Decisions Descisions Decions HELP !

Perrysburg

Thank you for looking ….

I was fortunate to retire last summer at the age of 52 years.

My retirement included a lump sum and a monthly pension. You would think everything would be plain sailing. Don't get me wrong I am enjoying retirement. However the biggest dilemma is the financial aspect. Please I would welcome any views to utilize my money the best possible way.

I currently have £160,000 lying in a High Street account earning 0.2%, I know you don't have to tell me.

I receive a monthly pension of £1,316 per month, net, and guaranteed my lifetime. I am a basic tax payer, single with no dependants or family. Out of this monthly pension I pay out £1,015 for bills. Thus leaving me £300.00 for food, petrol, socializing and any other necessities which is tight. At this age I still have places to visit and things to do whilst I can.

My biggest outlays are my car loan which is £256.76 a month. I have only 10 more payments left. A total of £2,567.60 outstanding. If I paid in full today I would save myself £24.62.

The next one being my repayment mortgage, which is currently £524.99 a month. Interest rate is 1.24 %, tracker mortgage 0.25 % above base rate. There is 14 years left on it with an outstanding sum currently today at £80,872.49. People say why pay the mortgage off who are you going to leave the house to. Another strand for me it would give me more pension flexibility per month.

Therefore do I pay my mortgage off in full ? Or part ? If so why ?
Do I invest the £80,000 that I could have used to pay the mortgage off ? If so what investments ?
Do I pay the car loan off today.
If I did pay these debts off in full where would I place the remaining £80,000 to ensure it gets the best growth.

I have thought deeply about investing in S&S ISA . But cannot succumb myself to pay some of the hefty fees IFA's are guaranteed regardless if my money goes up or down. Besides the market is very volatile. Do I want to take the risk ? I am aware of inflation plus the fact you should always try and tax free wrap, ISA.

How lucky I am I to be in such a position ! But simply cannot make a decision to ensure that I maximise the best potential.

I have to get this sorted sooooon, Please HELP !

eskbanker

Re "People say why pay the mortgage off who are you going to leave the house to", that seems to miss the point - you will pay the mortgage off one way or another, the question is just whether to do so early or in 14 years time, to which my answer would be that if the rate is low (albeit base+0.25% would be 1% not 1.24%) then you should easily be able to make your money work harder elsewhere.

In your shoes I think I'd keep some of the money in cash form for holidays, etc, plus an emergency fund, and invest the rest. As you say, using ISAs makes sense for sheltering investments from tax on dividend income and capital growth, but only allow £20K per tax year, so get £20K into one before 5 April and another £20K afterwards.

No need to involve IFAs, just read up on investment principles and strategies on here and elsewhere (Monevator, etc). Newbie investors are often directed to low-cost global multi-asset funds such as Vanguard LifeStrategy, HSBC Global Strategy, etc, as these are simple options suited to those unable or unwilling to devote large amounts of time researching markets, etc, and who are looking for diversified 'buy and forget' solutions.

Spiggle

Hi Perrysburg,

First of all having £160k in one bank means you're not covered by the FCFS £85k guarantee so split it.
You will shortly get replies and questions from those with far more experience than me in calculating and range of options for you.

I'll just tell you my story of reasonably similar circumstances if you like and what we did about it.
In 2013 I was forced to retire early due to ill health but did receive thankfully my full protected pension (LGPS) including a lump sum the proportion of which I had some flexibility over.

We had been making overpayment on the mortgage for years anyway but our mortgage interest rate was lower than yours. I did all the calculations (my brain worked slightly more efficiently then) of the financial benefits of paying off mortgage, all outstanding loans etc. versus investing and saving the lump sum while paying our monthly mortgage until the end. The difference was so small as to be negligible in financial terms.

So we had to look at who we were (my OH was alive then but its equally valid if you're on your own), where we wanted to be, and what drove us. The answer every time was first security, security and security. We wanted to be home and we never wanted to be in a position where any institution could take home away from us. We also wanted to live our lives which meant having the monthly liquid funds to do what we wanted (within reason) when we wanted.

We paid the mortgage off immediately the lump sum came through. If we'd still had loans, other credit or credit cards those would have been paid off too. Now we would have had the opinions that it was unwise to do what we did - higher returns were available for savings and investments with a ridiculously low mortgage rate for us - but we needed to look at who we were as well as the numbers.

If I were to go back today I would still do the same thing because it is not possible to enumerate the value personally of being secure in your own home.

If I was you today, I'd get shot of the car loan asap. I'd consider paying the mortgage off or at least investigating some lump sum capital repayments, and look forward to having my pension to more or less do with as I please (within reason).

