savings vs. mortgage overpayment

Thrugelmir

boglehead wrote: »

Fair point... If rate goes back up to 2%, that mortgage prob will be around 3.5%... That an extra £800 a month of interest charge...

I would suggest 4 to 5% rates for the majority of products, i.e. 2% above base minimum.

Funding for lending scheme has influenced the market in past 18 months. Without which rates now would be higher. Unlike the supermarkets there's no cuts just rises.

getmore4less

what will the asset ballance look like in 5 years

ok you may hit a lifetime limit but you could load up sooner.

your biggest risk is loss of income

iht planning needs doing if you both snuff it there is a big bill.

guymo

For those who are advising ramping up pension contributions, have you realised that there is a very strong possibility that OP and his wife will both pay higher rate tax in retirement? Under these circumstances the tax relief on pension contributions is worthless. Employer match is still a bargain of course.

[edit: not quite worthless because of tax free lump sum but not the great deal it is for higher rate tax payers who likely have a lower marginal rate in retirement]

boglehead

getmore4less wrote: »

what will the asset ballance look like in 5 years

ok you may hit a lifetime limit but you could load up sooner.

your biggest risk is loss of income

iht planning needs doing if you both snuff it there is a big bill.

In 5 yrs, and assuming the house price in London calms down to a mere 3% inflation a year, I anticipate real estate to "only" represent about 55-60%% of our net worth.

I would agree about the risk of losing an income - my OH employment is bullet proof, while mine is probably safe only - hence my emergency fund.

boglehead

guymo wrote: »

For those who are advising ramping up pension contributions, have you realised that there is a very strong possibility that OP and his wife will both pay higher rate tax in retirement? Under these circumstances the tax relief on pension contributions is worthless. Employer match is still a bargain of course.

[edit: not quite worthless because of tax free lump sum but not the great deal it is for higher rate tax payers who likely have a lower marginal rate in retirement]

Guymo, I agree - pension contribution makes sense, as I am effectively only putting 25% of what is left in the pension (tax break of 45% and employer contribution) - so I could at least get the money back through a lump sum... in 25years....

My over concern around pension, is that if labor gets elected (and it will eventually), they come down on the tax benefits like a ton of bricks - and at this point, I would be very upset at having contributed over what the company matches, especially given that those funds are locked.

atush

boglehead wrote: »

Atush, she is contributing 8% and the company also adds 8%. Her marginal tax rate is 40%.
I am not a big fan of pension, cause I am pretty sure the government will change the law around pension (either decrease the life time allowance, or reduce the lump sum amount or something else...). The bottom line is that the pension tax benefits are going to get worse, not better. I don't want to wake up in 20yrs, to find out that I should have not put that much in my pension pot...
I think that putting in what the company matching is fairly safe, as you only give up £6 of net salary to get £20 in the pension - anything beyond that is risky. Especially since we both will hit the lifetime allowance before our retirement age.

Sorry, not getting this. You are afraid of what is to come? But things that change, you will be able to plan avoid before?

Ie, the PA. Yeah , they lowered it.

But it wasn't retrospective- anyone who had too much (each time) was allowed to keep it under protection rules. So please dont use that limp wristed excuse.

60 into a pension to get 100 is pretty great too- even in the worst of recent market falls you didn't lose more than 40% in a day.

What exactly, with your 60 quid will make it turn to 100 tomorrow? And the compounded investment returns that are amped up by this?

Yes Labour might make a raid, but it won't be retrospective. Don't cut off your own nose to desite yoru face, take advantage of 40% tax releif. Even if your pension is so huge you pay HRT, you'll stay pay less in the end as you get 25% tax free Lump sum.

Labour might take away or tax Isas? might reduce further contribs to Basic rate only? They might do a whole lot of vote losing things. But if you have tucked away your 40% TR pension contribs you'll be safe.

Private and company pensions have been favorite targets in days past, when labour voters didn't have them. with Auto enrollment they will, and with future tinkering, will it lower incomes enough to make benefits necessary again?

Don't see it happening once everyone more or less have a pension above and beyond the SP.

kidmugsy

Take out one of those school fee plans where you get money off by virtue of paying early.

getmore4less

boglehead wrote: »

- 40% of the population has a mortgage... a 450bps increase would lead to an uncontrollable amount of loan defaults, as 99% of those mortgages are variable. This would lead to 1) potential bank default like we've never seen before 2) government bail-out would need to happen, and only compounding the debt issue mentioned above

I searched for another thread

■ Latest figures from the Office for National Statistics show that 37.3% of UK homeowners have a mortgage (the median debt is £75,000).

http://www.theguardian.com/money/2013/dec/28/time-bomb-mortgage-rate-rises

of those 40% that have mortgages 50% of those are below £75K so not that exposed.

depends on term mainly but anyone below 20years it is below £40pm per 1% for those on £75k or below

for 50% of the mortgaged population(20% of UK households) that should not be problem for the first few % rise.

many of those other 20% are well solvent, I know I am with 100% offset, or can look at extending term(if they can).

The assumption that every one with a mortgage is stuffed if rates rise is flawed.

The numbers that will struggle will be manageable and will mainly be those that paid too much anyway or have another financial issue.

getmore4less

for a different reality check...

You could both retire now if you wanted and were prepared for a different lifestyle.

I would consider using the current excess to bring forward the retirement choice(note choice once you achieve break even you have that choice for one or both of you).


Remember it is not what you earn that decides your future.... it is what you spend.

boglehead

getmore4less wrote: »

for a different reality check...

You could both retire now if you wanted and were prepared for a different lifestyle.

I would consider using the current excess to bring forward the retirement choice(note choice once you achieve break even you have that choice for one or both of you).


Remember it is not what you earn that decides your future.... it is what you spend.

Not sure i am ready to retire at 35 nor want my daughter to see her dad without a job for her entire childhood... interesting thought though