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  • FIRST POST
    • Escapar2020
    • By Escapar2020 5th Dec 17, 8:44 PM
    • 79Posts
    • 154Thanks
    Escapar2020
    Should I do something else with my OP?
    • #1
    • 5th Dec 17, 8:44 PM
    Should I do something else with my OP? 5th Dec 17 at 8:44 PM
    Hi all

    I'm looking for some advice, suggestions or ideas to help me think about planning for the future, so thanks for taking the time to read this…..

    I've been overpaying on my mortgage for some years, but in earnest for the last 12 months, since I gained a promotion (and became a high rate tax payer ). My MFW diary is on here if you need some sleep! The main outcome I want to achieve is a better life, but I'm not sure that early mortgage repayment will achieve that, I've struggled to imagine life after achieving mortgage freedom.

    My current balance is in my signature, I'm on the SVR at 2.29% currently, the house is worth about £140k and I don't have any plans to ever move. I have about £12k in an easy access savings account (earmarked for some home improvements) and an LGPS pension, but no other investments, and no other debts.

    My plan has been to finish the mortgage early, in around 2 ½ years, but I don't have a plan for after that. I'm not looking to achieve complete financial independence, at 44 I think I may have left it too late for that! Equally, another 20+ years working fulltime in a job I don't enjoy feels like a prison sentence! So, I'm basically looking to significantly improve my work life balance ASAP. It occurred to me recently that op the mortgage might be limiting my options, and might mean I have to stick at this job to save more cash to fund my change of lifestyle, whatever it is I decide I want to do.

    Despite the recent rate rise, my standard mortgage payment has dropped to £288pm, which I could probably manage to continue for the full term to 2028 if I had to in a different life. I'm op by £712 plus any other spare cash each month. Should I be doing something else instead of overpaying? Alternative options I've thought about include putting the op into a savings account and then:
    1. Paying the mortgage off in one go in a couple of years and go part time or find a different job, but employment opportunities are limited in this very rural part of the world

    2. Continuing to save for a while longer after becoming mortgage neutral, even to 2028

    3. Save the overpayments and then invest them somewhere, such as own business, buy to let property, or financial product. I'd expect to have £20-30k saved by 2020 if I stopped mortgage op.

    4. Switch some or all of my op amount into my pension, but it would be locked away for a good few years

    I'd be interested to hear what you would do if you were me, or if there are any options I haven't thought of.

    Thanks in advance

    Escapar2020
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
Page 1
    • Lomcevak
    • By Lomcevak 6th Dec 17, 6:09 PM
    • 706 Posts
    • 4,209 Thanks
    Lomcevak
    • #2
    • 6th Dec 17, 6:09 PM
    • #2
    • 6th Dec 17, 6:09 PM
    For what it's worth, when I took a long hard look at my finances about five or six years ago (when in my mid-30s) I decided I had two urgent goals - firstly to get the mortgage down to a point where we could pay reasonably comfortably on a single income (we were in the classic two-income, large mortgage position where we would be in trouble if one of us lost our job and/or if rates went up a lot) and save (much) more for retirement.

    The most pressing at the time was the mortgage, so I came up with a five-year plan to fix that by OPing £600/month with the occasional lump sum on top - five years on and a touch under £100k repaid in total (around £50k of which are OPs) and it's now in a place that we could remortgage to a longer rate and let it tick over in the background if we ever had to. In the meantime I switched my focus to my pension, and for the last couple of years have saved all of my £40k annual personal allowance there. Finally, any extra above the pension allowance goes back on the mortgage. For me that's the right balance of tax-efficiency and risk. But i'm sensitive to the mortgage, when I was a teenager in the early 1990s we lost the family home when my over-indebted, single-income father lost his job.

    I say all that because it seems to me that you've dealt with what was my first priority - you say you could let your mortgage tick over to completion - so I'd look at the rest of your future and your work-life balance.

