Remortgage my house, money into pension, retire early?

[NorthernBoy]

Okay, have been doing a bit of thinking about how I could retire early and have come up with the following plan and would welcome any thoughts.

I’m 50 years old, ex RM and in a job that pays 20k a year, i don’t mind the job but it’s physically hard and as I get older I know it will become difficult. I plan to take my NRA 60/65 benefits at 60 which will last me up to 67 when state pension kicks in.

Ideally I would like to finish work some point between 55 and 60, preferably nearer 55. I have a small Dc pension with my current employer.

My idea is to remortgage my house (assuming I can at my age) and put 60k into my DC pension over the next 5 years. With tax relief this becomes 75k and with my DC pot I could end up with say 100k by age 56ish. At this point I would then retire and drawdown my 100k over the next 4 or so years which would mean a gross income of 25k per year.

Yes there would be a little tax to pay, but I should come out with nearly 2k net per month. This 2k is way more than I earn now and would be enough to live a reasonable retirement at a relatively young age.

Am I crazy thinking about doing the above or could it actually work? Any comments welcome.

[grchpo]

What about the mortgage repayments ?

[NorthernBoy]

What about the mortgage repayments ?

Would be about £250 a month, manageable.

[bucks123]

If you were to do this I would suggest ensuring the money you add to your DC pension is invested in cautious funds or even cash (if your time frame for spending it is just a few years as you indicate). The last thing you want is to be hit by stock market volatility when you need to draw that DC money.

The downside to your plan is you would have a larger mortgage payment throughout your retirement with no guarantee of future mortgage interest rates. Most people try and clear their mortgage before retirement (not always possible I know but it has a big difference in income needs afterwards).

Have you thought about working part-time for a few years from 55 instead of remortgaging? That's what I am doing as a part timer at Royal Mail after a full time career elsewhere.

[NorthernBoy]

If you were to do this I would suggest ensuring the money you add to your DC pension is invested in cautious funds or even cash (if your time frame for spending it is just a few years as you indicate). The last thing you want is to be hit by stock market volatility when you need to draw that DC money.

The downside to your plan is you would have a larger mortgage payment throughout your retirement with no guarantee of future mortgage interest rates. Most people try and clear their mortgage before retirement (not always possible I know but it has a big difference in income needs afterwards).

Have you thought about working part-time for a few years from 55 instead of remortgaging? That's what I am doing as a part timer at Royal Mail after a full time career elsewhere.

Good point about putting the extra money into cautious funds. Part time working could be an option, but not my preferred choice if I can afford to retire.

[heapsy]

It sounds like a daft idea to me. Instead of remortgaging, why not explore Equity Release instead? It really depends on how much you want / need. Tbh this all sounds like closing the stable door after the horse has bolted. When chatting about the pensions / retirement issue I always tell people they should ask themselves two questions. 1 When do you plan to retire? 2 IF you were retiring next week, how much would you need / want? Only by answering those two questions can you possibly work a plan out. Hate to say it but it sounds like you got the whole thing wrong as you have already left RM, which you didn't need to do, and yet you are still working. I've no idea what you did with the money but that should have gone into your pension / investments.

[RobertT]

Okay, have been doing a bit of thinking about how I could retire early and have come up with the following plan and would welcome any thoughts.

I’m 50 years old, ex RM and in a job that pays 20k a year, i don’t mind the job but it’s physically hard and as I get older I know it will become difficult. I plan to take my NRA 60/65 benefits at 60 which will last me up to 67 when state pension kicks in.

Ideally I would like to finish work some point between 55 and 60, preferably nearer 55. I have a small Dc pension with my current employer.

My idea is to remortgage my house (assuming I can at my age) and put 60k into my DC pension over the next 5 years. With tax relief this becomes 75k and with my DC pot I could end up with say 100k by age 56ish. At this point I would then retire and drawdown my 100k over the next 4 or so years which would mean a gross income of 25k per year.

Yes there would be a little tax to pay, but I should come out with nearly 2k net per month. This 2k is way more than I earn now and would be enough to live a reasonable retirement at a relatively young age.

I am crazy thinking about doing the above or could it actually work? Any comments welcome.

I can't fault your desire to retire early and using a DC scheme via drawdown is a good way of doing it – I'm planning on doing the same. Although accessing the money over a longer period of time is likely to be more tax efficient. Your plan, using a £100k pot, would see you losing £10k in tax based on the current personal tax allowance and no other income.

As for remortgaging to pay for it – to be honest I think it's mad!

