Retirement Fund or Put to Mortgage?

atush

Brenster,

Is your company a limited company? If so, using a pension will save your company money in corporation tax? Or you for income tax, or both.

Every 80 paid into a pension by a BRTaxpayer becomes 100. 100 into a pension only costs a HRT payer 60.

So, start a pension. Now. And use S&S isas as well if you like. But if you need an extension, then how soon do you need it? Can you go into the loft?


And congrats on becoming debt free. Nice to see you here.

racing_blue

Am I understanding this right OP: you may be looking to move to a bigger house, and wonder whether to use your savings or arrange a bigger mortgage?

You need a home-owner sized emergency fund tucked away of course. After that, may I suggest it doesn't matter very much but hinges mostly on your attitude to risk.

Consider your net investible assets to be the value of your investments, minus the balance of your mortgage. Sounds like it will be a big negative number at this stage. Over time you will want to bring it up into positive territory. How will you achieve this quickest?

Look at the historical compound returns of a disciplined investor with average success. Compare these with the historical compound interest on the average mortgage. There is a difference of around 2% per year, suggesting that an investor will probably get there faster than a repayer. But they may not- which is the risk. Is this a risk you feel like taking?

My own approach is to invest £1 for every £1 of mortgage principle repaid, taking a sort of middle road (it was someone here who recommended this).

Your case is interesting because it sounds as if your net investible assets will also form your provision for old age?

dvdrdl

I used to be a big saver until a few life events changed my views. (Won't bore you with details)

I hardly save anything for my future now and enjoy nice cars, seeing the world and other luxuries.

What good is wealth when I'm old and incapable of enjoying it.

Make the most of your life it's too short.

I know this goes against everything this forum is about, sorry

greenglide

I used to be a big saver until a few life events changed my views. (Won't bore you with details)

I hardly save anything for my future now and enjoy nice cars, seeing the world and other luxuries.

This is fine if your life expectancy is truly limited (which is not the same as just a "I will never reach old age because the next door neighbout died because ...") and if you have no dependants.

The OP appears to have dependants and I hope is not going to plan to spend retirement in poverty.

There is a balance to be made. Deciding at the level at which to set this isnt easy, especially if you don't have a huge income now.

_CC_

For me it would depend a lot on current income / outgoings and outstanding mortgage.

It may be wiser to borrow the funds to extend or buy somewhere new due to low borrowing costs.

It's not clear what your money is saved / invested in at present; if it's long term savings then it should at least be a stocks and shares ISA opposed to savings. Ideally you'd want to look at setting up a pension as it would be much better suited to your goal, even if you split it between an ISA and pension.

Only you know regarding the house. I wouldn't choose to see it as an investment asset for retirement personally.

_CC_

dvdrdl wrote: »

I used to be a big saver until a few life events changed my views. (Won't bore you with details)

I hardly save anything for my future now and enjoy nice cars, seeing the world and other luxuries.

What good is wealth when I'm old and incapable of enjoying it.

Make the most of your life it's too short.

I know this goes against everything this forum is about, sorry

Unless you're in a poor paying job, or live somewhere very expensive, it doesn't have to be either-or.

You can amply provide for your pension whilst having enough disposable income to enjoy yourself.

Sure, you may become ill or die early, but equally you may get to retirement age without any provisions and live a large portion of your life in poverty - both extremes are a gamble.

jimjames

racing_blue wrote: »

Look at the historical compound returns of a disciplined investor with average success. Compare these with the historical compound interest on the average mortgage. There is a difference of around 2% per year, suggesting that an investor will probably get there faster than a repayer. But they may not- which is the risk. Is this a risk you feel like taking?

It's an good point about making that decision to invest or to borrow. I've recently extended the house and rather than selling investments to do it I decided that it was better to borrow instead. So I'm borrowing at 2.25% as I think I can beat that rate with investment returns.

Eco_Miser

dvdrdl wrote: »

What good is wealth when I'm old and incapable of enjoying it.

It lets you be miserable in comfort!

Also being old, and being incapable of enjoying wealth are two different, entirely unconnected things.

bowlhead99

jimjames wrote: »

It's an good point about making that decision to invest or to borrow. I've recently extended the house and rather than selling investments to do it I decided that it was better to borrow instead. So I'm borrowing at 2.25% as I think I can beat that rate with investment returns.

That's a pretty good rate if it's locked in for a while rather than reverting to a standard rate in a short timescale, and even if the rate does go up you will know you have the assets available to pay if off if an interest rate rise were to make it eye-wateringly expensive.

My mortgage rate's quite a bit higher than that and is now being overpaid a bit (within the limits of an early repayment charge on big overpayments which persists through the life of my fix) as I'm not expecting mega-gains from the markets in the next couple of years.

Still, my rate is certainly better than the bad old days of interest at 5 to 7 percent or more - which will inevitably be back again at some point in my mortgage lifetime. If I needed to extend the house without wanting to tap into scant retirement assets, a remortgage on a known fixed rate for a multi-year period would be a sensible way to go.

enthusiasticsaver

Are you overpaying on your mortgage? That is something we found really helpful in bringing the costs down admittedly though the interest rates were a lot higher than they are now.


I agree with dunston and bowlhead et al in that if you are investing long term, a cash isa is not the way to go. Look into pensions definitely for the tax advantages if nothing else and being self employed there are lots of ways you can use that to your advantage.