Just turned 40 - want to retire at 58 - sense check

Bemma

One follow on question: the £100 => £85 bit in your analysis why is this element taxed at 15% and not 20% tax rate?

£100 => £85
£100 => £25 tax free + £75 less 20% tax
£100 => £25 + (£75 * 80%) = £85

rawhammered

squirrelpie wrote: »

I don't understand this bit. Having the money tied up in the house isn't much better than having it tied up in a pension. Yes, you can get at it in an emergency but it has to be a serious situation before you consider selling the house or even remortgaging it. Much easier to access savings in an ISA if required.

True to a significant extent....though only tied up until the mortgage is fully paid off - then there's an immediate cashflow benefit of not paying £1k a month gets realised. Take your point though.

rawhammered

Bemma wrote: »

£100 => £85
£100 => £25 tax free + £75 less 20% tax
£100 => £25 + (£75 * 80%) = £85

Thanks - tax free lump sum effect. Assuming that isnt removed in 20 years time though!
Perhaps investing in wife's pension would be the best course.

Clive_Woody

rawhammered wrote: »

True to a significant extent....though only tied up until the mortgage is fully paid off - then there's an immediate cashflow benefit of not paying £1k a month gets realised. Take your point though.

Exactly, and we are of a similar mindset in that once the mortgage is clear, then should the worst happen there is one big bill that doesn't need paying each month.

Each to their own of course, but my mortgage will be gone by the time I am 45 and I anticipate my pension pot will hit LTA before I am 60, with a mix of other savings and investments to add to the mix.

Mortgage over payment is generally frowned upon on this board, with clear logic supporting this stance, but there is a pragmatic approach and a sense of relief/achievement of getting it paid off and owning the roof over your head plus suddenly have significantly improved cash flow.

Triumph13

I won't get into the mortgage vs pension argument, but there is one way to partially have your cake and eat it, at least from the tax advantage viewpoint if not the leveraged investment one. An offset mortgage allows you to effectively pay off your mortgage, but still have access to the cash if needed. If not needed then in your last few years of work you can draw it back down again to finance living costs whilst you sal sac down to minimum wage and stuff the pension before paying it off from TFLS.

Malaflame

NEED ADVICE PLEASE FROM YOU VERY KNOWLEDGEABLE LOT! :-)

So sorry to gate crash thread but hope can get advice/Info.

My figures aren't very complicated. I will be 55 yrs old in January 2020 (Single Female)

I have a Mortgage of £87,000 on a home approx £450,000
I have about £14,000 in my bank account
I have £26,000 in my pension today
I work for private health care Agency part time mostly and earn approx £22-£25,000 per annum Gross.

I was told by my peoples pension today that i can do the "Flexible Access Drawdown"

1st amount 25% TAX FREE (approx £6,500) which i can take after my birthday in Jan 2020.
subsequent amounts at intervals of choice
She states first one after initial 25% will probably be subject to emergency tax (i.e 40%) there after she says HMRC will be able to add to my salary figures and calculate tax payable.

My free pay at the moment is around 1750 so quite high.

I want to pay the pay around £15,000 into my mortgage to reduce payment even though i know interest rates are low, My pension is not exactly working for me!. I can only pay £9,000 by the end of this year and less next year without incurring penalties on repayment. i initially only save £55 per month on the interest rate i am on until next June.

Also want a to have a little extra money coming in from pension release as not on really good money, my retirement money is in my home? Yes i could work more but having a few health issues at moment.

Should i do this or start an Isa? Sure i could put all on my savings into Isa and get better return?

Can anyone recommend a good ISA?

Any help would be very appreciated.

:-)

Triumph13

A bit more playing with numbers, just for fun. What happens if you divert £500 a month of your pension contributions and £500 a month of your other savings into your wife's pension? How does retirement at 53 sound?
I've again assumed 3% real return on investments and 3% draw down and assumed her TPS is only £6,250 going 5 years earlier. I've assumed funds used for bridging just keep pace with inflation post retirement.

At 53 she has £190k in her pension, all of which can easily come out tax free over the following 15 years. You have £650k of which £160k is tax free, £490k taxable. Put £43k of the tax free into ISAs and draw that down at 3% too and you have just enough left to cover the 15 year gap until pensions come on line with a post tax income throughout retirement of £37k pa.

Plenty of assumptions in there and depending on how markets perform you might end up working a year or two more (or less!) but 53 sounds like a pretty reasonable target to be aiming for.

Bemma

Triumph13 wrote: »

I won't get into the mortgage vs pension argument, but there is one way to partially have your cake and eat it, at least from the tax advantage viewpoint if not the leveraged investment one. An offset mortgage allows you to effectively pay off your mortgage, but still have access to the cash if needed. If not needed then in your last few years of work you can draw it back down again to finance living costs whilst you sal sac down to minimum wage and stuff the pension before paying it off from TFLS.

^^^ This
I have an offset mortgage, most people don't know how they work and when they hear about them immediately think they are a bad idea as they sound too much like the out of favour interest only mortgages. But anyone who takes the time to understand how they work can see the benefits for some people (nothing is 'best' for everyone). My offset mortgage will allow me to launder £10k's of savings though my pension. The upside will be additional £10k's in my pension for almost no risk.

MallyGirl

Triumph13 wrote: »

I won't get into the mortgage vs pension argument, but there is one way to partially have your cake and eat it, at least from the tax advantage viewpoint if not the leveraged investment one. An offset mortgage allows you to effectively pay off your mortgage, but still have access to the cash if needed. If not needed then in your last few years of work you can draw it back down again to finance living costs whilst you sal sac down to minimum wage and stuff the pension before paying it off from TFLS.

That is sort of what I am doing - using my offset mortgage to support paying £40k into the pension via sal sac every year. I am in catchup after prioritising differently in the past. It means the mortgage has gone up a bit but it is still on track to be paid off at or around retirement at 58.

atush

MallyGirl wrote: »

If it were me I would not be overpaying the mortgage while rates are so low and you aren't seeking to improve LTV for another move. I would be making more use of the sal sac and putting it there. You can pay off any remaining mortgage with the TFLS having gained 32% tax and NI uplift plus investment growth.

This.

Redirect the over payments into pensions for Both of you- open a PP or Sip for your wife and pay into it. As she can use this money to retire early, before her scheme age w/o reducing her DB pension.

Wife is in standard teachers pension, no AVCs and not sure what's it's worth (expectation this will be used by us as rainy day money when we both retire).

Why do you think it will be worth so little? It increases each year by one years more service, plus the previous years increase by some measure of inflation?

I suspect it will be worth more than you think. Esp if she doesnt take it early/reduced.