What to do with £110k

GunJack

swindiff said:

Retiring earlier is not that simple in my case.  With my DB pension, going before I am 60 is particularly punitive with regards to the actuarial reduction factors.  My normal pension age is currently 66, however a large chunk of my pension can be taken at age 60 with no reduction, if I go 1 day before I am 60 then the whole lot would get reduced for being taken 6 years early, rising to 7 years in 2028.  You may ask why not retire at 58 or 59 and live off other sources of income such as ISA or SIPP and then take DB pension at 60.  The problem with that is, if I leave my employment, the age at which I can retire without all my pension being actuarily reduced rises to 63 1/2.  So I am really stuck working until I am at least 60, or I will be making myself significantly poorer in the long term.

I was never overly concerned with my mortgage running into my 70's either, which is why I pay an extra 23% into my DC pension on top of the DB pension rather than paying down the mortgage.  When we do both retire our net income will actually be higher than it is now, so continuing to pay the mortgage was never a worry for me.

This is something that people who say to take dB pensions early tend to forget, the lack of flexibility and the loss of pension income.
It's no good the "having it for longer" argument if it means dropping the income from it too much.

I can sympathise entirely as my pensions are two deferred dB pensions (after current one was stopped in Apr this year and replaced with an admittedly generous DC), one from 60 and one from 65. Thankfully what I'll get in the DC between now and retiring at 62 will let me take both DBs at their nra so not reduced. I certainly couldn't afford going into retirement with reduced dB income...well I probably could but would compromise too much...

Pipthecat

swindiff said:

The wife keeps saying we should live a bit more for the day,
the thought of no mortgage is very appealing.  

Compared to buying a flash car/motorhome your suggestions are all good.  From what I'm reading becoming debt free and having more money in your hands every month sounds like a plan that works for both of you.

Cobbler_tone

IMO it is pretty clear cut. Why on earth would someone choose to carry a debt (or a mortgage) into their 70's if they didn't have to? You can play with spreadsheets, percentage points, play the markets etc and possibly be a little better off. Maybe in the short term consider any redemption penalties and preferential rates but ultimately get shot of it. The feeling emotionally of being mortgage free is extremely liberating.
Your investment in property (should) grow. You already have robust retirement plans and the immediate spare cash is significant and you can do all of the investment/spending fun with that.  

swindiff

Debt isn't always bad.  I currently have £40k in credit card debt, but it is all at 0% interest due to introductory balance transfer offers and 0% on spending.  That £40k is earning 4.65% interest in a Tandem account.

Cobbler_tone

But there’s an important key difference with a mortgage. Plus some people prefer not to have any debt. Depends on how complex someone wants their life to be. The same reason some people choose not to buy items on 0% interest free credit.

MallyGirl

swindiff said:

Debt isn't always bad.  I currently have £40k in credit card debt, but it is all at 0% interest due to introductory balance transfer offers and 0% on spending.  That £40k is earning 4.65% interest in a Tandem account.

Same here as I have been a stoozer for years - and my fixed rate mortgage at 1.16% has another 2 years left on the fix. Once I retire though I will be simplifying - plus I probably won't get the good 0% deals any more anyway.

swindiff

Cobbler_tone said:

But there’s an important key difference with a mortgage. Plus some people prefer not to have any debt. Depends on how complex someone wants their life to be. The same reason some people choose not to buy items on 0% interest free credit.

I there is 0% interest free credit I always take it.  Keep the money in my account for as long as possible 

swindiff

MallyGirl said:

swindiff said:

Debt isn't always bad.  I currently have £40k in credit card debt, but it is all at 0% interest due to introductory balance transfer offers and 0% on spending.  That £40k is earning 4.65% interest in a Tandem account.

Same here as I have been a stoozer for years - and my fixed rate mortgage at 1.16% has another 2 years left on the fix. Once I retire though I will be simplifying - plus I probably won't get the good 0% deals any more anyway.

I stopped when the interest rates were really poor and it was no longer worth the effort.  But at around 5% it is definitely worth it.  It's currently paying for a decent holiday a year 

harlequinnyc

Imo, paying off the mortgage is an absolute no brainer.

Bostonerimus1

My financial advice is to:

0) Do a budget so you can see where you can save money.
1) Put 6 months spending cash in the bank.
2) Pay off all high interest debt.
3) Contribute to a workplace pension (if it's DC buy inexpensive index tracker funds).
4) Contribute to an ISA (buy inexpensive index tracker funds).
5) Contribute to general investment funds (buy inexpensive index tracker funds).

The question becomes whether a 4.29% mortgage is "high interest debt". I think it's borderline as it's right around regular saving rates. So I would see if you can get a better rate on the mortgage. If not there's an argument for paying some or all of it off and then just following the steps above with any money freed up. I would definitely open an ISA to give you some tax free growth and flexibility. Ultimately there's no one correct answer and when faced with such choices I've done a little bit of everything ie paid off some of the mortgage, made extra monthly payments and put some in my pension.