    So maybe look at a model where you build some longer-term savings, boost the pension a bit (I'm on a DC scheme (plus SIPP) so have a different pension model, but believe that AVCs can be a good tool with a DB pension, for example), and put yourself in a position for a more substantial lifestyle change in 5 - 10 years time. That's pretty much what i'm doing. I find that a stressful job isn't so bad if you've got a concrete plan to get out of it in a few years time
    Last edited by Lomcevak; 06-12-2017 at 6:27 PM.
    MFiT-T4#126, £135k to 60k: £59,607/£75,000(79.49%), 2017 MFW#11 £6,556/£12,000 (54.63%)
    £30k-in-’18#11 £16,584.46/£30,000 (55.28%)
    • MM10
    • By MM10 6th Dec 17, 7:18 PM
    • 57 Posts
    • 173 Thanks
    MM10
    • #3
    • 6th Dec 17, 7:18 PM
    • #3
    • 6th Dec 17, 7:18 PM
    Hi, I think 44 is a good age to aim for financial independence by the way.

    If there is a tax advantage pension scheme, I will fill that first. ( that's what I do, I am 42)

    The rest I throw at the mortgage.

    Once the mortgage is paid off, then I start saving for a business.

    The reason I'd do it in that order is that the higher reward business is mostly always higher risk and I would not want to leverage my home on a business.
    Total mortgage when started £256,809 in May of 2011; 2018 MFW #5
    Main mortgage was £214,309; now £110,716 at Feb 2016 ; £63,645 at Feb 2017 ; £10,600 at May 2018
    Original repayment date 2036; Main mortgage free date July 2021; Dec 2020; January 2019 June 2018
    • Escapar2020
    • By Escapar2020 6th Dec 17, 8:55 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    • #4
    • 6th Dec 17, 8:55 PM
    • #4
    • 6th Dec 17, 8:55 PM
    Thanks both

    Putting more into my pension seems to be a common thread and apparently might lower my tax rate, so i'll be looking into that. Im not sure how much extra i'd need to pay in, and wouldn't want to lock away a bug chunk for another 20+ years as I couldnt see me ever improving my worklife balance before normal retirement age of 67!
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • DiggerUK
    • By DiggerUK 6th Dec 17, 9:59 PM
    • 2,981 Posts
    • 2,918 Thanks
    DiggerUK
    • #5
    • 6th Dec 17, 9:59 PM
    I’ll be polite, the boogie man just might get you
    • #5
    • 6th Dec 17, 9:59 PM
    Digger Mansions is nearer full retirement than we want to be. I say that because I want to be free from the need to work for money. Everything in final planning stage at moment.

    We got were we are by clearing mortgage asap, after that it was all saving for retirement.

    Like you we have LGPS pensions. So what’s your boggle. Get yourself grounded, get yourself debt free.

    For christs sake, you still owe the best part of £43,000. Look in the mirror and say that back to yourself........three times..._
    I am not now, nor have I ever been, a Financial Adviser.
    'Forward to the British Spring' 'Viva Wikileaks'
    • Escapar2020
    • By Escapar2020 6th Dec 17, 10:38 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    • #6
    • 6th Dec 17, 10:38 PM
    • #6
    • 6th Dec 17, 10:38 PM
    Thanks digger!
    I know what you mean. I started this journey to achieve freedom, but the question that keeps bugging me what I'll do once I'm mortgage free!?

    Any way, the reflection in my mirror isn't that bad as I will have got the mortgage balance down to £30k by the end of 2017.

    I'm start to think that my best option might be to put enough extra into my pension to get some tax relief, and out all other spare cash into savings until I achieve mortgage neutrality and then decide whether to pay the mortgage off. Sort of the best of both worlds perhaps?
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • getmore4less
    • By getmore4less 7th Dec 17, 8:19 AM
    • 32,192 Posts
    • 19,350 Thanks
    getmore4less
    • #7
    • 7th Dec 17, 8:19 AM
    • #7
    • 7th Dec 17, 8:19 AM
    you could probably squeeze the mortgage rate down your LTV should get you under 1.5% but on such a small mortgage the interest saving is low.

    £31k 2.29% 10y(2028) the interest is £3,715
    £31k 2.29% £1kpm the interest is £985.


    the obvious first change to look at is the money at 40% tax sticking that in a pension option has a lot of advantages and still leave you with £45k gross £2,800 net to play with.

    You could start saving so you have enough to bridge the gap between downsizing the job and the pension kicking in.

    or start living a bit now.

    Have a play with a long term budget and see where you could have saved enough to bridge the gap.

