Terminal Gratuity: pay off mortgage or invest?
Terminal Gratuity: pay off mortgage or invest?
I retire in 3 months time and up until now I have always intended to use my Terminal Gratuity to pay off part of my mortgage. I have just done the Financial Aspects of Retirement Course which sadly now no longer benefits from a session with an Independent Financial Advisor, which it used to, and the question of what best to do with your Gratuity wasn't covered on the course.
I can afford to keep paying my mortgage premiums, as luckily I am going into full time employment.
I know we are all different but I really would appreciate any advice please on whether to pay off part of the mortgage (5% fix) or invest, and in what.
I can afford to keep paying my mortgage premiums, as luckily I am going into full time employment.
I know we are all different but I really would appreciate any advice please on whether to pay off part of the mortgage (5% fix) or invest, and in what.
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Originally Posted by OKOC
I retire in 3 months time and up until now I have always intended to use my Terminal Gratuity to pay off part of my mortgage. I have just done the Financial Aspects of Retirement Course which sadly now no longer benefits from a session with an Independent Financial Advisor, which it used to, and the question of what best to do with your Gratuity wasn't covered on the course.
I can afford to keep paying my mortgage premiums, as luckily I am going into full time employment.
I know we are all different but I really would appreciate any advice please on whether to pay off part of the mortgage (5% fix) or invest, and in what.
I can afford to keep paying my mortgage premiums, as luckily I am going into full time employment.
I know we are all different but I really would appreciate any advice please on whether to pay off part of the mortgage (5% fix) or invest, and in what.
Main thing is to lock the money into something that prevents you from spending it on frivolous items like cars and electrical goods - it may look like a big number but it will soon go if not looked after.
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I am NOT an IFA. If you want to speculate, you could make money or you could lose a lot of it. I bought a 'tracker' ISA 7 years ago and a certain group who "Quote you miserable" have charged me fees and percentages to turn £3000 into less than £2000. Right now I only put money in cash ISAs. That said I made 50% in 2 years by investing in a Cash ISA linked to the Halifax house price index and this was good result, at the time. However, a Cash ISA, into which you can only put £3k a year and earn 5% is safe but doesn't generate much money. Broadly, if you can't earn more %age interest after paying tax at your income tax rate, than the %age rate of your mortgage, you are better off paying something or all off your mortgage, IMHO. It may amuse you to know that the original idea of the cash lump sum was to enable one to pay cash for a house on retirement - days long gone! in 1977 my lump sum was £5400 and my house was £11,500.
Red On, Green On
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I'd suggest that such a large change in your circumstances warranted a total review of your financial assets/liabilities/risks, and so just pulling one lever, which might appear sensible, may have other, longer-term, but irreversible effects that you can not forsee.
I think a trip to an IFA with all your savings, insurances and incomes details would be sensible.
I've PM'd you one who has strong Services experience, and so will be able to assist. He's based in Wiltshire, so just around the corner from your location.
I think a trip to an IFA with all your savings, insurances and incomes details would be sensible.
I've PM'd you one who has strong Services experience, and so will be able to assist. He's based in Wiltshire, so just around the corner from your location.
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I'm NOT a financial adviser, either.
If you can find an investment paying more interest than you are paying on your mortgage then I'd put it in that, if you can't - then pay off the mortgage and save the monthly payments. Some places advertise jolly good rates for regular savings that a lump sum investment won't get.
If you can find an investment paying more interest than you are paying on your mortgage then I'd put it in that, if you can't - then pay off the mortgage and save the monthly payments. Some places advertise jolly good rates for regular savings that a lump sum investment won't get.
Cunning Artificer
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"Independent Financial Advisor" means that he doesn't work for a company. In other words, he's on commission. Commissions are good in the military. Everwhere else they're the scum of the earth. Listen carefully, as this is the best piece of financial advice you'll ever get. Never buy any financial product from anyone who's on commission. The sharks are cruising out there, they're after your money and you're the only one who has your own best interest in mind. Look after your money yourself, if you don't know how, keep it in a deposit account while you learn.
My own suggestion:
Take your money and split it three ways. Put one third into Gilts. Your Bank Manager (who is not on commission and will charge for advice) can help you choose a good spread of short, medium and long term ones. Put another third into ordinary shares. Buy into companies that are not likely to go bust in a downturn - bakeries, jam, beer etc. Put the last third into property - sell your house and trade up. The pension should pay the mortgage, your new civilian job will look after the rest.
