Divorce settlement and new home choices at 56: mortgage, pension or smaller house

[NellyAmelia]

I wasnt sure whether to post this in money matters or divorce so I went for both.

I’m 56 and about to start divorce proceedings and we have agreed a financial settlement but it’s the buying my new home part maybe after Christmas I’m not sure about after 24 years as a couple. I’m not sure whether to;

1.Buy a house that I can just afford on my part time teacher salary on a longer small mortgage then in 3 years when I’m 60 pay it off with my lump sum, I’m going to work until I’m in my mid 60s.

2.Take early retirement and a hit in my pension at 57 but have a house that my kids can visit and stay over It will take me over the 40% tax bracket by 9k but I’ll have more each month to do the things I want. Still working till my mid 60s.

3.Buy a much smaller house mortgage free but it would be very small - the mortgage rate is crazy atm and go with the smaller house bigger life thing. I’d have my modest lump sum as a buffer then.

I’d do an option that doesn’t affect pension or lump sum and keep those to enjoy retirement. But I think there are more options than a tiny home.
can you work more hours/tutor or buy somewhere with space for a lodger / foreign student to help pay the mortgage or somewhere needing a bit of work where you could make back the moving / sale costs over a few years. Having a bigger asset does give you more housing choices down the road.
If you take the pension early isn’t there a cap on what you can earn or your pension gets suspended I know someone who took early retirement but then went into agency supply work so this didn’t count as income for the TPS.
I think for affordability banks will lend up to 67-70
If you went mortgage free then you could put money saved into a fund for hotels or taking your kids on holiday. But will you be happy in tiny home?
Im a similar age post divorce and have increased work hours and am stretching myself mortgage wise (i bought ex out so my mortgage is now huge). I’m just being frugal and stomaching a large mortgage until dc are bit older and more settled and i will downsize in a few years but I know I will make more equity from family size house so will have good housing options when I sell and won’t have to end up in something tiny so the short term pain is worth it.

Mortgage rates were coming down pre Iran war so I’m hoping this may just be a blip (I’m on a tracker).
What about exam marking as extra money but doesn’t tie you in year round
I think at 56 with good income potential you still have time to rebuild rather than plundering your retirement funds or making a huge compromise.
There are also other public sector admin roles which are less stress than teaching.

No mortgage. A smaller house would be ideal with a garden.

Option 3 every time, and pay for visitors to stay in a nearby hotel or b and b. House guests get very tiring as you get older, and you will have your big downsize out if the way.

27 and 22 - the youngest had just started an also will be with me for at least 2 years

Please don't trust AI, it's so often incorrect.

I agree!

I wouldn't claim pension until 60 because if you take it early you lose out a lot. A house you can pay your lump sum off at 60 sounds best to me, then you'd be mortgage free going into retirement.

Yes it’s tempting l, I’d need to take my pension at 59 and 11 months to avoid abatement so I can still keep working the same or more hours so an annual loss of around 1k but that that’s definitely worth it. In progress.

Would returning full time not increase your pension also?

Yes, at the point to taking my pension at just under 60 I have to take it all as I’m part if the McCloud judgement and I get to choose whether it’s career average or final salary. Then from 60 onwards my earnings would contribute towards a new pension which would be career average which I can draw in at 67.

Surprised you would be looking at a 25 year term for such a low amount. 50k over 25 years would only be about £300 a month. I’d be reducing the term and trying to reduce the final sum while still working.
When I got my place I was exactly your age and took out a ten year repayment. Am overpaying too so should have it paid off by 62. Then your lump sum can be for other stuff.
Also your DC are still at the ages they can bounce back home. None of mine have left yet and it’s a big help to them to have a place where they can save. Would their Dad be able to accommodate them?

I think £300 is a lot or not much money to different people I guess. I’ve had some great advice so a lot further be to think about - at 56 I’m assuming I’ll feel this young and able to work fur trees but who k is. Maybe a small house mortgage free is the better option.

Is a small house mean 2 bed. Or 3. Plus can have a sofa bed in lounge for extra visitors

Ask your broker about RIO mortgages (retirement interest only)
You don't have to be retired and they will take into account private, work and state pensions. You need to be over 50 and over 55 gives you more options.
There's no term because the capital gets paid when you either sell or die.
But you can pay down the capital in annual over payments if you want.

22 and 27 - my youngest will be at home fur At least 2 years

so you need a 2 bed and a decent sofa bed in lounge for when eldest comes to visit. I would go mortgage free so option 3 because of macloud pension ruling and when you started the normal age would be 60 the reduction is roughly 4% per year so if you retired tomorrow it would be roughly 16% less than waiting until 60 as the reductions are only from 60 although you miss out on the further contributions as you are almost certainly on DB final salary not a DC pension
generally taking pension early means if you die before average age you benefit
say you were going to get 20K per year at 60index linked but if you take at 56 you get 16.8K
so if you live to 70 you would have 14 years at 16.8 ( total 235k) instead of 10 years at 20K (200K) but if you live to 82 the average age you have 26 years at 16.8 ie 437K or 22 years at 20K ( 440K) and the gap will get wider the longer you live This is simplisitic as it doesn't account for the fact that retiring at 60 means 4 more years of contributions and that 20K index linked will give a big annual growth in actual £ than index linked 16.8K
but what matters is what is right for you now with a reasonable accounting of the future as you really don't know whether pension will be for 10 or 40 years you can only go on averages and a bit on family medical history
only you know whether you can actually work longer without burnout or health problems maybe for you 4 days a week is right for others it maybe less or more you need to cut your cloth for you

Thank you for a thorough reply, I’ve used David Fountains spreadsheet which seems accurate according to reports. I think retiring at 59 and 11 months is the best option for me then continuing to work for as long as I can adding to a new CA pension to take at 67 along with my state pension. I’m also swaying towards a no mortgage house albeit small.

If I were in your situation I’d buy a smaller mortgage free house. Lower maintenance and ongoing bills. More easy to manage as the years go by. Being mortgage free is one of the things I strive for financially