What do you invest in if you’ve paid off your mortgage?

[Twoshoesnewshoes]

I’m getting in a right muddle!

looking at a house which is a bit smaller than ours - we want to downsize at some point as our DC have left home.
Im late 40s so intend to work and earn at the same level I am now (ish) for at least another decade.
we spend around £1k a month on mortgage currently and try to save a further £1k a month, doesn’t happen if we’re on holiday or a big car bill etc.

so - if we downsize, we could pay off our mortgage in 5 years instead of 19.
Im concerned though that, after that, we’re no longer investing. Our property would obviously be worth less than the one we’re in now, so we would get less return from property prices increase.
we would still have the £2k per month for at least five years after paying off the mortgage.

should we stay where we are and pay more on our mortgage?
downsize and buy another property?
downsize and invest in SIPP and ISAs?
any other options?

thank you!

odd you don’t mention…. pensions

SIPP - self invested pension plan 😀

sorry missed that

in case…. at your age, pension

I’m considering buying a property to rent out. It would be more hassle, but ultimately if we kept it our kids could inherit it, whereas similar amounts invested in a pension wouldn’t leave anything for them.
Im confused 🫤

Some pensions/parts of pensions are inheritable, and there is no point leaving yourself poor in retirement just so your kids can inherit a house. (Also: see Elderly Parents boards, your kids would rather you had £££ to pay for help when you need it than giving up their lives to care for you). But obviously that depends on what pensions you have already.

I have a few years of fairly rubbish pensions and 5 years of NHS, so not much at all.

i am worried about stopping climbing the housing ladder if that makes sense? I feel reassured when I’m paying a mortgage and investing in my property.

Chatted to DH too, going to look at SIPPs, any advice or thoughts?

I'm 52 and we have paid off our mortgage 7 yrs ago. Our youngest DC is 17 so a few years to go before we are empty nesters. We have focused on increasing our pensions and ISAs so that we have the option to take early retirement before 60. We have close family members who have died in their mid 60's so I don't take good health for granted. If redundancy strikes sooner rather than later, we would embrace it!

Thanks @sansou , that’s really helpful. Did you do cash ISAs or shares? Interesting that you do ISA and pension.
our youngest is still at uni for another two years, so after that we get another income ‘bonus’ of not paying £650 a month rent for him!

IMO, it's pension all the way from here. Via a SIPP, there's a trust implicit, so it remains outside your estate for IHT purposes, which may or may not matter depending on your estate, but it separates our household assets from our investments. Our DC was enrolled at three years old, with one year's maximum contribution, and their share of the pot has hit almost £50k, at 25 years old. It can't be touched for another 30 years minimum as a source of income, so DC will have to work for a living, but if everything went tits up, there should be enough to keep the wolf from .the door, regardless. Not in great style, perhaps, but hopefully enough to eat regularly.

SIPPs are inheritable but you have to pay income tax on them if you cash them in or you can transfer it and your DC can have it as their own pension.

Investments are less hassle than property but at least you can still live in a house if the global economy implodes in the next few decades.

Cash ISAs just mean you don’t pay tax on the interest and interest rates aren’t great. But they are a good low risk place to put money.

I would look at funds rather than individual shares but as long as you are still working I think putting most into a SIPP is a good option.

Though, I should say, that a SIPP while absolutely the best pension saving programme you could consider is actually quite hard work, requiring regular admin. However, ours owns a warehouse, which is let on a 10 year lease, and so I need to organise all the H & S checks and send monthly invoices. There is quite a lot of faffing around with insurance etc.

Very important, SIPPs are not allowed to own residential property. Don't even think about putting your house into it. A hotel is fine, or an office building, a factory/workshop/warehouse, but nothing residential. At all.

Thank you! I would get a managed SIPP , sounds like pensions are the favoured investment?
though I agree @CraftyNavySeal , I do often think if I bought a student house at least we could all live in it if everything goes tits up!

S&S ISAs.

Well, you can't access your private pension until 55+, so there's no point having a fat pension pot should redundancy or ill health occurs in your 30's/40's and you need to pay your bills if your income dries up.

I’m only 6 years away from 55, but yes that does make sense.

Pensions do actually have some odd rules to enable to access funds if life goes very wrong via ill health. They are not advertised, and they are mostly aimed at professional sportspeople who could be catastrophically injured. But clearly, if you start taking money out at 35, then there won't be a big payout at 67/68.

In your shoes I would put money into pensions and savings and make serious plans to retire early. What’s the point in paying off a large mortgage on a house that’s now too big for your needs?

Think about what you would like to be doing in your early 60s rather than worrying too much about inheritance for your kids.

Investments really come into their own over a long period so that they have time to compound and you can ride out the ups and downs. If your pensions are low then personally I would prioritise that now rather than throwing everything at the mortgage. It does depend on your attitude to risk.

But, over the long term, commercial property is a decent game. It goes up and down (a lot) but we bought 20-odd years ago a nice newish shed in a brilliant location. For years it brought in £22,500 in rent (which paid off the mortgage we took to pay for it, in eight years). Since then, every rent payment goes into our bank account, untaxed. The property is worth at least double what we paid, possibly more, and now, the rent is over just £40k pa. Add that to two state pensions, and that is a fairly comfortable retirement.

The downside is that tenancies can go very very wrong, and can cost big chips. It happened to us. We had a new tenant with big ambitions which all went badly wrong when COVID happened. It cost £50k in lost rent and fixing the damage, in under a year. And, after six months, the landlord is liable for business rates, which in our case were £17,000 annually.

It doesn't have to be hard work. You can set up a standing order to buy an index fund nor 2, and forget it.

You'll miss access at 56, then. Minimum age will be 57

If you're still with the NHS, compare the benefits of a SIPP with buying added pension in the NHS scheme.

One other thing to consider on pensions if the tax relief. If you are contributing from income taxed at 40%+ then extra pension payments are especially valuable. If it is from income at 20% and you aren’t getting additional employer contributions then the sums aren’t as good.

I am working towards that, but in the meantime, mine is the more lucrative option. I do get quite a kick out of making a lot of money by doing a great deal. Saving money by standing order sounds........... dull. But I do that too.

@NoBinturongsHereMate , I have been considering this for some time, simply because we have too much in cash. But cash has been a decent shout, properly managed, for several years, beating inflation frankly. I don't want to escalate the risk much, given our age.