Advice required

zAndy1

Grumpy_chap said:

ader42 said:

Nope. He is not planning on retiring right now.

The planned TFLS from the DC is only a very small part of his pension planning, but it will probably cost him £2,500 a year for the rest of his life and mathematically he would likely be better off keeping it invested as the £30k now is effectively £60k in 10 years time. 

However, the 25% TFLS from his DC pot only amounts to about 5% of his pension planning (excluding State Pensions!).

£130k in DC pension pot - aiming to take £30k TFLS leaving £100k. He can quite reasonably expect that £100k to grow to £200k in less than 10 years (7% return) or more (average S&P500 return being 9.4% annually). £200k would support £8k a year on the 4% basis. I think the 4% basis is easily valid given all the other pensions:

The DB pension will pay £7k per annum from age 60 - he could increase that by deferring to his normal SPA.

2x State Pensions will provide £19k per annum (most likely higher in 10 years time).

£15k per annum from wife’s pensions - not sure on the age for taking these perhaps they can be deferred too.

total = £49k after the TFLS has been taken.

Everything else in this and the other threads was presented in the context of "today's value of money", so the £45k is £45k.
The £49k you mention is an odd mix of "today's value of money" and "10-year future value of money".
As for growth given the dip that funds are in presently, one would reasonably hope for rapid recovery to pre-dip and then to resume the growth path. That is a big reason why TFLS now is a particularly poorly-timed outcome.

Sure, but given my current circumstances perhaps a necessary and perfectly understandable thing to do given I'm hardly likely to be struggling during retirement anyway especially if I can take the necessary steps now to get my ship in order asap and start paying off the mortgage which I won't be able to do for 2 or 3 years if I chip away at the credit card debt month by month. 
Might sound like I've made my decision but I haven't but I don't think taking the TFLS is as unwise as some people are making it out to be. Everybody's circumstances are different and there are situations when things that normally wouldn't be recommended can be the sensible thing to do. Had the market not dropped so much in the last year it would be an easier decision in a way because I am going to be selling at a low however we're only talking about approx £2k which is 25% of the loss this year and I'll make that back in the first couple of months by paying my debts off. Anyway I've got a lot to think about, what will be will be....

Sea_Shell

Regardless of what you do regarding the current debt, have you nailed down your spending and budget, going forwards, so as to not need ANY credit from this day forward?

Can you, for example, name 3 changes that you've made since posting?

Things you've NOT bought or spent that you would have previously just done without thinking. 

jimi_man

Sea shell makes an excellent point and I think the psychological aspect is the part you haven’t considered. I read your thread from 2005 when you had similar debts which I think got written off when you were declared bankrupt. It’s now 15 or so years later and you are back in a similar position, so clearly something isn’t working for you. 

I still fear you are looking for a quick fix to the problem rather than adjust your habits to deal with the problem. Paying off your debts slowly but surely is likely to lead to a better result since you may be less likely to get in a similar pickle if you know it’s going to be a hard grind getting out of it. 

Have you cut up every single credit card you and your wife own? That should be the first step. Just keep one debit card for basic use. 

In basic figures you owe £221k which you (presumably) need paid off by age 67 - in 12 years. That’s £1534 a month. If you paid off £32k then it’s £189k which is £1312 a month. The instant gratification/quick fix solution is likely to be the worse option simply because it’s too easy and likely to result in your falling g back into bad habits (no matter what you say about not getting into that situation again. I’m sure you probably said that last time too). 

Purplelady65

By taking the pension lump sum early (which is up to you) you are not learning any lessons about over spending or going through any pain in having to learn to go without or delay purchases in order to pay down your debts. A phrase used often on this forum is it’s kicking the can down the road. It’s an easy thing to say that it will never happen again but the fact that you have previously been made bankrupt and have again built up substantial debts indicates that you haven’t learned how to live within your means. As OPs have suggested it would be really helpful for you to go through all your bank statements over the last 2 years and find out exactly what the money has been spent on. Only then can you start to allocate a realistic budget to each spending category. The fact that you’ve built up these debts indicate that your SOA is probably more an aspiration than reality. You may have reduced your spending for the last couple of months but you might feel differently in a year’s time if you haven’t had a holiday, been out for a nice meal, bought any new clothes e.t.c. 

enthusiasticsaver

I am guessing that soa is aspirational rather than actual given you have built up such a lot of debt in spite of a good income although I note your wife’s income has only recently increased. Your previous bankruptcy and presumed inability to get further 0% deals next year when your deals expire suggests a poor credit record. Making sure it is accurate is the first thing and I would certainly be knocking those holidays on the head until you get your finances under control. 

