Retirement plan

[LHRFlightman]

Hi all.

I was 59 last week, my final salary pension is available in 12 months time, but I plan on working to 63. Our mortgage will be gone 6 months before I retire. House is worth 550K and we don't plan on moving until 2 or 3 years after I retire. Neither my wife and I had inheritances so we're happy we can pass the house onto the kids.

Here is my 'plan', I'm happy to take some feedback, financially I'm not the best. My wife has a state pension only.

For every year beyond 60 I defer my final salary pension, it increases by 8% compound. I've had a quote on the numbers at 63 and I'll get 25% tax free, circa 130K, and an annual pension of 20K. (30K if i don't take the lump sum) I plan on taking it.

On top of that I've my current DC pension which is projected to pay me a pension of 7.5K at 63. So a 130K lump sum plus an annual combined pension of 27.5K.

After 4 years I'll get the full state pension, 18 months later my wife will get her full state pension as well. So in 10 years time, pensions should be around 50K per annum.

Between retiring an getting my state pension 4 years later, I've simply taken the lump sum and divided it by 4 to give us 27.5K pension + 32.5k per annum to enjoy ourselves with for four years. Things like a USA road trip for a couple of months, my sister in law live sin Brisbane so 3 months out there, flying business class both ways.

I've never had investments, or spoken to an IFA about this, so I know I'm missing making the 130K lump sum do something for us. Short of putting it away and getting the interest, what could/should I be considering? And does the plan stack up?

Thanks for reading.

Pete

[Sheets Tabuer]

I'd be looking at putting the lump sum in some income stocks, loads of income funds around if you don't want your own dividend stocks, plenty about or perhaps the good old S&P withdrawing 4% annually.

NOT an IFA though just something I would do to keep me away from temptation if it was in a bank.

[alscar]

I'm assuming that your planned course of action"obviously" covers your annual outgo from the day you retire.
As such keeping the then taken pot to give you £32.5k for 4 years probably means keeping that in low risk / no risk cash based savings.
Putting that in a combi of say 25% instant access and then the balance into longer term fixed rate bonds ( maybe spread over a mixture of 1 and 2 year ) ?
What are your needs for an additional "slush fund " post that 4 year period though ?

[mikeiow]

All sounds good - any more expectation of helping out the offspring? That could certainly & instantly absorb some of the lump sum.
With the DC pots likely to be part of IHT soon, we decided we would try to help ours out more in advance of us dying. Ideally without leaving us destitute

You mention "current DC pension which is projected to pay me a pension of 7.5K at 63"
Are you planning to buy an annuity with that, or did you mean a DB pension. DC pensions are simply a pot that you invest how you like & draw how you like.

Sounds like your finances aren't far from being sorted :thumbsup: Maybe think about the drawdown to try to avoid paying unnecessary tax. Spreadsheet time!

What about your lifestyle? Hobbies, plans, hopes.....get those lined up, ideally started, before you retire!

I recommend taking 11 minutes to watch the latest James Shack video here - he pretty well nails things!

[Countdown]

Op - what happens if (god forbid) you pop your clogs? How much of your DB/DC pensions will transfer to your wife?

if it's zero then she'll only have the SP to rely on which wouldn't be a great state of affairs.

[omniflow]

How did you get the number £7.5K from your DC pension? Is that an annuity?

You'd be better off (in my opinion) by keeping your DC pension pot in "growth mode" until you're a couple of years away from using up the lump sum and then, depending on how risk averse you are, leave it in growth mode, or switch it to less volatile investments and then when you've spent all the lump sum, start drawing down on your DC pot.

[oddman]

If you defer until 63 you are giving up 3 years of pension. 8% compound growth sounds good but have you done the calculation of how many years you would need to be collecting the enhanced pension from 63 to recover the pension not taken between 60 and 63?

If your pension at 60 was £10000 that would be £12700 at 63. By 63 you could have taken £30000 out of the scheme (more if the pension is index linked). Therefore It would take 30000/2700 ie 11 years to 'earn' the pension you gave up by not taking it on time. By this time you've got your state and money purchase pension coming in.

I don't know if you can take your pension and continue to work (retire and return), if so I don't think it makes sense not to take an occupational pension at the earliest opportunity. It could also give you the option of going part time for 3 years or saving and taking a smaller lump sum

Most of these exchange arrangments favour the pension scheme not the punter.

[Michael_B]

oddman said:

If you defer until 63 you are giving up 3 years of pension. 8% compound growth sounds good but have you done the calculation of how many years you would need to be collecting the enhanced pension from 63 to recover the pension not taken between 60 and 63?

If your pension at 60 was £10000 that would be £12700 at 63. By 63 you could have taken £30000 out of the scheme (more if the pension is index linked). Therefore It would take 30000/2700 ie 11 years to 'earn' the pension you gave up by not taking it on time.

