First world problem after inheritance.

Singlespeeder

Hi, myself and my sisters have found ourselves in a reasonable position after the death of our father.
We're set to come into about £300,000 each in the next few months.
I already have £50k in Premium Bonds and £20k in a 23-24 ISA
First thing would be to put £20k in a 24-25 ISA, and then probably transfer £20k annually into an ISA.
Second would be to clear the mortgage -currently £66k.
But what to do with the rest?. I'd be at about £220k.
I'd probably put £85k/£85k/£50k in the highest interest easy access accounts. 
I'm high risk averse.

Any advice much appreciated.

gravel_2

What rate is your mortgage on and will you suffer early repayment penalty if you pay it off now? How old are you and how much have you got in your pension? Do you work? What do you want the money to be spent on/saved for?

la531983

What are your pension arrangements?

dunstonh

First thing would be to put £20k in a 24-25 ISA, and then probably transfer £20k annually into an ISA.
Second would be to clear the mortgage -currently £66k.

Why would putting money into the ISA be the first thing?   In the pecking order of tax efficiencies, the pension tax wrapper beats the ISA tax wrapper for the vast majority of people.

I'm high risk averse.

As are most people.    Most are in the cautious to moderate range when it comes to risk.

At the moment, you seem to be focusing on deposit options only which can actually be quite high risk if this money is planned for the longer term.  You have cut out investment risk but increased inflation risk and shortfall risk.

If you are going to spend all that money in the next few years, then cash is sensible.  But if it is going to be held for longer, then 100% cash is higher risk than you appear to realise.

Singlespeeder

gravel_2 said:

What rate is your mortgage on and will you suffer early repayment penalty if you pay it off now? How old are you and how much have you got in your pension? Do you work? What do you want the money to be spent on/saved for?

I'm 57.
Current mortgage rate is 1.75% until June 2026.
We're currently mortgage neutral but it's more sensible to get 4.*% in savings than clearing the £66K of mortgage on 1.75% .... and we're going to clear it either way in June '26 when the current deal runs out.
It'd be good to be mortgage free.
I have another £100k in a private pension and I work for local government and have LGPS there too.
We're VERY frugal. My partner has another £100k+ in savings.
We have no debts. We also don't go on expensive holidays or buy expensive cars etc. The savings would just be a comfort blanket or maybe subsidize early retirement. 
I'd like to retire at 60, but also have the option of dropping a day or two at work which could postpone/delay full retirement.

Singlespeeder

dunstonh said:

First thing would be to put £20k in a 24-25 ISA, and then probably transfer £20k annually into an ISA.
Second would be to clear the mortgage -currently £66k.

Why would putting money into the ISA be the first thing?   In the pecking order of tax efficiencies, the pension tax wrapper beats the ISA tax wrapper for the vast majority of people.

I'm high risk averse.

As are most people.    Most are in the cautious to moderate range when it comes to risk.

At the moment, you seem to be focusing on deposit options only which can actually be quite high risk if this money is planned for the longer term.  You have cut out investment risk but increased inflation risk and shortfall risk.

If you are going to spend all that money in the next few years, then cash is sensible.  But if it is going to be held for longer, then 100% cash is higher risk than you appear to realise.

Thanks for the reply. 
I can't really see us going on a spending spree, it's not our way, we're not good at spending money.
I'll look into 'pension tax wrapper' as I'm not sure what that is.
Any suggestions for products to look at?

kempiejon

But what to do with the rest?. I'd be at about £220k.

I think making an early retirement plan if that is really what you want could be excellent use. You're risk adverse, ISAs and pensions progressing nicely and will be mortgage free by 60. Top up the pension and use some money.

What is money for? Now is the time to think about setting it free and buying experiences, things and although I shudder, time with your loved ones. You absolutely cannot buy any time.

Unless you love work why not look at how you might have more fun if you did a bit less of it?

Exodi

Singlespeeder said:

First thing would be to put £20k in a 24-25 ISA, and then probably transfer £20k annually into an ISA.
Second would be to clear the mortgage -currently £66k.
But what to do with the rest?. I'd be at about £220k.
I'd probably put £85k/£85k/£50k in the highest interest easy access accounts. 

