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

bluebirdy

dunstonh said:

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.   

Useful to know that there is a thing called financial coaching and that there are unregulated providers. Just reminds me how little I know about these things!

penners324

Clearing the credit card debt should no. 1 priority. Then stop using them.

ussdave

Putting aside psychological factors it comes down to tax reduction and risk of interest cost (on credit cards particularly).

One of the highest priorities should be ensuring that you don't end up paying any interest on the credit card debts, as this will be a fairly eye watering amount.  You've mentioned that you are throwing money at the 0% debt at the moment but you would actually reduce that debt more quickly by paying only the minimum payments and instead throwing the rest at a savings account.  This would require discipline to ensure you don't dip into those savings of course.  Once you reach the end of the 0% deals you can transfer the money from the savings account (plus any interest) to pay off the remaining debt.  This is in effect stoozing, which there are guides for on here.  

Remaining spare funds should really go into your USS pension Investment Builder.  I'm not sure if you're higher rate tax payers or not but depending on that and on whether or not you can salary sacrifice this extra payment, you could be looking to a saving of anywhere between 20% and 42% (or more if you're additional rate, or could get yourself down to a salary level to receive child benefit) tax on your contributions.  Additionally, with such high Retirement Builder amounts you will be able to draw a large portion of this out tax free at retirement, potentially effectively doubling your money.  See discussion in this and the linked thread for info.  You may need to re-read it a few times as there's a lot of back and forth in the discussion.  https://forums.moneysavingexpert.com/discussion/6390698/uss-ib

Finally, you've got your mortgage at a very nice (I'm envious ) rate.  My take on this would be similar to the credit card debt approach.  There's nothing wrong with wanting to pay it off early (even if that's not technically the "best" thing to do financially) but you should take advantage of the mortgage interest late being lower than the available savings rate to reduce the time it takes to pay down this debt.  Rather than pay off the mortgage directly, again make use of a savings account (Nationwide regular saver pays 8% for £200/month for example) and at the end of the mortgage fix period, use the savings total and any interest to pay down the mortgage debt.  Using this method you will have paid off more of the mortgage sooner and your mortgage overpayments will in effect have been boosted by whatever the difference between the mortgage and savings interest rate is.  Again, this requires discipline, so if there's a chance that you'd be tempted to use the savings for something else then it may make more sense to "take the hit" and just overpay the mortgage directly.

That said, you would be better off throwing more money at your USS Investment Builder rather than overpaying your mortgage.  By a significant amount, especially if your'e higher rate payers and/or able to salary sacrifice.  The tax breaks for the money on the way in, combined with the ability to get out a lot of it tax free, is going to be miles ahead of overpaying the mortgage now.

You can model all of the above really simply using excel or google sheets.  Have a play with putting in figures for 12/24 months and adding rows for the various options.  

swindiff

penners324 said:

Clearing the credit card debt should no. 1 priority. Then stop using them.

Why when it is at 0%?  I currently have £30k in credit card debt at 0%, that £30k is earning me 5% interest.  It would be a terrible financial decision for me to pay off the 0% debt with money earning 5% interest.

MallyGirl

more precise to say, as @ussdave does, focus on having the money to clear the credit card debt in full the day before the 0% deal runs out. No need to pay more than the minimum up to that point

atush

bluebirdy said:

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!

Pay your normal mtg, dont overpay at this stage.  Keep knocking down the CC as well.

Throw extra cash into svings, cash at first then S&S isas

Then think over overpaying mtg once savings are taken care of, and CC debt gone.

2nd_time_buyer

bluebirdy said:

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?

1995-2011 was 63.5 years. See page 18 of:

https://www.uss.co.uk/-/media/project/ussmainsite/files/financial-advisers/mfuss-for-ifa.pdf

swindiff

Depends on your contract of employment

"Service from 1 April 1995 to 30 September 2011 (unless member’s contractual pension age is lower)"

I can retire from age 60 and any pre 2011 service will not be actuarily reduced.  This does require me to still be employed by my university when I take retirement and for them to be in agreement of me retiring early.

If I were to leave their employment before the age of 60, it would revert to 63.5 years.

Universidad

swindiff said:

If I were to leave their employment before the age of 60, it would revert to 63.5 years.

One good thing about the end of Final Salary pensions and normalising of retirement ages - it does mean the golden handcuffs are off for most younger folks. Probably doesn't make up for the worse pension, but at least I don't feel trapped. When my job stopped offering value for money I walked out of the door without really 'losing' anything (employment rights notwithstanding. )