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  • FIRST POST
    • Rodders2409
    • By Rodders2409 7th Sep 17, 5:19 PM
    • 25Posts
    • 6Thanks
    Rodders2409
    Life's swerve ball - need to plan differently!
    • #1
    • 7th Sep 17, 5:19 PM
    Life's swerve ball - need to plan differently! 7th Sep 17 at 5:19 PM
    Hello All,

    I've not posted before but need to get some basic advice ahead of probably enlisting an IFA in the coming months.

    To cut a long story short my better half is going to face some medical / life challenges in the coming years (PD) and we need to plan accordingly, so this is a first stab!....any and all advice very welcome.

    Really want to know if I'm way out in thinking I can retire at 60, with the following parameters...

    Me
    50 yrs / M / Born 1966
    Employed

    Her
    57 / F / 1960
    Housewife...oldskool ..
    Zero income

    We have zero mortgage and no other borrowings

    My pensions
    Aegon - current company pension £169,341...only active one.
    Friends Life 1 £66,998
    Friends Life 2 £4,529
    Friends Life Managed fund £14,341
    Total pension pot (to date) £255K

    Missus' pension
    Prudential - £27,573...no contributions for >15 yrs

    I have recently increased my personal contributions, in anticipation, to £1167 p/m excluding tax relief, and the company pay £205 pm into the same scheme.

    I have a property which I rent out and get £7000 p/a net of all costs...and am looking to get this put into my other half's name if it's tax beneficial. This would form quite a big part of our pension plans I guess.

    We aren't big spenders and have worked out, based on 2 years of trawling through statements etc, that we could fairly comfortably live on £28K pa.

    Question is ...is that possible if I retire at 60?

    Thanks to all who read this!
Page 2
    • michaels
    • By michaels 8th Sep 17, 7:48 AM
    • 19,769 Posts
    • 90,330 Thanks
    michaels
    Depending whether you think the kids will gain employment that will ever pay off the govt borrowings as otherwise you are just funding them with money that will be written off anyway.
    Cool heads and compromise
    • Rodders2409
    • By Rodders2409 8th Sep 17, 8:26 AM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Wwhhooaa...this is really good feedback and I'll get my head around this later this morning, and I warn you that there will be questions and some of them stupid...so be warned ;-).....but many thanks to all that have taken the time to feed me this info'....cheers.
    • crv1963
    • By crv1963 8th Sep 17, 8:44 AM
    • 155 Posts
    • 412 Thanks
    crv1963
    Wwhhooaa...this is really good feedback and I'll get my head around this later this morning, and I warn you that there will be questions and some of them stupid...so be warned ;-).....but many thanks to all that have taken the time to feed me this info'....cheers.
    Originally posted by Rodders2409


    Hi Rodders2409


    I too have found this Forum really helpful, the people on here are very generous with their knowledge and explain things, there is no such thing as a stupid question, only the stupid don't question!


    Good luck with your plans, using this forum our "dream" of actually retiring before State Pension Age looks like it might be possible with some planning and of course (for us) hard saving.


    CRV
    • FatherAbraham
    • By FatherAbraham 8th Sep 17, 9:22 AM
    • 737 Posts
    • 561 Thanks
    FatherAbraham
    I have a property which I rent out and get £7000 p/a net of all costs...and am looking to get this put into my other half's name if it's tax beneficial. This would form quite a big part of our pension plans I guess.
    Originally posted by Rodders2409
    Better still, get rid of it.
    "After careful planning and research, my wife and I bought our first rental property last year. We bought it as a long-term investment, but our first tenant hasn’t paid rent for four months.

