Mortgages & retirement current thoughts, approach etc.

As the mortgage rate will be higher than savings rate, my option would always be to get that paid off first and foremost. BUT - Are you in a position to downsize if you need cash? Do you have kids who you want to leave something for? If no to these two questions then by all means kick the debt can as far down the road as you can.

If you have a long fix and interest rates go up to higher than the fix, 3.
For example, I've got 4.5yrs left at 1.86%, you can get savings accounts at 2, maybe 2.5% now, so if I was in your position option 3 would work.
My colleague who I was discussing mortgages with earlier has 3.6% so it wouldn't work for her, unless integrates continue upwards.

As the mortgage rate will be higher than savings rate

Does that include the up to 40% tax relief on pension contributions that one might use to repay a mortgage?

Think about the future tax liability after pension drawdown. Your Annual Allowance falls from 40k/annum to 4k/annum as soon as you take a lump sum. Whilst it may be hard to hit 40k pension contributions in a year - unless you have a generous final salary scheme and are accruing the equivalent pension income of 2k/annum, it is not so hard to put 4k away in a pension from a defined contribution scheme. Indeed, even a non-contributory DB scheme might give you a tax liability that you cannot get out of. My plan is similar (and I am now of early retirement age), but I don't plan on retiring just yet. The mortgage companies will see this as a valid means of settling the mortgage.

I definitely wouldn't do 5. I've brought my kids into a world where they need £x00k to buy a half decent house. It is incumbent on me to try to assist them to a reasonable degree. No way I'd be leaving them with just a quarter of a house each, or 1/6 if you have 3 kids. Just so I could sit on my arse for the next thirty years.

Ymmv.

Pay the mortgage asap without any fee then live your life with

A) the real financial freedom you have
B) always a house to come back to
C) an unburdened inheritance for your kids

Remortgage on as long a term as you can while you're still in work with an offset mortgage. Gives you the flexibility to treat it as 'paid off' but still have access to loan with minimal fuss.

Your Annual Allowance falls from 40k/annum to 4k/annum as soon as you take a lump sum

Is that 4k the amount you can continue to pay INTO a pension scheme before tax?

Yes. It's 4k total which for a DB pension works out at an accrual of £200 per year (20x multiplier is applied). So if you took a civil service job, for example (£15k and 1/60th final salary per year would be £250 accrual), their pension scheme would see you paying tax on some of the pension contributions (£1000 worth). If it's a private company, you might ask for the contributions as salary instead and put it in an ISA. But some jobs won't give you the choice. Something to be wary of.

BTW IANAFA, so seek expert advice.

https://www.gov.uk/tax-on-your-private-pension/annual-allowance

EDIT: The issue of the Annual Allowance cap (£40k) is what has seen senior doctors in the NHS not work overtime, since they cannot turn off the pension contributions and being DB, they are very valuable. Hence they get hit with a tax liability. Returning retired dectors would only have a £4k allowance and would be hit harder still.

I have no opinion on your options, but I'm impressed you thought asking here would receive a more coherent answer than this...

Asking around the office There’s as many opinions as people.

😁

how old are you? there are restrictions on when you can access a pension\lump sum (I think 55 and above?) - if you've 14 years left on your mortgage and you can extend it to national retirement age, are you old enough to access your pension?

Either way, I'd pay it to get it off my shoulders. Your pension (in stocks) will probably earn more than the interest you're paying but imo its not worth the risk

I have the opportunity to semi-retire in roughly 3 years.

My Pension provides a lump sum & then a monthly salary. To meet the cost of living my monthly pension salary will not be enough so I will have to find 2-3 days work per week.

Is it really 'semi-retire' or just moving to part-time?

Stay in the same job and look to move to part-time working, but remember you'll be taxed on income whether it's 'earned' or pension so could/will end up with paying 40% tax on your pension rather than not taking the pension yet and maybe working an extra day or just going part-time in your current job.

Mortgage-wise, if it's not a lot per month, what's the rush.

Haha. Some mountain bikers, whose financial situations you don't really know, say anything from 'pay the mortgage off now' to 'remortgage for as long as possible'.

I think some professional financial advice might be a good move.

anything from ‘pay the mortgage off now’ to ‘remortgage for as long as possible’.

Because there isn't a one-size-fits-all solution to financial planning. There isn't even a one-size-fits-one-person solution as circumstances change with time. You need to assess your own short and long term plans and your attitude to risk. I wouldn't be paying the mortgage off. I'd be looking into pension contributions either through an employer or SIPP. It won't be locked away for long. There should be a tax advantage to make it the most financially beneficial and best long term, but that's what I think is best for me, that doesn't make it the right solution.