    You can then look at options to improve that date by earning more/investing better or make it later by saving less and living more or earning less
    • edinburgher
    • By edinburgher 7th Dec 17, 8:33 AM
    • 11,148 Posts
    • 59,854 Thanks
    edinburgher
    • #8
    • 7th Dec 17, 8:33 AM
    • #8
    • 7th Dec 17, 8:33 AM
    Whatever you do, you should be avoiding higher rate tax, as it's gone forever once it's taken. Quite straightforward, just subtract the higher rate threshold from your salary and pay at least this much into pensions. Subtract your monthly payment from LGPS and pay that much into a SIPP?
    • Escapar2020
    • By Escapar2020 7th Dec 17, 7:20 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    • #9
    • 7th Dec 17, 7:20 PM
    • #9
    • 7th Dec 17, 7:20 PM
    Why doesn't someone teach this stuff, or did I miss that day in school!?

    I never expected to be a hr tax payer, so never thought about relief. So, my salary is about £54k gross pa, and about £3050 net per month. Am I reading it rright that of I put an extra £9k pa into my pension, my net would still be £2800 per month? I think I could still cover living costs and op/save on that.

    Could I put more into my lgps pension, or would I have to/should I put it in a different pension?

    Thanks

    Escapar2020
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • wishingthemortgaheaway
    • By wishingthemortgaheaway 8th Dec 17, 7:14 AM
    • 1,469 Posts
    • 7,025 Thanks
    wishingthemortgaheaway
    Sounds to me like you need to speak to a financial advisor. Get some recommendations from people you trust and don't hand over a penny of your money to anything until you understand what's going on.

    Paying more into your pension because you are in that higher tax bracket is definitely a popular option for people in your situation. But it's got to be right for you.
    The 100 payment countdown (each payment = £400) 2018 Starts at 13/100 o/s £34,750.
    Jan 18 14/100 Feb 15/100 March 18/100 April 19/100 May 20/100 June 21/100
    Term Mortgage free date: October 2029 Current mortgage free date: April 2025 March 2024 Jan 2024
    MFW 2018 Challenge Member #162 £1600ish/£2,500
    • museumworker
    • By museumworker 8th Dec 17, 8:13 AM
    • 2,083 Posts
    • 12,021 Thanks
    museumworker
    My partner is a higher rate tax payer, and this year I got ill due to work life imbalance, as well as discovering financial independence. We have previously overpaid about £50k from our mortgage, which is currently £95k.

    After much soul searching, research, blog reading, podcasting listening, googling etc we have made the following changes:
    * increased OHs pension contributions, which are currently at 44%.
    * reduced my hours at work to 4 days, soon to be 3 days
    * paused mortgage OPs

    Once you take into account tax, paying more money into you pension is almost like doubling it. I don!!!8217;t know any other simple way to get that sort of immediate return on your money. You don!!!8217;t mention if you have any children but there is also a benefit of reducing your take home pay as you won!!!8217;t have to pay back your child benefit if it your pay after pension contributions and childcare vouchers is below £50k.

    If you are unhappy at work I would seriously look at what changes you can make to improve the situation. There!!!8217;s no point shovelling money into savings for a happy future if every morning you are filled with dread. Balancing present and future needs is really important.

    I plan next year to increase my pension contributions to 9% as that is the most tax efficient ratio for me. We should have paid off last year!!!8217;s tax bill and not owe any more due to the enhanced pension contribution so will be in a better place to consider other investment vehicles. Am considering a regular contribution to a S&S ISA and a smaller amount to OP mortgage, then any additional earned income (ebay sales, cashback etc) will go straight off the mortgage.

    Hope this helps
    Mortgage 16/03/2011: £190K 01/01/2017: £107,729.65 01/07/2017: £95,979.89
    OPs 2011-2016 = £45K 2017 OPs = £9250.20
    • getmore4less
    • By getmore4less 8th Dec 17, 8:36 AM
    • 32,192 Posts
    • 19,350 Thanks
    getmore4less
    Why doesn't someone teach this stuff, or did I miss that day in school!?

    I never expected to be a hr tax payer, so never thought about relief. So, my salary is about £54k gross pa, and about £3050 net per month. Am I reading it rright that of I put an extra £9k pa into my pension, my net would still be £2800 per month? I think I could still cover living costs and op/save on that.

