Mortgage free in 4 years

Sensiblesaver

Thank you @LadyWithAPlan. I have to keep reminding me this is a marathon not a sprint, sometimes it feels I am not making any progress, i only started seriously overpaying when the interest jumped last year.

Just sent another £17 to the mortgage by rounding down my budget. I usually round up the amount on ynab and when the bills goes out I adjust and send to the mortgage, it fixes my bug of overpayments since I can't Tilly tidy lol

New mortgage balance -£211,473
Total OP so far £9648.29/ £22898

I have been struggling to get up early to exercise this week. I did walk to the train station instead of taking the tube yesterday (30min walk),but that's not enough. I finish at 2pm today so will exercise after work.

Sensiblesaver

Interest from my ISA was paid £30.94, so made another OP of £33.00 to bring the balance to -£211440
Total OP so far £9681.29/£22898

Plans for this weekend are exercise, yoga, cooking, stay away form screens, read. I am still alcohol free and I have a lot more energy. I had a busy week at work but next week is looking really quiet. There is also a train strike on Monday and my journey will be longer, can't stand these strikes anymore, so disruptive.

hugheskevi

Sensiblesaver said:

I also need to focus on my pension as I am way behind. I am 45years old and the plan is to be mortgage free at 49. 

You haven't said much about your pension in the thread, but clearly have quite a decent amount of funds given mortgage overpayments, SSISA contributions and Premium Bond purchases.

Do you have a clear financial strategy through to retirement? You wouldn't want to be in the position of focusing too much on a single area in the early years to the detriment of another area and end up having an overall inefficient strategy. In particular, what do you plan to focus on at age 49 once the mortgage is cleared? Will that strategy maximise income tax (and maybe National Insurance) relief, or might you be missing out on chunks of that due to not placing so much weight on pension contributions between age 45-49?

Sensiblesaver said:

I should have enough on my S&S ISA to cover the mortgage in 4 years, I want to overpay more so I don't have to sell all my stocks...I would like to leave my ISA as untouched as possible as it's part of my retirement savings.

Why is there such a focus on S&S ISA rather than pension? Do you have access to a LISA (ie set one up and funded it prior to age 40?) Do you plan to use S&S ISA before age 57? Or maybe use the SSISA to fund day-to-day living expenses in the future are you direct more of your salary into a pension?

Sensiblesaver said:

 The plan is to build up more cash, anything left over after my 10% OP allowance I will add to my cash ISA or premium bonds, I only have £1500 in premium bonds, so plenty of room to add more.

That sounds like quite a warchest being built-up, yet still no mention of pensions. Is this all to fund retirement prior to age 57? Otherwise the tax efficiencies of a pension are likely to make that a more appropriate vehicle to fund the post age 57 period (especially if you have taxable income in excess of £50,270 or access to salary sacrifice pension contributions). What is the need for extra cash and cash-like savings, given you have a 6 month EF already in place?

Sensiblesaver

Hi @hugheskevi, thank you for your comments. I read your thread on the FIREside charts and your trip sounded amazing .

Pension scares me a bit and I avoid the pension board as I get stressed out lol. I listen to Dave Ramsey a lot and I have started adding 15% of my gross income into a pension. Last year I only did 12% as I wasn't adjusting according to my salary every month, my salary varies. I know I should actually put more in the pension as I am an additional rate tax payer, so the incentive is enormous, but I just feel the option of having access to the money through an ISA more appealing. Me and my husband talk a lot about moving abroad (somewhere warmer), so having a paid off house would give us a rent income which could also be part of the plan. I don't plan to retire at 49, I love what I do, but I would like to work less and also want to be self employed and have more flexibility with holidays.

I was coasting along and the interest rate jump on the mortgage made me want to get rid of it lol. 

Here are my stats:
Pension £77,349
S&S ISA £65,712
Freetrade stocks £5766
Cash £25k

At the moment I put £1.5k into my SIIP and £500 in my work pension (So £2.5k goes into pension with tax relief). £1.5k S&S ISA, £500 mortgage OP, any spare cash is either sent to mortgage or kept in cash. Let me know your thoughts.

