From: cam@holyrood.ed.ac.uk (Chris Malcolm)
Newsgroups: uk.finance
Subject: Early retirement options
Date: Sun, 8 Aug 2004 20:31:34 +0000 (UTC)

I'm considering an early retirement deal. I have the the option of
taking all cash, in which case the excess over 30K gets taxed, or
putting some of it into my USS (universities superannuation scheme)
pension to increase my pension, which is retail-price-index
linked. The deal there is that for every 9000 I put into the scheme, I
add 430 per annum to my pension, plus 1300 to my pension cash
payment. I'm taking the max cash payment from the pension scheme in
order to pay off some of my mortgage.

Whatever I do, I won't have enough cash to pay off all the nearly 100K
interest-only mortgage on a now probably 350K house, and since I
recently exited from a low fixed interest two year option, I can't pay
off any of the mortgage for a few years, unless I pay a redemption
fee.

I certainly wouldn't want to sell the house now, because I could spend
some of my free time significantly improving its value without
spending much money, and it seems sensible to hang on to it as long as
I can afford to, as an investment. There are also lettable rooms which
could raise more than enough money to pay any amount of remaining
mortgage interest, or indeed to fund a switch to a capital repayment
mortage for whatever the remainder turns out to be.

So my various options with respect to splitting the early retirement
money between pension and cash are:

 1. Put as much of the money as poss into the pension scheme.

 2. Take as much cash as is untaxable (30K) and put the rest into the
    pension scheme.

 3. Take it all as cash and pay the tax.

Then, whichever of those I do, I'll have a pile of cash to dispose of,
and my choices about what to do with it seem to be:

 1. Pay the redemption fee and pay off as much of the mortgage as
    possible now.

 2. Salt it away and wait out the period of grace, and then pay off as
    much mortgage as possible.

 3. Use some of it to buy an annuity, or make some other kind of
    income-producing investment.

My question is, what kind of things do I need to take into account in
balancing out these various options? Spreadsheets and compound
interest etc. aren't a problem, it's options, ranges of interest,
risks, etc.. Yes, am employing an independent financial advisor, but I
want to be educated enough to have an intelligent discussion with my
advisor. I've paid for and naively accepted what turned out to be bad
advice in the past.

--
Chris Malcolm cam@infirmatics.ed.ac.uk +44 (0)131 651 3445 DoD #205
IPAB,  Informatics,  JCMB, King's Buildings, Edinburgh, EH9 3JZ, UK
[http://www.dai.ed.ac.uk/homes/cam/]