100k windfall - what to do?

[Smarshian]

I am about to receive a windfall of around £100k in a few weeks time.
We are early 30s and live in what I would consider our forever home with a £230k mortgage which we are repaying (have 32 years remaining!)
DH has a good pension scheme with forecast 400k at retirement age. Mine is poor, not sure how much is in there but not enough!
2DC both preschool age, high nursery fees, this will reduce significantly in September when DD starts school and DS gets his free hours.
Small credit card debt of around £1500, no other debt. Could do with replacing one of the cars. Have holidays booked and paid for for next year.
Have around £7000 in various savings accounts for short and long term savings.
Help me decide what to do with this money!

What do you do to put money into a pension pot? I mean when it’s not part of your salary deductions? I’ve never done that before.
Will pay off the small debt and use maybe 5k for the car. Maybe keep some in an easy access account.

I’d be reducing my mortgage to 130k
£1250 repayments and you’ll be mortgage free in 10 years

Buy a small house and rent it out!!!

Congratulations on your good fortune, not envious at all :)

Probably speak to a good financial advisor, they’d be able to weigh up your situation, options and probably advise what markets are performing/projected well at the moment if you wanted to invest. Maybe good to research and hold off or go low risk in these unprecedented timeS.

Off the top of my head, probably one of two things, pay down debt and slap the rest on your mortgage, redirect the money you would have otherwise spent on mortgage payments to boost your pension. If you need a new car probably bring down your mortgage and get a short term loan for a car, in the long run you’d probably save more knocking it off your mortgage (that idea could be skewed with the current super low rates, haven’t looked into it properly).

If you are comfortable, depending on where you are in the country, you could possibly invest in a little buy to let. After monthly fees, insurance, a maintenance kitty and tax, put the excess up to save for a rainy day and forget you ever had the money or use it to overpay your mortgage. Obviously it’s not that simple, there is risk of rogue tenants, council tax liability in rental void periods and general maintenance and upkeep, there could be tax implications, CGT and increased Stamp Duty for second homes etc, you’d need to weigh it up and of course invest in the right property, however I do believe property long term, is a solid investment as an generally appreciating asset. If you wait to see what happens to the market over these next 12 months the landscape might change.

Anyway whatever you do, wish you all the best.

Maybe keep some in an easy access account.

With interest rates so low on savings the money will depreciation every month in reality you’ll be losing £20/30 per month

Re your question about how you put it into a pension pot....if you have a personal pension then pretty easy. If you have a company pension then not so easy, you'd need to set up a personal pension. You can pay up to £40k in tax free per annum but you can use the previous 3 years tax allowances if you want to put more in.

I'd strongly advise speaking to an independent financial advisor. We can all give our opinions based on our own preferences, ideas and comfort factors. its a lot of money so please seek professional
advice.

What do you do to put money into a pension pot?

You could start a self invested pension that you can manage yourself on an online platform. I use AJBell YouInvest.

In your shoes, I’d pay off debt, upgrade the car (max several k).
Given your pension situation, I’d put 10k into it this tax year, and another 10k with the new tax year starts in April. With such a long mortgage term, I e pact you’re under 40 so you could also start a LISA as that gives you a government top up.

Beyond that, paying down the mortgage would be psychologically satisfying but a stock and shares ISA would likely make more financial
sense in the long run. I’d probably go for the feel-good factor on a lower mortgage and lower monthly payment making sure that the spare income is wisely invested.

@Lazypuppy

Not sure why people are shocked at 32 years left on a mortgage?

OP i would overpay your mortgage to reduce monthly amount, then use that money instead to boost what you pay into your pension each month.

Clear all other debts.

Decide on an amount for savings

Spend some!!! Seriously pick an amount and just blow it on something you didn't think you could afford or always wanted. Enjoy some of it 😊

Not shocked, just surprised. Our mortgage was paid off years ago; when we first took it out, in the 1980s, standard was 20-25 years. I didn’t know people are getting such long ones now!

@GiantKitten ours was for 40 years! Longer term gives us a lower payment for first 5 years, which was a priority when we bought our latest house. Then when we re-rate we'll reduce term and increase payments qnd so on every time we re rate so hopefully pay it off before 40 years

Ooh, I love this type of question!
I think I’d put £80k of it towards paying off debt/mortgage, and then use £20k for something to enjoy right now (probably a new car and a nice holiday)

I would instantly use my £20k ISA allowance for savings and pay a similar amount into a pension. I'd pay 10% off the mortgage (more if it allow as without penalty) and look at reducing the term. Id then keep about 10k to sort a decent secondhand car and as it's an inheritance, I'd treat myself to something to remember the person whether it's jewellery, a watch or a piece of art.
And finally I'd chuck a frivolous and (relatively) obscene amount into a really fun 'sod the budget' day out with the family - for my kids that would be VIP access at a theme parK, money to spend in the gift shop buying something big and gaudy that we'd normally refuse and then out for pizza with fizzy drinks

I received an inheritance a few years ago and paid off my credit card, put some in savings and then put the rest to clearing our mortgage.

