What would you do with lump sum?

[sandybeaches74]

If you got a significant lump sum of over 300k, what would you do with it on the basis that:

1. Your outstanding mortgage balance was 360k with early repayment fees. House worth 600k

1. You had no debts but no savings either due to a divorce

1. Your house could do with 100k spending on it for decorating and significant updating

1. You are 40 and plan to continue working for another 20 years potentially on a 100k annual salary

1. You haven't got much of a pension built up.

can't add up..... give the rest to charity...

Take proper advice, but pension is probably the most appealing. You're a significant higher-rate taxpayer. You should pay as much in as you can retrospectively claim tax relief for. I think that might be £40k p.a. carried back for the last three years, ie £120k gross, but check. With 40% tax relief it would cost you a lot less than £120k, and would give your pension pot a real kick start.

Mortgage rates are very low, my mortgage is at 1.19%, my isa has made about 5% over the last year. I inherited a sum and initially paid a chunk of the mortgage but I wish I’d invested instead!

I’ve currently got a few grand invested that could pay off some mortgage but I’m going to keep it in isas for at least 5 years, if interest rates start going higher than investment returns I’ll reduce the mortgage, but doesn’t look like that will happen anytime soon.

I would use some to do up the house, you could wait and save up, but the sooner you do something the sooner you can enjoy it. I’d go on a nice holiday too.

Paying down the mortgage saves an absolute fortune in interest. That to me = choices and freedom.

It depends on the interest rate. At the moment borrowing is dirt cheap, and not worth repaying. If you can borrow money at 3% and get 5% return on it invested elsewhere you're better off keeping the mortgage high and using the cash to generate other returns.

Hit reply but realised that @JanuaryBluehoo has said everything I was going to in their posts! Good advice there. Get over to the UKPersonalFinance sub on Reddit and you will find loads of good advice too.

@Arewebacktonormalyet

How do you find that? Google it?. I'd like to look but never been on reddit

@PurpleCarpets

Paying down the mortgage saves an absolute fortune in interest. That to me = choices and freedom.

It depends on the interest rate. At the moment borrowing is dirt cheap, and not worth repaying. If you can borrow money at 3% and get 5% return on it invested elsewhere you're better off keeping the mortgage high and using the cash to generate other returns.

Fair comment. I’m not seeing any investments paying 5% at the moment. Maybe I have the wrong funds, and there are certainly no savings accounts offering much at all, that I’ve seen.

My Wealify ethical stocks and shares ISA is getting average 5%

moneytothemasses.com/saving-for-your-future/investing/which-is-the-best-performing-stocks-and-shares-isa/amp

Lots here that returned more than 5% last year.

I would start paying the max in salary sacrifice for your pension, do the work in the house, pay off 10% of the mortgage every year (check you can do this without penalty).

Do you love your house and / or would £100k spent on it increase the value of it by the same or more?

At 40, with little savings or pension I would prioritise these.

Are you on £100k now or is that future? You’d want to make use of tax breaks as a higher rate tax payer re your pension. If you’re confident about that salary continuing I wouldn’t be in as much rush to pay off mortgage but would look at pension as more of a priority.

I’d allocate £150k for the house (mortgage overpayment and work) and put £50k of it in premium bonds

2021/2 tax year: put in £30k (assuming you are contributing some already so not full allowance) you may be able to use previous years allowances to pay in more.
22/23 and 23/34 the same so £60k additional pension minimum

I’d then stick £20k straight in a stocks and shares Isa now and then another £20k in April .

I’d then decide what to do with the £50k. Either extra savings, pension or some fun money.

Yeah that's what I think too. The wonderful freedom of watching the mortgage lessen should not be underestimated.

@JanuaryBluehoo if you search for Reddit UKPersonalFinance you should be able to see the forum. Lots of people post questions and get really good advice. There's a great flowchart for making decisions about how best to manage your savings/pensions/investments too - if you're on a desktop you'll find it on the right hand sidebar. OP, you would probably find the flowchart handy too!

@JanuaryBluehoo - make sure you are on the UK one, there's a general PersonalFinance one too but information not all as relevant.

£100k investment, including LISA and S&S ISA
£100k pension
£99k + house equity and move somewhere dirt cheap to be mortgage-free
£999.75 on chickens, floaty tea dresses and posh wellies
£0.25 Freddo Frog

@Flyinggeese1234 if you're after something simple have a look at passive investing in index funds, there's loads that returned a lot more than 5% over the last year!

@wonderstuff

My Wealify ethical stocks and shares ISA is getting average 5%

I need to look into this.

Some into ISA and get a pension.
I'd consider the house improvements depending if they are going to save you money like up grading insulation or heating. I'd try and leave expensive cosmetic stuff like kitchen, bathrooms until your mortgage is paid off.

I do think it might be worth a chat with an account or financial advisor to make the best of any tax breaks for pensions and ISA.

Invest in my own business with some of it.

You've asked the wrong question OP and what works for other people isn't necessarily what is best for you.

All these 'pay down the mortgage' suggestions miss the very vital point that you are a high earner with an insufficient pension.

Therefore, you should put as much as you can into a pension for the tax relief and investment potential. This will outgrow the relatively tiny amount of interest saved by paying off the mortgage many times over. It hasn't been the case for over a decade that overpaying the mortgage will save thousands in interest, quite the opposite. I get more interest by leaving the money in my current account for a start.

I believe that you can put in up to £40k pa into a pension as long as you earn more than that. Therefore you should plan to maximise your pension contributions with a significant portion of the money over the next few years, taking your existing contributions with what you can afford to tie up until your late 50s.

Then use up your ISA allowance with an investment product with some of the money. Not all in case you need some back, but definitely some.

You will need to keep the money you intend to spend on your house in cash like savings. Some of the £100k would go nicely in premium bonds, max investment is £50k, but you could put some in DCs name if you have any.

By all means, pay down your mortgage, but only after the above. Still bear in mind that the interest rate should be less than even conservative investment growth - you should be able to get a mortgage with an interest rate of 1-1.5% and you should get 2/3 times that as a minimum over time in a low risk tracker fund.

Yes, if you can carry back pension allowance that would be the absolute priority. Instant return of 20-40% in terms of tax relief. Your mortgage interest rate won't even be a tenth of that.

With £300k, it's probably worth talking to an IFA tbh.

If you're 40 and don't have pension provision then how are you planning to retire in 20 years time? You'll be too young for the state pension and if you're not working and don't have savings you won't have an income.

You need to get proper financial advice now. If you've a salary of £100k - are you employed? If so, then presumably you have a pension through work unless you opted out?

I would start by increasing your workplace pension contributions if you have them. Speak to a financial advisor about projection for retirement income.

Don't pay down the mortgage - it's wasted money paying early repayment fees and assuming of course that the mortgage payments each month aren't causing you severe financial hardship. The mortgage rate is likely to be the cheapest form of debt so don't pay it off - you could pay off 10% of the balance without fees though if that would make you feel better. I think around £20K payment reduces the mortgage by £100pm

Do you plan to stay in your house long term? Consider the ongoing maintenance and the costs for that. It will all want doing again in 20-30 years. Which will be the time that you will be retiring.

Personally I'd spend the money on the house (£100k) and the rest in pensions and investments. Otherwise you're going to be living an asset rich cash poor life come retirement

Going forward, tax liability increases significantly if you earn above £100k, so its probably worth planning to stay below this by increasing your pension contributions accordingly.

If you have DC, think about saving/investing for them in terms of university living costs, house deposits, cars, driving lessons etc.

5% sounds incredibly low for stocks and shares isa.

Mine is around 30% and dc is 25%