My workplace pension gives a sliding scale of annuity rates depending on age of retirement. In my scheme the crossover point between retiring at 60 compared to 65 in terms of total cash received, is at age 81. Of course from that age onwards you continue receiving the reduced amount for the rest of your life, in this case 5.25k instead of 6k for each 100k of pension pot. But for someone with a reduced life expectancy due to family history, chronic illness, disability or just a desire to stop working earlier, taking the earlier option might be the right decision.

[SunsetZed]

oddman said:

If you defer until 63 you are giving up 3 years of pension. 8% compound growth sounds good but have you done the calculation of how many years you would need to be collecting the enhanced pension from 63 to recover the pension not taken between 60 and 63?

If your pension at 60 was £10000 that would be £12700 at 63. By 63 you could have taken £30000 out of the scheme (more if the pension is index linked). Therefore It would take 30000/2700 ie 11 years to 'earn' the pension you gave up by not taking it on time. By this time you've got your state and money purchase pension coming in.

I don't know if you can take your pension and continue to work (retire and return), if so I don't think it makes sense not to take an occupational pension at the earliest opportunity. It could also give you the option of going part time for 3 years or saving and taking a smaller lump sum

Most of these exchange arrangments favour the pension scheme not the punter.

I agree with your sentiment as I'm very much a bird in the hand is worth 2 in the bush when it comes to taking a DB pension. If I'm healthy and can spend it later great but I'd rather have it now whilst I know I am but I disagree on taking the pension whilst working part of your comment if the OP is a higher tax rate payer. If, after including the pension amount, the OP would stay in basic rate then it still makes sense though.

[oddman]

Michael_B said:

My workplace pension gives a sliding scale of annuity rates depending on age of retirement. In my scheme the crossover point between retiring at 60 compared to 65 in terms of total cash received, is at age 81. Of course from that age onwards you continue receiving the reduced amount for the rest of your life, in this case 5.25k instead of 6k for each 100k of pension pot. But for someone with a reduced life expectancy due to family history, chronic illness, disability or just a desire to stop working earlier, taking the earlier option might be the right decision.

I also take the view that income in early retirement is much more useful than income in my 80s (if I get that far). If I need care I can draw on assets

SunsetZed said:

I agree with your sentiment as I'm very much a bird in the hand is worth 2 in the bush when it comes to taking a DB pension. If I'm healthy and can spend it later great but I'd rather have it now whilst I know I am but I disagree on taking the pension whilst working part of your comment if the OP is a higher tax rate payer. If, after including the pension amount, the OP would stay in basic rate then it still makes sense though.

Of course working and pension can take you through 40% threshold. One of the reasons I didn't R&R even part time was it would be at 40% tax.

My experience is with NHS pension scheme and its amazing how many seemingly intelligent people don't take their pension when it is due (at 60) or don't seem to understand that retiring and taking your pension aren't the same thing.

Edited by oddman on Monday 6th January 20:10

[LHRFlightman]

oddman said:

If you defer until 63 you are giving up 3 years of pension. 8% compound growth sounds good but have you done the calculation of how many years you would need to be collecting the enhanced pension from 63 to recover the pension not taken between 60 and 63?

If your pension at 60 was £10000 that would be £12700 at 63. By 63 you could have taken £30000 out of the scheme (more if the pension is index linked). Therefore It would take 30000/2700 ie 11 years to 'earn' the pension you gave up by not taking it on time. By this time you've got your state and money purchase pension coming in.

I don't know if you can take your pension and continue to work (retire and return), if so I don't think it makes sense not to take an occupational pension at the earliest opportunity. It could also give you the option of going part time for 3 years or saving and taking a smaller lump sum

Most of these exchange arrangments favour the pension scheme not the punter.

Thanks, that's a different perspective and got me doing a new spreadsheet.

One issue would be that taking the pension at 60 and not retiring would take me into the 100k tax bracket.

Thanks everyone for all your comments so far.

[Michael_B]

LHRFlightman said:

Thanks, that's a different perspective and got me doing a new spreadsheet.

One issue would be that taking the pension at 60 and not retiring would take me into the 100k tax bracket.

Thanks everyone for all your comments so far.

FWIW I will taking the early option at 60 (in 18 months time), taking a small pension but most of the pot in cash, a third of which will tide us over until Swiss state pensions kick in at 65 and then UK pensions at 67.

We’ll give another third to the children, and keep the rest as savings. If things go south financially or healthwise, we also have a secondary residence which we can sell. None of my parents/grandparents lived past eighty…

[Armitage.Shanks]

LHRFlightman said:

oddman said:

If you defer until 63 you are giving up 3 years of pension. 8% compound growth sounds good but have you done the calculation of how many years you would need to be collecting the enhanced pension from 63 to recover the pension not taken between 60 and 63?