    We have sought advice from our solicitor, who is telling me it will take nine months to get them evicted.
    "
    http://www.telegraph.co.uk/property/property-doctors/property-doctors-first-tenant-hasnt-paid-rent-four-months/

    Warmest regards,
    FA
    • Terron
    • By Terron 8th Sep 17, 9:58 AM
    • 97 Posts
    • 95 Thanks
    Terron
    Given that it sounds like they have a good tenant (as the majority are) getting rid of it now would seem a bad idea. A single property providing a significant amount of your income is risky. especially if it is mortgaged, though more from voids than bad tenants. But if you have a good tenant you might as well hang on to the property at least until they give notice.
    • Mnd
    • By Mnd 8th Sep 17, 10:07 AM
    • 237 Posts
    • 274 Thanks
    Mnd
    I just refer you back to post 15 where you say there willl be no restrictions on paying into the prudential pension, just to clarify the only restriction will be the amount of cash. As a non earner she is restricted to the 2880 made up to 3600. You may have got that but just to make it clear.m
    • FatherAbraham
    • By FatherAbraham 8th Sep 17, 10:25 AM
    • 737 Posts
    • 561 Thanks
    FatherAbraham
    Given that it sounds like they have a good tenant (as the majority are) getting rid of it now would seem a bad idea. A single property providing a significant amount of your income is risky. especially if it is mortgaged, though more from voids than bad tenants. But if you have a good tenant you might as well hang on to the property at least until they give notice.
    Originally posted by Terron
    No, the other way around.

    The real estate is worth more when it looks like a trouble-free rent with a great tenant. That's the time to cash in.

    If one waits until problems manifest, one takes a massive hit as a distressed seller.

    Warmest regards,
    FA
    • Rodders2409
    • By Rodders2409 8th Sep 17, 11:20 AM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Ok...here we go!

    Michaels....unfortunately my other half won't be able to draw her SP until 66 yrs old.

    Bontonerimus ...can you advise how you got to £678K as a pension pot by 60yrs?

    I am at approx £255K now and aiming to continue with paying in at least £1167 + £205 (company)...plus the 25% tax , so I'm guessing your figure is derived from this growing year on year to a value such as £678K?...I had thought it would be around £480K - £520K.

    Xylophone...yes it's DC and no Safeguards

    Kidmugsy...

    The Prudential have said that they won't allow any new payments in, but we can move to a different product that could possibly allow it. From what you've mentioned we could transfer to any SIPP (learning the lingo!) and start the process of adding the £2880 to maximise the tax benefit.

    We wouldn't need to draw down until I stopped working at 60...unless I miss something as I didn't quite understand this part...

    "The point of her drawing this income would be to make it easier for you to contribute more to your pension e.g. to get your income down to the higher rate tax threshold (£45k, but £43k in Scotland). You should take maximum advantage of the 40% tax relief while it's still available".

    I've decided that the kids are tall enough so feeding them anymore is probably not required :-)
    • Rodders2409
    • By Rodders2409 8th Sep 17, 11:45 AM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Sorry, I missed responses regarding the rental property!

    I't been a big bonus for us and was an accident, as it was meant to have been sold when we purchased the family home in 1994, but the buyer back then pulled out and the lovely Bank Manager (remember those!?) let us keep the property alongside the family home provided I tried to sell it asap and could cover both mortgages...which we didn't ...and we did :-)

    So we've had a total of 4 tennants with the current one being there for 9 years and the mortgage was paid off last year.

    I can't see how cashing in would be better than getting the rental and allowing a good level of diversification on our potential incomes. Especially as I'm pretty handy and able to keep the costs down etc...

    I'm sorry you've had a bad experience though Father Abra...that sounds awful.
    • Rodders2409
    • By Rodders2409 8th Sep 17, 12:22 PM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Now the cogs are starting to wwerrr in my noggin, am I correct in this summary...

    Our current pensions are generally OK and 'locked' away in large managed funds with the likes of Aegon / FrIends Prov' & Prudential, where I'm looking to maximise payments from myself and restart some payments into my other half's to gain a tax benefit.

    The pension companies should be adding growth to the increasing pension pots over the next 10 years 'till I'm 60 by about 4-5% p/a.

