, balanced spending with balanced saving is the way forward for me.

Great thing is that I've found a real passion for this now - I can more easily come to peace with having to continue in my current employment for a few more years now when I 'zoom out' and look at the bigger picture - and can see why I'm doing it and what the positive effect is.

Paying off the mortgage is a 'sidebar' to this - but equally exciting.

mark55man

if you really want to sweat your pennies go and read the old style board http://forums.moneysavingexpert.com/forumdisplay.php?f=33

don't go crazy - if you cut everything out you'll be miserable and then blow your cash on something daft - so YES reduce your spending, but NO don't make yourself guilty about every penny you spend

jamesd

It_Aches wrote: »

I now have clear sight on what I need to do - and it will be all that more achieveable with a 50% reduction in my mortgage payment.

More achievable? Nope. The opposite. It delays retirement or increase the amount you have to invest to catch up.

It_Aches wrote: »

this hasnt been part of this thread probably because I'm aware that there are better ways to use 50k, but I'm about to bring my mortgage down from 125 to 75k - I know some would say that's crazy in terms of the bigger picture - but the emotional security that will give me (my mortgage payment will go from circa £900 to £450) is priceless

Yes, it's crazy in terms of the bigger picture but if it really is worth that cost emotionally it's OK to do it. Be sure that you work out just how much more you have to invest to reach your targets if you do this. It significantly increases the cost, so don't do it casually. Mortgage overpayments are also costly in terms of delaying your targets or costing more to get there.

The reasons for the high cost of mortgage overpayments are inflation and the higher investment growth compared to the saving in mortgage interest. You end up losing years of growth on the £50k that costs you a long time to re-accumulate. And inflation means that the real - inflation-adjusted - value of the mortgage debt decreases the longer you leave it unpaid.

The cheapest usual way to pay off a mortgage is with a pension lump sum. The most expensive is never taking it out or repaying on the first day.

When I took out my mortgage I had enough money in non-pension savings and investments to repay it on the day. What gives me emotional security instead of a lower mortgage is knowing that I have so much capital available and generating current and future income that I can continue to pay the mortgage and eventually clear it even if I lost my job and never worked again, while also paying all of my other living costs.

Which makes you feel more secure, the mortgage cost reduction or having £50,000 growing in an ISA to support you if you can't work for a while and helping you to retire earlier?

Everyone has some shade of different answer to that. I have a big emergency fund - enough to live on for years because it include lots of money in ISA and other investing - and that delivers me far more feeling of security than halving or paying off a mortgage would.

So far you've considered retirement targets. But it's also worth looking at how long it would take you to get to the point where you could survive without benefits if you never worked again, on a minimal level. Getting to that point was my third big target, after clearing high cost and family debts and getting a big emergency fund.

£50,000 would almost pay off my mortgage. But if I used it for that I wouldn't be making 25%+ taxable interest a year on the money instead, so you can guess which way I'm going to try to use the 50% - the P2P lending. This is quite high risk since it involves lending in Estonia and in Euros, so there's currency and foreign country legal risk as well as the usual risks. OK for me but probably too much for you to do it with all £50k at this point. For me it's a reasonable part of an overall mixture for my risk tolerance, once I get it invested.

It_Aches

Thanks jamesd - just a further comment...everything we have discussed on this thread excluded the 50k i have for the remortgage (I have 60 but will invest the other 10) - so I was referring to the plans discussed on this specific thread as being more achievable - because ive been holding back the fact that i will be halving my mortgage and so can better achieve the monthly investment figures needed to hit my target thanks to more disposable income.

You do however once again give food for thought! And i follow the logic completely.

But emotionally (despite the logic) i would find it very difficult to drag this mortgage around at its current level for more years - I accept the opportunity cost on this specific point...I think. I can still aim for all the retirement targets we have discussed and at the same time on top of that reduce my mortgage by 50% thus relieving in some part the constant concern i have around redundancy.

Having said that i havent investigated other options that may give the same outcome - when i briefly considered options i thought about investing the 50k (but how to do this effectively given ISA limits) and staying on an SVR mortgage so i'm not tied in...but in my non expert opinion it seemed i was taking on risk x2, ie investment growth risk with the 50k and interest risk on the SVR...

jamesd

Do you have accident, sickness and unemployment insurance? Worth having if there's been no formal announcement of possible redundancies and if it worries you.

The alternatives to mortgage payment have risks of various sorts. And it's very common for people to want a smaller mortgage or none at all. It could easily make you a lot happier than the same money invested if you happen to place a higher value on that than the invested money.

SVR is worth doing something about, if it's not a very low one.

Some alternatives:

VCT. High risk, though that varies between VCTs. For one example, the set of three Northern VCTs have an offer open at the moment where the dividend target, not guaranteed, is about 9% tax free on the cost of the investment, after allowing for the effect of the 30% initial tax relief. There are others, ProVen Growth and Income is often quite highly rated, I don't happen to know it's target dividend rates, if any. Both are generalist VCTs, around the mid to low part of the VCT risk range.

Outside the ISA wrapper, growth investments tend to be tax-efficient but volatile so far as value variations go.

On the remortgage side, it's worth looking at offset mortgages. They cost a little more but the offset accounts give you the option of doing things like stoozing to reduce your mortgage interest bill with some 0% credit card use.

On the risk management side, an offset mortgage gives you the chance to put money into the offset account at times of high interest rates and take it out again at low interest rate times. Some useful protection.

It_Aches

yes I think I have the full suite of insurances.

offset mortgage is something I looked at and dismissed - but for different reasons to the advantages you state - I'll look again at that.

I do keep reading on here about people's retirement planning spreadsheets - now I have a current acc spreadsheet and mortgage/savings spreadsheet that I think NASA would be impressed by - but I'm coming up with nothing in terms of how to design a worthwhile retirement sheet...

...does anyone know if there are any standard templates out there somewhere or indeed if MSE has something that can be used and then amended for personal preferences etc?