MTTM Podcast Episode 551 – How much to save for a comfortable retirement & mortgage splitting

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Are you saving enough for retirement?

Summary:

We examine the latest PLSA Retirement Living Standards research, which provides a benchmark for the annual income required to fund a minimum, moderate, or comfortable lifestyle in later life. With 91% of working-age people falling short of the amount needed for a comfortable retirement, we discuss the realities of these figures. We then break down the exact pension pot sizes required to achieve these incomes by age 66 and provide actionable figures on how much you need to contribute monthly to hit those targets based on your current age.

Key Insights:

• Most people are falling short - Research suggests that 91% of working-age individuals are not saving enough for a comfortable retirement, and 73% are failing to save enough for even a moderate retirement.
• Pension living standards - According to the PLSA, a single person needs an annual post-tax income of £13,900 for a minimum standard, £32,700 for a moderate standard, and £45,400 for a comfortable standard.
• Target pot sizes - To secure a moderate retirement, a single person requires a pension pot of approximately £413,000 by age 66, whereas a comfortable retirement requires a pot of £691,000.
• The cost of delaying - As a general rule of thumb, for every ten years you delay starting your pension contributions, the monthly amount you need to save to reach your target roughly doubles.

What are split mortgages?

Summary:

We look at 'part and part' mortgages, an often-overlooked option that allows borrowers to split their mortgage balance. We explain the two main variations: splitting the loan between repayment and interest-only, or splitting the loan between a fixed interest rate and a tracker rate. We focus on the latter, discussing how mixing fixed and tracker rates can offer a compromise in an uncertain interest rate environment, while also highlighting the significant risks, such as early repayment charges and double arrangement fees.

Key Insights:

• Two tyoes of spit mortgage - A 'part and part' mortgage can refer to splitting the repayment method (part repayment, part interest-only) or splitting the interest rate type (part fixed, part tracker).
• Hedging your bets - Taking part of your mortgage on a tracker rate and part on a fixed rate allows you to benefit from currently lower tracker rates while maintaining some security against future rate rises.
• Strategic overpayments - Because tracker mortgages typically do not have early repayment charges, having a portion of your mortgage on a tracker can allow you to make penalty-free overpayments to clear your debt faster.
• Drawbacks - Having staggered end dates on your fixed and tracker portions can make remortgaging difficult and may leave you trapped with your current lender or facing hefty early repayment penalties.

Resources

Links referred to in the podcast:

• Sign up to our weekly newsletter
• How the Middle East peace deal impacts your finances
• PLSA Retirement Living Standards research
• Quilter research
• The Money Vault 26 ways to boost your pension pot
• Best Mortgage Rates in the UK
• How offset mortgages work