Being able to pay off the mortgage is the dream of many homeowners, but just what will you do with all that extra money once it's been repaid? Well, Saga has taken a look, and it seems that many over-50s choose to splash out…
The research found that many over-50s choose to spend their mortgage repayment 'pay rises' on holidays, home improvements and gifts for their children – and with those who become mortgage-free reporting an average monthly income increase of £322, it's little wonder that they feel in the money.
Indeed, 45% paid for home improvements and around 40% spent the money on holidays, while 27% were able to buy a new car. Happily, half put some of their newfound pool of money into a savings account, but it seems that many aren't taking a long-term view of the whole thing, with just 23% using the cash to top up their retirement savings.
Given that later life income is becoming an increasingly hot topic, it's disappointing that so few of those who own their home outright think about putting that extra cash into a pension. Many could build a hefty pot, too: the average retirement age for those surveyed came in at 62, but they were able to pay off their mortgage at an average age of 55, giving them a seven-year period of mortgage-free income.
When you consider that pension investments attract tax relief, you'll soon get an idea of how big a pension fund those respondents could have achieved if they'd put their freed-up cash into a pension. Indeed, Saga Investment Services calculated that if homeowners had diverted 100% of their monthly mortgage repayments into a pension for those seven years until retirement age, they could have saved an additional £40,550 towards their retirement nest egg (based on 5% annual growth).
Diverting some – or all – of your newfound income could well pay off in the long run, and could even mean that you're able to retire sooner than planned, as Nici Audhlam-Gardiner, managing director at Saga Investment Services, comments:
"Repaying a mortgage is one of life's biggest financial achievements, and it's understandable that people want to enjoy the income boost that they're finally getting after decades of debt repayments, but this often comes when there's limited time to build up as big a nest egg as possible for retirement.
"In our survey, a third of people said they were able to retire earlier than planned because they'd made the effort to put their extra income into their pension, while 44% said they have ended up with a higher retirement income than they originally expected."
As Nici says, making the most of your finances in the run up to retirement is vital to ensure you have a comfortable life once work is over, so doesn't it make sense to save as much as you can into a pension? Of course, you'll want to celebrate a bit when you're finally able to repay the mortgage, but once the initial excitement is over, it'd be worth putting your sensible hat back on again.
"Professional financial advice for people at this age can help formulate a plan to get the income they need," added Nici, and it really can be invaluable. Even if you're not in the market for this kind of advice just yet, simply saving as much as you can into a saving account or pension can work wonders, so if you're lucky enough to be able to repay your mortgage and boost your income, make sure to carefully think about how you can put the cash to even better use. Your retirement could thank you for it!
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