You say the repayments will be £250 per month, but for how long and for how much total cost?
I'm not up to speed on current rates, but a quick look on an online mortgage calculator would suggest a £60k loan at repayments of £250 per month would take 30 years to pay back, based on a 3% rate. Meaning a total payback of £90k.
In practice 3% is probably conservative, so increase it up to 4% and you're talking a higher monthly repayment or a 40 year / £120k payback.

As others have said, most people try to pay off their debts ready for retirement, so to increase yours is asking for trouble in my opinion.
Saving up the money would be better, but obviously it's a lot in a fairly short space of time, so perhaps working for longer and / or surviving on a smaller income is more realistic?

But I would avoid equity release at all costs, it's not really a sensible choice for someone in their 50's.
At 55 you're only likely to be able to release about 20-25% of the house value anyway and god knows how much equity you'll have given away by the time you pop your clogs!

[stephen500]

Okay, have been doing a bit of thinking about how I could retire early and have come up with the following plan and would welcome any thoughts.

I’m 50 years old, ex RM and in a job that pays 20k a year, i don’t mind the job but it’s physically hard and as I get older I know it will become difficult. I plan to take my NRA 60/65 benefits at 60 which will last me up to 67 when state pension kicks in.

Ideally I would like to finish work some point between 55 and 60, preferably nearer 55. I have a small Dc pension with my current employer.

My idea is to remortgage my house (assuming I can at my age) and put 60k into my DC pension over the next 5 years. With tax relief this becomes 75k and with my DC pot I could end up with say 100k by age 56ish. At this point I would then retire and drawdown my 100k over the next 4 or so years which would mean a gross income of 25k per year.

Yes there would be a little tax to pay, but I should come out with nearly 2k net per month. This 2k is way more than I earn now and would be enough to live a reasonable retirement at a relatively young age. I am crazy thinking about doing the above or could it actually work? Any comments welcome.

How about taking in a lodger, under the rent a room scheme https://www.gov.uk/government/publicati ... A37%2C500.

[Woody Guthrie]

Using the value of your property to help fund your retirement is in my opinion a good idea, there's little point in sitting on a house valued at £250,000 eating beans until you die.

However remortgaging especially at 50+ is not the answer unless you plan to sell up and live in a tent at retirement the repayments over such a short space of time will kill you.

I suspect however you're actually considering equity release which could under certain circumstances be a viable option although expensive in the long run.

[NorthernBoy]

Thanks for all the comments, useful to get different opinions.

[Schiff]

Thanks for all the comments, useful to get different opinions.

Although you will get a range of opinions on a forum like this I would seriously suggest that you see an independent financial advisor before taking the steps that you are considering. This may, or may not, work out the way that you want it to. An IFA can look at your financial circumstances in full and look at your options.

You are likely going to have to pay for that financial advice, but I would suggest that it would be well worth it. Bad mistakes at this stage of your retirement planning could prove significantly more costly in the long run.

[Janet Brum]

I`m with RobertT here, remortgaging is not a good idea, you still have to pay that mortgage wich is an added expense on long term even if it gives you some cash on short term.

If I was you, I would sell the house and buy a much cheaper 1 bed house or a flat in a cheaper area of UK or even in one of the cheap European countries and live off the rest of the money.

[TheStrangler]

Equity release better idea than mortgage, at least no one has to pay it back!
Depends on if you have dependants and if so, how much they'd need the money when you croak it. Though I gather you can set aside an amount to leave them if you wish.

[NorthernBoy]

I`m with RobertT here, remortgaging is not a good idea, you still have to pay that mortgage wich is an added expense on long term even if it gives you some cash on short term.

If I was you, I would sell the house and buy a much cheaper 1 bed house or a flat in a cheaper area of UK or even in one of the cheap European countries and live off the rest of the money.

I did look into retiring to Spain as the climate appeals to me. However after selling my place and buying, there would be no spare cash from the move. Also Spanish tax allowances are much lower than U.K. and I think I could be financially worse off over there.

[derricksmyth]

I`m with RobertT here, remortgaging is not a good idea, you still have to pay that mortgage wich is an added expense on long term even if it gives you some cash on short term.

If I was you, I would sell the house and buy a much cheaper 1 bed house or a flat in a cheaper area of UK or even in one of the cheap European countries and live off the rest of the money.

I did look into retiring to Spain as the climate appeals to me. However after selling my place and buying, there would be no spare cash from the move. Also Spanish tax allowances are much lower than U.K. and I think I could be financially worse off over there.

Is renting in Spain a possibility?