Is it a good strategy to access your pension at 50 and clear your mortgage?

B

Black_Knight

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50andOut said:
Note - Accessing the pension fund at 50 doesn't mean retiring, you just need to have left the employer where it was earned. At least for DC occupational pension schemes..

You can build a pension pot which grows tax free and which can be accessed at 50 with a tax free lump sum of 25%. Using the lump sum to pay off the mortgage and move the remaining 75% to an ARF where it will continue to grow and you don't need to start drawing on this until age 61. You are then free to move to a new job either at the same level - or as I plan to do, at a much lower level as I take the foot of the gas and find a more relaxing job.

I feel this is a far more flexible than paying down the mortgage as I will be unable to leverage this money later if plans change and inflation/wage increases over the past 15 years have made my mortgage manageable

50+o
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So would a plan be to have your mortgage balance equal to 25% of your pension pot by age 50. Take that 25% tax free, and clear the mortgage, and then keep working and contributing to your pension pot?
 
I really don't think that people can plan this level of detail ahead.

When you hit 50, this option might make sense, but you might be in the company and job of your dreams at 50 and you should not quit it for tax and pension purposes.

Most people at 50 have been with their employer for some time and they would find it difficult to move to similar level of salary and seniority. And the new job might not work out.

Nor am I sure that it's a good idea to cash 25% of your pension at age 50 when it is growing in a tax-free fund.

The broad financial plan is to be flexible and be able to handle whatever outcomes happen. So pay down your mortgage to a comfortable level. Then max your pension fund.

If you are aged 50 with a €100k mortgage and a salary of €80k, you should be under no pressure to pay it off.

Brendan
 
This is my plan. I have fixed my mortgage at a low rate until I am 50 and at that point accessing one of my old DC plan lump sums should pay off the mortgage. But I will make sure to keep some cash flexible in case the market is at a low at that point. I would then just keep paying the mortgage as normal until I was ready to crystalize gains in my pension funds.
 
There are circumstances, but not many.

I think it only makes sense if mortgage holder can access the sum without interfering with existing employment and the mortgage payment is a burden and there is a risk of an outstanding balance at 65.

Otherwise I think it is better to let funds accumulate tax free.
 
Ndiddy said:
This is my plan. I have fixed my mortgage at a low rate until I am 50 and at that point accessing one of my old DC plan lump sums should pay off the mortgage. But I will make sure to keep some cash flexible in case the market is at a low at that point. I would then just keep paying the mortgage as normal until I was ready to crystalize gains in my pension funds.
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This is key. It is an old pension that you can access. If you only have one and you are contributing to it, you would have to leave the scheme to access the funds. You would then have to start up a personal pension plan and forgo your employer's contributions. You will also forgo your employer paying for the administration of your pension plan.

Imputed distribution will also start from age 61, so you will have to start taking money from your pension, even if you are not working.

Paying down the mortgage may also free up cash for you to be able to maximise your personal pension contributions, allowing you to contribute more to your pension.

It is something that you need to run the numbers on.
  1. How much will paying the mortgage to term cost me?
  2. How much will cashing in my pension early cost me in future lump sum and ARF value?
  3. How much can I increase my pension contributions by by paying off mortgage?
  4. Can I save further into future personal investments as well?
It cannot be a once size fits all as there are so many variables in play when calculating whether it is worth doing.


Steven
www.bluewaterfp.ie
 
I have a Buy Out bond from a previous pension scheme i was in. Can i access 25% of that bond at 50? The retirement age was 60 when I worked for that company/member of that pension scheme.
 
TRS30 said:
I have a Buy Out bond from a previous pension scheme i was in. Can i access 25% of that bond at 50? The retirement age was 60 when I worked for that company/member of that pension scheme.
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Yes, you can.

To access the pension early, it must be in the trust deed and rules and the trustees must give permission. Standard trust deed and rules allow this and trustees don't care about defined contribution pensions being accessed early, so they always allow it.


Steven
[broken link removed]
 
Hadn't considered what the OP suggested before, good food for thought.

So if I have a spare 10k (gross), I can either:
  • a) Pension investment of €10,000 @ 6%
  • b) Mortgage overpayment of €6,000 @ 3%
Understand it might be tricky to hit the 25% = outstanding balance, but in simple terms, assuming min. 2 pensions available, and returns/rates per the above, you'd expect a) to beat b) in most scenarios, right?
 
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