Mortgage and retirement planning

Stegor

Hi, this is my first post, I've been viewing for years. I am 52, married and hoping to retire in the next few years. My current mortgage fixed rate ends in May 2023 when I expect the balance to be around £24k, I currently pay £800 a month. I have £70k in shares, would I be better to pay my mortgage off with the shares and then use £350 a month to buy shares in my company and the rest to top up my pension with AVC's? I have an armed forces pension worth £14k a year at the moment which increases with CPI and other pensions worth around £100k. I am also putting around £700 a month (20%) into my pension. My S&S isa should be worth approx. £80k at 60. Any advice would be appreciated, apologies for the long post and thanks for reading.

NedS

It's impossible to say, as you would have to know how investments may perform over the next few years, and if the returns would beat what you will be paying in interest on the mortgage.

El_Torro

Since you’re planning to retire soon it’s generally a good idea to get as much tax relief as possible by paying into your pension. Assuming you’re not near the LTA. 

Global share prices have taken a hit this year. They might recover soon, or they might not. Not paying off your mortgage now is a risk. However if you get 40% tax relief I’d say it’s worth getting as much into your pension as you can, even if you leave some of it in cash to pay off your mortgage. If you’re not a higher rate tax payer it’s probably still worth doing. 

Stegor

Thanks for the replies. I have checked on the MSE calculator whether paying my mortgage off is worth doing, it states that I would need a savings rate of 3.3% for savings to be better. That's probably a difficult ask currently. My plan therefore is to pay a 12K lump sum in September then pay it off completely in May 2023. This should give me the option to start a 3 year sharesave with my company in September, paying £250 a month, and add £200 a month in AVC's through salary sacrifice (this would mean I would be putting in 26% of my salary), then after the mortgage is paid off in May I can increase the AVC's by another £400. Please let me know if you see any issues with this, thanks again.

Pat38493

As mentioned by another poster above, you should also consider what marginal tax rate you are paying on your income - it’s not just the 3.3% but if you divert that money into your pension (you can pay in up to £40K per year up to the amount you are earning), you will get tax relief at your marginal tax rate - you can then take out 25% tax free when you are 55 and use that to pay off the mortgage.

pensionpawn

Stegor said:

Hi, this is my first post, I've been viewing for years. I am 52, married and hoping to retire in the next few years. My current mortgage fixed rate ends in May 2023 when I expect the balance to be around £24k, I currently pay £800 a month. I have £70k in shares, would I be better to pay my mortgage off with the shares and then use £350 a month to buy shares in my company and the rest to top up my pension with AVC's? I have an armed forces pension worth £14k a year at the moment which increases with CPI and other pensions worth around £100k. I am also putting around £700 a month (20%) into my pension. My S&S isa should be worth approx. £80k at 60. Any advice would be appreciated, apologies for the long post and thanks for reading.

You mention that you are married although do not refer to your wife's pension situation. For any couple your retirement planning strategy should also be as a couple. Your forces pension is higher than your personal tax allowance and besides increasing your TFLS and reducing your exposure to income tax 75% of any further contribution will be taxed on the way out. With two personal allowances available what about making significant contributions to your wife's pension / SIPP in order to boost / secure her pot so that it is large enough to allow her to draw down (at least) her PA each year? Also, what about using any spare cash to minimise outgoings? For example, solar panels and a battery (if you can find them!) will ease the burden of energy bills for quite a few years to come. If your mileage is high what about an EV? New gas boiler to improve efficiency? Although not directly pension strategies they are outgoings reduction strategies that have an immediate postive impact on your net retirement income.

Stegor

I don't really have spare cash until my mortgage is paid off and if I leave it running after the fixed rate ends In May then I will move onto a higher rate extending the time to pay it off. I hadn't thought about paying more into my wife's pension, she only works part time earning around £8k a year and only has a small pension built up. I'll have a look into this tomorrow, thanks again.

badmemory

Surely whether you sell your shares could depend on if they have been losing money recently & whether it would be wiser to wait for them to increase in value again.

Albermarle

Stegor said:

I don't really have spare cash until my mortgage is paid off and if I leave it running after the fixed rate ends In May then I will move onto a higher rate extending the time to pay it off. I hadn't thought about paying more into my wife's pension, she only works part time earning around £8k a year and only has a small pension built up. I'll have a look into this tomorrow, thanks again.

If she earns £8K, she can pay all of this into her pension and get tax relief even though she has not paid any tax.
She would add £6400 and £1600 would be added as tax relief.
If between you you could not afford this much, you could add less. For example add £4K and £1K tax relief would be added.
If she then later was able to withdraw everything tax free ( would depend on any other income she had at the time), it would be a good deal.

Stegor

Thanks for the comments. My wife has a local government pension with about £2k in it. The options for paying extra is to buy additional pension, so she decides how much extra pension she wants each year in retirement and they take the money over a period of time to pay for it or an in house AVC, im not sure which would be the better option. The shares in my company are pretty solid with an expectation that they will continue to rise. I  am looking at increasing my pension payments to 26% which would drop me below the higher rate, putting  £200 a month into my company 3 year sharesave scheme and then paying off my mortgage in May and using the money gained from that to put £500 a month into my wife's pension. I am going to speak with an IFA who specialises in holistic planning through my company flexible benefits but does it look like I'm moving in the right direction? Thanks again.