    Could I put more into my lgps pension, or would I have to/should I put it in a different pension?

    Thanks

    Escapar2020
    Originally posted by Escapar2020
    open these in two tabs
    https://listentotaxman.com/54000?
    https://listentotaxman.com/45000?

    Suggests £3,258.34, £2,823.46

    check your tax code and pension contributions to see how much you need.

    With NI the tax goes up from 32% to 42% if you can do salary sacrifice you can save a bit more.
    • Scrimps
    • By Scrimps 8th Dec 17, 1:43 PM
    • 205 Posts
    • 894 Thanks
    Scrimps
    I would choose paying into the pension also.

    Don't think you would have to leave it until 67 though, I thought the rules still currently state you can start accessing it at 55? (Subject to the whims of government)

    I would pay it into a sipp to allow me to do this rather than lock it into a LGPS until 67 if that's what your pension scheme states you have to do, but absolutely look at all the rules on this!!!
    MFW: May 17: £143,000 o/s. Oct 17: £135,090 o/s. End Nov:£133,588 Mid March £131,490.18
    OP Target £12k by end May 18. As @ end March 18: £8,170.48
    • edinburgher
    • By edinburgher 8th Dec 17, 1:48 PM
    • 11,148 Posts
    • 59,854 Thanks
    edinburgher
    I would definitely use a SIPP, the benefits and the age at which you can take them may well be more flexible than the LGPS scheme. I'm also in the LGPS scheme, the benefits are fantastic, but there are so many conditions to added benefits etc. that I wouldn't touch them with a barge pole unless I had large amounts invested elsewhere already.

    I don't think you need to speak to an IFA if you're willing to do a little research and aren't looking to invest in anything too exotic.
    • Escapar2020
    • By Escapar2020 8th Dec 17, 1:50 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    Thanks museumworker

    No kids, I dont have the patience!

    I suppose I'm like a lot of other people, I have good days and bad days at work. Seem to be more bad days though and the thought of being tied to it for another 20+ years because of finances is very depressing. I can keep it going for a few years if I know if have a plan and a way out though
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • Escapar2020
    • By Escapar2020 8th Dec 17, 1:56 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    Thanks scrimps and edinburgher.

    I'll have a closer look at sipps, dont know anything about them. Do I have to start with a lump investment? Is it something that can be deducted from my salary, or i'd have to pay-in myself? Not sure how you actually get the tax relief on a sipp?
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • Escapar2020
    • By Escapar2020 8th Dec 17, 2:11 PM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    open these in two tabs
    https://listentotaxman.com/54000?
    https://listentotaxman.com/45000?

    Suggests £3,258.34, £2,823.46

    check your tax code and pension contributions to see how much you need.

    With NI the tax goes up from 32% to 42% if you can do salary sacrifice you can save a bit more.
    Originally posted by getmore4less
    Thanks getmore4less
    Thats a handy calculator. My current take home is £3050 though, my payslip shows £700 in tax £380 in NI and £380 pension. So my take home is £200 less than the calculator. Ill check it with my payroll at work. I could cope with a monthly reduction from £3050 to £2823 I think, but need to see why my real and calculated current take home are so different before deciding anything
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • crv1963
    • By crv1963 13th Jan 18, 2:35 PM
    • 302 Posts
    • 710 Thanks
    crv1963
    Hi Escapar2020


    We're even later to the party than you, although we do have the benefit of access to my DB pension October 2018 at age 55.


    I like my job but not the BS that goes with it, we worked out monthly spend circa 2k pm not counting mortgage as we hope to have it paid off in 3 years when the fixed rate ends. Then we added a sum for big spend items (cars, white goods, house repairs), then we worked out how much money we need to bridge the gap between stopping work and SP kicking in (age 67 for us).


    I'm looking at doing the same role but as agency worker from 55-60/62 when I will finally stop work altogether. OH will reduce hours and may look for a complete change of direction from this coming October. I figure that I can tolerate the BS as long as I have the money to pay off the mortgage in the bank and have a date to go for good- October 2023 max October 2025!


    If I were you I'd play around with some figures- get a SIPP open to get the higher rate salary gap saved, keep some decent level of mortgage overpayment going, get some cash saved in ISAs (probably S&S to protect against inflation) and aim to go 10 years before my SPA probably 68 for you.