    At 60 yrs the pension companies hopefully will have grown our pot so it reaches somewhere between £450K - £500K ...at that point we would start to draw down from the pots at approx 4-5% and add our rental income, with the SP's kicking in approx 6 years later.

    In general we should / could leave the pensions in these companies to continue the investments to cover the 4-5% draw down throughout the retirement period...OR...should we be thinking to move some out and get it spread across other investment platforms to maximise returns?

    I've started to realise that there's many options if you can be bothered to manage your own future more closely...with risks though I guess.
    • BLB53
    • By BLB53 8th Sep 17, 12:45 PM
    • 1,156 Posts
    • 939 Thanks
    BLB53
    Our current pensions are generally OK and 'locked' away in large managed funds with the likes of Aegon / FrIends Prov' & Prudential
    I suppose you need to know the actual charges being taken by the current providers...is this something you have looked into? It may be possible to transfer to a SIPP and save ~1.0% or so in charges which translates to £4,500 p.a in your pocket rather than the current provider - over 20 yrs this is £90K.
    If you choose index funds you can never outperform the market.
    If you choose managed funds there's a high probability you will underperform index funds.
    • bostonerimus
    • By bostonerimus 8th Sep 17, 12:45 PM
    • 1,133 Posts
    • 644 Thanks
    bostonerimus
    Bontonerimus Bostonerimus...can you advise how you got to £678K as a pension pot by 60yrs?
    Originally posted by Rodders2409
    I started with your total current pension balance of about 282k, added annual contributions of 16.2k and did a compound interest calculation assuming 5% annual return for 10 years....that gets you a pot of about 670k
    Last edited by bostonerimus; 08-09-2017 at 1:00 PM.
    Misanthrope in search of similar for mutual loathing
    • bostonerimus
    • By bostonerimus 8th Sep 17, 12:58 PM
    • 1,133 Posts
    • 644 Thanks
    bostonerimus
    Yep, definitely look at the cost of your current pensions, you might find some nasty fees and be able to save some money there.

    I also have a paid off rental property which returns around 6% after expenses. In 20 years I've never had an issue with tenants and having an investment that pays 6% and has have 5% annual capital growth for the past 20 years is pretty good. I think you are right to keep it as it's a nice diversifier to your pensions, produces good income and is pretty low risk having no mortgage.

    I would be nervous with an initial withdrawal of 5%. Anyway you probably won't need that much when you add in the state pensions. It might be ok if you scale back when the state pensions start, but if you can get away with an initial withdrawal closer to 3% the probability of you running out of money will be close to zero.......assuming you have a well diversified investment portfolio with around 50% equities.
    Misanthrope in search of similar for mutual loathing
    • Rodders2409
    • By Rodders2409 8th Sep 17, 1:12 PM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Thanks.
    I'll look into our current pension companies management costs.

    The possibility of moving funds into a SIPP to cut out charges, is that a very normal process because it feels like I'd need to get a great deal more involved with what investments are made etc...not that I'm totally opposed to this.

    I read about different products / portfolio's being mentioned where there seems to be discussions on the balance of equities and returns etc...something I've basically handed over to the companies and don't get involved with...ever!
    • michaels
    • By michaels 8th Sep 17, 1:42 PM
    • 19,769 Posts
    • 90,330 Thanks
    michaels
    Ok...here we go!

    Michaels....unfortunately my other half won't be able to draw her SP until 66 yrs old.

    Bontonerimus ...can you advise how you got to £678K as a pension pot by 60yrs?

    I am at approx £255K now and aiming to continue with paying in at least £1167 + £205 (company)...plus the 25% tax , so I'm guessing your figure is derived from this growing year on year to a value such as £678K?...I had thought it would be around £480K - £520K.

    Xylophone...yes it's DC and no Safeguards

    Kidmugsy...

    The Prudential have said that they won't allow any new payments in, but we can move to a different product that could possibly allow it. From what you've mentioned we could transfer to any SIPP (learning the lingo!) and start the process of adding the £2880 to maximise the tax benefit.

