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Having taken some long term advice I decided the tax and later life fund benefit of paying into a SIPP was better than paying of our current mortgage. The SIPP will be available and the mortgage gone 10 years from now on that basis.
However, although we have emergency money in a high interest account and a bit of cash in Premium Bonds, Mrs K as adamant we should also have an ISA and pay into that. Her strategy for saving would be 1/3 mortgage overpayment, 1/3 SIPP and 1/3 ISA.
Who’s right?
It's all about your personal situation, but splitting it 3 ways seems a bit too risk averse, what's the point?
What is her rationale?
I have adopted your wife's thinking pretty much
Because a large pensions not much good if you have lost your job and can't pay the mortgage.
So I'm attacking on both fronts - but I'm aware that at some point resonably soon I need to change career/direction in my current career and I'll be earning less (personal situation aspect) and that will be much easier to stomach if we don't have/have a small mortgage.
Pure maths says your right .
My heart and circumstances says your wife's solution is the right one for me
Cash ISA for more emergency money? Seems sensible anything can happen in next 10 years.
Maybe split the Isa half cash & half stocks and shares?
Offset mortgage so your savings reduce the mortgage rate ?
You've got access to your money if you need it for an emergency (like a divorce..).
effectively earning mortgage interest on your savings.
not paying tax on that interest.
gamification of your savings, especially if you use it with an app.
only problem is finding one on a good rate.
I wouldn't be over paying the mortgage right now. I presume you have decent equity and a low rate mortgage. Worth having some ready money. Some mix of cash ISA, premium bonds and S&S ISA would be good as an emergency pot. 1/3 into mortgage over payment and 1/3 cash ISA sounds like way too much into things with low return to me, although I can understand if you are very risk averse
We do similar as your wife suggests, but not into cash isa- rates are abysmal. Ours go into separate S&S Isa with a low cost global index tracker.
Granted the overpaying mortgage doesn't win outright in mathematical sense, but we want to be <60% ltv when the remortgage process starts in a couple of years without counting on house price growth.
With the s&s isa its good to know that if we were both to lose our jobs tomorrow, we have a years runway where we can still pay bills, mortgage and put food on the table etc before being on the street.
Well this is the thing, we are 35% ltv now with our 5 year ending next Feb - although if we stay with nationwide it can be swapped in October - and the three portfolios in my SIPP have an average 28% growth. With the tax advantage it’s hard to see doing anything else.
Yet who knows, stocks and share could plummet over the next 10 years leaving us with nothing...
Given the current political situation in the UK , for best long term results, I’d strongly recommend investing in steel.
Ideally that steel should be in the shape of guns to defend your secure compound from ravaging hordes after the inevitable collapse of western society.
Who’s right?
Your wife.
What's the question?
If shares plummet to nothing then we have other, bigger problems. Investing in tinned fruit and shotgun shells might be a better contingency.
Some good info above. The big unknown is what happens tomorrow. With 10 years left on the mortgage your exposure to interest rate rises is limited. Even if they begin to creep up we should be many years away from cripplingly high rates, if even that is a possibility given the economic climate now (which many influencial economists believe not!).
If you had longer to pay it off, say 30 years left on the mortgage, that brings far more variance into the equation and increases the argument for paying it off now to protect the potential for future rate increase. But assuming retirement date is sort of aligned you can counter that by saying more into pension now gives more scope for growth on money that is already enhanced by being tax efficient.
The real answer is there is no absolute right answer unless you know the future. As long as you have a plan to pay off a mortgage (if you have one), have some pension savings, and can do all that whilst maintaining some cash you probably will benefit at some point and be better off than if you didn't.
It depends on a lot more detailed circumstances, like how secure are your jobs; is property over-valued or under-valued in your area; but I don't see interest rates going up as there are so many deflationary forces in the global economy. The only real risk is a Corbyn government in which rates will have to jump up to protect the currency, or a war with Iran which spikes oil prices...at the moment both seem possible not unlikely.
Would have thought your wife is pretty spot on TBH.
SIPP is long term, mortgage is good but also long term/short term, and the Isa is available cash / hopefully easily liquidated / accessed.
About to do some long term planning with the next 10 years being 'interesting times'.
The real answer is there is no absolute right answer unless you know the future. As long as you have a plan to pay off a mortgage (if you have one), have some pension savings, and can do all that whilst maintaining some cash you probably will benefit at some point and be better off than if you didn’t.
I think this is mainly it. Without going into detail we've made a choice that our lifestyle / location is good enough for the next 10 years based on my basic Salary which also coincides with the kids (probably) leaving home. So, status quo until then with extra Sales commissions going into savings.
End of mortgage without overpayment and age 57 - the age at which I could yet might not draw from the SIPP is aligned as is the above. So in reality in 10 years time:
a) Mortgage - gone
b) Kids - gone/going
c) SIPP avaialble.
d) I'm in Sales so the jobs not ultimately secure but I have a varied and experience business/industry CV
To me this says that in 10 years from October we are very much more "flexible" - and thats the thing. We could move, change jobs, stay as we are / do something else with the Kids now in UNI until full retirement.
The more I think about it, I might go the 50/50 route with the commissions with Mortgage and SIPP. Anything left over at the end of the month goes into the emergency/annual holiday fund anyway. If the mortgage gets paid quicker than 10 years then maybe I've got a couple of extra years I can pay more money into the SIPP.
I received an email from a Nigerian Prince last week, he’s probably got as good a proposal as major institutions these days.
You've got your head screwed on, you've already worked most of it out now the unknown is just that.. unknown.
Based on the above you are already going to be better off than 90% of the population who have p****d their money away without a care in the world.