WWYD re large sum of money

[Art3mis]

Basically I was diagnosed with cancer and have claimed only insurance, and have received a large sum of money (75k) - actually didn't expect to receive it - though illness is serious, I'm not terminal and am expected to 'recover'.

We could pay off our mortgage and be mortgage free at 36, but our monthly payments are only £400pcm and easily manageable for us as we don't have have any other 'debts', though we don't have any savings at all. Both in stable, permanent jobs with local authority.

This house isn't going to be our forever home, and we are v likely to still require some sort of mortgage as house prices have gone up significantly, if we decided to move which was the plan before my illness.

WWYD? Do we pay off the mortgage and have nothing left, pay some and put some in savings (ISA? Bonds? No idea what's best!), and do some needed updating to our home?

We have 3 dependents, with one hoping to go to uni next year, the other two are preteens. We did consider contacting a financial advisor - would this be a good idea?

Any help or thoughts would be helpful! Honestly have no clue.

Thank you!

Put your money in savings while you go through your treatment. You may have unexpected expenses like taxis, help at home, complementary therapies while you are undergoing treatment. When you’re ready look at joining your pension scheme, taking a family holiday or paying a lump sum off your mortgage. There’s no rush to decide now.

Yes, I opted out of the pension, as at the time it wasn't financially viable with nursery fees. Just never got round to opting back in! Something I will absolutely look into when I go back to work - my wage has just dropped to half pay as I've been off for 5mth.

Could I make a lump sum payment to my work pension? Or would I need to look into a private pension now?

So many things I hadn't considered, thank you all for the ideas, thoughts and comments - it's very helpful.

I would start a pension. I wouldn’t pay off the mortgage if you are going to move.

Definitely pay your mortgage off and then put your mortgage payment equivalent into savings. Without wishing to be morbid, you don't know what the future holds.

All the best for your treatment.

Def look into starting the work pension. It's crazy not to be part of a LA pension.

I wouldn't bother with a financial advisor. For that amount of money it's not likely to be cost effective.

Look into the roof work, and set money aside to consider paying off the mortgage in a while. There's no rush.

Good luck OP. I hope you recover well

@Art3mis I really don't want to be morbid, but what is your long term prognosis? If at the end of the treatment there is NED, what are the chances of re-occurrence?

I know that I will have to have regular scans in the future and this is likely for me.

This is why I'd chose to payoff the mortgage. You are unlikely to get this sum again, you are also not in a position to claim your pension early due to ill health. So security would be important to me.

Contact your mortgage provider. It's unlikely you will have to pay the early repayment fee.

OP you've mentioned what he could or couldn't afford if you don't recover, hurt what about what you could afford if something happened to him?

I’m in a similar position. I got my critical payout nearly two years ago £50k so bit less than yours. Like you our mortgage payments are low and manageable so haven’t put it on that and it’s currently just sitting there.
No idea what to do with it. I look at it as my drop dead fund for my husband to pay for childcare for my three year old if my cancer returns and everything goes to pot.

I would do up the house enough to sell, use some of the money to buy our forever home with as little affordable mortgage as possible and if any left definitely get a financial advisor, they have all sorts of knowledge for investments and tax back schemes so certainly worth it.
Fwiw ours advised to not pay off what was then an affordable mortgage.

I think you need financial advice!

Your LA pension comes with Life Insurance. Make sure DH has nominated you to receive any benefit and vice versa.

Wishing you well for your recovery.

Don't just put it in savings (unless you aree willing to invest it in stocks and shares for minimum of 10 years), currently even a tax free cash isa only gives less than 1% return - to give a sense of that, it'd be less than £750 a year in interest (and you can only put in £20k each a year into an isa). Whilst you'd save yourself £800 in mortgage payments within 2 months, or it is £4800 a year of reduced outgoings. If it was me it'd be pay off mortgage and use the reduced 400 outgoings to put £200 a month into a pension and save or spend £200 a month.

