Early Retirement

TigerWoods2 · 28 July 2016 at 1:30PM

Hi all, am new to MSE. Wish I would have found it years ago. Due to ill health I have just taken early retirement and have received a lump sum of 40k. I will get a small monthly pension of about £1200. I have no dependents but do have a mortgage. I have no debt. and am 51yrs old. I will take a loss of £1000 net per month. I will have to make this up by moneysaving and hopefully finding part time work.
I'm looking for advice on the following:

Do I pay NI or tax on my pension?
What should I do with the 40k lump sum. Can I invest for income?
Am I entitled to any benefits?
Sorry if this has been posted in the wrong place but like I say I'm new and its my first post.

AlanP_2 · 28 July 2016 at 1:38PM

Will help with what I can:

TigerWoods2 wrote: »

Hi all, am new to MSE. Wish I would have found it years ago. Due to ill health I have just taken early retirement and have received a lump sum of 40k. I will get a small monthly pension of about £1200. I have no dependents but do have a mortgage. I have no debt. and am 51yrs old. I will take a loss of £1000 net per month. I will have to make this up by moneysaving and hopefully finding part time work.
I'm looking for advice on the following:

Do I pay NI or tax on my pension? - TAX Yes, NI No You will pay Income Tax at (presumably) standard rate (20%) on the amount of income above Tax Free / Tax Code allowance.

What should I do with the 40k lump sum. Can I invest for income? - YES. Lots of options which can be discussed in more detail. Have a browse through the Retirement Board as well.

Am I entitled to any benefits?
Sorry if this has been posted in the wrong place but like I say I'm new and its my first post.

Get yourself a State Pension quote which will start to give you some idea of what that could be worth at 66'ish when you get to start collecting that.

The "trick" in your case I think is to try and smooth your income between now and getting that State Pension boost.

Any other pensions from past employers that need to be factored in?

beecher2 · 28 July 2016 at 1:44PM

Yes, you'll pay tax on your pension but you shouldn't pay too much if your earnings are £14,400 - think it'll be £50/month
https://www.gov.uk/tax-on-pension/whats-taxed-and-whats-taxfree

I don't think you'd get much income from investing £40k, maybe a Santander current account and a couple of TSB accounts would get you some money though. I'm sure others will give more options though.

Use http://www.entitledto.co.uk/ to see if you're entitled to any benefits,

Linton · 28 July 2016 at 1:57PM

You dont pay NI on a pension though if you have less than the 35 years required for maximum State Pension it could be very worthwhile paying voluntarily.

Your pension is subject to tax in exactly the same way as earnings through PAYE.

You can invest for income. If you are prepared to invest in the stock market and accept a level of risk a typical very long term sustainable income would be around 3.5% -4% of the initial amount uprated by inflation, say £1500/year. You could get some more if you adjust the income according to market conditions. This is subject to tax unless the investment is held in an S&S ISA. But the money would probably be counted as dividends for which you get a £5K allowance.

Alternatively you could plan to spend your £40K completely by the time you reach state pension age, say £2.5K/year with no tax.

Benefits - I dont know

TigerWoods2 · 28 July 2016 at 2:36PM

Thanks so much for quick replies. I have just done an online pension forecast and will only get £119 per week. I am 9 yrs short.

I already have a stocks and shares Isa which is valued at around 62k.
My mortgage is interest only 132k. Equity in my house is about 30k
I do own my parents house outright with no mortgage. They live in it rent free which will stay that way until they pass. That house is currently worth around £120k.

I have no other pensions or income streams.
I will check for benefits but doubt I'll be entitled to any.
I would like to know what best to do with the lump sum. I would prefer to put it in a high yielding stocks and shares isa as suggested and see if I can manage on the income it produces along with my other stocks and shares Isa.

I also need to find out how much it will cost to pay voluntary NI contributions for the next 9yrs.

hennerz · 28 July 2016 at 4:18PM

TigerWoods2 wrote: »

I will have to make this up by moneysaving and hopefully finding part time work.

If you find part time work:

If you have employment earnings above the lower earnings limit (£112 per week for 2016/17), you fall within the NIC system and can get NIC credits. However, you do not actually have to pay any Class 1 NIC until your earnings reach the earnings threshold (£155 per week for 2016/17).

Hitting this lower earnings for the next 9 years could qualify you for the full state pension.

AnotherJoe · 29 July 2016 at 8:34AM

How do you plan to pay off your IO mortgage and when would you need to do that?

Vortigern · 29 July 2016 at 10:17AM

Benefits: OP may be entitled to contribution based Job Seekers Allowance, which comes with NI credits that will help to build state pension.

If/when JSA runs out OP can continue to sign on at the Jobcentre for NI credits only.

The £40,000 lump sum would probably bar the OP from claiming any means tested benefits.

OP should seek advice at a Jobcentre.

Edit to add: A pension in payment will probably reduce the cash value of JSA, but should not affect the NI credits.

moneypenny2k · 29 July 2016 at 1:53PM

If you have taken early retirement due to ill health you may find you're entitled to Personal Independence Payment PIP which is upwards of £220 per 4 weeks. This is not taxible - worth a look

TigerWoods2 · 29 July 2016 at 6:06PM

Thanks for the replies. Very helpful. Another Joe, I would sell one of the houses when my parents pass. They are both in their 80's but in very good health.

I have my mortgage for another 20 yrs. Once I see where I am up to with my reduced income I will see if there is anything less to pay down the mortgage each month.

Thanks for the advice re NI and job seekers. I shall look into it.

G_M · 29 July 2016 at 6:34PM

What interest rate are you paying on the mortgage?

May be worth using the £40K to reduce that unless you can earn more via savings or investments.

Early Retirement

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