Advice required

zAndy1

Cressida100 said:

zAndy1 said:

Can we take a step back perhaps and work out exactly what the impact of me taking the tfls from my DC pensions is going to be on my retirement income as that's the crucial thing really at the end of the day isn't it. So let's do a very basic calculation to work out the potential difference if I don't take the tfls and if I take the max tfls from the 2 DC pension funds, approx £32500 (might be a bit less, might be a bit more depending on when I take it). Let's assume growth on average of 5% a year ,  so if I don't take the tfls £132500 x 10 years at 5% growth pa = £215000 , if I do take the tfls £100000 x 10 years at 5% growth pa = £163000 , a difference of £52000. So what sort of additional income could I expect from that in retirement, about £2k pa realistically?
 
So the million dollar question is, can I increase my retirement income (or reduce my retirement outgoings) by more than £2k if I take the tfls now? And I wish I had the answer to that but my gut feeling is yes I could. How best to go about that though is the question....

I think you've already made your decision.....

Nope, not at all, just trying to work out which option makes most sense financially overall

Sea_Shell

Have you actually nailed down your SPENDING yet?     

Have you sat down and worked out where all the debt came from in the first place?

I'd still like to hear your thoughts/plans about Christmas spending.


It seems like you're only concentrating on one half of the debt equation, that of repayment, and not addressing spending.

kimwp

zAndy1 said:

Cressida100 said:

zAndy1 said:

Can we take a step back perhaps and work out exactly what the impact of me taking the tfls from my DC pensions is going to be on my retirement income as that's the crucial thing really at the end of the day isn't it. So let's do a very basic calculation to work out the potential difference if I don't take the tfls and if I take the max tfls from the 2 DC pension funds, approx £32500 (might be a bit less, might be a bit more depending on when I take it). Let's assume growth on average of 5% a year ,  so if I don't take the tfls £132500 x 10 years at 5% growth pa = £215000 , if I do take the tfls £100000 x 10 years at 5% growth pa = £163000 , a difference of £52000. So what sort of additional income could I expect from that in retirement, about £2k pa realistically?
 
So the million dollar question is, can I increase my retirement income (or reduce my retirement outgoings) by more than £2k if I take the tfls now? And I wish I had the answer to that but my gut feeling is yes I could. How best to go about that though is the question....

I think you've already made your decision.....

Nope, not at all, just trying to work out which option makes most sense financially overall

I think the point that you may be missing is that "financially overall" includes spending behaviour.

As someone who has (I understand from a previous post on this thread) undertaken a number of serious debt solutions (bankruptcy etc), yet is currently in a large amount of debt with a very good income, then your "financially overall" situation includes consistent overspending. Therefore borrowing from your future self risks putting yourself in financial difficulty during retirement, which is a point in your life when it is hardest to resolve financial issues as increasing your income will be difficult.

So the simple maths of debts and interest and pension lump sums and expected pension income probably add up to using a lump sum to pay off the debt leaving a clear slate, paying the mortgage and 10% pension contribution but the situation is not as simple as that - you need to get into good financial habits as well - before it's too late.

In terms of you saying that the debt at 20% is unsustainable, (from memory) according to your SOA, you could pay an additional 20% on your whole debt (more or less), so it is sustainable (if unpalatable) or your SOA is incorrectly - either way, you don't have a clear view of your finances. 

You really need to focus on what you can do now to pay off your debts with your current income otherwise you are going to end up in the same situation again in another ten years.

jimi_man

As above. Have you cut up all of your credit cards? I'm not sure that was answered, though I may have missed it?

Tbh, any financial decisions are really moot, until you have sorted out your outgoings. You need to:

1. Cut up your credit cards.
2. Work out from past statements where all your money is going. (Do you really have £1300 odd, surplus every month and if so where is it going?)
3. Create a sustainable budget going forward that concentrates on paying off your debts as quickly as possible and cutting out the fat (several posters have identified areas in your SOA that can be trimmed).

Only then can you look at other financial decisions once this has been done.

It is an inescapable fact that saving up and paying for things (in this case paying off debt) is a far more effective method, than robbing your assets to do the same. You're trying to take out a loan (from your pension) to pay off a loan.

I apologise if this comes across as harsh, but you don't seem to be very good at answering the 'important' questions!  

kimwp

NB, remember that some expenses go up during retirement. You will (hopefully) no longer have your mortgage to pay, but you will have all your newly freed working hours which you will need to fill.

TheAble

Agree with kimwp. What's the sense in taking your lump sum to pay off your debts only to run them up again? Only the next time you won't have a lump sum to help you. It's analogous to debt consolidation in that it's so easy that people learn nothing and go on to repeat.

