What would you do with this money?

[IVFNewbie]

Hi hive mind

What would you do in our situation?

We're married, no kids, I'm 54, wife is 49. Have a small dog. No kids. House is worth 550k ish, we have 50k left in mortgage. We have 130k in poor return account. No other savings. Pension pot around 75k or so. Not retiring any time soon.

We talked about getting a home extension (costing about 175k ish) but not really sure when- prob next year now if at all.

Should we -
Max out premium bonds? Other kind of savings? ISA?
Pay off mortgage?
Do both?
Borrow a bit more and get the extension?
Something else?

I am awful with money and have no idea.

Cheers!

Put your savings in the best rate account you can find. You can put £20,000 a year each in an ISA, do that best rate account you can find and repeat next year in April after the end of this tax year.

Do you need an extension if it's just you two and a dog? If you decide against the extension pay off the mortgage if you can without penalty. If you do the extension can you increase your mortgage to cover it. The mortgage rate is probably less than the best savings rates so may not be the best option to use your savings towards the extension.

Do you have public service pensions lined up?

What is your pension forecast for retirement?

For context our pensions are 65k a year (linked to inflation) between us. 35 k if one of us dies. We retired in our fifties and work when we feel we want to now.

No, I work in the private sector.
No idea on pension forecast. Would probably trip along happily on state pension plus whatever private pension I'd have accrued.

This is great- thanks for taking the time to answer! I'll put some thought into what you have said.

If mortgage rate is higher than you can get on savings I would pay off the mortgage.
I have been mortgage free for over 10 years and whilst it may not be the best thing mathematically it eliminates worry, as you have no debt. It can mean you make different choices, such as working part-time instead of full-time as you have lower outgoings.

I would look at putting some towards pension.

You may find it useful to go through the UK Personal Finance Flowchart. Think about short term savings, long term investments.

This podcast may help you think about short term goals: meaningfulmoney.tv/OS7 and the next episode after that is about Long term goals.

I would pay if the mortgage assuming no early repayment penalty not because it will give you the best return but because you have the security of knowing it is done.

I would then increase my pension contributions to put the maximum I could afford/can in and hold a little back as an emergency fund.

I wouldn't do an extension unless it was truly life changing or you are sure of getting your money back when you sell.

We also have no kids and I am thinking about knocking down a car port and building a garage in a different location to add windows to a room that is very dark. I may still do it, but it isn't a financially savvy thing to do as we won't get our money back when we sell.

What do you want an extension for? I would say extending a mortgage at your age is ridiculous unless you absolutely have to. Sounds like a want and not a need.

A private pension pot of 75k will be an absolutely dire pension, sorry to be so blunt but that’s the truth. It would currently mean getting a pension of around 4k per year. You do not mention your wives pension. The National pensions helpline will also let you know how many years of NI payments you need for a full state pension, you need 35 years of payments. State pension is currently 11.5k PA. Many things can change. But you need to start to plan as you are only 14 years off retirement. It also depends on what you consider an acceptable level of living during retirement. If you look online various projections have been done.

Get your pension forecast
Work out what your annualised outgoings are
Pay off your mortgage if you can without penalty
Get money in both your ISA allowance.
The mortgage/ISA issue will depend on mortgage rate versus ISA rate.

You do not need to pay out for a financial advisor.

If just 2 of you do you really need this extension? It will just be another room to clean. Put savings into best ISA rate you can find.

OP kindly you sound quite clueless. At your age you will be approaching retirement before you know it, and you really should have more understanding about managing your money.

I'm sometimes startled at the number of people who do not understand very basic things about their own finances.

Mumsnet is not the best place to come for advice - you will get a lot of people saying a lot of different things, some may be good advice, some definitely won't.

You need to educate yourself, do some research online/ buy some books, get your head around your own pension, and consider seeing a financial advisor.

As others have said, you need to educate yourself (meant kindly).