Singlespeeder said:

gravel_2 said:

What rate is your mortgage on and will you suffer early repayment penalty if you pay it off now? How old are you and how much have you got in your pension? Do you work? What do you want the money to be spent on/saved for?

I'm 57.
Current mortgage rate is 1.75% until June 2026.
We're currently mortgage neutral but it's more sensible to get 4.*% in savings than clearing the £66K of mortgage on 1.75% .... and we're going to clear it either way in June '26 when the current deal runs out.

I'm glad you updated the thread with this as we regularly see people overpaying 1.X% mortgages, despite 5.X% savings options being available.

One other thing to consider, putting £220k in savings accounts will make you liable to pay tax on the interest.

So even if you were able find a few homes for it paying 5% (£11k) in interest, you'd be paying tax on the vast majority of it. If you were a basic rate tax payer, you'd be paying £2k in tax on the interest. If you were a higher rate tax payer, you'd be paying £4.2k in tax on the interest.

Worth a read: https://www.gov.uk/apply-tax-free-interest-on-savings

It's convenient that you're thinking about retiring soon, as most people (myself included) would suggest putting it in your pension as the best option.

Adding to an ISA throughout is sensible also. I think paying off the mortgage in 2026 isn't necessarily the worst idea either.

Singlespeeder said:
I can't really see us going on a spending spree, it's not our way, we're not good at spending money.

To be honest, one of the biggest challenges faced from retirees is that they spend their whole life being savers that they can't transition to being spenders. I wouldn't vilify spending money in your mind.

Scrounger

Singlespeeder said:
I'll look into 'pension tax wrapper' as I'm not sure what that is.

Any suggestions for products to look at?

LGPS AVC's may be worth checking out because if you take your AVC plan the same time as your main Scheme benefits, you can take up to 100% of it as tax-free cash.

See here:
http://www.lgpsmember.org/your-pension/planning/paying-extra/#:~:text=If%20you%20take%20your%20AVC,benefits%2C%20including%20the%20AVC%20plan

Discussion here:
https://forums.moneysavingexpert.com/discussion/6443716/lgps-avc-and-tax-free-amount

Scrounger

Singlespeeder

kempiejon said:

But what to do with the rest?. I'd be at about £220k.

I think making an early retirement plan if that is really what you want could be excellent use. You're risk adverse, ISAs and pensions progressing nicely and will be mortgage free by 60. Top up the pension and use some money.

What is money for? Now is the time to think about setting it free and buying experiences, things and although I shudder, time with your loved ones. You absolutely cannot buy any time.

Unless you love work why not look at how you might have more fun if you did a bit less of it?

This is exactly what I want to do. We have an older motorhome, bought outright. We'd like to travel Europe in it in due course. Dropping a day or two at work is possible and likely.
I don't intend to die rich, there's no pockets in a shroud.
I'm currently in good health so can hope for another 20-30 years. 
I watch my parents, both had very comfortable lives, Dad died last year, hence this thread. Mum is well into her 80's, but does absolutely nothing.
So I've got a window of maybe 20 years and at least £400,000.
With no mortgage, and 10 years away from state pension age, work for another 2.5 years then retire.
That's the ideal.

tacpot12

Another potential use for a small amount of the money is to top up your National Insurance contributions to ensure you get a full state pension. You can get a forecast of your state pension online from here: Check your State Pension forecast - GOV.UK (www.gov.uk)

There's no point paying more NI contributions until you know that you are short or expect to be short due to early retirement. 

 
Althoug paying off the mortgage isn't the most financially savvy thing you can do while savings rates are as high as they are, the peace of mind that comes from knowing that nothing can happen to cause you to lose your house might we worth a lot more that a bit of interest to you! As per gravel_2's post you should check to see if you have any early repayment penalties, and if you do, but still want to repay your mortgage do, you could do it in stages to avoid the penalties. 

Gen your adversity to risk, savings accounts, split as you suggested, are your best option.

Nice problems to have!