Oh, and if your new job has a company pension scheme (the civil service has the best
K) don't opt out.
My own suggestion:
Take your money and split it three ways. Put one third into Gilts. Your Bank Manager (who is not on commission and will charge for advice) can help you choose a good spread of short, medium and long term ones. Put another third into ordinary shares. Buy into companies that are not likely to go bust in a downturn - bakeries, jam, beer etc. Put the last third into property - sell your house and trade up. The pension should pay the mortgage, your new civilian job will look after the rest.
Oh, and if your new job has a company pension scheme (the civil service has the best
K) don't opt out.
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Buy yourself one toy - widescreen tv, something like that. Buy Mrs OKOC (if there is one) similar. That will purge the "because I'm worth it" factor. Stick the equivalent of 2 months pay in an easy access building society as a panic fund and use the rest to put a large hole in the mortgage. Remember a mortgage is only a large debt and a significant proportion of the monthly payment goes to the bank for being good enough to lend it to you in the first place. Imagine being mortgage-free. That gives you a lot of extra each month to put where YOU want, not into the bank's coffers.
With 6 years to go to the point at which the endowment policy covering the mortgage is due to mature (fortunately, unlike many, mine will actually cover it!) I put an amount equal to the mortgage into the lowest risk possible. £30K into premium bonds (has so far made £2K +), the rest into a building society with a reasonable rate. Which means that, should I have a change of circumstances, I can always pay the mortgage off now and the endowment maturity will come in 2009. Plus you never know, one day Ernie may come up trumps and every month there's always that to look forward to on around the 3rd working day when the results come out!
The rest? Some toys, some invested in higher risk tracker ISA and some used for other things.
The job keeps the £1500 per month (net) pension topped up - but greedy Gordon takes a fair chunk and, no longer on PAYE, the unwelcome arrival of tax bills is a bit of a pi$$er!
I also discovered credit card management again after many years using debit cards. Use a credit card which gives you fringe benefits (I use Lufthansa Visa as it gives me points towards 'Miles and More' which I can use for personal travel) - arrange for it to be paid off in full automatically every month. Use on-line banking to keep the maximum possible in your savings account,with just enough in your current account to avoid paying any bank charges. Then use on-line banking to transfer whatever is needed to pay off the credit card bill just in time. Transfers between accounts are instant, so keeping an eye on the balance in current whilst keeping the maximum in savings is very simple.
The rest? Some toys, some invested in higher risk tracker ISA and some used for other things.
The job keeps the £1500 per month (net) pension topped up - but greedy Gordon takes a fair chunk and, no longer on PAYE, the unwelcome arrival of tax bills is a bit of a pi$$er!
I also discovered credit card management again after many years using debit cards. Use a credit card which gives you fringe benefits (I use Lufthansa Visa as it gives me points towards 'Miles and More' which I can use for personal travel) - arrange for it to be paid off in full automatically every month. Use on-line banking to keep the maximum possible in your savings account,with just enough in your current account to avoid paying any bank charges. Then use on-line banking to transfer whatever is needed to pay off the credit card bill just in time. Transfers between accounts are instant, so keeping an eye on the balance in current whilst keeping the maximum in savings is very simple.
Red On, Green On
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n other words, he's on commission. Commissions are good in the military. Everwhere else they're the scum of the earth. Listen carefully, as this is the best piece of financial advice you'll ever get. Never buy any financial product from anyone who's on commission.
The IFA I have suggested by PM to posters will work on either a commission basis, or an hourly rate, and provides detailed quotes for both.
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I left at 55. Not a financial adviser. I took my gratuity and paid a chunk of it over to my mortgage; I was determined to keep my pension intact. However, a friend pointed me to a financial adviser company with a top class National reputation - they and their fund managers regularily feature well in the financial press [pm or e-mail me if you want details].
They did a full health check and spent many hours over a number of evenings in our home in person discussing all the options. In the end, I was persuaded to commute and invest, and with their advice I now have a mixed [mainly low risk] portfolio that has grown substantially in the past 4 years. [For example, one of the investments £25K started in Jan 2004 is now worth £37K, very safe and readily available to cash-in].
Unless you have an in-depth knowledge of the financial system, investments available and all the pro's and con's, you MUST use an independant financial adviser - just make sure they don't charge you any fees. If you don't, it will take only one dodgy investment to wipe out your capital [or at best leave you with a lot less]. Everybody's circumstances are unique and advice suitable for one is not necessarily good for the next man. [I guess Blacksheep had a bad experience].