You are still young and to have a lot of debt and only a small proportion of disposable monthly income to yourself could make retirement difficult for you at such a young age.

I wish you luck with your decision making. The people on here will give much better financial advice but sometimes it isn't only about numbers as important as they are.

All the best,
Spigs

AlanP_2

I'd pay off the car loan out of savings which will free up some monthly money and give you a bit of breathing space.

Given you retired this tax year you presumably had some earned income, you could pay in this amount (less any pension contributions) and get HMRC tax top up on it. Needs to be done in next few weeks though.

Following tax years - £2880 in to a pension, with HMRC increasing it to £3600 for you. You'll have to pay tax on the 75% that is taxable when you withdraw it (minimum age 55) but still a positive return.

Cash in interest paying current accounts & regular savers and look at a fixed term / 5 year ladder possibly.

Remainder - S&S ISA via DIY platform using one of multi-asset funds mentioned for simplicity. Limit 20k a tax year so again get one opened asap and pay 20k in, even if left in cash whilst you think about investment options.

What is your State Pension situation? Do you need to budget for buying additional years at some point to maximise that?

Mortgage - I'd pay it off over the 14 years as you would expect to make more on the investment side but that would be down to personal preference and risk appetite.

Perrysburg

I thank everyone who has made a contribution to my current dilemma....

At the moment I do not want to work, however you should never say never.... I feel blessed that I do not have to. However this is based on that I place my financial circumstances in the correct order at the start.

From the posts immediately I have learned that I should finalise my car loan out of my savings to free up some spare cash out of my monthly pension. Also to move money from its current location for FCFS reasons. I have no other debt other than a credit card that gets paid off each month.

In terms of my state pension which I will not get for some time, 67 years old. I have done my research on this and found that I will have a short fall of approx £28 per week instead of £164 it would be £136. I understand that I can buy years of which I have a 6 years shortfall. Will have to work out the sum to purchase and will it be worth while in the long run. Anyhow who knows if the government will change their minds and move the goal posts again. I feel that this is something I can work out later. Unless anyone can advise me differently.


I understand that my mortgage will be paid whether now or in 14 years or shorter time. I believe that I am on a good rate at the moment. Obviously if interest rates go up so does my mortgage. Therefore I am torn to pay off in full today, as Spiggle points out it provides security, which I would be putting all my eggs in one basket to some degree. Or leaving it and trying to beat interest rates above 1.24 % but also conscious of £1,000 tax free interest allowance per annum allowed. In addition mindful to inflation. I am also looking at premium bonds as another strategy for the tax free element.

I am interest in exploring Alan P's reply in terms of about HMRC top up as mentioned. Please could you give me details where I need to start looking into this ? Also you mentioned S&S ISA via DIY platform. Eskbanker discusses Vanguard LifeStrategy, HSBC Global etc. I like the idea of a "buy and forget" solution. Could you please point me in the direction where I need to pursue this ? I am in the belief that this type of investment needs to be put away for a minimum of 5 years. A good response time would be 10 years.

I am slowly but surely getting there, I think !

Anything else would be greatly appreciated.

Spiggle

Perrysburg wrote: »

In terms of my state pension which I will not get for some time, 67 years old. I have done my research on this and found that I will have a short fall of approx £28 per week instead of £164 it would be £136. I understand that I can buy years of which I have a 6 years shortfall. Will have to work out the sum to purchase and will it be worth while in the long run. Anyhow who knows if the government will change their minds and move the goal posts again. I feel that this is something I can work out later. Unless anyone can advise me differently.

Are you my online doppelganger? I had exactly the same except when I retired in 2013 I checked and had full 35 years so full SP. I missed the govt changes in 2016. There are others far more adept that can offer answers to you here but afaik you should speak with the Future Pensions Centre (part of HMRC), the cost of buying years back will increase in future and you should not consider buying back any pre-2016 missing NI years. And yes the govt can and may change the goalposts.

I understand that my mortgage will be paid whether now or in 14 years or shorter time. I believe that I am on a good rate at the moment. Obviously if interest rates go up so does my mortgage. Therefore I am torn to pay off in full today, as Spiggle points out it provides security, which I would be putting all my eggs in one basket to some degree. It really is horses for courses. There are many methods for doing it and if you want to make overpayments or pay a chunk of capital off, take a look at the Mortgage Free Wannabe board on here. Or leaving it and trying to beat interest rates above 1.24 % but also conscious of £1,000 tax free interest allowance per annum allowed. This is not as simple as you think. Luckily, there are people on here who will put you right. Essentially there is a £5k allowance at 0% and then the £1k 0% allowance on savings interest but it is now a bit more complicated due to all interest being paid to customer tax free and calculations being made on income levels etc.. In addition mindful to inflation. I am also looking at premium bonds as another strategy for the tax free element. Why? If you want something NS&I then there are other products available from them that pay interest.