@Art3mis

Yes, I opted out of the pension, as at the time it wasn't financially viable with nursery fees. Just never got round to opting back in! Something I will absolutely look into when I go back to work - my wage has just dropped to half pay as I've been off for 5mth.

Could I make a lump sum payment to my work pension? Or would I need to look into a private pension now?

So many things I hadn't considered, thank you all for the ideas, thoughts and comments - it's very helpful.

With regards to your pension, you might be able to do both.

You can make Additional Pension Contributions to your LGPS pension. You are likely to need a medical assessment so I don't know how your diagnosis/ treatment will impact this.

You can also make Additional Voluntary Contributions tax free from your salary to a private pension scheme you can assess from age 55 (for now).

All the information should be in your staff handbook.

If you are a member of a Union, ask if they are other financial support packages available to you.

I would feel about the insurance the same as I felt about a large redundancy payout. You have now lost that safety net so think carefully how you will use incase you do need it in the future.

I put a huge chunk and reduced the term on the mortgage to a couple of years saving thousands in interest. With our mortgage we could take the over payments back out if we needed the cash as long as the mortgage was still active.

The rest was put in a savings account, I recently moved to bonds as interest is so low, and kept for a rainy day.

For me, it would depend on whether or not I was well again or if I still had the cancer. If the latter I would hang onto the money because I might need some for my own comfort. If all was well I have no idea what I would do; it is nice to be mortgage free.

Whatever you decide, do treat yourself and the family with some of the money.

@JamMakingWannaBe

Separately to your insurance payout, start paying into your work pension. LA's generally put in 20% contributions. You are missing out on a very generous perk.

If you’re not paying into the local government pension then your husband won’t receive any death in service benefits (sorry to be blunt).

The LGPS is fantastic, although the employer contribution is meaningless (it could be 1%, 20% or 50% and it doesn’t affect the amount of pension you receive.).

Start paying into it immediately!

Above all else re-start that pension.
See if you can pay in to make up for lost years.
Spend a bit to cushion your illness.

Put the rest into the highest interest account you can find and sit on it until you feel more able to look to the future.

If you decided to see a financial adviser make sure they are independent and remember you don't have to follow their advice.

Do keep some of it available. Non-terminal cancer does incur costs: lost earnings (your DHs as well as yours), extra childcare if you're not well, travel, adaptations on your home, cleaner and other things to make life easier. That's why Critical Illness cover exists! If you end up not needing any of that then great, but don't rush it.

I would definitely clear the mortgage with it, imagine the peace of mind that would give you to know how little you could then actually manage on if you ever needed to. Even if you buy a bigger house in future it’s still peace of mind you could hopefully downsize back down to your current standard of house mortgage free if you needed to.
You could splash on on holidays, uni etc but the then what if you hit hard times in the future, would you then be wanting to ask your kids to be helping you out? The spare £400 can go on nice things and helping kids through uni while you also have that security

I recently paid off my mortgage as in just pre covid, and whilst my monthly payments were quite low anyway it is a huge thing to know if everything else in life went pear shaped, myself and my family had our home.

Pay off the mortgage is my advice.

I would be careful about putting too much into the pension actually, because that ties up the money until you reach a certain age, and if you have health issues then you may need some of it sooner, for instance in order to maintain living standards if work hours and total household income need to go down for a while. By all means look into opting back in to any arrangement that would also get you extra employer contributions in addition to tax relief. But, if your personal tax rate is low anyway due to low earnings at the moment, then the tax relief on the pension is also not that high.

I like the idea of putting any money you want to keep in the bank into an ISA, if it's a cash ISA and assuming you maintain the flexibility to take it out again if needed: that would give you the future option to invest it tax free in stocks and shares if you later become confident in not needing the money for 5-7 years, but there is a limit to how much you can put in per tax year and the current one is over in a little over a month. Even if you leave it in cash for a while and then take it out, any interest you'll have earned in the interim will have been tax free.