As you say you have three problems. 

The high unsecured debt.
The mortgage and lack of plan to repay
The poor credit record.

Your suggestion of using your TFLS on the DC pension once you get to 55 may well give you £32500 to throw at your debts but is generally considered a bad idea as it is borrowing from your future self. Many people have done it though and although it is not something I would consider your options given you are 10 years from retirement are not good. The market is low so consolidating losses is not a good idea but I can understand why you feel you need to do it. Crystallising the DB pension is a bad idea to get the TFLS as you will be paying 40% tax on the income. It is also worth noting that although your brother died young this is unusual so there is every chance you will live for a further 20 years after retirement so the remaining pensions will need to sustain you both over that time. This also assumes neither of you need to retire early due to Ill health. 

Overall my recommendation is that you use the next year to really focus on clearing the debt by using the surplus income and savings on your soa by not taking holidays for a few years. If you cannot get new 0% deals next year then revisit the TFLS option then. At the same time I would be changing that mortgage to repayment or even use the TFLS to make a lump sum repayment given you are paying 6%. That seems more critical to me than the unsecured borrowing. 

Sea_Shell

I'd also be interested in knowing their thoughts about Christmas, and the spending plan for the season.

I did ask on the other thread, but I can't see that they've commented on this.

https://forums.moneysavingexpert.com/discussion/comment/79590121/#Comment_79590121


Many people find their budgets blown out of the water this time of year, and they only count the cost in January.

Qyburn

zAndy1 said:

Monthly Budget Summary

Total monthly income.................... 5,280

Expenses (including HP & secured debts). 2,676

Available for debt repayments........... 2,604

Monthly UNsecured debt repayments....... 949

Amount left after debt repayments....... 1,655

Thanks

I don't think you've said where that £1,655 per month surplus is going at the moment.  Is it piling up in a bank account, or being spent on something not shown in the SOA?

enthusiasticsaver

Sea_Shell said:

I'd also be interested in knowing their thoughts about Christmas, and the spending plan for the season.

I did ask on the other thread, but I can't see that they've commented on this.

https://forums.moneysavingexpert.com/discussion/comment/79590121/#Comment_79590121


Many people find their budgets blown out of the water this time of year, and they only count the cost in January.

That is definitely true.  Over recent years we have culled the number of people we buy for so now just immediate family. We do give money to our daughters and do sacks/stockings for the granddaughters but don't really bother with anyone else and my husband and I just give each other small things off our wish lists. I cannot really see the point in going overboard with food and drink either unless we are entertaining. Christmas is so much less stressful and cheaper as a result. We just save £100 a month which is easily affordable for us. 

zAndy1

enthusiasticsaver said:

I am guessing that soa is aspirational rather than actual given you have built up such a lot of debt in spite of a good income although I note your wife’s income has only recently increased. Your previous bankruptcy and presumed inability to get further 0% deals next year when your deals expire suggests a poor credit record. Making sure it is accurate is the first thing and I would certainly be knocking those holidays on the head until you get your finances under control. 

As you say you have three problems. 

The high unsecured debt.
The mortgage and lack of plan to repay
The poor credit record.

Your suggestion of using your TFLS on the DC pension once you get to 55 may well give you £32500 to throw at your debts but is generally considered a bad idea as it is borrowing from your future self. Many people have done it though and although it is not something I would consider your options given you are 10 years from retirement are not good. The market is low so consolidating losses is not a good idea but I can understand why you feel you need to do it. Crystallising the DB pension is a bad idea to get the TFLS as you will be paying 40% tax on the income. It is also worth noting that although your brother died young this is unusual so there is every chance you will live for a further 20 years after retirement so the remaining pensions will need to sustain you both over that time. This also assumes neither of you need to retire early due to Ill health. 

