Depending on the size of your mortgage, £1m may easily not be enough to retire on, at least not within the M25. Yes, I know, there are options outside of London, but uprooting a family is never a piece of cake.
£1m? The first thing I’d do is talk to lawyers and accountants and redraft the wills so that, should anything happen to wife or me, the money goes to a discretionary trust and our child cannot fritter it away. Something like accessing all of it at 25 or 30, with reasonable living and education expenses covered before then.
I’d save about £100k for our child, either in a discretionary trust or in our name, depending on tax and inheritance implications.
£100-150k in discretionary trust for our nephews.
£20k or so in nice holidays for us and our immediate relatives (separate holidays, not together).
The rest split half and half between repayment of the mortgage and savings to be invested long term; not in property (not the right time) but in stock market funds, ETFs, etc.
I’d continue working as normal, not get a new car, and not change our lifestyle. If it were £5m I’d consider quitting my job :)