Retirement Plan at 55 – Enough to retire?

ams25 · 8 October 2017 at 5:50PM

I’ve been asked for some advice (opinion) by a friend and I thought I could improve the quality of that input by asking the experts here. He plans to seek professional advice nearer the time but wanted to get a better feel for his position beforehand.

He’s looking to retire in 2 years at 55.

He has accumulated just over £1m and expects to add another £100k over the next 2 years, so say £1.1m at planned retirement. Its nearly all in equities (mostly globally diversified funds)

He will max out pension and ISA contributions over the next 2 years

The amount will be split approx. 60:40 across DC/SIPPS and ISAs (for him and his wife) at 55. DC pensions/SIPP are his. ISA are his and hers.

They will have his DB pension of approx. £20k pa from 60.

Will either be mortgage free or nearly mortgage free by 55.

They will have a full SP for him at 67 and probably 50% SP for her (both at least 12 years after they plan to retire)

They want to have approx. £50k pa (rising with inflation) to live off net of tax from 55 until at least 75. (lots of travel etc)

No kids to support.

He’s unsure about managing his investments himself or paying for it, given the value and importance of getting it right, but has been mainly DIY up to now and is considering continuing this approach and using an IFA.

Key Questions for the forum are:

1. Can they both retire at 55 and achieve the level of income they require
2. In support of 1, how can they minimise tax (c.£450k will be in ISAs) on the DC/SIPP/DB portion (and SP later).

Thanks

kidmugsy · 8 October 2017 at 6:00PM

ams25 wrote: »

They will have DB pensions of approx. £20k pa from 60. ....
They will have a full SP for him at 67 and probably 50% SP for her (both at least 12 years after they plan to retire)

How are the DB pensions split, how the money purchase pensions?

Do they intend to buy her the missing State Pension?

ams25 · 8 October 2017 at 7:13PM

kidmugsy wrote: »

How are the DB pensions split, how the money purchase pensions?

Do they intend to buy her the missing State Pension?

good point. the pensions - DB and DC are all his.. ISAs for both.
will edit main post to clarify.

not sure if they've considered buying her missing state pension. one to suggest.

EdSwippet · 8 October 2017 at 7:41PM

ams25 wrote: »

He has accumulated just over £1m ... The amount will be split approx. 60:40 across DC/SIPPS and ISAs (for him and his wife) at 55. DC pensions/SIPP are his. ISA are his and hers. ... They will have his DB pension of approx. £20k pa from 60.

Assuming this means that your friend has -- or will have -- £600k in DC pensions of some type (SIPP included), he needs to watch out for pension lifetime allowance issues. A £20k/year DB pension is valued at 20x for lifetime allowances purposes, so £400k. Added to £600k in DC pensions puts him right at the current £1mm lifetime allowance.

Saving into pensions above the lifetime allowance is at best not tax efficient, and may well produce worse outcomes than simply saving outside pensions. He will want to tread carefully here, then. In particular, maxing out pensions might no longer be the optimum thing for him to do.

Other points to consider around pensions include possible loss of employer pension contributions, and the interaction between pension savings and inheritance tax.

Audaxer · 8 October 2017 at 7:51PM

He is in a great position. However to have the whole £1.1m in equities seems very high risk. How would he feel if there was a equity crash in the next few years and his investment value dropped to £550k? Still more than enough for most of us, but not if you need £50k pa tax free from it to live on. I think I would want to lower the risk level by reducing the equity level to something like 60% at most.

kidmugsy · 9 October 2017 at 1:41AM

ams25 wrote: »

good point. the pensions - DB and DC are all his.

Bonkers position to get themselves into. Fill up pension for her to the max.