    We wouldn't need to draw down until I stopped working at 60...unless I miss something as I didn't quite understand this part...

    "The point of her drawing this income would be to make it easier for you to contribute more to your pension e.g. to get your income down to the higher rate tax threshold (£45k, but £43k in Scotland). You should take maximum advantage of the 40% tax relief while it's still available".

    I've decided that the kids are tall enough so feeding them anymore is probably not required :-)
    Originally posted by Rodders2409
    From what I understood when you are 60 your wife will be 67 and thus already in receipt of her state pension.

    The advantage of living off your wife's pension now and putting the eqivalent amount into your pension is that your pension comtribution will be 'grossed up' at your 40% marginal tax rate. Ie draw 4k pa from her pension will incur no tax for her as she has an 11k allowance (but uses 7k of this for rent). You then pay 4k of tour net income into your pension and the revenue adds back the 40% tax you have paid on this so the gross pension contribution is 6650. Net effect 4k from your wifes pension pot, 6650 into yours.
    Cool heads and compromise
    • Rodders2409
    • By Rodders2409 8th Sep 17, 2:57 PM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    Michaels....

    Rrriiighhht.....I think I get it !

    Yes, she would be getting her SP when I'm 60 which is something that I had stupidly ignored in my calculation, but happily it makes it better for us.

    When you say..."now"...in
    "The advantage of living off your wife's pension now and putting the eqivalent amount into your pension "

    What do you mean?

    Until now I hadn't understood that I may be able to to get a larger tax benefit being a 40% payer. My pension statements show tax relief at 25% only against my personal payments.

    I've been a 40% tax payer for > 15 years, is it possible to get the tax relief credit backdated?

    Do I get any tax relief against the companies contributions?
    • AlanP
    • By AlanP 8th Sep 17, 5:45 PM
    • 967 Posts
    • 685 Thanks
    AlanP
    Are you sure your Tax Code hasn't been adjusted to give you the HR tax relief?

    If not you can contact HMRC and get that sorted very quickly.

    No idea how far you can backdate the claim.

    No relief against employer's contribution - your tax / your contribution.

    The employer will be taking pension costs of their profits so will be getting that "tax relief".
    • Apodemus
    • By Apodemus 8th Sep 17, 6:25 PM
    • 954 Posts
    • 769 Thanks
    Apodemus


    When you say..."now"...in
    "The advantage of living off your wife's pension now and putting the eqivalent amount into your pension "

    What do you mean?
    ?
    Originally posted by Rodders2409
    I think you are missing the suggestion that if your wife is already old enough to draw down the Prudential pension, you might be able to free-up more cash to put into your own pension (as well as putting £2880 into a SIPP in her name).

    The magic age for accessing private pension pots is 55 at the moment, regardless of State Pension Age.
    • Rodders2409
    • By Rodders2409 8th Sep 17, 8:16 PM
    • 25 Posts
    • 6 Thanks
    Rodders2409
    OK understood Apodemus....thanks for sticking with me.

    AlanP
    ....how would I recognise if the Tax office is giving me the full 40% tax relief on my pension?
    I've looked at my P60 and can't see anything obvious to advise me.
    • FatherAbraham
    • By FatherAbraham 8th Sep 17, 9:36 PM
    • 737 Posts
    • 561 Thanks
    FatherAbraham
    I'm sorry you've had a bad experience though Father Abra...that sounds awful.
    Originally posted by Rodders2409
    Nothing to do with me; it was a quote from an article in the Personal Finance section of the Daily Telegraph.

    I think the moral of that story is that owning a lettable property is tremendously undiversified. You are correct to desire diversification in your portfolio, and to want to invest in real estate.

    The problem is that direct ownership of real estate is as undiversified as owning an entire small business rather than a portfolio of shares. The outcomes are extreme, the liquidity low.

    Warmest regards,
    FA
    Last edited by FatherAbraham; 08-09-2017 at 9:39 PM.
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