They did a full health check and spent many hours over a number of evenings in our home in person discussing all the options. In the end, I was persuaded to commute and invest, and with their advice I now have a mixed [mainly low risk] portfolio that has grown substantially in the past 4 years. [For example, one of the investments £25K started in Jan 2004 is now worth £37K, very safe and readily available to cash-in].
Unless you have an in-depth knowledge of the financial system, investments available and all the pro's and con's, you MUST use an independant financial adviser - just make sure they don't charge you any fees. If you don't, it will take only one dodgy investment to wipe out your capital [or at best leave you with a lot less]. Everybody's circumstances are unique and advice suitable for one is not necessarily good for the next man. [I guess Blacksheep had a bad experience].
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Is the general concensus to commute the max possible ? I know I'd rather have it tax free now than pay more to the Gov over the years.
Sure individual circumstances differ, but on the whole ?
Sure individual circumstances differ, but on the whole ?
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FFP
See my post #11. Don't do anything until you get advice. The most important bit is:
FJJP
See my post #11. Don't do anything until you get advice. The most important bit is:
Everybody's circumstances are unique and advice suitable for one is not necessarily good for the next man.
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As has been stated before personal circumstances differ but I leave in less than 3 years time and plan to blow 20K on a newer car and invest the rest as the mortgage was taken on when house prices were realistic and while the thought of clearing it off is a good one I just feel that my family and I should enjoy the money as I have earnt it over the past 20 odd years of hot and dusty conflicts.
PA
PA
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I think there is a lot to be said for paying off the mortgage. It needs to be considered against early repayment penalties / time to run / amount outstanding etc but to have your house paid off has to be a priority.
Certainly is mine. Way things are going it should be paid off 4 mths before I leave at my 38 point.
Certainly is mine. Way things are going it should be paid off 4 mths before I leave at my 38 point.
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OKOC
Pay it off - I did - 3 months of interest is dead money (eg - 3 x £340 = £1020 - big saving) and you still have to pay off the capital - I paid off 15 years of mortgage with my gratuity - up front capital payment of £5700.23p (interest over that period would have been £44,900) - and I would have still had to have pay off the capital (total = £105,100.23 at today's BofE rates)
Don't expect champagne or big bands - all I got was a tacky receipt from the Halifax with a cursory 'thank you' - just like I'd bought a gallon of petrol
Paying off your mortgage really pisses them off - they are no longer scrrewing you for interest - and yes, I felt really good when I signed the cheque and said under my breath - Fcuk you! - I suspect she heard me, which made it even more satisfying!
The gratuity is a windfall - you never had it before, so you won't miss it, and as a bonus, you should allocate your now defunct mortgage payments into an ISA or similar investment - youv'e already budgeted for that so you won't feel the pinch - meanwhile it's earning
Don't go mad and buy a new car or kitchen - wait 5 years, then you can buy both and still have your original investment
Take a look a Martin Shaw's "MoneySaving Expert.com" for extra help
Be Brave - Do It - Fcuk the banks
Pay it off - I did - 3 months of interest is dead money (eg - 3 x £340 = £1020 - big saving) and you still have to pay off the capital - I paid off 15 years of mortgage with my gratuity - up front capital payment of £5700.23p (interest over that period would have been £44,900) - and I would have still had to have pay off the capital (total = £105,100.23 at today's BofE rates)
Don't expect champagne or big bands - all I got was a tacky receipt from the Halifax with a cursory 'thank you' - just like I'd bought a gallon of petrol
Paying off your mortgage really pisses them off - they are no longer scrrewing you for interest - and yes, I felt really good when I signed the cheque and said under my breath - Fcuk you! - I suspect she heard me, which made it even more satisfying!
The gratuity is a windfall - you never had it before, so you won't miss it, and as a bonus, you should allocate your now defunct mortgage payments into an ISA or similar investment - youv'e already budgeted for that so you won't feel the pinch - meanwhile it's earning
Don't go mad and buy a new car or kitchen - wait 5 years, then you can buy both and still have your original investment
Take a look a Martin Shaw's "MoneySaving Expert.com" for extra help
Be Brave - Do It - Fcuk the banks
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PAY OFF THE MORTGAGE
The other great thing about paying off the mortgage is that if you do need money in the future you can always re-mortgage at lower rates than other loans available.