No mortgage, now what?

OldMusicGuy

I posted early in the thread that paying 15% into a pension was not overpaying. However, like the OP, for most of my working life I paid about 15% into a pension and paid off my mortgage early. I made exactly the same "mistakes" but was able to build up a decent DC pension pot by aggressive saving and large one-off contributions in my 50s.

If I had known then what I know now, I would have done things differently. I don't think the OP made a "mistake", I think they just followed traditional perceived wisdom in the UK. I know I did.

The biggest traditional wisdom in the UK is that property is the best investment you can make, you can't go wrong with property. Hence everyone's focus on paying off the mortgage, and because of the UK's long-term obsession with property, owning somewhere is a really big psychological "thing" in the UK.

The other tradition is lack of knowledge by the majority of people on how private pensions work. This is because for many years all you had to do was to get a job, keep it for 30 plus years and retire with a nice index-linked pension at the end of it. No thought or planning needed, and again you could focus on paying off the mortgage.

Things have changed drastically in the last 20 plus years. Now DB pensions are a rarity, but most people haven't got the understanding of what to do about private pension planning and nor do their peers. My father and brother (the people I talked with most about financial matters) both had generous DB pension schemes, so I never heard anything about private pension planning. Like most people, I put it into the "too complicated, will worry about it later" bucket and tried to resist the slick salespeople from the likes of Allied Crowbar in the 80s.

The other traditional attitude that needs to change is about investing in markets. Most people don't have the knowledge or the risk appetite to cope with investing pensions in shares and bonds. It's taken me about 5 years of increasingly detailed research and reading to get to a point where I am comfortable with all of this and I can understand people not focusing on pensions early on in life when the mortgage seems to be the most pressing need.

So I don't think the OP made a "mistake", I think (like me) they followed the received wisdom in the UK. Few people have the level of understanding and knowledge that folks on this board have and I don't see that changing any time soon.

Would I do things differently now? Well yes. But like me, the OP still has time to contribute to their pensions.

Wobblydeb

Okay...... starting from scratch, and ignoring all the hysteria about what has already passed.

What are your goals? Do you want to retire early? Buy a holiday home? Put the kids through private education? Buy them their own property at 18?

Without knowing your goals, you have less chance of hitting them, because different savings & investment activities suit different goals.

So...... if you want to put the kids through private school, you would not necessarily be maxing out your pension. You might start building a cash buffer for leaner times, or sorting out income insurance to keep covering the school fees.

That is just one example. What do you want to achieve?

enthusiasticsaver

OldMusicGuy wrote: »

I posted early in the thread that paying 15% into a pension was not overpaying. However, like the OP, for most of my working life I paid about 15% into a pension and paid off my mortgage early. I made exactly the same "mistakes" but was able to build up a decent DC pension pot by aggressive saving and large one-off contributions in my 50s.

If I had known then what I know now, I would have done things differently. I don't think the OP made a "mistake", I think they just followed traditional perceived wisdom in the UK. I know I did.

The biggest traditional wisdom in the UK is that property is the best investment you can make, you can't go wrong with property. Hence everyone's focus on paying off the mortgage, and because of the UK's long-term obsession with property, owning somewhere is a really big psychological "thing" in the UK.

The other tradition is lack of knowledge by the majority of people on how private pensions work. This is because for many years all you had to do was to get a job, keep it for 30 plus years and retire with a nice index-linked pension at the end of it. No thought or planning needed, and again you could focus on paying off the mortgage.

Things have changed drastically in the last 20 plus years. Now DB pensions are a rarity, but most people haven't got the understanding of what to do about private pension planning and nor do their peers. My father and brother (the people I talked with most about financial matters) both had generous DB pension schemes, so I never heard anything about private pension planning. Like most people, I put it into the "too complicated, will worry about it later" bucket and tried to resist the slick salespeople from the likes of Allied Crowbar in the 80s.

The other traditional attitude that needs to change is about investing in markets. Most people don't have the knowledge or the risk appetite to cope with investing pensions in shares and bonds. It's taken me about 5 years of increasingly detailed research and reading to get to a point where I am comfortable with all of this and I can understand people not focusing on pensions early on in life when the mortgage seems to be the most pressing need.

So I don't think the OP made a "mistake", I think (like me) they followed the received wisdom in the UK. Few people have the level of understanding and knowledge that folks on this board have and I don't see that changing any time soon.

Would I do things differently now? Well yes. But like me, the OP still has time to contribute to their pensions.

I agree with all of this.

The mantra in the UK has always been to buy property and lack of affordable homes has pushed the price up so in many parts of the country many young first time buyers have been priced out so in general most people see property as a rising asset (a misconception of course as seen in many property crashes). The high cost of renting compounds that. I think people in general understand how a mortgage works whereas pensions and investments are definitely seen as risky whereas of course they are no more risky than investing in property, sometimes less so. I wish that there was more education in how to manage risk in investing as one thing I regret is not doing it sooner. I saw investing as risky but did not explore how to diversify portfolios to minimise the risk or identify my tolerance for risk. Educating myself over the last three or four years has opened my eyes regarding this.

DH and I had DB pensions which we understood and were happy about contributing into with the idea that the longer you invested in them the bigger percentage of your final salary you would get. The lack of these type of pensions now compounds the problem of people being wary of how to calculate future pension income.

I have instilled into our two daughters the advantages of overpaying your mortgage, overpaying into a pension and saving for a rainy day and low if any unsecured debt. In your twenties though there seems to be so many other priorities if you have kids particularly and of course most people want to live as well as prepare for the unknown future. As in most things I think balance is needed. They have seen us retire aged 58 though by preparing for the future financially so I think this is the best incentive.

I have directed both my daughters to this forum and they are gradually educating themselves much earlier in life than I did. Apart from that and me instilling what little financial wisdom I have into them I am not sure where else people would get educated as certainly it is not touched in school and employers do not seem to make an effort to educate their employees on pensions as you would think they would.