Mortgage free. Now what.

andys15

Hi. I have today made my last but one overpayment to my mortgage. 

I am 45. My next step is now to save to retire early. 

I cannot touch my pension until I am 57. I want to retire at 50. My wife also. 

I was paying £7500 a month on my mortgage (very large overpayments each month). 

I now want to save that money but it’s needs to be safe. I will probably stay away from stock market. 

I will get fully stocked up on premium bonds and cash Isas but is there any other ways I can try and increase my savings pot?  

I have considered buying a house for about £300000 and paying that off within 5 years but it seems a lot of tax implications to do that and hassle. Plus the housing market seems to be at bubble stages. I have considered purchasing a place in Spain as that is where we want to retire, but again I want easy access to my money in 5 years. 

Is there any safe place to put the cash that might just work a little harder than a bank account. 

Many thanks. 

george4064

If you are considering making a long-term investment in an additional property but seemingly are against it, why are you against stockmarket investments?

jimjames

It might make sense to use S&S ISAs to build a tax free pot of money. I know you've said you don't want to use the stock market but long term that's one of the only ways to beat inflation. It won't cover the entirety of your £7500 but you can do £40k per year between the 2 of you.
What is your pension currently - DC or DB? If DC then you will be invested in stock market. If DB then it's not but it also means you have no exposure to investments.

andys15

jimjames said:

It might make sense to use S&S ISAs to build a tax free pot of money. I know you've said you don't want to use the stock market but long term that's one of the only ways to beat inflation. It won't cover the entirety of your £7500 but you can do £40k per year between the 2 of you.
What is your pension currently - DC or DB? If DC then you will be invested in stock market. If DB then it's not but it also means you have no exposure to investments.

My pension is in a SIPP. I moved it
from a DB about 4 years ago. 

andys15

george4064 said:

If you are considering making a long-term investment in an additional property but seemingly are against it, why are you against stockmarket investments?

I honestly don’t know what to do. I know
i want to retire in 5 years and then will have to live of my savings for 7 years. So it has to be put somewhere safe. 

steampowered

Is there enough in your pension pot to provide you with an acceptable standard of living if you start drawing it at age 57? 

andys15

steampowered said:

Is there enough in your pension pot to provide you with an acceptable standard of living if you start drawing it at age 57? 

Currently about 1.2 million. 

Albermarle

andys15 said:

george4064 said:

If you are considering making a long-term investment in an additional property but seemingly are against it, why are you against stockmarket investments?

I honestly don’t know what to do. I know
i want to retire in 5 years and then will have to live of my savings for 7 years. So it has to be put somewhere safe. 

Is there any safe place to put the cash that might just work a little harder than a bank account.
The simple answer is no. It will be safe if you just feed it into savings accounts /Premium Bonds . However it will almost certainly lose value due to inflation . Over a period of up to 12 years the loss in value could be significant .

The answer maybe a compromise , with a split between savings and investments . If you then use up the savings first when you retire , the investments can be left longer term that will give more time for any volatility to work itself out .

Interesting that you are nervous about stock market investments, but gave up a guaranteed pension income and instead are now relying on the stock market ( presumably ) for the SIPP to give you the required income later.

Linton

andys15 said:

jimjames said:

It might make sense to use S&S ISAs to build a tax free pot of money. I know you've said you don't want to use the stock market but long term that's one of the only ways to beat inflation. It won't cover the entirety of your £7500 but you can do £40k per year between the 2 of you.
What is your pension currently - DC or DB? If DC then you will be invested in stock market. If DB then it's not but it also means you have no exposure to investments.

My pension is in a SIPP. I moved it
from a DB about 3 years ago. 

So presumably you are invested in the stockmarket, unless your SIPP is held as cash?   Do you have any other pension arrangements? Do you have enough in your SIPP to fund your retirement from 57?  Have you checked whether you will have accrued a full State Pension?

The problem with keeping your money in cash is inflation - you are likely to lose real value.  Seeing as you wont be touching your pension until 57 that is for up to 12 years. 12 years of inflation at 2.5% would lead to a 34% increase in prices.  You are not going to find any 100% safe investments that will match inflation.

I assume you have your SIPP invested mostly in share funds and it is large enough to meet your needs from 57.  If not we need a lot more information about your financial situation. I suggest by the time you retire at 50 you plan to have accumulated something like:

1) 3 years living expenses in a moderate risk S&S ISA, perhaps invested in the same way as your sIPP
2) 7 years living expenses in cash (eg maximum Premium Bonds) and/or very cautious investments.  You should expect to have some left over by the time you take your SIPP to provide an ongoing cash buffer and a pot for major unplanned exppenses.

If you set up the S&S ISA first it will have perhaps 10 years to grow before you need touch it which should be sufficient to ensure a reasonable return, almost certainly beating inflation.

andys15

Albermarle said:

andys15 said:

george4064 said:

If you are considering making a long-term investment in an additional property but seemingly are against it, why are you against stockmarket investments?

I honestly don’t know what to do. I know
i want to retire in 5 years and then will have to live of my savings for 7 years. So it has to be put somewhere safe. 

Interesting that you are nervous about stock market investments, but gave up a guaranteed pension income and instead are now relying on the stock market ( presumably ) for the SIPP to give you the required income later.

I gave up my pension for a few reasons. Firstly it finishes when we die, whereas the SIPP will be inherited by the kids. 

Secondly I got an uplift when I left the scheme which is paid into my monthly salary and worked out to be about s 31% pay rise effectively. 

Thirdly when I decided to take it out of the scheme, the value off my pension was in a bit of a bubble, although not sure that has popped yet. 

In the 4 years or so I have had it in the SIPP it is over 25% up. 

The reason I didn’t want to invest my savings is because my pension is dependant on the stock market so I didn’t want my savings exposed too. 

But I am on here for advice so maybe the answer is safer shares. 

In hindsight I shouldn’t have overpaid my mortgage so much and invested just after the COVID news had hit the markets. 

MaxiRobriguez

General rule of thumb is minimum 5 years for investments, preferably ten.

So retiring in 5 years with cash that needs to last another 7 years on top definitely opens up the door to stocks. It's irrelevant if the pension is in stocks as well as you can't access for 12 years which definitely meets the "leave it for ten years" test.

Why not take a middle ground approach? 50% into savings, 50% into stock market for the next five years. If there's a crash, use the 50% savings to buy stock and profit from a rebound. If there's no crash, use the 50% savings as your expenses for the first 2-3 years of retirement. After a year, rebalance so you're still at 50/50.