Retire at 55...am I on course ?

blythmags

Hi everyone

I am 53 years of age and would dearly like to retire at 55 if possible, but certainly no later than 60 years of age. My current financial situation is as follows:

Marital Status: Married ( wife is a carer for my eldest daughter)
Financial position: Homeowner ( no mortgage)
Sum of company pension scheme values: £236,000
Savings: £20,000 currently
Purchased parent house: current value £90,000 (realistic)
Currently save £500 per month since payoff of mortgage

Retirement requirements: Approx £14,000 per annum could possibly see us through?

I would rerally appreciate some top line advice as to whether my retirement aspirations are realistic, and if not, what I would need to do/change

Many thanks

John

jonathon_hart

Have you done a State Pension forecast to see what state benefits you are entitled to? - sorry not got the link handy for it.

In addition is that £14k pre or post tax?

collingwood21

Whether you are on course would also depend on what sort of pension scheme your company scheme is - defined benefits or defined contributions. This can have a marked effect on the income you can expect to get from your pot of cash. Your scheme ought to be able to help you with forecasts so you can get an idea of how much money you can get from it - add this to your forecast state pension income plus any income your wife my provide, and you should be in aposition to see if your income will be enough for you to retire on.

It sounds like you are doing really well, though!

cyclonebri1

blythmags wrote: »

Hi everyone

I am 53 years of age and would dearly like to retire at 55 if possible, but certainly no later than 60 years of age. My current financial situation is as follows:

Marital Status: Married ( wife is a carer for my eldest daughter)
Financial position: Homeowner ( no mortgage)
Sum of company pension scheme values: £236,000
Savings: £20,000 currently
Purchased parent house: current value £90,000 (realistic)
Currently save £500 per month since payoff of mortgage

Retirement requirements: Approx £14,000 per annum could possibly see us through?

I would rerally appreciate some top line advice as to whether my retirement aspirations are realistic, and if not, what I would need to do/change

Many thanks

John

I'm no expert, but had to retire early, (55), earlier this year. I doubt that you are on course. Much more detail is probably required by someone more informed than me but it is likely that there will be a considerable reduction by taking your pension at 55 or 60 compared with that at 65. Something like 3 to 5% per year for every year early.

You need a forcast from the scheme provider or employer based solely on retirement at your chosen age based on current contributions.

My only comment would be to ensure you index link the pension as the value will drop severely in the 10 years untill the state one kicks in.

The state pension forcast will also give details of serps/ss2 and the pension that predated serps, so you are likely to have 3 components making up what the state provides.;)

EdInvestor

blythmags wrote: »

Sum of company pension scheme values: £236,000

What kind of pension is this - final salary or defined contribution?

kennyboy66_2

blythmags wrote: »

Hi everyone

I am 53 years of age and would dearly like to retire at 55 if possible, but certainly no later than 60 years of age. My current financial situation is as follows:

John

A person who is 55 has a 50% chance of living to 90!
What will you spend the next 25-35 years doing.

looby-loo_2

I'd like to do this too and was also wondering if £14,000 pa is enough.

cyclonebri1

looby-loo wrote: »

I'd like to do this too and was also wondering if £14,000 pa is enough. I also have similar savings. If I could live on the £14K then the saving could be left until state pension kicks in. If say, by the time I'm 75, I need extra money I could use savings as top up @ just over £2000 a year for the next 15 years as I have no need leave it to anyone.
By then I'll be 90 so probably wont care too much.

IMHO you can "survive" comfortably on that with no debts and property, but thats today!!!

You need to index link most if not all of your provisions, or get ready:cool:

jamesd

With 346,000 of total investable assets, ignoring your own home, you could expect 5-6% of that as income assuming you invest and achieve an average return of 8-12% to provide the income and cover inflation. That's 17,300 to 20,760 so your target income appears to be achievable already, even ignoring the income from the state pensions. You should get a state pension forecast to determine what that will be. You should seek information from the work scheme administrators to find out what the expected income and lump sum opportunites are at various ages.

Planning for when you reach 65, there's an additional personal allowance, formerly called the age allowance. If you took all of that income in your own name and added the state pensions it's likely that your age allowance would be reduced because your total income would exceed 21,800. The allowance is reduced by one Pound for every two Pounds above that, until it's all eliminated at 28,990 or higher, leaving you with just the 5,435 normal personal allowance. Effectively you'd pay 30% tax instead of 20% tax on income in this range.

