Taking early retirement to clear debts?

rose28454 · 18 January 2007 at 12:38PM

Just a quick update.
Hubby went back to work in November but is taking Early Retirement/Redundancy in March. Just a little help needed about how much Lump sum and pension income to take. He had a letter yesterday with three options.
Option 1 £24500 lump sum and £8218 pension
Option 2 £45000 lump sum and £6800 pension
Option 3 £0 lump sum and £10500 pension
All three options offer £4200 widows pension.

We have a large mortgage ( about £90000 ) with £26000 on interest only with no repayment vehicle and had intended to take option 1 before the other options came up. Now hubby is going to look for another job (preferably part time) in order to keep our income the same with his pension. We intended to pay of the interest only part of the mortgage as all the rest will be paid off in the next 5-7 years anyway. Now not sure if we should take option 2 instead and use some more of thelump sum to pay off more and maybe to a few other things aswell. Really want advice or opinions. Regarding other problems hubby is keeping on the straight and narrow for the time being but not sure how long this will last . This may sound a bit mercenary but if we paid off more of the mortgaage and things did go wrong then at least there would be enought equity in the house for us to have enough to buy a property each. I know that sounds awful but it is just a bit of self preservation as being married to an alcoholic for 25 yearts is not easy and even though he is doing well at present and we are happy I know how easy it is for him to slip back and I dont think I can go through it again. Anyway any assistance much appreciated.

EdInvestor · 18 January 2007 at 4:19PM

Hi Rose

Glad to hear things seem to be working out.

You said earlier

I actually gor some counselling of my own today and the counsellor said I must not allow myself to always tackle everybody problems and have no time for myself.

I have no hesitation in suggesting you go for option 2. Not only does it protect you in the case of a relapse, it incentivises hubby to get out there and seek a new part time job, rather than hanging around the house - the excuse being either (with option 1) because he hasn't got enough money or (with option 3) that he doesn't need to work.

It's obvious what that will lead to.

jamesd · 18 January 2007 at 8:13PM

Two initial impressions:

The plans offer the same widows pension, so that seems to favor the plan with the greatest lump sum
His life expectancy is presumably reduced by the history of alcoholism and that decreases the likely income from the pension payments, favoring the plan with the greatest lump sum, since that is more readily available to the widow

How the options compare:

Option 3 is 10500 pension no lump sum.
Option 2 is 45000 lump sum, 6800 pension. Takes option 3 12.1 years to catch up, ignoring investment growth that helps option 2. Takes option 1 14.5 years to catch up. If 45000 was used for income drawdown at 5% per year it could provide 2250 a year, added to the 6800 makes 9050. Drawdown would need to be at 8.2% to match option 3.
Option 1 is 24500 lump sum, 8218 pension. Takes option 3 10.7 years to catch up, ignoring investment growth that helps option 1. If 24500 was used for income drawdown at 5% per year it could provide 1225 a year, added to the 8218 makes 9443. Drawdown would need 9.3% to match option 3.

He and you need to take a view about his life expectancy and about how you will use the money. If he lives a long life the lower cash would work out best and ignoring alcoholism it seems unlikely that he will not live long enough to benefit from option 3, since that only takes living to 66 to beat option 1 or 70 to beat option 2. Unless his doctor is telling him that he's likely to die before then, he's probably best off individually with option 3.

If you pay off the mortgage, that reduces the investment return to only the mortgage interest rate instead of the 7% or higher you might reasonably expect from reasonably cautious investments and makes it hard to beat option 3.

Option 1 seems like a reasonable blend of cash and pension if you want to get good benefits for you, expect him to live beyond 65-70 and would use the money for the house. If he does live to 65-70 it'll leave you a bit worse off financially but better off from the peace of mind from not having as much of a mortgage.

Option 2 looks like a me first option that seems to clearly compromise his best interests in favor of yours. I find it hard to suggest that he pick this option and even for you, if he doesn't relapse it's going to cost you money. If you're pessimistic about his life expectancy and your future together, option 2 might be an idea. It looks like a massive vote of no confidence in him and his life expectancy.

If he's optimistic he should consider option 3, which is best if he lives beyond about 70 or so. For him, options 1 and 2 require assuming failure and poor health. Not a likely conclusion for someone in recovery that is presumably successful.

Trying to balance both interests, I have a feeling that reduced mortgage would help to reduce stress all around and makes option 1 a good choice.

EdInvestor · 19 January 2007 at 5:32AM

Not quite sure why you are talking about income drawdown in re the lump sum, James.Isn't the lump sum tax free cash?