It's comfortable to see your monthly outgoings coming in under the level of your outgoings (though how long that's going to last, no-one knows). It's also comfortable to know you've got a lump of free cash should the need or want arise. It's also nice to wake up on the 2nd of the month to check your Premium Bond prizes.

At current interest and inflation rates you just need to decide which feelings you value the most.

Sorry the block quote thingy isn’t working for me so here’s a few comments based on what folk have said:

It’s not a private scheme it’s government so it won’t make anything via stocks.

It will definitely be semi-retired. If I go part time, I’m part time & cannot access any pension unless I change my whole job. I.e retire in order to leave what Im doing now and get a different job… part time at whatever that will be???

I will be getting professional financial advice. Im not looking for a more coherent answer or opinion that I already have - posting on here is basically an attempt at getting my head around the changes in peoples’ thought process/attitudes and different options prior to speaking to a financial adviser; I’ve always had the traditional route mapped out in my head and after a conversation at work I realised that other options exist. I’ve heard what they’ve said, now I’m asking on here.

I do pay a lot per month on my mortgage. With the change in base rate this is only going to get higher - I want to make life more fun now whilst also ensuring financial security and something for the kids. I don’t want to be like my parents who worked all their lives, retired and died within a couple of years. Why not enjoy it now?

I am all for early retirement etc. People have usually work hard to achieve it. For me, and not fully knowing your circumstances, I would not be thinking I could drop to a 2 day week with 14 years of mortgage outstanding. That is a fair commitment outstanding (before considering children etc). You say your lump sum won't clear the mortgage so you are going to be left with either no lump sum/reduced term or have a lump sum but still have a fair mortgage to service. For me that's not semi retirement as I would still have that commitment. It can be a fair old gap to fund between semi retirement and getting the state pension, but if you can do it then go for it.

For me, in 5 years I may be able to semi retire but I don't know. It will depend on quite a few things, including how much help I give the kids. Mortgage will be cleared as will car loan etc (so no debts) pension fund 'should' be ok, however, I have grown children that will be finishing college (if that's their choice) maybe a wedding or 2 to help with or maybe helping them onto the property ladder etc (the wife may want a new kitchen, replace the car or a fancy holiday, who knows). All that would eat into any lump sum etc and i may struggle getting to the state pension. So if I semi retire in 5 years I will be fine but the kids will be on their own, or I stick it out a few years more to help them. Who knows. It's different for everyone.

I'm not financially astute re OPs post but I can say I have always strived to be mortgage free, we achieved it last year aged 48 and overnight my attitude at work went from one of always worrying about 'keeping a roof over my head' to absolutely not giving a shit about anything. The upcoming energy crisis won't be a problem for us and the financial security has allowed my wife to work for minimum wage in a job she absolutely loves and and to also do philanthropy charity work.

We took a massive financial gamble that paid off and I do realize we are extremely lucky and fortunate to be in this position.

A friend pointed out that if I continue working in my current job beyond 55 I will effectively be working for half wage (because I can get half my current wage sat at home drawing my pension). Also, another influence is that my pension has changed from a final salary to a CARE scheme (technically it’s frozen and a new pension has been started). However, the majority of my service has been on the final salary scheme, meaning I will only have 3 years on the CARE. If I stay on and work until 60, I can contribute an extra 5 years into CARE but due to age related commutation factors (or whatever it’s called) my final salary scheme goes down significantly. I would pay roughly £30k into my CARE pension but the extra it adds to this pension I virtually lose from my Final Salary pension… that said, to do this ignores my reason for even thinking about this - semi retirement & a better quality of life/leisure.

I definitely wouldn’t do 5. I’ve brought my kids into a world where they need £x00k to buy a half decent house. It is incumbent on me to try to assist them to a reasonable degree. No way I’d be leaving them with just a quarter of a house each, or 1/6 if you have 3 kids. Just so I could sit on my arse for the next thirty years.

I get where you're coming from, but inheritance is generally too late to be helping them out.

Also, if me or the wife had to be put in a home, isn’t it the case that the house should be sold in order to pay for our care? I may be mixing this up but isn’t it now pretty much obligatory that you pay for yourself through the sale of your house, so what sort of an inheritance would that leave?

I get where you’re coming from, but inheritance is generally too late to be helping them out.

Agreed

Very inneficient way of doing it. Equally option 5 didn't seem to be leaving the possibility of doing it in a more efficient way, which is why it got a No from me.

TBH in your position I'm not sure I'd be thinking of doing what you're planning to do, but it's your life not mine.