You can take yourself below that 21,800 threshold by taking the 25% tax free lump sum option from work pensions, if it's offered. That will reduce the income from them, assuming 6% payment, from 14,160 to 10,620 and give a lump sum of 59,000 without tax. Different schemes have different rules that may make it possible to take more or may offer a poor exchange between pension and lump sum sometimes. The 3,900 reduction in pension income may help to keep you out of the age reduction band; whether it can will depend on just how much the state and work pensions and other income will be for you.

You can then invest that lump sum, putting it into your stocks and shares allowance as fast as possible, taking an income from it if desired, or simply accumulating it as an emergency fund for medical care, care fees or whatever else comes up. Since you can decide how much to take as income it can provide useful income flexibility between now and state retirement age.

For improved results you should also consider the income of your wife. If she does not already have expected pension income of about 10,000 a year you can usefully increase pension contributions for her to maximise the personal and age allowance use and increase the proportion of the total income that is tax free. That also helps by more cheaply providing her some income after your death. If she isn't working you can make contributions that after tax relief amount to 3,600 a year and she gets the tax relief even if not working.

If you control the investments within all or some of the work pension fund you need to decide how to manage those investments. If you will be taking an annuity with all or some of it you need to take a view on how the markets will move between now and your retirement age. Since they are already substantially down you could take the view that it's better to keep a fairly high proportion in equities to benefit from a possible rebound. Standard advice is to start reducing the equity component before retirement to reduce the up and down movements but that doesn't consider market timing and the timing now seems to favour keeping a fair bit invested in equities. But there are no guarantees from this, a rebound may not happen or the markets could drop further.

You might also consider whether you would prefer not to take pension benefits from any AVC portion of your work pension contributions. That may make it desirable to move this portion to an independent personal pension. As with the lump sum discussed earlier, this could leave you with greater income flexibility, though it can't all be taken as a lump sum, just 25%. You can then vary the income taken from the remainder within limits that are a bit above or below those from an annuity purchase. Whether this can be sensible depends hugely on the benefit this money would buy you from the work pension and how much capital might be lost if you transferred it. You would need to ask the scheme administrators about those values and costs.

You use the plural when discussing company pension schemes so the answers would differ for each scheme and it may be best to take income from one or more and leave one or more to take later, depending on just how much each makes you lose for starting early.

Linton

Hold on a mo!

IMHO you would be an extremely lucky/skillful investor to get 8-12% AVERAGE return for the next 30 years jamesd suggests. I personally base my planning on a maximum of 2% above inflation. Excess money makes me fairly happy, insufficient money makes me VERY unhappy!

As a start to planning you could take the pension estimates available on the FSA website. For your £236K you get get a pre-tax fixed (no increase with inflation) income at 55 of about £14K assuming your Mrs gets 67% on your demise. Assuming this is your only income, tax could reduce this to say £12.5K.

Note that delaying taking a pension doesnt really help - in total the extra pension you get is not too different from the amount you loose in the early years by not having any pension.

So, taking your £14K expenditure figure you could live OK, and in addition you have the state pension at 65.

BUT there is inflation. Assuming an average of 3%, after 20 years, when you are 75 the £14K income would have reduced to about 8K. Of course inflation could be higher.

From the information you have given 2 points raise questions in my mind which could have a major impact on the situation..

1) Provision for your Mrs/daughter - how much would they need and how would it be provided should you die early?

2) Your statement that "£14K per annum could possibly see us through". This sounds a little uncertain and sounds as though you consider it tight. Is it adaquate for you to live the rest of your life? Does it include provision for life's emergencies such as central heating and car replacement etc and for sufficient pleasures?

So IMHO the plan to retire at 55 could be workable but with the current information it looks rather risky - certainly more than I would be happy with for myself.

I would suggest that you sketch out some scenarios on Excel and look more carefully at your required expenditure.

EdInvestor

blythmags wrote: »

Purchased parent house: current value £90,000 (realistic)

Could you explain a bit more about this? Do parents pay rent to you (or do you get housing benefit on their behalf)? Have you made provision for CGT you would have to pay on eventual sale? Did you pay full value for the property? Was the move aimed at preventing access to council in the event of a need for care?

Also, does your wife receive carer's allowance and if so is it means- tested ?If taking the pension it would be wise to take 25% tax free cash and then invest that in her name so as to use her tax free allowance, but this might not apply if she lost benefits.

The idea of going early will likely make more sense if the pension is money purchase, than if it's final salary.