The Lemon Fool

StepOne wrote:I'm looking forward to paying off the mortgage as much as the next man, but I currently have both a mortgage and an HYP. We come out of our fixed rate next March, and I have considered cashing in the HYP and paying off a chunk of the mortgage.

I would be better off each month (mainly because the majority of the mortgage payment is capital repayment, not interest), but when we reach the original mortgage end date, I won't have my HYP sitting in my ISA - instead I will have nothing.

And I can't help thinking that if we did have a bit of extra money each month, it would just go on stuff we don't really need.

If we can get by on what we earn at the moment, then why pay off the mortgage. Just keep the HYP, going and possibly use that to retire a bit earlier.

I understand what everyone says about the psychology, but I keep thinking, why take a course of action that makes me worse off?

Apologies for hijacking the thread

I confess that when I had a mortgage, I also had an ISA. Usually spare money went into the ISA, but sometimes, when I couldn't identify investments that I liked, I paid off mortgage capital. Hence I was effectively borrowing to finance the ISA until I paid the mortgage off (five years early)

I always struggle to fritter away money. It either paid off mortgage debt or was invested. However the decision is easy while you have an income. The results might be the same when you don't, but I bet that it doesn't feel the same if you are drawing down capital from a pension or from an ISA to support yourself until you can claim the pension.

I would definitely get rid of the single company share. Not only is there an unnecessarily high risk of failure, but most companies underperform the market over the long haul. Holding one company is a bit like holding a single premium bond, with the long term return very likely to be below the average payout.

Paying off the mortgage may well be a good idea, but look into a few other things first. For example, is your wife maxing out her pension contributions? If not, that may work out better than paying off the mortgage completely. Depending on when she stops work and the size of the pension pot, she may be able to boost her contributions by up to 25% by feeding through the pension system. Make a contribution of 10k, that gets lifted to 12.5k from the governments tax relief, then draw 25% as a tax free PCLS and the rest at zero income tax, within the personal allowance. Even if she has to pay full basic rate income tax on the withdrawal, her contributions would still be boosted by about 6%, less costs.

Another thing to consider is to delay taking your db pension. What uplift would you get if you did that? Similarly, you might want to consider delaying your state pensions, but whether this is worth it will depend on your circumstances at the time and the deal on offer.

hiriskpaul wrote:I would definitely get rid of the single company share. Not only is there an unnecessarily high risk of failure, but most companies underperform the market over the long haul. Holding one company is a bit like holding a single premium bond, with the long term return very likely to be below the average payout.

I guess there is an emotional attachment. I've worked at this company for a number of years, holding built as part of renumeration & incentives. Dividend payout has been consistent at ~5% for last 10 years. Maybe they'll go down the pan when I have left!!

hiriskpaul wrote:Another thing to consider is to delay taking your db pension. What uplift would you get if you did that? Similarly, you might want to consider delaying your state pensions, but whether this is worth it will depend on your circumstances at the time and the deal on offer.

As per original post:£14k age 55, £16.5k age 60, £20.5k age 65

Nearly

NearlyThere wrote:I guess there is an emotional attachment. I've worked at this company for a number of years, holding built as part of renumeration & incentives. Dividend payout has been consistent at ~5% for last 10 years. Maybe they'll go down the pan when I have left!!

You probably have a fairly good idea of the company's prospects. But I personally know people who worked for RBS in 2008 who simultaneously lost their jobs and saw their share plans, previously worth 100s of £K, reduce to buttons.

They learned the "eggs in one basket" lesson too late.

Scott.

NearlyThere wrote:

hiriskpaul wrote:I would definitely get rid of the single company share. Not only is there an unnecessarily high risk of failure, but most companies underperform the market over the long haul. Holding one company is a bit like holding a single premium bond, with the long term return very likely to be below the average payout.

I guess there is an emotional attachment. I've worked at this company for a number of years, holding built as part of renumeration & incentives. Dividend payout has been consistent at ~5% for last 10 years. Maybe they'll go down the pan when I have left!!

hiriskpaul wrote:Another thing to consider is to delay taking your db pension. What uplift would you get if you did that? Similarly, you might want to consider delaying your state pensions, but whether this is worth it will depend on your circumstances at the time and the deal on offer.

As per original post:£14k age 55, £16.5k age 60, £20.5k age 65

Nearly

Ok, so if you don't take your pension at 55, you can take it at 60 for £2.5k more? What if you take it at 56, 57, 58, etc? You need to consider the amount lost in not drawing compared to the amount gained. If at say 56, you would receive 14.5k, then the extra 0.5k would have cost you 14k. That would be like buying a 3.6% annuity at age 56. You need to take your tax situation into account as well because the 14k you give up might not all be taxed at basic rate, but the the additional £500 would be. A 3.6% index linked annuity at age 56 might not sound a great offer, but it is much better than anything you could buy in the market (assuming you don't have health issues).

Don't forget that you can continue to put money into a SIPP even when you are drawing down. £2880 net, £3600 gross even with no relevant earnings.

Oh, and never fall in love with a share!

NearlyThere wrote:I also hold shares in a single company worth around £160k which currently pays dividends of £8k p.a

Some share save schemes have tax benefits I understand but even so is there a potential capital gains or dividend income tax on some of that? A bit of tax planning might be useful.

I guess there is an emotional attachment. I've worked at this company for a number of years, holding built as part of renumeration & incentives. Dividend payout has been consistent at ~5% for last 10 years. Maybe they'll go down the pan when I have left!!

They are making people redundant. Reducing the workforce is often not a healthy sign

kempiejon wrote:

NearlyThere wrote:I also hold shares in a single company worth around £160k which currently pays dividends of £8k p.a

Some share save schemes have tax benefits I understand but even so is there a potential capital gains or dividend income tax on some of that? A bit of tax planning might be useful.

I am in a similar position, tax (lower rate) and scheme entry bonuses (assuming share price and fx average out at no gain/loss) on my company share schemes work out at 100% on one and 50% on the other with a holding period of 5 years. When each tranche is available I sell and put enough for next years schemes into a cash account and the profit into an ISA s&s. If I do that then I diversify myself whilst retaining the benefits of workplace share schemes.

i amassed some share options from the company savings scheme and quickly sold when they matured into shares. Following the eggs in one basket principle.

Within weeks the company became subject to takeover and the shares more than doubled when finally taken over.

I “lost” plenty and have nightmares over it. Some of my colleagues were not as stoopid as me.

feder1 wrote:Within weeks the company became subject to takeover and the shares more than doubled when finally taken over.

That's risk reduction for you. If the Company had announced, say, accounting issues and the price halved, you would look smug.