And it's not like I'm not looking at retirement, and if it hadn't been for Covid and WFH we'd have probably gone already - but I'm now sat here knowing that if we have to find another £10k next year to maintain our standard of living, we could. If we'd retired, it'd have required some effort/cuts etc.

Doesn't feel like the time to restrict incomes, unless you're restricted income can cope with unknown financial shocks.

say anything from ‘pay the mortgage off now’ to ‘remortgage for as long as possible’.

I can completely see why people say "I want to be mortgage/debt free" but if you don't have a stable job borrowing money becomes much much harder and more expensive. I took time out to build our house and, despite having the entire budget in a bank account at the start of the build, couldn't even get a credit card. If you've got a load of money in a savings account as well then you don't have to worry, but no mortgage, no savings, no ability to borrow is a risk.

I get where you’re coming from, but inheritance is generally too late to be helping them out.

Yes, I am likely to have already retired before my parents die!

As an aside, is there consensus when talking about inheritance?

The reason I ask is as above, if kids are waiting for inheritance as a way of paying a house deposit, it seems like a long wait. The thought that my working hard all my life, being relatively frugal and doing without certain luxuries just in order to make my childrens’ lives easy doesn’t seem quite right. I’ve lived my life within my means and had the opinion that if I can’t afford it then I can’t have it - there’s no big windfall waiting to bail me out. Is this how I should be thinking? Because times are tough it’s my responsibility to provide for my children even when I’m gone, as thegeneralist seems to suggest here:

It is incumbent on me to try to assist them to a reasonable degree. No way I’d be leaving them with just a quarter of a house each, or 1/6 if you have 3 kids. Just so I could sit on my arse for the next thirty years

Even when a quarter of the house would be £80-100k? That sounds like you feel guilty at bringing your kids into the world (whole different topic 😳😳😳)

I was left with nothing when my parents died in a very short period of time of one another. They lived most of their lives with very little but my dad had a number of small yet decent when combined pensions. When Dad retired he had more money than he’d had all his life, but was dead within 8 years, and unwell for the last 5 or so, so didn’t really get to enjoy his retirement to its fullest or benefit from the money paid into his pensions. I certainly didn’t begrudge my parents leaving me nothing - I very much wanted them to spend it on themselves and have a good time. The big problem, as it is for many people with the increases in pensionable age, is that they were to old, infirm, knackered to do everything they wanted to do whilst younger. So, should we leave it to the kids or spend it on ourselves? Or as I instinctively feel - a bit of both?

So, should we leave it to the kids or spend it on ourselves? Or as I instinctively feel – a bit of both?

I'm not a parent, so maybe my opinion isn't valid, but my inclination would be that it depends on the age/stability of the children.

Younger, and I'd want a bigger pot to give them - to make sure that if anything happened they'd have enough support to become stable.

Older, and I'd hope I'd have provided enough support and guidance for them to become self sufficient - so a smaller pot.

I think that means I'd spend cautiously at first, but more frivolously as time went on.

Even when a quarter of the house would be £80-100k? 

Yes, precisely because £100k is only a quarter of a house 🙂

I think there's two parts to this:
1) People's general inclination to financially help their kids. I appreciate lots of people have different, equally valid, views on this. I guess my desire to give my kids support is probably influenced by the fact that my parents helped me. People whose parents didn't may be less inclined to, understandably.
2) The second point is quite different though. House prices have increased by a shocking amount. It was far easier for people of my (50 years old) and my parents' generation to afford a decent house. It is much harder for kids nowadays. People seem to like to kid themselves that they got to their current position purely by hard work, and that avocado eating kids should just man up and do the same. But they didn't. Part of the reason we got the houses we did is because we were born at the right time. Our kids don't get that benefit, and so we should share that benefit with them.

All IMHO of course.

10% of a house for an offspring aged 25 is much more useful than 30% of a house when they're aged 50. I was on the property ladder before any of my grandparents died (they all lasted well into their 90s) - so even skipping a generation isn't super useful. I'll be hopefully able to provide both for my kids university education and a flat/house deposit to get them started in life, which probably means working for an extra couple of years, but if it gives them a way more comfortable life, I'm willing to do it.

All my opinion but you say you have the option to semi retire in 3 years but you'll have 11 years of mortgage, your lump sum wouldn't clear it and you'd have to continue working to some extent. To me that says you don't have an option to semi retire, you need to keep working. Retiring earlier and taking a lump sum both drastically reduce your monthly pension, you might be able to make the difference up initially by part time working but what about later when you want or need to fully retire and can't.

