To retire, and pay off mortgage with pension fund?

Costy01

I have a pub business in Wales, I have been paying rent on the premises since last March, and really only been open for a maximum of 10 weeks all year, the landlord has not offered any assistance with the rent or utilities at all, and there is no opening date in sight.  We bought a second property nearby for our eldest son who has learning disabilities to either live in, or sell when we are gone, and we borrowed against our home to fund it, that property is rented out at the moment.  I am 55 and my husband is 62, so we are on the road to retirement.  Husband has a £260k retirement pot, plus £800 a month from a final salary scheme.  I only have around £40k pension pot.  Rather than keep flogging a dead horse in the pub trade, would we be better off paying the £80k left on the mortgage out of the pension pot and living on the rent, or keep working for a few more years until we've paid it off.  The current rent on the second property pays most of the mortgage, but we try and overpay by as much as we can every month to reduce the debt.  Your opinions would be very much appreciated. 

tacpot12

I think you are joining together three decisions that are related but separate. The first decision is "Is your pub viable?" The  pandemic has thrown all hospitality businesses into a spin. It would not be unreasonable to decide that it is not viable at this time. Can you get out of your lease at no cost? if not, it may be better to keep going until you can do so, unless this isn't for years and years. 
 
The second is "Is it worth taking £80K out of your pensions to clear the mortgage?"  Financially, it should be a bad decision to take £80K out of your pension because it should be growing much more quickly than the interest is being incurred on the mortgage. If it is not, they you also need to sort this out. The rent is paying the mortgage, and even if you can and do get out of the pup trade (which is a hard trade at the best of times), you will still need to earn a living until you can retire, so it seems to me that it would be better to keep the mortgage going, and top up the payments from your new earnings. 

Your third decision is "When can you retire?" And possibly, do you both retire at the  same time, or do you take some part-time work, to allow your pension pot to grow more. This will depend on what income you need, and what entitlement you each have to a state pension. Depending on what state pensions you are entitled to and what income you need . you could retire immediately, but you will be losing quite a bit of income, especially as you have to service the cost of the mortgage. If you do retire immediately, it would still be better to continue to pay the mortgage as even taking the mortgage payments out of your pensions, your pensions should still grow at a greater rate than the interest you are being charged.   

[Deleted User]

Given your age and that you are seriously considering retiring, paying off the mortgage makes sense.  

Effectively what you are doing is leveraged investing.  You borrowed and the money is invested within your pension. This translates to higher risk - if the market goes down, your net worse drops by more than it would have without borrowing. 

And its not right to compare the expected growth rate on your stock investments against mortgage interest.  Given your age, you should have fixed income, which has zero expected return in real terms. Mortgage is effectively negative fixed income, and you are likely paying more in mortgage interest than you get in income on your bonds.
So, I would repay the mortgage.  However you need to make sure that you are not landed with a large tax bill. If you are using your pension to repay, you may want to spread withdrawals over a few years.