Avoidant noob: help me look properly (USS vs mortgage vs savings vs cc debt)

bluebirdy

Hi,
I’m new here and trying to get to grips with retirement planning. I’m mid 50s, OH is 60, both in USS for many years.

At the moment, despite being relatively numerate, the idea of planning my finances is a bit alien. I’m more of a spend it and hope person, hence still having credit card debt in our 50s. All of this (about £14k total, mostly from house renovation/holiday/car) is in rolling 0% deals and we’re throwing money at this currently.

We're also overpaying our mortgage. In the only stroke of financial timing genius in my lifetime (having lived through 90s neg equity etc) we fixed our mortgage in 2020 for 10 years at 2.65%. It has about £140k left but this should get down to about £40k by end of the fixed rate period.

Like many in USS we were late family starters and still have one kid likely to go to university in a year or two, and possibly another but unlikely. 

We added to all the kids CTFs so they had a little bit at 18 and we managed to persuade the 2 who’ve had theirs to convert half into a LISA. We’ve matched whatever they put in between age 18-21, but the one who will prob go to uni won’t be able to do that, so as well as contributing to living costs we might also subsidise that. We’d like to be in a position to help them all out a bit more financially later also.

We don’t have any substantial savings (maybe £3k emergency bits and bobs). I would like us to build up a bigger safety net, as well as a slush fund for holidays, car, house renovation (really need to do a bit more work in next 10 years)

So. We really need to prioritise. I say “we” but it is really ME. OH is very good with money: focused, organised and does not spend like water. I am, er, the opposite.

It looks like both of us being in USS for a long time, was the best financial non-planning we could have done for retirement. And if we stayed in until our normal retirement age, we’d have about £33k (me) and £24k (OH) DB pension each plus lump sum. We both do 1% extra into the IB part currently.

As we’re effectively getting a reduction in contributions imminently, I was planning on increasing that IB amount. As OH is older, but with slightly less pension than me, I’d really like him to boost his income AND be able to persuade his workaholic self to take it a bit easier soon.

But I can’t get my head round all the choices. Better to clear credit cards quicker? Overpay mortgage more? Build savings? Save for kids? Boost OH pension only? Do a bit of all of these together or sequentially?

OH very *not* keen on relying on pension lump sum to do some of these things, and doing what we can from salary for next few years. His priority is having no mortgage, however much I explain the benefits of saving tax by overpaying pension (we have a salary sacrifice scheme).

I’m less fussed about OVER-overpaying mortgage. I want to spend money while still young and relatively fit, enjoy kids and holidays and do up home so it is comfortable in the now, not just worry about future. I feel our basic DB will be more than enough to meet our needs, esp as we’ll also both have full SP at 67.

And then there is the “how long can we stick working in an institution we no longer recognise” or how long will it want us question, not to mention health/life/elder care of parents needs. So I would also like to work out what is doable in relation to working part time/flex retirement.

I am overwhelmed. I would like a FA who does this kind of advice/coaching, but they all seem to be about wealth management!

Marcon

bluebirdy said:

I am overwhelmed. I would like a FA who does this kind of advice/coaching, but they all seem to be about wealth management!

Try an  IFA - that might be a better starting point than an FA (who is restricted in terms of the products on which they can advise).

bluebirdy

Marcon said:

bluebirdy said:

I am overwhelmed. I would like a FA who does this kind of advice/coaching, but they all seem to be about wealth management!

Try an  IFA - that might be a better starting point than an FA (who is restricted in terms of the products on which they can advise).

Yes, I have wondered about this but I’ve just assumed my concerns are somewhere in between financial planning and coaching/therapy ;D so wasn’t sure where to start with finding the right one.

Universidad

Do you know what your ideal retirement age for USS is, in practice?

If you have been in for decades, different sections of your benefits will have different retirement ages. You may have some benefits that can be taken without reduction at 60, 63.5, 65, and 66. Currently no benefits being accrued in USS are for a normal pension age later than 66, regardless of your state pension age.

You may find yourself in a position where retiring early means having some of your newer benefits subject to actuarial reduction, but retiring later means losing out by some of your older benefits not being uprated. In practice the former should be cost neutral, but the latter is not. (Except, of course, for new accruals arising from working longer).

As for where you should put your money I wouldn't venture to make a recommendation, but if you are both higher rate tax payers then pension contributions (particularly since you have a salary sacrifice arrangement) are likely to be very efficient in that bracket.

