Help please for clueless mum who just inherited 41k

happymum37

Hello and thank you for your help!!

I'm very lucky to have been given 41k early inheritance.  However I have no idea what to do so would love some advice as I'm lost. Here is my situation -
I'm 38  . Husband 43. 2 children both under 8.
I work part time and earn 900 per month take home pay.  I had 8 years off to look after my children so although I have a pension it has only has about 8 years in it.  I'm in a civilian public sector pension so pay 18% into my pension. I only returned to work in June. 

Hubby is 43 and earns 40k . He clears 2400 a month.  He has a horrific 3% private pension he's paid into since he was 22.

Our home was purchased for 244k and we have 200k equity.  We pay
£440 a month mortgage.   We have after all living costs and bills taken out about  £500 spare a month.  This is all so new since i only just returned to work we haven't saved any yet, instead we have been enjoying ourselves and having lots of weekends away. 


Our inheritance is 41k. We have 15k savings on top that I want to keep easy access to as we will need to buy a new car any day and want to book a holiday.  

I don't need access to the 41k. I'm happy to tie up that money long term. I won't use it for household improvements or anything like that.  It was completely unexpected so we have never thought about it. 

We were thinking about buying a rental.  In our village a nice 3 bed semi is about 150k rent from tenants is about 750 .  

Can anyone advise what the would do? I'm happy for medium risk but not high.  I'm so clueless its all sat in premium bonds as I was only given the money last month.  

Thank you so much for all your advice 

Yours
Confused mum. 

happymum37

Ps hubby simply wanna to put 41k into our home mortgage, which will leave us with about 3k left on that.  He is very risk adverse but realises this might not be the best thing to do

Stubod

I suppose it depends on your mortgage rate? If it where me I would always opt for paying off the mortgage option. The money you would then have put into the mortgage could be used to fund a pension / SIPP...but that's just me.

(It's a nice feeling knowing that you fully own your own house...)

blue_max_3

When you say early inheritance, do you mean the person who gave you the money is not deceased? There may be tax implications if they die within seven years or go into care (the local authority may come after the money). I'd not commit it if I were you. Premium bonds is good and safe. You could dip into it in emergencies, such as if one of you lost your job.

Albermarle

You husband is very risk averse but you are thinking of buying a rental property which can be risky if it does not work out well. So that does not add up. In general the view on buy to let as an investment is rather negative on this forum . Can be very hands on and the tax breaks of the past have largely disappeared. 
Second point is you have £15K cash already but you plan to spend most of it. In which case you need to replace it as you need an emergency cash fund . Premium bonds are as good a place as any for this, so leave £15K at least in there. For the rest , I would use at least some it to top up you husbands pension , which sounds rather inadequate . Typically a 43 year old should be adding  around 20% . It might be better to actually increase his monthly contributions rather than add a lump sum , or do both .

xylophone

I'm happy for medium risk

Property investment is not medium risk, can be hard work and a lot of worry and you would need a buy to let mortgage (increasing your outgoings). 

If you are spending your savings on a new car, then part of the early inheritance will become your emergency fund?

Had you considered opening a stocks and shares ISA for  each of you and continuing to contribute?

https://monevator.com/passive-fund-of-funds-the-rivals/ 

Examples

https://www.fidelity.co.uk/stocks-and-shares-isa/ 

https://www.vanguardinvestor.co.uk/need-help/answer/how-do-i-open-an-isa

Some of the £500 spare a month could be contributed to your husband's pension?

Or you might consider paying off the mortgage,  and rebuilding your cash emergency fund in the first instance - after that increase contributions to your husband's pension and contribute to a S&S ISA for each of you?

bigadaj

When you say you pay 18% into a pension is that correct? Is that the nominal employer and employee contribution. You can pay up to your total earnings into a pension and get tax relief, but obviously wouldn't be able to access for around 20 years, but it would get you a 20% uplift on sums invested. 

DireEmblem

bigadaj said:

When you say you pay 18% into a pension is that correct? Is that the nominal employer and employee contribution. You can pay up to your total earnings into a pension and get tax relief, but obviously wouldn't be able to access for around 20 years, but it would get you a 20% uplift on sums invested. 

This would be my thought, especially if your hubby has not contributed much to his.  If you overpay you’re mortgage - most only allow 10% a year before charging, what would you do with the extra income - I.e the difference between your current and reduced future mortgage payments?

if you don’t need it now, and you have a lot of savings(15k), lump it in your pension.

Google for an online pension calculator - put in your current pension/savings, and see how much difference adding the 41k could make to your retirement funds!

Dazed_and_C0nfused

bigadaj said:

When you say you pay 18% into a pension is that correct? Is that the nominal employer and employee contribution. You can pay up to your total earnings into a pension and get tax relief, but obviously wouldn't be able to access for around 20 years, but it would get you a 20% uplift on sums invested. 

It's a 25% uplift, not 20%.

kinger101

It's dangerous to assume the uplift is 25% for pensions.  For one, this is probably a DB scheme, but one has to factor in tax on entry and exit to the pension.  And OP probably isn't paying any income tax at the moment.  

OP - I agree retirement saving is probably your best option, but

(a) what is your NI contributions record like?  Are you on track for full state pension - i.e. 35 year's contributions at SRA.
(b) how much is your pension likely to be if you continue working until retirement?
(c) what options are available under AVC?

I'd hope AVCs were your best route, but it's possible part of the answer lies in voluntary NI contributions and LISA.

happymum37

Stubod said:

I suppose it depends on your mortgage rate? If it where me I would always opt for paying off the mortgage option. The money you would then have put into the mortgage could be used to fund a pension / SIPP...but that's just me.

(It's a nice feeling knowing that you fully own your own house...)

Thank you for the reply!
Our mortgage rate is 1%.  We have a family member who works at the bank. 
By fund a pension do you mean pay into the government one? That's what hubby has.

Thank you again

X