As for your kids, first thing is to make sure you are OK and not a burden or worry for them. If they are worried about your income level / standard of living you aren't helping them. Your house should go to pay your care costs if required, if there is some left over then great your kids can inherit. Society can't afford to pay peoples care costs so kids can inherit. Inheritance at any time is good news, ideally from a financial point of view inheriting young is great but then losing your parents early really isn't. If I inherit (both parents own a house) it will be close to my retirement. I'm not planning on inheriting for my retirement but if I do I may retire earlier / have a better standard of living but that's a bonus. Anyone expecting to inherit to be financially stable isn't managing very well.

To the OP, I can't answer your question but this line stood out for me.

10% of a house for an offspring aged 25 is much more useful than 30% of a house when they’re aged 50

The thought that my working hard all my life, being relatively frugal and doing without certain luxuries just in order to make my childrens’ lives easy doesn’t seem quite right. I’ve lived my life within my means and had the opinion that if I can’t afford it then I can’t have it – there’s no big windfall waiting to bail me out. Is this how I should be thinking?

My thinking around this (I've had to deal with inheritance this year) is that it is so much harder for today's young generation to get onto the housing ladder than it was for Gen-Xers like me or Boomers like my parents. So much harder. So if I had kids I would try to help them out. I'd probably be looking into gifting them a substantial amount now (I think there's an annual tax-free gift allowance and assuming you don't die within seven years then it's also Inheritance Tax-free too). I'd be putting it into a home-buying ISA for them.

I cant comment on your specific circumstances, but 2 things i'd be thinking about:

1) Tax-efficiency. Whatever income stream you have, you want to make sure you're minimising your tax liability. Any income >£12k and its not efficient to draw down on pensions early and have to top them back up via other income sources.

2) Reduce your fixed costs. Basically reduce all of your fixed costs (bills/mortgage/rent/food/etc..) so you can live on ~£12k per year, so that its easier to achieve 1. If you need/want a new car/bike/holiday then theres always the opportunity to pick up casual work (how easy may depend on your skillset)

Retiring earlier and taking a lump sum both drastically reduce your monthly pension, you might be able to make the difference up initially by part time working but what about later when you want or need to fully retire and can’t.

If I don’t draw my pension at this point it goes down in value. My lump sum won’t massively reduce my monthly pension either; annually up to about £4K if I commute the maximum, which is yet to be decided once I understand the tax implication.

I can stay in my current job and pay into the new scheme for a maximum of 5 more years. However, because this is a CARE scheme over a very short period it doesn’t particularly make a massive difference. In fact to get back my 14% per year pension contribution paid over that extra 5 years would take quite a while to get back.

In fact to get back my 14% per year pension contribution paid over that extra 5 years would take quite a while to get back.

How short do you think you're life will be?

One Grandad only managed about 2 years post retirement whereas a Grandma almost got to 40 years.

inheritance is a substantial source of inequality in the UK. The vast, vast majority of inherited wealth passes *to* rich people in their 50s and 60s.

Yes, I said *to* rich people. Not *from*.

It should be taxed at a high rate (with a modest exemption, not the million pounds that a married couple currently benefits from), not viewed as a means to drop entirely unearned and unneeded windfalls on to people who are already rich.

How short do you think you’re life will be?

One Grandad only managed about 2 years post retirement whereas a Grandma almost got to 40 years.

Tricky one, I could make 100, which is going to be expensive...

[url= https://live.staticflickr.com/65535/52329096755_23d54e825e_c.jp g" target="_blank">https://live.staticflickr.com/65535/52329096755_23d54e825e_c.jp g"/> [/img][/url][url= https://flic.kr/p/2nJ9im8 ]Life expectancy[/url] by [url= https://www.flickr.com/photos/brf/ ]Ben Freeman[/url], on Flickr

https://www.ons.gov.uk/peoplepopulationandcommunity/healthandsocialcare/healthandlifeexpectancies/articles/lifeexpectancycalculator/2019-06-07

It should be taxed at a high rate (with a modest exemption, not the million pounds that a married couple currently benefits from), not viewed as a means to drop entirely unearned and unneeded windfalls on to people who are already rich.

Yes, but as usual rich people have managed to convince stupid people that they actually have more to lose by changing the system. So it stays the same...

And of course, really rich people weasel their way out of it entirely, so the new tax would generally only impact the people in the middle. Those with shit loads would still have shit loads. Such is the way of life.

I'd do whatever I could to enjoy life now. After quite a few family members dying quite young, planning for full retirement is a gamble as you might not make it that far. I'm trying to reduce my contract to 3 days a week to have more time to live and do things I actually enjoy. It's a risk with rising cost of living but I'd rather have time and no cash that cash and no time while I'm young and healthy.