Sensiblesaver

Please note my salary increased dramatically last couple of years, I only became an additional rate tax payer last year, so I started to focus more on the pension, before I did not have as much spare cash. I am trying to keep my expenses the same to give a boost to my pension.

hugheskevi

Sensiblesaver said:

Hi @hugheskevi, thank you for your comments. I read your thread on the FIREside charts and your trip sounded amazing .

Aye, the 16 month overland jaunt across the Americas was fun! But Africa is definitely my favourite continent to travel on (I've spent about 15 months roaming around there too).

Pension scares me a bit and I avoid the pension board as I get stressed out lol. 

You need to understand and engage with them now, or else accept you are needlessly paying huge amounts in avoidable tax.

I am an additional rate tax payer, so the incentive is enormous, but I just feel the option of having access to the money through an ISA more appealing. 

Assume your salary is £160,000. Your take-home would be £96,586.40.

If you put £60,000 into a pension your take-home would be £67,361. So you could choose between having £29,225.40 in an ISA / lower mortgage / cash savings or £60,000 in a pension.

When you take the pension, 25% of it will be tax-free (£15,000) and the rest taxable. That will probably all be taxable at basic rate, so would be 20% of £45,000 = £9,000. That leaves £51,000. If you have access to salary sacrifice contributions then the pension is even better.

You can access the pension at age 57 (earlier if you have a protected minimum pension age). 

In this example, you would prefer to have £29,225.40 immediately accessible in a tax-free SSISA, paid off mortgage or in cash savings over having £60,000 (or £51,000 taking account of likely tax to make the figures comparable) in a pension. You are paying a big premium (over 40%) for that liquidity.

I don't plan to retire at 49, I love what I do, but I would like to work less and also want to be self employed and have more flexibility with holidays.

That sounds like your income would be lower, meaning that the tax advantages from pension contributions at that point would be lower, possibly a lot lower.

Here are my stats:
Pension £77,349
S&S ISA £65,712
Freetrade stocks £5766
Cash £25k

Given your income, the pension is a lot lower than you would expect (even taking into account recent increases in income).

For comparison, here is how our (my wife and myself) stats breakdown, given we are very close to your age (both 46). You can see that pensions are over 75% of our total financial assets - the tax advantages are just so significant as to justify this level of bias, especially as you get closer to age 57 and the restrictions on access become less important (we can access most of our pension earlier as we have protected minimum pension ages).

Pension (DB pensions based on Cash Equivalent Transfer Value): £1.6 million
S&S ISA £326K
Freetrade stocks £0
Cash (incl ISA and net of all debts) £120K

At the moment I put £1.5k into my SIIP and £500 in my work pension (So £2.5k goes into pension with tax relief). £1.5k S&S ISA, £500 mortgage OP, any spare cash is either sent to mortgage or kept in cash. Let me know your thoughts.

Saving in cash and paying down your mortgage is costing you a fortune compared to the tax savings a pension offers you. I'd be aiming to reduce taxable income to £100,000 unless you are way into additional rate.

Sensiblesaver

Thank yo for your comments @hugheskevi, I do appreciate it. Your numbers are very impressive, well done!

I know my pension is too low. It is a result of being too scared of investing for way too long for fear of losing money and not having a work pension. I have educated myself and started investing more and I am now playing catch up. 

You are right and I know I need to prioritize my pension at the moment as I am way behind and I am being heavily taxed at the moment. My salary has almost doubled from what I was making 3 years ago. I made 190k last year and I can't get myself out of additional rate, but I should still prioritize the pension to pay less tax. 

I have completed my self assessment and I am getting £5162 back. I was gong to make a big OP but I am reconsidering now. Adding to my pension does not give me the same thrill than seeing my mortgage balance going down though, and having no mortgage would be such a peace of mind, but I know you are right so I might just add most of it to my pension. 

South_coast

Maybe you could go 50/50? Half thrill, half head-over-heart?

Sensiblesaver

That's a good idea, I will wait a few days and decide what to do when the money comes in.

I went for 6k run yesterday and did yoga, read and cooked. I did end up buying a bottle of rose yesterday, and it was so drinkable lol. I am feeling a bit lazy today but have been on a walk with the family and I am trying to get up and go for another run, even 4k will do 

Sensiblesaver

I did go for a run, managed 5k and did yoga in the garden. I will now log out and prepare my lunches for the next 2 days.