Overall my recommendation is that you use the next year to really focus on clearing the debt by using the surplus income and savings on your soa by not taking holidays for a few years. If you cannot get new 0% deals next year then revisit the TFLS option then. At the same time I would be changing that mortgage to repayment or even use the TFLS to make a lump sum repayment given you are paying 6%. That seems more critical to me than the unsecured borrowing. 

Thanks , yeah perhaps a sensible approach is to leave the pensions, pay as much off the cards as we can between now and when the interest free periods end and see if I can manage to transfer any remaining balances to another 0% deal. As for using the tfls to pay a chunk off the mortgage, must admit I hadn't really thought about that but it would certainly save a lot of interest (£1800 in the first year so £150pm off the mortgage payment) and improve our LTV situation (not that the LTV is bad now but if I paid £30k off the mortgage the LTV would be getting down towards 50%). Doing that wouldn't save anywhere near as much per month though in terms of our outgoings compared to paying credit cards off but it sure would make the goal of paying the mortgage off seem a lot more achievable. 

enthusiasticsaver

zAndy1 said:

enthusiasticsaver said:

I am guessing that soa is aspirational rather than actual given you have built up such a lot of debt in spite of a good income although I note your wife’s income has only recently increased. Your previous bankruptcy and presumed inability to get further 0% deals next year when your deals expire suggests a poor credit record. Making sure it is accurate is the first thing and I would certainly be knocking those holidays on the head until you get your finances under control. 

As you say you have three problems. 

The high unsecured debt.
The mortgage and lack of plan to repay
The poor credit record.

Your suggestion of using your TFLS on the DC pension once you get to 55 may well give you £32500 to throw at your debts but is generally considered a bad idea as it is borrowing from your future self. Many people have done it though and although it is not something I would consider your options given you are 10 years from retirement are not good. The market is low so consolidating losses is not a good idea but I can understand why you feel you need to do it. Crystallising the DB pension is a bad idea to get the TFLS as you will be paying 40% tax on the income. It is also worth noting that although your brother died young this is unusual so there is every chance you will live for a further 20 years after retirement so the remaining pensions will need to sustain you both over that time. This also assumes neither of you need to retire early due to Ill health. 

Overall my recommendation is that you use the next year to really focus on clearing the debt by using the surplus income and savings on your soa by not taking holidays for a few years. If you cannot get new 0% deals next year then revisit the TFLS option then. At the same time I would be changing that mortgage to repayment or even use the TFLS to make a lump sum repayment given you are paying 6%. That seems more critical to me than the unsecured borrowing. 

Thanks , yeah perhaps a sensible approach is to leave the pensions, pay as much off the cards as we can between now and when the interest free periods end and see if I can manage to transfer any remaining balances to another 0% deal. As for using the tfls to pay a chunk off the mortgage, must admit I hadn't really thought about that but it would certainly save a lot of interest (£1800 in the first year so £150pm off the mortgage payment) and improve our LTV situation (not that the LTV is bad now but if I paid £30k off the mortgage the LTV would be getting down towards 50%). Doing that wouldn't save anywhere near as much per month though in terms of our outgoings compared to paying credit cards off but it sure would make the goal of paying the mortgage off seem a lot more achievable. 

You have to decide what is the most critical to you.  Which worries you more?  The thought that there is no plan in place to clear the mortgage before retirement and your income drops or the high unsecured debt?  I get the high outgoings are a concern and the worry about transferring to new 0% deals but should you get to retirement and you not have enough income to service the debt there is little they can do.  The mortgage company have your home as security so defaulting on that is not an option. Personally if I was to raid my pension fund before getting to retirement I would prefer it go to reducing my mortgage as ultimately that will make you more financially secure. 

I think the main reason people are questioning why you want to do this is because on paper you have a large monthly surplus so with some financial discipline you should be able to sort this relatively easily.  So either you do not want to change your spending habits in which case this will be an ongoing problem or that soa is incorrect.