I am interest in exploring Alan P's reply in terms of about HMRC top up as mentioned. Please could you give me details where I need to start looking into this ? Also you mentioned S&S ISA via DIY platform. Eskbanker discusses Vanguard LifeStrategy, HSBC Global etc. I like the idea of a "buy and forget" solution. Could you please point me in the direction where I need to pursue this ? I am in the belief that this type of investment needs to be put away for a minimum of 5 years. A good response time would be 10 years. In the last month I invested 10k in VLS60 S&SISA on the Vanguard platform. Easy to do and leaving it for at least 10 years. They were cheapest for me as not looking elsewhere but those in the know can comment on ways to calculate best platform, Fund, etc.

Good luck with it all,
Spigs

Spiggle

Perrysburg wrote: »

... I understand that my mortgage will be paid whether now or in 14 years or shorter time. I believe that I am on a good rate at the moment. Obviously if interest rates go up so does my mortgage. Therefore I am torn to pay off in full today, as Spiggle points out it provides security, which I would be putting all my eggs in one basket to some degree. ...

Sorry Perrysburg,
One thing I just remembered to say, if you make any overpayments or additional lump sum capital repayments on your mortgage, don't reduce the term of the mortgage which tended to be the go to option when I still had mine. If the term remains the same then the required monthly mortgage payments reduce so you have either more disposable income each month or an opportunity to overpay more if that's your bag.
All the best,
Spigs

enthusiasticsaver

Perrysburg wrote: »

Thank you for looking ….

I was fortunate to retire last summer at the age of 52 years.

My retirement included a lump sum and a monthly pension. You would think everything would be plain sailing. Don't get me wrong I am enjoying retirement. However the biggest dilemma is the financial aspect. Please I would welcome any views to utilize my money the best possible way.

I currently have £160,000 lying in a High Street account earning 0.2%, I know you don't have to tell me.

I receive a monthly pension of £1,316 per month, net, and guaranteed my lifetime. I am a basic tax payer, single with no dependants or family. Out of this monthly pension I pay out £1,015 for bills. Thus leaving me £300.00 for food, petrol, socializing and any other necessities which is tight. At this age I still have places to visit and things to do whilst I can.

My biggest outlays are my car loan which is £256.76 a month. I have only 10 more payments left. A total of £2,567.60 outstanding. If I paid in full today I would save myself £24.62.

The next one being my repayment mortgage, which is currently £524.99 a month. Interest rate is 1.24 %, tracker mortgage 0.25 % above base rate. There is 14 years left on it with an outstanding sum currently today at £80,872.49. People say why pay the mortgage off who are you going to leave the house to. Another strand for me it would give me more pension flexibility per month.

Therefore do I pay my mortgage off in full ? Or part ? If so why ?
Do I invest the £80,000 that I could have used to pay the mortgage off ? If so what investments ?
Do I pay the car loan off today.
If I did pay these debts off in full where would I place the remaining £80,000 to ensure it gets the best growth.

I have thought deeply about investing in S&S ISA . But cannot succumb myself to pay some of the hefty fees IFA's are guaranteed regardless if my money goes up or down. Besides the market is very volatile. Do I want to take the risk ? I am aware of inflation plus the fact you should always try and tax free wrap, ISA.

How lucky I am I to be in such a position ! But simply cannot make a decision to ensure that I maximise the best potential.

I have to get this sorted sooooon, Please HELP !

I see no point in the money sitting in an ordinary bank account earning 0.2% when you are paying much higher on both your mortgage and your bank loan. Personally to get your monthly bills amounts down and save on interest I would pay off both the bank loan and the mortgage. I assume you have no other debt?

Daft argument to say you have no one to leave the house to so why would you pay the mortgage off? You save on the 1.24% interest on the mortgage and get to keep a lot more of your monthly pension to live off rather than using more than half of it to pay off debt when you have £160k sitting in a bank account earning a ridiculously low rate of interest. That is why most of us pay off our mortgages as early as possible to minimise outgoings and save on interest. I did not even think about the house going to our daughters as there is no guarantee it wont be needed to pay care costs in later life anyway.


So I would use the £83k approx. to pay off the mortgage and bank loan. That leaves you £77k which is closer to the FSCS guarantee amount too otherwise you would split it between two organisations. I would keep a certain amount back as you have a long time until you get your state pension and put some into a stocks and shares isa. No need for an expensive IFA. Do your own research and start off small with the annual limit of £20k. We went for the Vanguard LS60 too but also have amounts in income funds too.

