Your browser isn't supported
It looks like you're using an old web browser. To get the most out of the site and to ensure guides display correctly, we suggest upgrading your browser now. Download the latest:

Welcome to the MSE Forums

We're home to a fantastic community of MoneySavers but anyone can post. Please exercise caution & report spam, illegal, offensive or libellous posts/messages: click "report" or email forumteam@.

Search
  • FIRST POST
    • ams25
    • By ams25 8th Oct 17, 5:50 PM
    • 100Posts
    • 85Thanks
    ams25
    Retirement Plan at 55 – Enough to retire?
    • #1
    • 8th Oct 17, 5:50 PM
    Retirement Plan at 55 – Enough to retire? 8th Oct 17 at 5:50 PM
    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
    Last edited by ams25; 08-10-2017 at 7:14 PM. Reason: clarification
Page 1
    • kidmugsy
    • By kidmugsy 8th Oct 17, 6:00 PM
    • 9,895 Posts
    • 6,673 Thanks
    kidmugsy
    • #2
    • 8th Oct 17, 6:00 PM
    • #2
    • 8th Oct 17, 6:00 PM
    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)
    Originally posted by ams25
    How are the DB pensions split, how the money purchase pensions?

    Do they intend to buy her the missing State Pension?
    • ams25
    • By ams25 8th Oct 17, 7:13 PM
    • 100 Posts
    • 85 Thanks
    ams25
    • #3
    • 8th Oct 17, 7:13 PM
    • #3
    • 8th Oct 17, 7:13 PM
    How are the DB pensions split, how the money purchase pensions?

    Do they intend to buy her the missing State Pension?
    Originally posted by kidmugsy
    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
    • By EdSwippet 8th Oct 17, 7:41 PM
    • 625 Posts
    • 588 Thanks
    EdSwippet
    • #4
    • 8th Oct 17, 7:41 PM
    • #4
    • 8th Oct 17, 7:41 PM
    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.
    Originally posted by ams25
    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
    • By Audaxer 8th Oct 17, 7:51 PM
    • 644 Posts
    • 287 Thanks
    Audaxer
    • #5
    • 8th Oct 17, 7:51 PM
    • #5
    • 8th Oct 17, 7:51 PM
    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
    • By kidmugsy 9th Oct 17, 1:41 AM
    • 9,895 Posts
    • 6,673 Thanks
    kidmugsy
    • #6
    • 9th Oct 17, 1:41 AM
    • #6
    • 9th Oct 17, 1:41 AM
    good point. the pensions - DB and DC are all his.
    Originally posted by ams25
    Bonkers position to get themselves into. Fill up pension for her to the max.
    • Triumph13
    • By Triumph13 9th Oct 17, 10:02 AM
    • 1,117 Posts
    • 1,373 Thanks
    Triumph13
    • #7
    • 9th Oct 17, 10:02 AM
    • #7
    • 9th Oct 17, 10:02 AM
    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
    • By caldejud 9th Oct 17, 10:13 AM
    • 13 Posts
    • 4 Thanks
    caldejud
    • #8
    • 9th Oct 17, 10:13 AM
    • #8
    • 9th Oct 17, 10:13 AM
    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
    • By bostonerimus 10th Oct 17, 5:44 AM
    • 1,215 Posts
    • 668 Thanks
    bostonerimus
    • #9
    • 10th Oct 17, 5:44 AM
    • #9
    • 10th Oct 17, 5:44 AM
    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%.
    Misanthrope in search of similar for mutual loathing
    • ams25
    • By ams25 10th Oct 17, 2:23 PM
    • 100 Posts
    • 85 Thanks
    ams25
    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
    • By ams25 10th Oct 17, 2:49 PM
    • 100 Posts
    • 85 Thanks
    ams25
    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?
    • IanSt
    • By IanSt 10th Oct 17, 9:23 PM
    • 149 Posts
    • 104 Thanks
    IanSt
    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?
    Originally posted by ams25
    Every family has their own unique set of circumstances, and from the look of it you've carefully considered yours, so although you might be able to get a few more quid from the mix there's nothing there that looks unreasonable.

    Just make sure you have a good emergency cash fund available so that you don't need to raid your stocks and shares funds should you ever need to get some cash together in a hurry.
Welcome to our new Forum!

Our aim is to save you money quickly and easily. We hope you like it!

Forum Team Contact us

Live Stats

5,112Posts Today

7,023Users online

Martin's Twitter