What would you do in this situation?

sand_hun

Hello, I'm a married 49-year old male in full time employment.  I have about 110k left on my mortgage and I make an over-payment of £100 each month to bring the balance down. 

I also pay into a personal pension which is currently valued at 85k.

It kind of feels strange writing this as in some ways I have been reckless with money and have not thought about the long term, yet here I am planning for retirement. I do not have any dependents whatsoever. With that in mind, what would you do in my  situation in terms of planning for retirement. Should I be focusing more on topping up my pension instead of reducing the mortgage? Am I behind others when it comes to how much pension I have accrued for my age?

Thanks in advance.

barnstar2077

How much, including your employers contribution, is going into your pension every month please?  And do you know if it is paid in using salary sacrifice? 

barnstar2077

Also, do you have any savings, in an ISA etc? 

QrizB

sand_hun said:

Should I be focusing more on topping up my pension instead of reducing the mortgage? Am I behind others when it comes to how much pension I have accrued for my age?

I chose to clear my mortgage rather than boost my pension.

In hindsight, that was the wrong way around; over the duration of my mortgage, investments comfortably beat mortgage interest. But it helped me to sleep at night knowing I was paying down my debt.

(I also took a 10-year fixed rate for certainty, only for mortgage rates to halve over that decade. Again, made for a worry-free life but turned out costing me more.)

sand_hun said:

Am I behind others when it comes to how much pension I have accrued for my age?

You're pretty average; per the ONS statistics in 2020 the average 45-54 year old has ~£76k (likely to be a bit more in 2024). But I think you're doing OK and you've got another 18 years to state pension age.

pterri

QrizB said:

sand_hun said:

Should I be focusing more on topping up my pension instead of reducing the mortgage? Am I behind others when it comes to how much pension I have accrued for my age?

I chose to clear my mortgage rather than boost my pension.

In hindsight, that was the wrong way around; over the duration of my mortgage, investments comfortably beat mortgage interest. But it helped me to sleep at night knowing I was paying down my debt.

(I also took a 10-year fixed rate for certainty, only for mortgage rates to halve over that decade. Again, made for a worry-free life but turned out costing me more.)

sand_hun said:

Am I behind others when it comes to how much pension I have accrued for my age?

You're pretty average; per the ONS statistics in 2020 the average 45-54 year old has ~£76k (likely to be a bit more in 2024). But I think you're doing OK and you've got another 18 years to state pension age.

Agree, I paid off my mortgage very early when interest rates were very low, it feels great being mortgage free and realising that your regular basic outgoings are so low. With hindsight I should have invested more in pensions and ISAs, but having said that I’m not in a bad place. Being mortgage free made me realise that retiring early wasn’t an insane goal. 

TheSpectator

The question is not what any of us would do, it's what sort of lifestyle do you want in retirement. How much will you need to live on, when do you want to retire (bearing in mind your state pension age will be 68).

You tailor your strategy to these goals but as others have said investing in pension rather than paying off a mortgage is generally more beneficial long term.

HedgehogRulez

Pension is the correct answer.

UrbanAchiever

What rate of interest is your mortgage?  Is it fixed, if so for how long?

UrbanAchiever

At what age do you want to retire?

My mortgage is on a 10 year fix at 2.59%, with 2 years remaining of the fix.  I haven't paid any extra off the mortgage as I'm achieving 7%+ on my index trackers and 4.9% on my cash ISA.

Any surplus cash I have goes into the index tracker in my pension and the index tracker in my ISA.  When the fixed rate on my mortgage ends I will use the ISA money to pay down my mortgage.  No point paying off debt at 2.59% interest when I can earn 7%+ on it.  Although latterly I've started to divert that spare cash into a cash ISA instead, (4.9% AER with Trading 212) as I won't want my capital to go down this close to the mortgage fix coming to an end.  

cfw1994

HedgehogRulez said:

Pension is the correct answer.

I broadly agree with this.
If you are a high rate taxpayer, doubly so.  

Paying off the mortgage is a heart thing to do.
Take that excess and paying into the pension instead is the head thing to do.
Another 10 years could get your pension much higher.

Ultimately, if there is still some pension left, the TFLS (tax free lump sum), assuming it still exists (& no reason not to, despite the doom mongers!) can go towards clearing that….

Make sure you are maximising any company contributions.  Check the funds being paid into: I would (personally) removed any “life styling” option, & instead check the options to see if there were a broad global equity choice.  

Moonwolf

You say you don't have any dependents but you say you are married.  Unless you keep everything absolutely separate you might want to think about what happens if one of you becomes dependent on the other.  What happens if they die first or to them if you die first.  It isn't very pleasant but I have a projection for how much my partner will get if I die now or at age to 90; my partner would be 105 then and it gets too unlikely and too messy to push it further.

Then the future questions.

Is this my home for life?
If no, and you think you will want to upgrade then you might be better paying down the mortgage. 
If yes, will it be paid off before I retire?
If yes then you might be better off paying into pension, if no you might wan to look at paying to pay it off when you retire?

What do I need to retire - there are some good threads on here, particularly this one https://forums.moneysavingexpert.com/discussion/2146737/pensions-planning-the-number#latest

Personally I did three budgets,
Now based - what am I spending now, then subtracting the mortgage that would be paid off, pension savings and work expenses.
Bottom up - what do I think I will spend in the future.  There are lots of lists and free spreadsheets to help remind you about home insurance, new car, eating out etc.
Sites like this - https://www.which.co.uk/money/pensions-and-retirement/planning-your-retirement/how-much-will-you-need-to-retire-aNmlv7V7sVe9

I then compared them and adjusted them until I got a figure I was comfortable with.

Then you ask, how do I get to that, what savings will I have, 

Check your national insurance record - good stuff here https://forums.moneysavingexpert.com/categories/state-pension-topping-up

Then you have a number you can aim for and start thinking about how and when you get to it.  That then feeds back into the loop on paying off mortgage or paying into pension.  

Before COVID I intended to go last year and overpaid my mortgage to pay it off about 18 months ago.  I have put retirement off a year but I'm going this year.  So in the end it was about balancing all my goals.

I have a detailed plan for the first few years, a broad survival plan for a market crash and I have an idea what will happen if one of us needs care.  I haven't planned for everything and if we both need 10 years of care we'll probably have to fall back on the state but that is quite unlikely.