If you are certain that you could not sell your house without redoing the roof, or if its flaws are likely to cause damage to your house in the near term, then by all means do that ... but maybe a buyer would just knock that off of the price instead, and if you are wanting to move then having more cash in hand puts you in a stronger position to make an offer on a property. I would guess it's probably worth doing that, but am not sure.

For your current mortgage, what is the current interest rate and how much can you overpay without penalty, and how much would the penalty for exceeding that be? It may be worth overpaying to the extent allowed without penalty under your T&C, but probably not worth overpaying more than that. But it really depends on the terms and the interest rate.

Finally, since none of us knows how much time we have, plus kids grow up and often become less interested in spending time with their parents, if there is a holiday or other experience you that and they would really like to share that uses a small minority of the funds (I am thinking a few thousand here), that can be money very well spent.

Get IFA advice but there is a school of thought that suggests keeping at least a tiny part of the mortgage in place so when you want /need to move, you have an existing arrangement and don’t have to go through the whole applying from scratch process which might be affected by your illness or future changes in work patterns etc.

Actually for that sort of amount, I am not sure an IFA will find it worth their time, plus "independent" does not necessarily mean "unbiased"; they will more likely steer you towards some sort of fund investment. An IFA should hopefully understand and be able to explain the rules around pensions and ISAs, but they are not really that complicated. And I suspect an IFA is less likely to advise you to keep it in the bank, or start paying down your mortgage with a monthly overpayment, or fix your roof, even if one or all three of those might be the best course of action.

Depending on your comfort level in understanding and evaluating advice proffered by strangers, I would go so far as to say you may actually do better by educating yourself and using that to calibrate the advice of people whom you read here, from whom you may collate ideas, and then making your own decisions.

You could get an offset mortgage when you come to renew. That way the money is still there if you need it but whilst you didn’t there’d be no interest to pay

@YankeeDad

I would be careful about putting too much into the pension actually, because that ties up the money until you reach a certain age, and if you have health issues then you may need some of it sooner, for instance in order to maintain living standards if work hours and total household income need to go down for a while. By all means look into opting back in to any arrangement that would also get you extra employer contributions in addition to tax relief. But, if your personal tax rate is low anyway due to low earnings at the moment, then the tax relief on the pension is also not that high.

I like the idea of putting any money you want to keep in the bank into an ISA, if it's a cash ISA and assuming you maintain the flexibility to take it out again if needed: that would give you the future option to invest it tax free in stocks and shares if you later become confident in not needing the money for 5-7 years, but there is a limit to how much you can put in per tax year and the current one is over in a little over a month. Even if you leave it in cash for a while and then take it out, any interest you'll have earned in the interim will have been tax free.

If you are certain that you could not sell your house without redoing the roof, or if its flaws are likely to cause damage to your house in the near term, then by all means do that ... but maybe a buyer would just knock that off of the price instead, and if you are wanting to move then having more cash in hand puts you in a stronger position to make an offer on a property. I would guess it's probably worth doing that, but am not sure.

For your current mortgage, what is the current interest rate and how much can you overpay without penalty, and how much would the penalty for exceeding that be? It may be worth overpaying to the extent allowed without penalty under your T&C, but probably not worth overpaying more than that. But it really depends on the terms and the interest rate.

Finally, since none of us knows how much time we have, plus kids grow up and often become less interested in spending time with their parents, if there is a holiday or other experience you that and they would really like to share that uses a small minority of the funds (I am thinking a few thousand here), that can be money very well spent.

Current interest rate is 2.54% - we were on a fixed term rate for 5y which actually ends in June this year.

We can pay up to 10% of the original amount borrowed per year (no clue if that means year, tax year or from the date we got the mortgage though) before we would get an overpayment charge.

I think if we don't redo the roof we won't even get what we paid for the house, but going to see about getting it valued as have no real clue about the actual value now, we've lived here for 9y. This is our first owned house.

A holiday does sound nice, and would be something to look forward too once I finish active treatment at the end of the summer all being well.