Another mortgage redemption post sorry.

poochops

Hi all, I was hoping to try to clarify my thoughts on paying the mortgage versus into my wife’s pension with you please.

I’m 53 and my wife recently turned 48, we're planning to retire abroad when I’m 60-61 to a house that’s already paid off. 

I’ve got a small db pension that’ll pay equivalent of 16k in today’s money at 65. I’ve got a dc pot currently £134k and put in £37.8k pa which is funded £525/£2625 employer/me. 

We have a rental flat yielding 5k pa in my name so I keep my pension contribution such that my income is below the 40% threshold. This might be a struggle if the next salary increase takes my contributions to the 40k limit. 

My wife has just £32k dc pot at present and only recently increased her contribution to £425 which isn’t nearly enough and needs addressing. 

There’s 42k in an isa, about 20k in cash and 10k in my company shares which have been stagnant forever but I’d be selling at a loss to let them go. Long story. 

Our mortgage balance is c£36.5k at 2.79% fixed and with about 4.5 years left. We pay £885 a month which includes £185 overpayment to reduce the term. Early redemption is £750ish or about 10 months interest. 

I’m minded to repay the mortgage from the isa money for a few reasons. Inflation at 10% and rising is currently killing the returns. The £885 a month mortgage payment is losing us £75 a month in interest. (ERC notwithstanding) And if she was to SS that £885 into her pension then with 20% tax relief and the ni saving she’d be riding the current inflation while increasing her contribution to circa £1700 a month or circa 20k pa let’s say, which she’ll then be able to draw down within her annual allowance when we retire.

Apologies for the lengthy post and the loose numbers, but am I on the right track? are there other things I should also be considering like diverting more into her pot from my future contributions or something else even?  Id like to understand how much her pot would need to be to last until her SP too if possible.

Thanks. 

dunstonh

Are you looking for the best short-term solution or the best long-term solution?  (the answer will be different).

What country are you retiring to and what is the tax treatment of pensions there and how much you can earn without being taxed and the tax rates in general?

Do not forget that inflation is also eroding the value of your debt and the cost in real terms is going down.

You don't say what type of ISA it is. (cash or S&S)

poochops

Hi, thanks for replying. 

We intend to retire to North Cyprus and all of our tax affairs would remain in UK. The cost of living there is very considerably lower than at home especially without rent/mortgage.  

The ISA is S&S holding all Vanguard LS60. 

In terms of a short/long solution, daft as it sounds I hadn’t really thought that through tbh. We will need to get through the hump until SP and DB certainly, but we could live there happily on £25 pa in today’s money.

We’d keep the uk rental which I should/could charge more for currently, and most probably rent out our uk home as well which would currently return £900 monthly before tax and costs. We'd want to travel in the earlier years but are good doing that on a budget and will adjust expenditure plans nearer planned retirement to strike a sustainable balance as you’d expect. Not sure if I’ve answered your question about short and long term tbh?!  

Hadn’t really considered that inflation is eroding the debt too, which it is of course, but what we spend our main chunk of money on, which is energy, fuel, flights, food and trips away has also definitely blown the 10% official  rate, and I don’t hold out much hope of an inflation matching salary increase.
Thanks again.