Triumph13 · 9 October 2017 at 10:02AM

Easy peasy - but key priority is to get wife's SP up to near full - I'm assuming your 'about half' is old contributions and so paying voluntary NICs for next 14 years and a few old years would get her there. If she's a mail order bride with no past NI history and the 'about half' already includes all future years, then they'll need to make the investments work a little harder, but still very doable.
£600k of DC becomes £450k of drawdown (taxable) funds and £150k to add to the ISA pot.
Start at point where both full SPs are in payment and work backward. With a very cautious 3% withdrawal rate you'd need the full £450k drawdown pot and £200k of the ISA pot to generate the long term income to give the £50k pa post tax. Call that the drawdown pot.
You then need a bridging pot to replace the SPs and DB in the years before they come on line. As the drawdown pot will still be producing income over this period, that works out at 5 years needing £31k waiting for DB and 7 years needing £15k waiting for the SPs = £260k in total needed for bridging.
That all works out to about £100k less than he has ALREADY accumulated - more than enough to fund 2 extra years of retirement @£31k bridging requirement and to fill all the holes in his wife's NI record. He can therefore retire TODAY and be very confident of £50k pa post-tax for life.

caldejud · 9 October 2017 at 10:13AM

I think if your friends want to find out if they will still have enough money after 75 once they have finished their travels etc they should take a look at the Retireeasy - they have 3 levels of their Lifeplan programmes - we have Classic and once you enter all the details the programme tells you if and when there is any possibility of having any shortfalls later on and you can do what-if planning. It's very good and costs £3 a month.

When we were selecting our IFA some of them wanted to charge up to £1,000 to do a cashflow plan which we did need but thought that was expensive. Anyway the adviser we chose in the end was happy to take a look at what we had done with Retireeasy so it may be worth a try for your friends

bostonerimus · 10 October 2017 at 5:44AM

Definitely use the wife's pension allocation to avoid life time limits on the husband's pension contributions and pay the extra NI for the wife to increase the state pension.

1.1M in assets should conservatively net 3.5% a year index linked for 30 years. To fund retirement at 55 the OP will have to drawdown 4.5% for the first 5 years and while high withdrawals early on can be dangerous it should be ok with careful budgeting and a plan for cost cutting and a some fixed income and cash to survive a market crash.

Once the DB pension starts the withdrawals can be backed off to around 3% which should be safe and when state pension start the withdrawals might be as low as 1%.

So the OP needs to maximize their wife's DC pension and NI contributions, keep saving to an ISA and adjust the asset allocation to give a more appropriate risk to return balance.....probably something closer to 60% equities than 100%. The OP should also minimize costs to maximize the drawdown amount they actually see form their portfolio....no need to pay funds and IFAs 2% or 3%.

ams25 · 10 October 2017 at 2:23PM

Thanks for all the responses.. which I will pass on. its been very helpful to put this out there for comment.

The LTA issue and % in equities are known and understood.

The wife's limited pension cover is a priority they will need to address, but have not.

The view that they could stop now is interesting... I suspect they want a bit more comfort and will continue to 55 - or maybe just OMY not 2!

thanks again.

ams25 · 10 October 2017 at 2:49PM

On a related note, this has got me thinking about my own wife's pension situation. Very different from my friend, but.... good to get some external views...

she is younger than me... probably 26 or 27 years from SPA (assume at 68 or 69)

...so access to a personal pension/SIPP is probably at least 16 years away

she is still working but probably only for 2 or 3 more years. Will have Child Benefit to maintain NI contributions for another 6 years, after that we may need to make additional contributions as she will only have 22 or so years of contributions.

she is contributing to her workplace DB scheme which is good but as she will only have limited years it won't be much unless she keeps working much longer which is not her intention. NRA is 65. She can't buy more years.

She is not a higher rate tax payer.

So, our approach to date and currently is to focus on her ISA funds (max it each year for the last few and on going while we can ) but not to bother with a SIPP/PP on the basis that access is too far away and we don't want to tie up funds that won't be accessible for at least 16 years (and possibly longer). she will have spousal benefit from my DB scheme and inherit my SIPPS/ISA so should be adequately provided for.

Does this approach seem sensible? Am I missing somethng?

Retirement Plan at 55 – Enough to retire?

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