If its pre tax money then it's a no brainer and stick in pension. If its money you have paid tax on then it's a pros and cons situation.Pension related question. Maybe to simplistic a question to answer but …
Would you bang all your spare money into clearing your mortgage asap,
Or leave the mortgage payments as they are, go full term, and bang the money into pension pot instead
Could you manage the mortgage if interest rates were to double? Or triple?Pension related question. Maybe to simplistic a question to answer but …
Would you bang all your spare money into clearing your mortgage asap,
Or leave the mortgage payments as they are, go full term, and bang the money into pension pot instead
Im self emp and my accountant is errr very good at her job.If you're a higher rate income tax payer then it's usually the pension route that pays off. What I would do though is make sure you're on the lowest LTV rate first, so 60%. Get to this as quickly as possible especially with the interest rates being higher at the moment then start looking at pensions.
I think your looking at doing what I was thinking of doing letting the mortgage run and keeping your lump sum for treats /emergenciesWhat’s your opportunity cost, including tax advantages and disadvantages. to each option?
In its simplest form, can you make more investing the pension money than the interest you’re paying on the mortgage after tax and other costs?
Which course of action would make you more comfortable and able to feel good about your decision?
I have a similar, but different, issue. Should I pay off a 3% fixed mortgage or invest the money in an account that can guarantee me more than a 3% return over the same period as the mortgage payments?
I chose the latter option, knowing that if anything were to happen that changed my calculus, I could take the money and pay off the mortgage at any time.
However, in your situation it appears the money would be captured behind a retirement/pension firewall with withdrawal penalties. That’s where you have to consider the opportunity costs, because they may end up being real costs.
I’d invest in the pension and just keep paying the mortgage…as long as it’s not about to dramatically readjust upwards, and I could still sleep well knowing the potential pitfalls of my choice.
Good luck with your decision.
Yeah but probably couldnt afford to pay the extra paymentsCould you manage the mortgage if interest rates were to double? Or triple?
There’s a lot psychologically to be said for paying off your mortgage but if it’s at the detriment of a better investment opportunity, then from purely a financial perspective, paying into your pension is generally the better option.Im self emp and my accountant is errr very good at her job.
I pay 2 extra mortgage payments per year to nibble away.
But my mortgage adviser tells me to pay all my spare off to the mortgage and my pension guy tells me to forget that and pay that money into a pension
I have always been a live for today bloke but im 50 next year so retirement is creeping up.
Mrs is a teacher so she’ll get an ok pension. We are under no illusion that retirement will be full of riches but with some house equity and little pensions each itll hopefully be ok. Plus, i dont think ill ever truly retire
Its 100% psychological for me. If id still been in my first house with first wife id be mortgage free by now.There’s a lot psychologically to be said for paying off your mortgage but if it’s at the detriment of a better investment opportunity, then from purely a financial perspective, paying into your pension is generally the better option.
The only way you can make a decision is by looking at the rate of return on the investment and comparing that to the interest element of your mortgage. If you fixed for a number of years when the rates were low then you will get a much better return investing that money by either placing it in a pension fund or maxing out your ISA allowance the interest on which of course is tax free.
Not really “treats/emergencies,” but as part of my retirement pool from which dividends and distribution will fund a 30 yr retirement.I think your looking at doing what I was thinking of doing letting the mortgage run and keeping your lump sum for treats /emergencies
Wtf is that about?Not really “treats/emergencies,” but as part of my retirement pool from which dividends and distribution will fund a 30 yr retirement.
Emergency funds are inviolate and already secured in cash and short term investments, while treats come from bank savings not invested at a brokerage.
Different money has different jobs, and each job usually requires a different account. My personal (American) set up is:
(1) Personal Checking account to cover monthly expenses that are not directly tied to an automatic withdrawal, such as credit cards.
(2) 2 Savings Accounts. One for an emergency fund (at least 6 mos living expenses without any income) and one for “treats” as you called them and my Checking buffer (I have auto overdraft protection using a Savings to Checking transfer).
(3) A 401(k) type account for retirement for self-funded and company-funded monies.
(4) 2 IRAs (ISAs in Britain?). One for myself and one for my wife.
(5) A brokerage account for non-qualified (non-tax-advantaged) investments outside the 401(k) and IRAs.
As you can see, (1) & (2) are basically “living expenses” accounts, while (3) & (4) are “retirement accumulation” accounts.
(5) is a dual purpose account, but mainly for non-qualified retirement funds, as (1) & (2) should cover any ordinary living expenses. Non-normal expenses CAN be used out of the “Emergency fund” if they are not of extraordinary size, to avoid the tax consequences of selling investments. However, discipline is required to both recognize and respond that the reduction in that fund then becomes the primary destination for any excess funds.
Once it’s all initially organized and inflows automated, it is literally a zero work set-up that rarely even needs a tweak.
My retirement account also has a 4% lending facility, where the “interest” is actually paid back to myself because I borrowed from myself! It is a simple, no bank needed, method to finance anything upto $50,000, and I know a few people who even think it’s useful to enable them to stuff a few extra % into their retirement during a downturn!! I think they risk a larger opportunity cost by removing it from their retirement, but many invest it in other things then reduce that investment to get the tax advantages of the retirement account! It’s too convoluted to play with IMHO, but it is a nice way to avoid paying a bank and bank fees if one chooses.
Everyone is different, but really we are all quite the same…we do our best with what we have and hope it leads to a half decent life. The above is how I chose to try to accomplish that. There are myriad other ways, of course.
To bring this full circle, rather than pay off my mortgage, I put the money in (5), where it can do double duty, if required.
:-)
My apologies for sharing information. I thought that’s what we did here, no?Wtf is that about?
We are living with crippling energy bills which have somehow become the same monthly amount as most peoples mortgages. Respectfully, if you are an American gentleman who posts on here, we arent in that position