Pay them off the hard way even if it costs more and likely you'll come out the other side having learnt some good habits.

enthusiasticsaver

The hardest thing in sorting out financial problems is learning to budget and changing spending behaviour if you have never done it before.  It has always been so easy to get cheap easy credit people think nothing of spending on plastic and worrying about it sometime in the future.  Before they know it though there is an end date in sight when income drops (retirement or sickness) and still a mountain of debt to clear.  You are at that point now as you are 10 years off retirement and bear in mind some people cannot work right up to retirement due to health issues.  My own perfectly fit husband had to undergo heart surgery at the age of 62 in spite of having no issues up until then.  Luckily he was already retired and on a good pension with no debt or mortgage but it would have been a different story if we had debt and relied on a salary which drops after so many months off sick. 

What everyone is telling you is that there is no quick fix.  Anything you do whether it is cashing in part of your pension or changing spending behaviour has an impact.  The difference between the two is that cashing in your pension kicks the can down the road as the bankruptcy did for you in the past and changing your mortgage to interest only.   You build the debt up again because you have not changed your attitude to spending and there is no plan to repay the mortgage. Getting a grip on your spending now and addressing the debt by using your surplus gets you into  the habit of living within a budget. Cutting up the credit cards reduces your reliance on them and you learn to spend within your income without the credit card safety net. 

At the moment the stock market is low but up  until a year ago our investments were producing a return of over 8-12% per annum.  Cashing out then would have been ok but cashing them now when returns are low are a different matter. Drawing on your pension would be an expensive mistake. 

zAndy1

Ok, I get why people are sceptical about me being able to manage my finances without resorting to overspending and incurring more debt. My past record is poor and I can see why people would think that might happen. However if you want to know whether I've seen the light, yes I've seen the light. That doesn't mean I'm going to palm our dog onto someone else (I would rather have nothing than do that) or sell a car that we need but it does mean that I'm going to stop putting anything on credit cards, be far more strict about how much we spend on food shopping each month and on eating out. Basically anything we can control will be looked at and cuts made where possible. I see there's just been another big interest rate rise which will no doubt filter through to my mortgage payment soon, I don't think the last rate rise has filtered through yet so I expect to be paying another 1.25% interest at least shortly which will equate to around another £170pm which means the mortgage payment will have gone from about £450 to almost £1000 this year. Does make me more inclined to overpay the mortgage than pay credit cards off I must admit , it's just the not knowing whether I'll be able to transfer my credit card debt to a new promotional rate that's making me hesitate to do that really. What a year this has been , what a wake up call for many people including myself, should have overpaid the mortgage when interest rates were low and we could have made a good dent in what we owed but I didn't and I regret that very much right now. Anyway at least we're keeping our head above water and can still afford to pay everything. I'm going to throw every spare £ each month at the debts (not 100% sure whether to prioritise mortgage or credit cards as I've said) and just keep grinding.
Oh one question I have, should I decide to get some help with my debts and consider entering a DMP if that's what it comes down to (last resort), can I reasonably add mortgage overpayment to my monthly outgoings if I'm on interest only and want to try to pay off the mortgage by the end of the term or is that not allowed? Obviously it would reduce what I had left to pay debts off but I feel it is a legitimate expense really. 
Thanks for the continuing advice I appreciate it.

enthusiasticsaver

Yes you can add an overpayment to the mortgage to a DMP if there is no repayment plan in place if that is the eventual outcome or convert to part repayment which is what I would do but do note that lenders do not tend to agree to suspend interest if you are able to make minimums on your credit cards/loans which you are at the moment.  If you were to use your TFLS as I say I would use that to reduce or pay off the mortgage rather than unsecured debts. That is a priority debt. 

 I personally feel though that your surplus is so high it should not get to that point. If I were in your position I would focus on living within your budget, saving for emergencies and overpaying the most expensive debts or the ones which have deals due to expire soon.  At the same time I would be weighing up whether or not to convert the mortgage to part repayment or include overpayments to reduce interest on that and that would mean it would be lower at retirement when you could then feasibly use the TFLS to reduce or repay it. 

MEM62

zAndy1 said:

Can we take a step back perhaps and work out exactly what the impact of me taking the tfls from my DC pensions is going to be on my retirement income as that's the crucial thing really at the end of the day isn't it. 

No, it is not.  The crucial thing is to address the fact that you are living beyond your means and racking up large amounts of debt.  You are then proposing to raid your future income to pay for it.  You are already spending more than you earn in your working years. How on earth are you going to survive in your retirement years when your income will be lower, and you are looking to lower it still more.  You consistently justify your decision to take your 25% TFLS when, frankly, it would be madness to do so.  If you cannot remove the blinkers and get your head around some of the very sound advice other posters have offered you, you are setting yourself up for a retirement in poverty.