Critical Illness Payout - What to do?

ncfcstar

Hi all,

Long story short, I've had a critical illness payout.

We've decided to pay off our mortgage, although I'm open to ideas as to whether or not that is a good idea (bearing in mind my prognosis is very good, but you just don't know).

This will leave us with roughly £80k in savings, I've initially maxed out my Premium Bonds for ease of access in case I want to move that elsewhere.  But I think my question is what should we do with this in reality?  We will want to keep some money aside for holidays, once that is again a possibility, but say we have £70k for arguments sake to 'invest'.  I'm early 30's, married, two young children, and my pension pot is pitiful (but again not sure how much value there is in investing here in case things take a turn for the worse).

Alexland

Without knowing your full circumstances it's hard to comment but I didn't want to see the message go unanswered.

ncfcstar said:

We've decided to pay off our mortgage, although I'm open to ideas as to whether or not that is a good idea (bearing in mind my prognosis is very good, but you just don't know).

Although investment returns could be greater than your mortgage interest rate that's not without risk/volatility so if your future earnings are above-average uncertain you might reasonably decide the security of clearing the mortgage is more valuable to your family's future. Just watch out for any early repayment charges that might apply.

but say we have £70k for arguments sake to 'invest'.  I'm early 30's, married, two young children, and my pension pot is pitiful (but again not sure how much value there is in investing here in case things take a turn for the worse).

It's usually a case of deciding how much to keep available as cash (to cover adverse situations) and how much you do not expect to need for at least 5 years that you could invest. Then of that amount you want to invest how much you want to keep accessible (via S&S ISAs, etc) and how much you would be willing to commit into a retirement product (such as a Lifetime ISA or Pension depending on your tax position). It's worth understanding what type of pensions you have and how and when your family might benefit in your absence. Lifetime ISAs are good as the money can still be withdrawn before age 60 with a small penalty.

Malthusian

ncfcstar said:

This will leave us with roughly £80k in savings, I've initially maxed out my Premium Bonds for ease of access in case I want to move that elsewhere.  But I think my question is what should we do with this in reality?  We will want to keep some money aside for holidays, once that is again a possibility, but say we have £70k for arguments sake to 'invest'.  I'm early 30's, married, two young children, and my pension pot is pitiful (but again not sure how much value there is in investing here in case things take a turn for the worse).

If things take a turn massively for the worse then your pension is the best place you could have put the money. The full amount, including all tax relief, will be paid out tax free. No other investment will give you a bonus of at least 20% on death. (This only applies to the extent that you can make tax-relieved pension contributions - you didn't say whether you still have earned income.)
If things don't take a turn for the worse there is still a good chance that your pension is the best place you could put the money, assuming that any part of the £70k can be left until you retire, due to the tax relief.

annabanana82

We were in a similar situation to yourself, we decided against paying the mortgage off as our finances hadn't been affected, if anything we were better off as my Husband gave up smoking. We realised we would probably never have that level of savings again. 
We've maxed out PB's and the rest is in an easy access account. Admittedly this doesn't look good but we may use it to fund a house move in a couple of years time, once we've decided where we are going in terms of moving and what of our savings we are using we will then look at investing, at the moment my Husband and I have very different ideas of what an investment is.
We have used some of the money to pay 20% off the mortgage which does feel nice

ncfcstar

Thanks for all your advice, which I really do appreciate.  We'll be looking to keep roughly £15k-20k for emergencies etc. and then looking to save roughly somewhere between the same amount each year (if we pay off the remaining amount of the mortgage - which I still feel is right to do due to the financial freedom it gives).  My employment has been unaffected by the situation, and I'm obviously hoping that this remains the case with no further medical issues.

planteria

clearing the mortgage seems sensible to me.. and keeping your emergency fund in PBs, or more in PBs if you prefer, seems sensible. the remainder to boost your pension pot seems a good idea, or perhaps invest via a S&S ISA.