Life is much easier now and we do save money every month, money that would have gone towards the mortgage.

However I would much rather have my mum back..

See a financial planner, they will be able to help
you decide what's important to you and show you using technology all the different options you have and how each decision will benefit you in the future. They can also help make sure you don't pay any unnecessary tax

@PlanDeRaccordement

Pension for you. £400k forecast thirty years from now is peanuts. You need to get your pension to at least match your DHs.

This.

What's the big deal with OP's pension having to match with her DH?

I am with a high earning DH, I am possibly approaching a separation situation and have probably zero pension - financially controlling DH, 3 young kids... I'm naively hoping pension is included in any kind of settlement. I am capable of work and hoping to do so but the circumstances of the last few years mean I have zero pension.

Sorry for diversion

I’m not sure that inheritance is liable for sharing in a divorce.

My parents money is mine as far as I’m concerned and will go to my DD.

Get financial advice.

@BeautifulSofa

What's the big deal with OP's pension having to match with her DH?

I am with a high earning DH, I am possibly approaching a separation situation and have probably zero pension - financially controlling DH, 3 young kids... I'm naively hoping pension is included in any kind of settlement. I am capable of work and hoping to do so but the circumstances of the last few years mean I have zero pension.

Sorry for diversion

Sorry to hear this. Probably because inflation and RPI will devalue the pension by retirement age, assuming the amount is levelled, £400k now won’t stretch as far as £400k in the future.

My Mum was in the same situation With no pension, apparently Dad has a very good married mans pension, unfortunately during divorce proceedings she didn’t make a claim to it as she was told it would need to be a separate claim to the house or something, at the time she said the legal fees were too expensive, although my Mum can be quite naive and I usually only get half a story, maybe someone in the know could advise you properly. Have you sought legal advice? Some solicitors will offer an hour free of charge.

I would consider an offset mortgage, so instead of earning interest on the money you reduce the term or monthly payments on your mortgage whilst still having the cash available should you need it.

We've invested it in a bond which produces a decent rate of interest. We haven't used it for anything yet.

There are limits on how much you can pay into your pension. It may be much less than the 40k people are saying here, so you need to find out before you go ahead and do it. The Pensions Advisory Service is a free service that should be able to help; see www.pensionsadvisoryservice.org.uk/

I’d think also about what would contribute to your family’s quality of life. We were able to pay off a big chunk of our mortgage off early due to an inheritance, which meant we were able to have some really great holidays with our teenagers while they were still at home - something that would never have been possible otherwise.

If it was me, I would literally use the whole amount towards the mortgage and both reduce the monthly payments and reduce the term (I know most people do one or the other, but surely there can be a compromise of both?)

I couldn't cope with having that amount of debt round my neck for so long. I would not want to be paying a mortgage into my 60s.

@Smarshian

I am about to receive a windfall of around £100k in a few weeks time. We are early 30s and live in what I would consider our forever home with a £230k mortgage which we are repaying (have 32 years remaining!) DH has a good pension scheme with forecast 400k at retirement age. Mine is poor, not sure how much is in there but not enough! 2DC both preschool age, high nursery fees, this will reduce significantly in September when DD starts school and DS gets his free hours. Small credit card debt of around £1500, no other debt. Could do with replacing one of the cars. Have holidays booked and paid for for next year. Have around £7000 in various savings accounts for short and long term savings. Help me decide what to do with this money!

I would recommend following flow chart

1. Pay off all debt, to stop it accruing interest
2. Keep enough cash to cover 6 months of expenses (mortage, bills, cars, food etc) as an emergency fund for extreme circumstance where for example, you both lose your jobs e) Any maintenance issues relating to house or cars you have put off - get them done - prevent them becoming costlier problems in the future. Especially as you consider it a forever home.
3. Some cash to treat yourself perhaps? A couple thousand on nice christmas presents or holiday upgrades next year?
4. Pension - you have a 40k per year annual allowance of how much you can pay into pension. So you could max out this years allowance into your pension if you wish.
5. Any excess - either into husbands pension or stick into stock and shares ISA over the next year or two (20k per year) limit. This can be used in retirement too or dipped into in say 10 years time when you want to redo your kitchen or something.

Smarshian
When you start your new job there should be a way of paying higher monthly contributions into your Civil Service pension.

Pay off debt and then the rest on the mortgage .

Aside from the other suggestions, I'd consider future-proofing your home. Can you install eg ground source heat exchanger and underfloor heating, solar, extra installation, double glazing etc (taking advantage of any green grants)? This will significantly reduce your outgoings forever. We luckily managed to get the last of the highest deals on the solar grants, admittedly a small house, but it pays for ALL our energy, and some left over.
Also will you at any point need to extend/add a bedroom/add a downstairs loo etc? That will add value to your house - again, as this is your forever home consider you/one of your family might at some point be unable to go up the stairs if your only loo is upstairs. Or even a garden room for home working/teenagers?