Mortgage loan and Supercharging Your Pension : Big Strategic Financial Moves


Calculations by Standard Life show a possible increase to retirement if mortgage loan payments are switched later in life for pension contributions. A 25-year term taken out at the age of 30 would permit a decade prior to State Pension eligibility without a mortgage. Your retirement fund and lifestyle may be significantly affected by increasing your pension contributions once you turn 55 and your pay may be greater.

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Many homeowners have been seeking longer mortgage loan terms in an effort to increase their monthly budgets as a result of the recent sharp increases in interest rates, but a new analysis from Standard Life, a division of Phoenix Group, highlights the potential retirement benefit of paying off your mortgage as soon as your circumstances permit. In addition to removing housing expenditures from your retirement plans, paying off your mortgage a few years before retiring would also free up funds that might be utilized to enhance your pension contributions and expand your retirement savings.

As your pay is likely to be greater and you have the best opportunity of profiting from any potential compound investment gain, boosting your pension saving near the end of your career has the potential to greatly increase the value of your final pot.

In principle, raising contributions by 1% from the age of 55 to retirement at the age of 66 might result in £13,000 more in your pension pot. However, making subsequent adjustments to the monthly payment will have a higher influence on the final retirement pot.

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According to usual Life’s estimate, people who start off earning £25,000 a year and pay the usual monthly auto-enrolment payments (5% employee, 3% employer) as soon as they are 22 might accumulate a total retirement fund of £461,000 by the time they turn 66, excluding the effects of inflation. A 25-year mortgage term taken out at the age of 30 would be paid off, thus adding 4% to contributions per year for 10 years starting at age 55 might result in a total pot of £513,000, which is £52,000 more than if no top-ups were done.

Compound investment growth’s potency

 To demonstrate the possibility of late-career compound investment growth, assume that someone started saving for a pension at the usual monthly rates of 5% for the employee and 3% for the employer at the age of 22. At the age of 55, they would have a pot worth $228,000.

 Your pension account might grow to £461,000 if you continued to contribute at the usual rate for an extra ten years (aged 55 to 66). Therefore, if your circumstances permit, making payments at this point in your life might greatly increase your chances of raising your pot.

It seems sense that customers are searching for longer mortgage terms to reduce their monthly burden given the skyrocketing interest rates since the middle of last year, according to Dean Butler, At Standard Life, the managing director for retail direct.

 Not everyone will be able to—or even want to—stick to a shorter mortgage term, but it’s still important to think about how any choice can affect your retirement. Being mortgage-free in retirement has obvious advantages, but having the choice to forgo mortgage payments in the crucial years prior to retirement can have a hugely positive impact on your pot and, consequently, your standard of living in retirement.

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“Having a mental picture of your ideal retirement is a crucial first step in guiding your financial planning and aids in decision-making. The Pensions and Lifetime Savings Association’s Retirement Living Standards tool, which depicts what living in retirement looks like at three distinct levels—Minimum, Moderate, and Comfortable—can be useful. Along with regular spending, the application also takes into account what is required for extras like presents, special occasions, big purchases, etc.


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