It's also worth remembering that securing the home provides another future potential income producing asset in the form of equity release - and this would benefit both partners if there should be a separation.

While I take your point about pessimism, IMHO we should be realistic - the OP's husband did try to commit suicide last year.

jamesd · 19 January 2007 at 1:03PM

EdInvestor, drawdown is to compare the value of the cash lump sum with the pension, how long it takes before the pension beats the cash. Only a rough calculation because I ignored investment returns because it's going to a mortgage payoff which delivers a quite low return in reduced mortgage payments on the interest only portion.

The suicide was described as due to the stress from the job, which is being removed. It is part of the reason for paying off the interest only mortgage - stress reduction seems like a good thing and worrying about how to pay the interest only portion can't be good. The reduced mortgage interest payments from that will probably be welcome as well.

It's good to consider the short term but this relationship has already been going for 25 years. Reduced work stress, reduced mortgage stress, reduced child stress as she matures should result in a much more relaxed situation. Certainly removal of the terrible work situation he was in at that time will be good.

rose28454 · 23 January 2007 at 1:33PM

Hi again
Thanks for all the advice and good wishes. I am off to CAB tommorow for some more advice but it looks like he will be taking Option 2. He is already job hunting. With opton 2 we can pay off more of the mortgage and then have some funds left for a little travel. I am very hopeful at the moment even though my daughter's anxiety problems are surfacing again. However her boyfriend and herself are looking to buy a flat together and hopefully this will help her nerves. Will let you know how things progress
Thanks:o

rose28454 · 6 February 2007 at 1:04PM

Just a quick update. Hubby has signed papers to take Option 2 (£45000 plus £6800 pension) and will leave in 4 weeks. He has been behaving oddly the last couple of days and I am afraid the old Drinking problem has returned. Spent a very fraught day at work yesterday and when I asked him he completely denied it. Anyway he was going for his counselling this morning and I wrote him a letter letting him know how worried I was and asked him to discuss it with his counsellor.
Picked him up from his counselling this morning and he said he had discussed the drinking , but was not willing to discuss it with me, and said his counsellor had said that he was rushing too fast into getting a new job and should take some time off before deciding. I now feel guilty that I have pushed him into getting a new job quickly because we have a lot of commitments. In principal I am not adverse to him taking a month or so to sort out a new job but he wants to put all the redundancy money in his sole account to which I have no access. He is willing to pay off the interest only part of the mortgage ( about 30k) and spend some money on a new kitchen and a holiday in the States but I am worried if he has too much time off the alcohol problem will return and all the money will disappear.
We also have lot of debt which I am about to deal with through an IVA or DMP and Iam under a lot of strain at the moment. I am not even sure that our marriage will survive all this so am I right to try to ensure that we pay off as much off the mortgage as we can to protect myself for the future. It is all a shame as my OH is a lovely kind man and although I love him dearly I dont think I can survive another slip back to his old ways. I have even contemplated suicide recently but I would not leave my children as they have been through enough already. ( they are 21 and 23 ) so I guess I will have to soldier on and maybe make the break at some time if things do not go well. Money does not matter to me all I need is some peace in my life.

tanith · 6 February 2007 at 1:32PM

Rose I am so sorry things are such a strain for you .. I can only tell you that I was in a similar situation 15yrs ago and for my own sanity I had to walk away in the end .........only you know how much you can bear and when enough is enough.... it was all the promises to change that I could not forgive.... 15yrs on I am a much stronger person... my children understand completely why I did what I did and we are a strong family... unfortunately they do not see much of their father although they are there for him when things go wrong.. which is fairly regularly...

Please feel free to PM if you want to chat.... good luck I hope it all works out for you.....

EdInvestor · 6 February 2007 at 5:06PM

He is willing to pay off the interest only part of the mortgage ( about 30k) and spend some money on a new kitchen and a holiday in the States but I am worried if he has too much time off the alcohol problem will return and all the money will disappear.

That seems reasonable on the financial front - leaves him with say 10-12k in cash, plus pension income?

Has the alcohol problem returned already - or is it only a shoret term blast, do you think?Presumably the counsellor thinks the latter.You'd probably know better though.

Money_Mad_3 · 15 February 2007 at 10:51PM

Rose, I have read your post and I feel sad don't ever contemplate suicide, the devastation that you would leave behind is unbearable.

Trust me I know.

Take Care and good luck.

Taking early retirement to clear debts?

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