AlanP_2

Pension - Look at this thread https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired for a discussion on the 2880 / 3600 annual contribution approach.

You will have some earned income by the sounds of it (pension payments don't count) from before your retirement.

You can pay contribute up to your earned income level into a pension, so for this tax year you could contribute:

Salary - Pension Contributions (assuming you were contributing whilst working) or £2880 whichever is greater.

Pension provider reclaims 25% from HMRC and adds to your pot for you.

From Age 55 you can withdraw 25% tax free with anything over that being subject to tax, given your current monthly pension that'll be your situation I think.

So say you put £8k into pension, increased to £10k by HMRC.

Withdraw £2.5k tax free and pay 20% tax on £7.5k (£1.5k) gives you £8.5k for £8k contribution. Not a massive return but a reasonable one.

This assumes left in cash and no investment gain or loss. Personally I would invest it in low coast / multi asset as per ISA discussion and let it grow unless you need it as income - it's all about balance really.

An advantage not in the calculation above is that you could see an adjustment in tax paid this year as your taxable income would be lower than the current YTD figures would indicate so may get a refund / code adjustment at some point.

Perrysburg

I thank again everyone who has careful replied. You have provided me with some great replies !

I am sorry it has taken me some 24 hours to reply. You can imagine my mind is working at full throttle at the moment looking at different permutations. But in all seriousness it is very simple. Yes I think approx £83 K is a lot of debt if you regard your mortgage as a debt.

You are absolutely right I want to enjoy life now whilst I can ! With less than £300 out of my monthly pension I am denying my self

Yes I could utilize the £80K plus that I would used to pay the mortgage off. I do not feel I could find a substantial return other than entering into the S&S market. For this kind of cash amount I would need an IFA as I do not have the knowledge. The money is not guaranteed but they are guaranteed there upfront and yearly fees regardless.

Definitely get rid of the car payment. At the moment I am thinking of possibly paying 50% off the mortgage. On this it would free up £262.50 & car payment of £256.76 = £519.26 on top of the £300.00 I currently have left to spend. Giving me a total of £819.26 which is respectful. This would still leave me with around £120K still in the bank/savings. I was thinking of reviewing in time to see how I was coping to see if I would need to knock some more off the mortgage. My mind is still open on this.

I am questioning myself if I pay off the mortgage this will leave approx. £77K . Would this be enough to take me through my years. Taking into consideration emergency money, household repairs , changing my car and I love to travel which is approx. £3500 a year.

I fancy a flutter and currently looking at your suggestions of Vanguard Life Strategy 60 using the Vanguard platform. I am mindful that it goes away for 10 years. If I payed my mortgage off and placed £20 K into this fund that would leave me £57K again I ask my self is this enough.

I like the HMRC retirement pension return aspect....

Spiggle that's a new one on me an online "doppelganger" !

I am getting even closer and still working on my figures. I feel a lot more confident which to me is a great positive. I wish I had approached this forum sooner to avoid all the anguish this has caused me, believe me !

Keep up the good work ! If I see you out I will buy you a drink !!!

eskbanker

Perrysburg wrote: »

I fancy a flutter and currently looking at your suggestions of Vanguard Life Strategy 60 using the Vanguard platform. I am mindful that it goes away for 10 years.

While it's undeniably true that investing involves different risks from staying in cash, I'd be wary of regarding it as a flutter! It should be seen as a way of generating growth (or perhaps income) in a planned and structured way - if it's a flutter you fancy then buy a lottery ticket or stick a few quid on the 2:30 at Newmarket (equine flu permitting).

There's plenty of background reading at the likes of:

https://www.moneyadviceservice.org.uk/en/articles/investing-beginners-guide
https://www.hl.co.uk/beginners-guides/investing
http://www.monevator.com
http://diyinvestoruk.blogspot.com/
https://www.moneysavingexpert.com/investments/

Bear in mind a number of key points:

1. Only consider investing once you have adequate accessible cash reserves.
2. Only invest if you're happy to commit for at least 5-7 years and preferably 10-15 or more.
3. Diversify - ignore individual shares, etc, and concentrate on collective investments that spread your eggs over many baskets. Global multi-asset funds are a good place to start, available from the likes of HSBC Global Strategy, Vanguard LifeStrategy, Blackrock Consensus and L&G Multi-Index.
4. Choose what you want to invest in before considering which platform to hold it/them on.
5. Keep an eye on ongoing costs for funds and platforms - they shouldn't be the primary consideration but can make a noticeable difference over the long term.