If your pension at 60 was £10000 that would be £12700 at 63. By 63 you could have taken £30000 out of the scheme (more if the pension is index linked). Therefore It would take 30000/2700 ie 11 years to 'earn' the pension you gave up by not taking it on time. By this time you've got your state and money purchase pension coming in.

I don't know if you can take your pension and continue to work (retire and return), if so I don't think it makes sense not to take an occupational pension at the earliest opportunity. It could also give you the option of going part time for 3 years or saving and taking a smaller lump sum

Most of these exchange arrangments favour the pension scheme not the punter.

Thanks, that's a different perspective and got me doing a new spreadsheet.

One issue would be that taking the pension at 60 and not retiring would take me into the 100k tax bracket.

Thanks everyone for all your comments so far.

I didn't think you can take your final salary pension AND still work for the same company?

It's a balance taking the max lump sum, in my case I didn't have a use for it. But I worked out with mine if I didn't take the max I'd get the larger annual pension but it would take me approx 16yrs to achieve the lump sum I got on day 1.

[Zigster]

Have you considered whether you could take the DB pension at 60 and then pay more of your ongoing earned income into your DC scheme to build up a bigger DC pension and avoid the 60% tax trap over £100k?

[LHRFlightman]

Armitage.Shanks said:

I didn't think you can take your final salary pension AND still work for the same company?

It's a balance taking the max lump sum, in my case I didn't have a use for it. But I worked out with mine if I didn't take the max I'd get the larger annual pension but it would take me approx 16yrs to achieve the lump sum I got on day 1.

I don't work for that company anymore. Haven't for almost 5 years.

[200Plus Club]

The way I see it is while in your 60s and fit/able you can/should do all the things you wanted to including travel. It's all well and good waiting till 63 then 67 to have more pension money but you've "lost" 3 years of time you could have used elsewhere instead of working/saving.
By the age of 75 for instance you may find it tiring/difficult to do long haul or have health issues that preclude it.
Just my take on things, your kids don't need your cash leaving to them by the sound of it so get it spent (with planning and spread carefully obviously).

[Henry Cat]

I would consider that waiting for four more years reduces your fit time in retirement by four years . We all have a limited time here and with some alternative planning you are less than a year from retirement not four .
We don't know the future we do know the here and now and it may be time to make best use of the now .
Something always comes along that can derail any of us .

Many good suggestions in here, especially pay attention to the what happens when you pass with your wife's finances.
My view would be to meet now with some IFA's , just to get some views.
They all do first meetings at no cost .

I retired at 57 because I could. I am two years in, remain in good health.
Worked 30 years in Banking, still found, IFA advice very useful.

[mikeiow]

Henry Cat said:

I would consider that waiting for four more years reduces your fit time in retirement by four years . We all have a limited time here and with some alternative planning you are less than a year from retirement not four .
We don't know the future we do know the here and now and it may be time to make best use of the now .
Something always comes along that can derail any of us .

Many good suggestions in here, especially pay attention to the what happens when you pass with your wife's finances.
My view would be to meet now with some IFA's , just to get some views.
They all do first meetings at no cost .

I retired at 57 because I could. I am two years in, remain in good health.
Worked 30 years in Banking, still found, IFA advice very useful.

I firmly agree with making the most of early retirement years (getting old is full of illness & sickness perils ).
What advice in particular from your IFA did you find most useful?

[Hol]

mikeiow said:

Henry Cat said:

I would consider that waiting for four more years reduces your fit time in retirement by four years . We all have a limited time here and with some alternative planning you are less than a year from retirement not four .
We don't know the future we do know the here and now and it may be time to make best use of the now .
Something always comes along that can derail any of us .

Many good suggestions in here, especially pay attention to the what happens when you pass with your wife's finances.
My view would be to meet now with some IFA's , just to get some views.
They all do first meetings at no cost .

I retired at 57 because I could. I am two years in, remain in good health.
Worked 30 years in Banking, still found, IFA advice very useful.

I firmly agree with making the most of early retirement years (getting old is full of illness & sickness perils ).
What advice in particular from your IFA did you find most useful?

Following..

Edited by Hol on Tuesday 7th January 09:09

[Derek Chevalier]

Henry Cat said:

My view would be to meet now with some IFA's , just to get some views.
They all do first meetings at no cost .

I'm not aware of any financial planners who give views during introductory or discovery meetings. Not sure how you could start doing that without going through the planning process.

These meetings are more of a chance to find out if you're a good fit, and the adviser can add value to the potential client's situation that more than covers their fees.