PAYE - help validate my simple logic!!
Discussion
Morning finance intelligentsia!
I’m mid forties, decent salary, fair size mortgage but about 50% equity in main residence. I’m focused on planning for future. As a higher rate tax payer, would I be best off maximising my annual pension contribution tax allowance, against over paying mortgage (2 accounts but both under 2% interest) and saving to grab a couple of buy to let places?
I’m thinking about what is best over next 10 years. I would probably take my 25% tax free lump at 55 and put it in property (either BTL or move to a place with on site holiday let’s as main residence).
Am I over simplifying the best investment options? Pensions are in mix of global equities, guilts and bonds - mix of moderate risk pots I’ve been building in last 20 years or so.
I’ve trod a fairly steady income rise career, and only just started to get a decent bit of disposable income, so pension value is ok, but I need it to treble over next 20 years!
I’m mid forties, decent salary, fair size mortgage but about 50% equity in main residence. I’m focused on planning for future. As a higher rate tax payer, would I be best off maximising my annual pension contribution tax allowance, against over paying mortgage (2 accounts but both under 2% interest) and saving to grab a couple of buy to let places?
I’m thinking about what is best over next 10 years. I would probably take my 25% tax free lump at 55 and put it in property (either BTL or move to a place with on site holiday let’s as main residence).
Am I over simplifying the best investment options? Pensions are in mix of global equities, guilts and bonds - mix of moderate risk pots I’ve been building in last 20 years or so.
I’ve trod a fairly steady income rise career, and only just started to get a decent bit of disposable income, so pension value is ok, but I need it to treble over next 20 years!
There is a long thread on "should I pay off the mortgage" here https://www.pistonheads.com/gassing/topic.asp?h=0&...
The summary is there is no right or wrong, depends on your outlook. Some people prefer to be mortgage free, others prefer to maximise investments in the hope they outperform the mortgage interest.
I do a bit of both and overpay mortgage enough so its gone when I want it to be gone when im 55 in 5 years time and pay as much into the pension wrapper as possible to maximise the tax relief.
The summary is there is no right or wrong, depends on your outlook. Some people prefer to be mortgage free, others prefer to maximise investments in the hope they outperform the mortgage interest.
I do a bit of both and overpay mortgage enough so its gone when I want it to be gone when im 55 in 5 years time and pay as much into the pension wrapper as possible to maximise the tax relief.
bogie said:
There is a long thread on "should I pay off the mortgage" here https://www.pistonheads.com/gassing/topic.asp?h=0&...
The summary is there is no right or wrong, depends on your outlook. Some people prefer to be mortgage free, others prefer to maximise investments in the hope they outperform the mortgage interest.
I do a bit of both and overpay mortgage enough so its gone when I want it to be gone when im 55 in 5 years time and pay as much into the pension wrapper as possible to maximise the tax relief.
Thanks - I think I need to model the efficiency of taking each pound as in year pay taxed at 40% and pay mortgage or invest, against putting that pound straight in to pension to grow and draw later at reduced taxThe summary is there is no right or wrong, depends on your outlook. Some people prefer to be mortgage free, others prefer to maximise investments in the hope they outperform the mortgage interest.
I do a bit of both and overpay mortgage enough so its gone when I want it to be gone when im 55 in 5 years time and pay as much into the pension wrapper as possible to maximise the tax relief.
GraemeP said:
Thanks - I think I need to model the efficiency of taking each pound as in year pay taxed at 40% and pay mortgage or invest, against putting that pound straight in to pension to grow and draw later at reduced tax
I would suspect that you are better off (i) maximising use of pension and ISA allowances and (ii) keeping clear of BTL given current yields and tax treatment. If your mortgage is below 50% LTV and you are on track to clear it well before retirement with current payments I would be tempted not to overpay it when rates are so low.If you keep some of your savings outside the pension you can always sell them to pay off the mortgage if rates spike.
NickCQ said:
I would suspect that you are better off (i) maximising use of pension and ISA allowances and (ii) keeping clear of BTL given current yields and tax treatment. If your mortgage is below 50% LTV and you are on track to clear it well before retirement with current payments I would be tempted not to overpay it when rates are so low.
If you keep some of your savings outside the pension you can always sell them to pay off the mortgage if rates spike.
Thanks Nick - I’ve got a mixed bag - the last mortgage I took out a few years back when we moved is repayment through to 70 years old - to give me a bit of liquidity if I need it. I will probably restart an over payment on that when we complete the last bit of renovations early next year, to get it on track to be paid at 65. It sucks being a grown up, I’d rather buy a GT3 😂If you keep some of your savings outside the pension you can always sell them to pay off the mortgage if rates spike.
GraemeP said:
Thanks Nick - I’ve got a mixed bag - the last mortgage I took out a few years back when we moved is repayment through to 70 years old - to give me a bit of liquidity if I need it. I will probably restart an over payment on that when we complete the last bit of renovations early next year, to get it on track to be paid at 65. It sucks being a grown up, I’d rather buy a GT3
70 seems a bit late? Depends on your target retirement date I suppose and whether you do manual work or not.Would be interesting to run the numbers on a refinancing to be paid off by ag 60-65 and see where that gets you on a monthly basis with potentially increased pension contributions as well.
Or just buy a GT3
NickCQ said:
70 seems a bit late? Depends on your target retirement date I suppose and whether you do manual work or not.
Would be interesting to run the numbers on a refinancing to be paid off by ag 60-65 and see where that gets you on a monthly basis with potentially increased pension contributions as well.
Or just buy a GT3
Yep absolutely - the account has no penalties to overpay up to 10% of total value. I don’t intend to have it beyond 65 so will set up direct overpayments to meet or exceed that.Would be interesting to run the numbers on a refinancing to be paid off by ag 60-65 and see where that gets you on a monthly basis with potentially increased pension contributions as well.
Or just buy a GT3
The next question will be, what investments can I make to fund a GT3 from!
Forget the BTL - that party's over.
Yes, you should get good efficiency from your proposal to keep the mortgage and fund the pension - assuming you' get at least 40% tax relief.
Just remember that if you find yourself in a career squeeze at any stage you might have debt you want to clear (the mortgage) and assets you can't access (the pension pot). Ouch.
What would I do? Probably a bit of each, with emphasis on the pension. Once you start paying down mortgage it's astounding how the compounding effect starts to bite. i.e. the more you pay down the more you can afford to pay down etc etc. And it feels goooood!
Yes, you should get good efficiency from your proposal to keep the mortgage and fund the pension - assuming you' get at least 40% tax relief.
Just remember that if you find yourself in a career squeeze at any stage you might have debt you want to clear (the mortgage) and assets you can't access (the pension pot). Ouch.
What would I do? Probably a bit of each, with emphasis on the pension. Once you start paying down mortgage it's astounding how the compounding effect starts to bite. i.e. the more you pay down the more you can afford to pay down etc etc. And it feels goooood!
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