Having such a large sum of money in a poorly paying account is simply throwing money away. If you'd have spent the last 3 years putting it in cash ISAs you'd be earning over £6k pa in interest tax free. Or you could have invested it and probably gained more than that.

You could possibly also have paid off your mortgage but whether that is worth it would depend on the relative interest rates compared with savings and whether you do intend to extend.

The financial flow chart is a good outline of what to do, in what order:

https://ukpersonal.finance/flowchart/

Meaningful Money is a great podcast series and they recently did a series discussing this in detail.

https://meaningfulmoney.tv/category/podcast/season-25-finance-os/page/2/

Step 1 would be to move the money to a better paying account while you decide what to do with it. There's a cash ISA paying 5.2% that's a good start (Trading212 I think, don't worry about the weird name, it's a basic cash ISA from a well known provider).

You'll want to keep back some of it in cash, but unless you really are going to extend, consider investing a lot of the rest either in S&S ISAs or by improving your pensions. At your age, you can start to get it back quite soon so it's not like it's locked away long term, but you need to bear in mind the risk of volatility.

Also unless you're still in a cheap fix, could be good to pay off the mortgage, but watch out for penalties.

er..thanks! I think :)

Honestly, I would pay a lot more attention to your pension.

67 starts to feel a long way away once you are past 62, do you both really want to keep working full time til 67? And getting by on state pension really isn’t easy or fun.

At the moment, on £130k cash you could be earning £6k a year interest, though £5k of that would be taxed. Which is why people say put £20k a year in an ISA each year with a good interest rate.

And with so little pension I wouldn’t be blowing your savings on an extension.

Why do you want an extension?

We have a small and old kitchen and would like to host people.

Similar to previous responses your pension pot is woefully inadequate for a retirement income although to be fair you haven't said if you plan to retire one day or at what age you'd like to, how much you think you will need, what your wife's pension position is, how much you both currently earn/spend, whether you have access to a salary sacrifice arrangement.

I'd recommend paying for a financial review. You are in the last chance saloon for preparing for both of your futures. Personally I'd be living of excess cash while throwing as much as possible into a salary sacrifice pension to build the biggest pot I could while minimising tax and national insurance deductions - but that's me!

Hi! Thanks. I mentioned in my original post that I am not retiring any time soon. I won't need a lot to retire on. The wife has a pension of probably 150k. Could probably manage on state pension as we have a very frugal lifestyle (apart from decent food and expensive wine at the mo!)- frugality is just the way I was brought up. I am earning around 220k a year at the moment so could likely build up quite a decent pension/savings in the meantime. Think I am gonna do that- whack it into the pension and pay the final bit of the mortgage off.

Make an appointment at Citizens Advice with their pensions advisor. Funded by the government, they will go through everything with you and give you unbiased advice. We found them really useful.

The update changes things. You had mentioned your joint mortgage and savings, but then didn’t mention your wife’s pension. So 225k together roughly.
If you are earning 220k a year why haven’t you got a reasonable pension pot? You need to stater whacking money into that. Or you won’t have a decent income in retirement. Which you well may need. You say you live frugally, but if you are earning 220k a year (and whatever your wife earns), you have no kids, a small mortgage, and not much in pension pot, I would have thought you would have a lot more in your savings. As you don’t, I have to assume that you aren’t living as frugally as you think….

You should not have more than £85k in one account. Ever! Pay off your mortgage and get the rest in a high interest account.

Focus on the mortgage and the pension. I don't think I'd be spending that much on an extension £175k is a hell of a lot for a new kitchen!

I’m confused you’re on £220k a year, what are you doing about pension contributions? You know these come from your gross salary? You’d do well to see an IFA, you can’t be living that frugally?!

I'm also baffled as to how you are earning £220k pa but have a woeful pension pot, still have a mortgage and not much savings. Where on earth has your money gone if you 'live frugally'.

Something doesn't add up!! (literally and figuratively)

We got the mortgage about 8 years ago and have overpaid since then to get it almost paid off. Also, I was earning about 100k less 8 years ago.

why 85k?