Where do I start with retirement planning?

Thick_n_Thin

Durban said:

With interest rates at a historic low, the best thing in financial terms would be not to pay your mortgage off early.

Instead , let it run as long as possible , putting all that extra money into the pension and getting the tax relief.

However , I have not done this.  I also used to overpay on the mortgage until coming onto this board and now I don't overpay the mortgage at all but have not extended it. I plough everything that I can afford into the pension.

In fact , I am actually using the overpayments that I used to pay into the mortgage , putting them into the pension , and then , using those overpayments plus tax relief to pay off the mortgage with the tax free lump sum.


I used to spend most of my time on the MFW board until coming over here

Good point about the interest rate! My main driving force behind paying off the mortgage earlier is because of the monthly payment, it’s £855 per month so getting rid of that payment would allow me to save/invest that amount each month for a couple of years to try and build up some cash to bridge the gap between retirement and drawing my workplace pension. My car lease is up in January and we will go down to one car, 2 cars now is a luxury for us and we car share a lot of the time anyway so that will free up £350 per month that I can start to invest for 5-10 years. 

This is all based on our current jobs surviving through Covid/ recession! 

Albermarle

As a general rule , depending on personal circumstances , the financially rational thing to do is to not overpay the mortgage and pay extra into a pension instead . However many people have a desire to get the mortgage off their back , so it comes down to a personal decision. If job security is an issue , then not losing your home becomes the priority and paying off the mortgage maybe the best route.

wjr4

I don’t know if I’m reading correctly but you want to retire at age 55 with a pension of £85k? Without sounding harsh, you really need to be saving as much as possible into the pension. Do you have cash savings? Investments? £24k per annum is not achievable on your figures. 

Thick_n_Thin

wjr4 said:

I don’t know if I’m reading correctly but you want to retire at age 55 with a pension of £85k? Without sounding harsh, you really need to be saving as much as possible into the pension. Do you have cash savings? Investments? £24k per annum is not achievable on your figures. 

So my initial thinking ( again this is all very much new to me ) was to pay off the mortgage in 3 years, then I would use that money to save/invest for the next 3-4 years hopefully to give me a lump sum to live on for 5 years (by then I’d be 60) I would then draw my company pension which will hopefully have grown above £85k bearing in mind that is the amount now and I am still paying 4% of my salary into it. Then when I reach state pension I would live off this with maybe a small amount of savings/investments to top it up. The 24k I quoted is joint income not just for me. In addition to OH inheritance we also have 12k in emergancy savings which is sat in a savings account for easy access. We don’t live an extravagant lifestyle and don’t have expensive hobbies, we would like to take 1-2 holidays per year and don’t really anticipate any large house renovations ect as the house is done so to speak, just the usual redecorating ect. So I think if we kept the emergancy fund in place we could easily live on 2k per month as a couple. 

I will play about more with some scenarios, maybe part time work after 55 would be more realistic! 

Thanks everyone for your views and advice, given me lots to think about!

I 

[Deleted User]

ffacoffipawb said:

Deleted_User said:

I thought 49 year olds have a retirement age of 57 now.

A 49 year old would be 55 in 2026. The minimum age doesnt go up to 57 til 2027 (though, technically, no official legislation has passed for this increase).

I just re-checked as my wife is 49, the state pension age comes out at 67 using the HMRC calculator (and assuming the 67 minus 10 years = 57)
Unless I am doing something really stupid (like forget her age/DoB)
https://www.gov.uk/state-pension-age/y/age/1971-03-06/female

MallyGirl

Thick_n_Thin said:

So my initial thinking ( again this is all very much new to me ) was to pay off the mortgage in 3 years, then I would use that money to save/invest for the next 3-4 years hopefully to give me a lump sum to live on for 5 years (by then I’d be 60) 

3-4 years is too short a timeframe for investments really, and there is very little to be had from savings. The way to do well in investments is to be in them for a significant period of time so you can ride out the dips. I'd stop paying off the mortgage, put as much as you can into pensions which get a minimum of 20% tax relief, and then if necessary you can pay off the mortgage with a tax free lump sum at retirement. Your numbers do look very low though.

Albermarle

I am still paying 4% of my salary into it.

Your probably going to wish that you never came on the forum , although probably a good reality check .

Here is another one - 4% is inadequate as a pension contribution , unless the employer is very generous and adds 15% or more .

Durban

How about something like this?

By trying to pay off your mortgage early, and then investing, you are wasting valuable growth, compounding and tax relief.

Your mortgage , I can see , is around £60,000 ish.  You have an inheritance of £120,000 coming.

What about getting the lowest interest rate offset mortgage you can get and extend the term to the maximum you are allowed, even up to age 75 if you could. You can always reduce the term later.

 Put £60,000 of the inheritance in the offset account. You'll be paying peanuts to your mortgage as it is offset and the term is long and it will be basically interest free.

You have the security of knowing that the mortgage is always covered by the £60,000 off set 

Then , plough what you were paying on the mortgage plus your overpayments  into your pensions. Get the 20% tax relief and hopefully some growth.

Although you may not be able to retire at 55 , you could possibly go part time.

Thick_n_Thin

Albermarle said:

I am still paying 4% of my salary into it.

Your probably going to wish that you never came on the forum , although probably a good reality check .

Here is another one - 4% is inadequate as a pension contribution , unless the employer is very generous and adds 15% or more .

Yes I am.... I have my head in my hands currently 😩 but like you say a good reality check. 

Thick_n_Thin

Durban said:

How about something like this?

By trying to pay off your mortgage early, and then investing, you are wasting valuable growth, compounding and tax relief.

Your mortgage , I can see , is around £60,000 ish.  You have an inheritance of £120,000 coming.

What about getting the lowest interest rate offset mortgage you can get and extend the term to the maximum you are allowed, even up to age 75 if you could. You can always reduce the term later.

 Put £60,000 of the inheritance in the offset account. You'll be paying peanuts to your mortgage as it is offset and the term is long and it will be basically interest free.

You have the security of knowing that the mortgage is always covered by the £60,000 off set 

Then , plough what you were paying on the mortgage plus your overpayments  into your pensions. Get the 20% tax relief and hopefully some growth.

Although you may not be able to retire at 55 , you could possibly go part time.

I will research this option further when my mortgage rate ends next year, although the thought of not paying my mortgage off until I was 75 makes me uneasy, don’t know if my OH would be onboard with this! I think I will do some research though, thank you! 

Ok what about this plan? Forgetting about OH and the inheritance for a moment, 

2020- 2023 - overpay mortgage and finish this June 2023.
Jan 2021 - car lease ends freeing up £350 per month, pay this cash into  a pension each month.
When mortgage ends I would be able to put aprox  £1300 each month into either a pension or invest it somewhere? 

If I do this between end of 2023 to end of 2028 I am hoping for around £80 - £100k 
Between 2029 - 2038 I will then live off above savings until I can claim state pension and I would use my company pension to supplement! 

My OH could do the same, so between 60-67 live off inheritance, 67 claim state pension and top up with his small company pension! 
Just for the record, the reason I want to leave my job is I work in a very ‘young’ industry and I am well aware that roles like mine have a definite expiration date, it’s becoming harder each year to keep up with the latest trend/politics ect and i am now a lot older than most of the team I work with which tends to put me at a disadvantage as we don’t share the same views, I’m well paid for what I do and I am well aware that I wouldn’t be able to command my current salary in this climate anywhere else. I think even just going part time in a less demanding job would be appealing but there is absolutely no way I could work for my current employer until 68.