What would you do in this situation?

Linton

sand_hun said:

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.

You havent said anything about your employer's pension(s).  At 49 you should have a fair anount after say 25+ years of working.

GunJack

Good post by moonwolf, there's more to the question than simply pension or mortgage giving the biggest number overall... 

Cobbler_tone

It's not a binary answer, despite some of the comments. It is more than being about numbers on a spreadsheet. There are many financial/non-financial reasons you may want to clear a mortgage.

- Is this your forever home, where is it and what is the value of it? House prices have increased 150%-600%+ across the past 25 years, so a good investment in itself. Part of the strategy could be to downsize or move to a cheaper area.
- Are you a higher rate tax payer? e.g. it may not make sense to over pay £100 on a mortgage if the alternative is that it would enable you to avoid a higher tax band.
- Are you maximising your employer pension contributions?
- What is your mortgage interest rate?
- How much spare money would you have if you paid the mortgage off early?
- Don't underestimate the feeling of being mortgage free.
- When do you want to retire? I doubt many people retire in their 50's without clearing their mortgage early.
- Are you going to live/have the quality of life to fully enjoy your pension?!
- Linked to the above, you are locking money into the pension long term, whilst you can sell a house (and associated equity) any time.

Personally for me, it is a balance of maximising staying below higher tax bands whilst modestly overpaying a mortgage, if you are lucky enough to be able to afford to do both.
The feeling of having all of that spare cash each month is pretty liberating. In those past few years you might be able to contribute at 50%+ to ramp up.

Hopefully a bit of food for thought for the OP. 

Albermarle

Linton said:

sand_hun said:

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.

You havent said anything about your employer's pension(s).  At 49 you should have a fair anount after say 25+ years of working.

OP - Are you self employed ?

When looking at pension vs mortgage, your perceived job security is an important factor. If you have an unstable income or work in a sector prone to redundancies etc, then paying off the mortgage becomes more of a priority.

Simon11

Albermarle said:

OP - Are you self employed ?

When looking at pension vs mortgage, your perceived job security is an important factor. If you have an unstable income or work in a sector prone to redundancies etc, then paying off the mortgage becomes more of a priority.

I would disagree with your statement. If your job is more unsecured, then you definitely need to have a bigger emergency saving pot to cover quiet months however paying off a small amount of a +25 year mortgage makes little difference other than to make you a little happier but not more financially secure.

As to the OP, if you are planning to retire at the state pension age then you should have enough for a basic retirement. If you however wish to retire before 67/68, then you need to put in some serious plans 'NOW' to benefit from compounding interest.

I currently have my mortgage at 1.6% and I am only paying the minimum required. Instead, I am throwing money at ISA (stocks & shares) which has grown by +26% over the last two years and my pensions, where for example one pot that is dormant (I no longer put money into) has grown by +26% over the last two years. On paper, I am in a far better financial position than if I had put money into the mortgage. However, you do have to be careful as we have had a good 1-2 years within the markets so not always guarenteed.

MK62

Simon11 said:

Albermarle said:

OP - Are you self employed ?

When looking at pension vs mortgage, your perceived job security is an important factor. If you have an unstable income or work in a sector prone to redundancies etc, then paying off the mortgage becomes more of a priority.

I currently have my mortgage at 1.6%....... 

....and that's the key point really.

Standard mortgage rates are north of 6% currently, and even tracker mortgages are running around 5% - if you have a rate significantly lower, as you do, then it makes no sense to over pay debt charging you 1.6%, when you could put that money into eg a cash ISA earning close to 5%. However, if the mortgage debt is costing eg 6.5%........

sand_hun

Hello, thanks for the replies. It has certainly given me plenty to think about and reflect upon. It seems like the general consensus is to top up my pension ahead of trying to pay off the mortgage.

I will attempt to answer some of the other questions that were asked of me, to try and provide more context.

I would prefer to retire early (let’s say a decade from now, so 59) and do more of the stuff that matters to me. I would like to spend time cycling around Europe, especially Germany, Netherlands, and possibly France. Beyond that I want to live a comfortable life, it doesn’t have to be extravagant.

Much of my career was in self employment but I have just started working for a council. My salary is well below average but I am doing a role that I care about.

I am not sure what the employer pension contribution is, but I will check this ASAP. I do have an ISA too, but not much in it, 15k or so. My mortgage is on a fixed rate until 2026, I can’t recall the specifics but it’s not a bad deal.

Is this my home for life? Hmm, I hope not. We live in an expensive area that is perceived by many to be a highly desirable place to live - but in reality, it’s become quite unpleasant. While I like the property, it’s located in an area that is overly car dependent; it has become a lot worse for traffic noise, pollution and congestion in recent years.  

We could probably downsize but in reality I can’t see us moving any time soon. My wife gets comfortable in one place and doesn’t like moving house. If I had to, I think I could live out my life and retire here, although perhaps slightly begrudgingly!

In the future, I will also inherit some money or property from my parents, but I don’t know how much.

Hoenir

Simon11 said:

Albermarle said:

OP - Are you self employed ?

When looking at pension vs mortgage, your perceived job security is an important factor. If you have an unstable income or work in a sector prone to redundancies etc, then paying off the mortgage becomes more of a priority.

I would disagree with your statement. If your job is more unsecured, then you definitely need to have a bigger emergency saving pot to cover quiet months however paying off a small amount of a +25 year mortgage makes little difference other than to make you a little happier but not more financially secure.

Older you become the greater the risks are. Overpaying the mortgage gives flexibility. Also provides a discipline for many people. As there's an objective that can be monitored. The reducing capital balance owed every month providing an incentive. Makes one think twice about frittering money away. Compound interest is after all the 8th wonder of the world. 

QrizB

sand_hun said:

Much of my career was in self employment but I have just started working for a council. My salary is well below average but I am doing a role that I care about.
I am not sure what the employer pension contribution is, but I will check this ASAP.

The Local Government Pension Scheme (LGPS), if that's what your employer offers, is a Defined Benefit (DB) scheme. Rather than building up a pot of cash you accrue an entitlement to pension.

It's often said that there are advantages to having some DB pension in addition to a Defined Contribution (DC, pot-o'-cash) pension. The DB pension gives you a guaranteed income which you can top up as required from your DC pot.

Micrographia

sand_hun said:

In the future, I will also inherit some money or property from my parents, but I don’t know how much.

You really can’t count on this with the care home fee situation in the UK being what it is. Could be a lot less passed on than you might expect. Best just to treat any eventual inheritance as a bonus.