Overpaying on your mortgage right now is worth 2.65% pa to you. There are a number of ways that you could use your money that are essentially guaranteed to do better than this. It is not wrong to want to pay off the mortgage, that feeling of freedom is worth cold hard cash for many of us. But if you can guarantee a return of, say, 4% over 7 years and pay the mortgage off at the end of the term with that money, it is a matter of fact that you will be better off for it.

NlghtOwl

Clear the credit cards (then cut up) and get on a budget, at least itemise and know where your money is going so you can be intentional with your spending. Once you’re on top of that you’ll find you can build your wealth quickly. Whether that is through pensions, paying off mortgage or if you’re current pensions are looking good then helping the kids. Good luck

katejo

NlghtOwl said:

Clear the credit cards (then cut up) and get on a budget, at least itemise and know where your money is going so you can be intentional with your spending. Once you’re on top of that you’ll find you can build your wealth quickly. Whether that is through pensions, paying off mortgage or if you’re current pensions are looking good then helping the kids. Good luck

Keep 1 credit card (only for use in transactions which you can pay off straight away) to get the consumer protection in purchases over £100. It makes a real difference to budgeting if you don't use credit. I am 60 and on the SAUL pension scheme (similar to USS). I also paid my mortgage off a couple of years ago. 

QrizB

Universidad said:

Do you know what your ideal retirement age for USS is, in practice?

And a related question, do you know how much income you're going to need to have the retirement you want? From what you've said, you'll have £33k + £25k + two full SPs, which will be getting on for £80k pa between you. Do you really need that much? If not, you could consider retiring early, accepting a lower retirement income in exchange for more retirement lifetime.

barnstar2077

My initial reaction would be to see what your pensions would look like if you started taking them in five years time (or sooner depending on restrictions and reductions etc.)  Then plough everything you can into them (within the confines of the scheme/law) and use the lump sum in five years time to wipe out what is left of the credit cards and pay down the mortgage.

In the mean time, any extra would go off of the credit cards, and then the house.  Plus, enjoying life a bit of course! 

bluebirdy

Universidad said:

Do you know what your ideal retirement age for USS is, in practice?

If you have been in for decades, different sections of your benefits will have different retirement ages. You may have some benefits that can be taken without reduction at 60, 63.5, 65, and 66. Currently no benefits being accrued in USS are for a normal pension age later than 66, regardless of your state pension age.

You may find yourself in a position where retiring early means having some of your newer benefits subject to actuarial reduction, but retiring later means losing out by some of your older benefits not being uprated. In practice the former should be cost neutral, but the latter is not. (Except, of course, for new accruals arising from working longer).

As for where you should put your money I wouldn't venture to make a recommendation, but if you are both higher rate tax payers then pension contributions (particularly since you have a salary sacrifice arrangement) are likely to be very efficient in that bracket.

Overpaying on your mortgage right now is worth 2.65% pa to you. There are a number of ways that you could use your money that are essentially guaranteed to do better than this. It is not wrong to want to pay off the mortgage, that feeling of freedom is worth cold hard cash for many of us. But if you can guarantee a return of, say, 4% over 7 years and pay the mortgage off at the end of the term with that money, it is a matter of fact that you will be better off for it.

Thank you - those are very helpful observations. I am less convinced about paying off the mortgage compared to OH but it is about freedom from burden for him. The way you put it here though is persuasive so I will discuss more with him.

I don’t have an ideal retirement age as I’ve always assumed I would want to keep working, although probably part time. I think the OH would stop tomorrow if he could, but he’s v cautious over money and has bailed me/us out so often, I think he feels the pressure of that. I’m trying to persuade him to work p/t or flex retire as I don’t he’d be great just stopping, for all his fantasies of doing so.

The main thing stopping us/him is probably the credit cards, and supporting the possible university kid, as we haven’t really looked hard into how much we’ll need for that yet. 

So in two years, it should all be a bit clearer, but I need to look into the age issues you mention and USS. I guess we need to get a projection from them, although I try and work things out on the modeller. We’ve both been in since before 2011 which is I think when the unreduced benefits at 60(?) bit ran up to?

DIYPhil

If you’re still looking for coaching, take a look at Wise Monkey Financial Coaching - financial-coaching.co.uk 

dunstonh

DIYPhil said:

If you’re still looking for coaching, take a look at Wise Monkey Financial Coaching - financial-coaching.co.uk 

Not regulated by the FCA.  So, cannot give financial advice.  Left the industry in 2002.