Pension contributions v pay off tracker mortgage

D

Daddy Ireland

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Any obvious advice welcome. Mortgage remaining 20k on lowest tracker rate costs approx €180 in interest p.a currently. 6 years remaining.
Income €38k. Retiring in 4 years. Savings €80k.
Only paying €100p.m into pension scheme into a cash fund. Pension pot currently €220k. No other debts just a car loan.
Can afford to clear mortgage now or allocate 20k over 4 years as additional avc's. Should I just carry on paying the mortgage, sit on the cash or contribute 20k to pension or indeed max pension contibutions for my age 61 out of €80k savings for next 4 years ? Thanks for opinions.
 
What interest rate are you paying on the car loan?

Are you paying income tax at the higher rate on any of your income?

Also, what age will you be when you retire?
 
It probably makes sense to maximise your pension contributions for the next 4 years.

For a married couple, once either spouse is aged 65 or over there is a complete exemption from income tax on incomes up to €36,000. There's no PRSI on income if you are aged 66 or over and no USC on social welfare payments (including the State (Contributory) Pension).

Let's say your pension pot reached €280k on retirement. Take €70,000 as a tax-free lump sum and put €210,000 into an A(M)RF, from which you initially draw an income of €8,400 per annum. Even when added to the State pension, it looks like you gross income will be well below the €36k threshold.
 
I'd pay off the house and your car today and plough as much money as you can into your pension.

I just like the idea if being free of debt.
 
Laughahalla said:
I'd pay off the house and your car today and plough as much money as you can into your pension.

I just like the idea if being free of debt.
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Hello,

Daddy Ireland appears to be so close to being debt free, I don't think it really matters :)

I'd max out the pension contributions myself, whether you leave it in cash or not, once in the actual pension vehicle, is obviously a different consideration.
 
Thanks for thoughts. All of you advocate that I should maximise my contributions to 40% (age bracket) even though I only get 20% relief. Does the following look correct:
So I pay in €15,200 instead of €1,200 p.a for next 4 years. That will cost me an additional €11,200 p.a (14k less 20% relief) and I can utilise my savings pot to the same amount for income foregone. So all being the same my savings pot in 4 years time will be €80k less €44,800. My pension pot will be €220k plus €60,800 (not allowing for pension costs). I can withdraw 25% of pot being €70,200 instead of €56,200 if so just continue as is contributing 1,200 p.a. So that's 14k extra back in lump sum that cost me a net after tax relief €44,800. If correct looks worthwhile ?
 
My wife has a public service pension of 10k and when come retirement that's added to her state pension of 12k together with my state pension of 12k and 4% withdrawal we will be over the 36k mark.
 
Daddy Ireland said:
My wife has a public service pension of 10k and when come retirement that's added to her state pension of 12k together with my state pension of 12k and 4% withdrawal we will be over the 36k mark.
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Ah, I hadn't appreciated that your wife would have an income of €22k, giving you a combined income of €40k+ in retirement.

In that case, maybe it doesn't make sense to maximise your pension contributions if you will only get relief @20% on contributions and are taxed on any drawdown at an effective rate of around 30% (allowing for the 25% tax-free lump sum). Does your employer make any matching contributions?
 
Sorry Sarenco. Yes employer pays 3k regardless of what I contribute. In light of my wifes income do you think my post 7 above makes any sense. Like surely its a better proposition than clearing the mortgage. Does post 7 make sense ?
 
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