    Your 25% TFLS from the SIPP will allow you to either have an emergency fund or utilise it as part of your monthly income before your SP and LGPS starts paying out.


    Your SIPP would be tax efficient and doesn't need to last forever as long as your SP and LGPS added together meet your monthly income target after tax. For us we need to save enough to give us 12k pa to top up DB before our SPs kick in so 120k total so as a SIPP gets the tax relief going in they work out better for us, but we will need some in ISAs too.


    So if you set a target of 58 it leaves you 14 years to reach your goal and is better than our 5/7 years. I wish we'd started earlier but at least we've started.
    Last edited by crv1963; 13-01-2018 at 2:39 PM.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • Escapar2020
    • By Escapar2020 14th Jan 18, 9:52 AM
    • 79 Posts
    • 154 Thanks
    Escapar2020
    Thanks CRV

    I need to learn some more about sips! At the moment, I'm looking at paying more into the LGPS to reduce my tax rate and still maintain healthy savings to become mortgage neutral by 2020.

    Even planning for age 58 seems a long way off to me! Planning for 2020 feels achievable. If, by 2020, I'm enjoying my job more, I'd be able to boost my savings for a few more years, otherwise I'd have the choice to find something else at a lower level or part-time. Rather than sticking to a fixed plan, I prefer to have options, which is why the advice on here is so useful

    Escapr2020
    Jan17: £42,898 Scheduled end: Jul2028 Planned MF: Sep2020
    Mar18 Actual £29,983. OP offset £27,847. Full off-set £15,911
    • crv1963
    • By crv1963 14th Jan 18, 1:49 PM
    • 302 Posts
    • 710 Thanks
    crv1963
    Thanks CRV

    I need to learn some more about sips! At the moment, I'm looking at paying more into the LGPS to reduce my tax rate and still maintain healthy savings to become mortgage neutral by 2020.

    Even planning for age 58 seems a long way off to me! Planning for 2020 feels achievable. If, by 2020, I'm enjoying my job more, I'd be able to boost my savings for a few more years, otherwise I'd have the choice to find something else at a lower level or part-time. Rather than sticking to a fixed plan, I prefer to have options, which is why the advice on here is so useful

    Escapr2020
    Originally posted by Escapar2020


    That's the way to do it, set an overall target - for us retiring in 5/7 years, then break it down into achievable goals. 14 years is not a long time it seems to fly by. 24 years to retirement is a long time.


    I spent the summer researching for our situation and read extensively on this site, HL site and money motivator etc, using links others have posted to get an understanding both of what is available to save in, measuring risks, also knowing if the crash comes near our date we'll have to either use savings, delay retiring or cut our spending or a bit of all three.


    There are tools you can use to see what level of risk you can tolerate, we're planning my DB pension underpinning our retirement. Then Sipps to bridge the time from finally stopping work and the SPs starting. If I were you I'd figure the LGPS being your main income plus SP at 68, so work out how much you need per month 58-68 as a target to save for. If you are overpaying into your LGPS is this tied to SP age? Is there any point in this if it doesn't give you flexibility to retire earlier if you get a hugely reduced pension by going before SP age?


    For instance I can retire now but at a pension reduced by between 21-25%, but waiting until I reach 55 in October means no reduction! Make sure that your additional contributions are not going to be taken by going early or it will be money lost not tax saved, using another vehicle like Sipp may add some flexibility to your plans, freeing you to change roles/ job without reducing your income by too much.


    Our aim to build the Sipps will be started in earnest from November also hoping to use salary sacrifice to keep my combined pension and earnings below the HR tax level. One weakness in our plans is Mrs CRVs poor pension provision and if she reduces hours/ earnings it will limit what can go into her Sipp vs mine. So have to suck it and see for the first year of our plan. It might be that we load as much as we can into her Sipp and S&S ISA.


    We do intend to carry on living life to the full as well but not going overboard- on advice from here I looked at all our spending and changed/ haggled with utility/ tv/ phone/ broadband providers, renegotiated a better mortgage deal and on paper we saved lots on our monthly outgoings. Unfortunately vet bills have eaten into those savings.


    Learn, juggle and play with figures until you get the balance that feels right for you. For us it was working out the monthly income figure we need then working out how we can achieve it.


    Good luck.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
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