Retire at 55...am I on course ?

blythmags

kennyboy66 wrote: »

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

Hi......

No chance of me seeing 90......lucky if I reach 70

Regards

John

Linton

On the subject of surviving market volatility whilst withdrawing capital the following link to is of interest: http://www.firecalc.com/

It is based on US data but the effect is surely very applicable to the UK.

To take an example, annually withdrawing 25K from a starting pot of 500K (5%) over 35 years would on average have been fine. Unfortunately it would have failed in 38% of all 35 year periods. This seems a degree of risk inappropriate for retirement if you have no other major income.

blythmags

jamesd wrote: »

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.

Hi
Many thanks for taking the time for a very comprehensive reply
Much appreciated
Best wishes
John

blythmags

Linton wrote: »

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.

Hi....
Once again thanks for the time to reply and give me your comments.Much appreciated
Best wishes
John

blythmags

EdInvestor wrote: »

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.

Hi
Thanks for your reply.
1. My Mother doesnt pay rent to me. I honestly didn't know she could ?. I bought this house when it came up for grabs when the local council started selling their houses when tenants had been in occupation for a cerian length of time. Should or could I have claimed housing benefit on their behalf ?
2. I paid a much lesser value for the house at the offer of the day some 12 years ago
3. I purchased my parents house as an investment at the time and didnt consider the "care" aspect at all at this time
4. My wife does receive carer's allowance and it is not means tested
5. I can confirm that my pensions are not final salary

This is a veru complicated position/question, and I would very much appreciate your comment and advice. Strangely enough, I have made an appointment to see an Independent Financial Advisor next week to discuss my whole financial position as i would dearly like to share the caring of my daughter with my wife as my daughter's health has deteriorated considerably over the past two years.
Thanks again for your assistance......much appreciated
best wishes
John

blythmags

Linton wrote: »

I dont want to start up a sub thread here, but some response to jamesd comments.

Looking up your reference I see that there is an overall average for equities as you say BUT this covers a very wide variation. For example over the past 10 years the FTSE has barely changed and so the overall return including dividends about matches inflation, which gives a real return of approximately zero. Especially bearing in mind the need to continually take income even at time of poor fund performance I would not plan my retirement on the basis of 5% real return - if it doesnt work its no satisfaction to know that it should have worked on average.

My example of taking a full fixed annuity now was just to get an income based on what could actually be done now, rather than to use overall long term average numbers. Its unlikely to be a sensible way to actually manage retirement.

From your detailed comments and the questions people have raised it would appear that blythmags really needs to take professional advice on how best to arrange his affairs rather than do anything drastic on the basis of a forum discussion.

Hi.
Thanks again for your response and just to confirm that i have arranged an appointment with an IFA to discuss my whole financial situation
Thanks for you time and best wishes
John

EdInvestor

blythmags wrote: »

1. My Mother doesnt pay rent to me. I honestly didn't know she could ?. I bought this house when it came up for grabs when the local council started selling their houses when tenants had been in occupation for a cerian length of time. Should or could I have claimed housing benefit on their behalf ?

As long as the rent is paid at "arm's length" ( ie mother has an assured shorthold tenancy agreement ) then the council will normally pay HB even if the flat is owned by a relative. But whose name is the house in, hers or yours?

4. My wife does receive carer's allowance and it is not means tested

In that case, put tax free cash and savings in her name as income will be tax free. Feed capital into ISAs over time.

5. I can confirm that my pensions are not final salary

This is helpful.

Sum of company pension scheme values: £236,000
Savings: £20,000 currently
Purchased parent house: current value £90,000 (realistic)

So taking 25% of fund (59k) plus savings that would mean a fund in wife's name of 79k, giving income @5% of 3,950 p.a This money should be fed into both your maxi ISAs (7.2k p.ppa) over the years.

The remaining pension fund can be put into drawdown and should generate about 6 or 7% at your age (@120% of the annuity rate). That say 11,505 - but that's taxable income so say around 10,400. So between you, around the 15k mark net, plus her carer's allowance.

If you could also generate further letting income from the property you would be in a much better position.

blythmags

EdInvestor wrote: »

As long as the rent is paid at "arm's length" ( ie mother has an assured shorthold tenancy agreement ) then the council will normally pay HB even if the flat is owned by a relative. But whose name is the house in, hers or yours?

In that case, put tax free cash and savings in her name as income will be tax free. Feed capital into ISAs over time.



This is helpful.



So taking 25% of fund (59k) plus savings that would mean a fund in wife's name of 79k, giving income @5% of 3,950 p.a This money should be fed into both your maxi ISAs (7.2k p.ppa) over the years.

The remaining pension fund can be put into drawdown and should generate about 6 or 7% at your age (@120% of the annuity rate). That say 11,505 - but that's taxable income so say around 10,400. So between you, around the 15k mark net, plus her carer's allowance.

If you could also generate further letting income from the property you would be in a much better position.

Hi EdInvestor

I dont know whether this is helpful, but when I bought my parents council house (which is now in my name), my father was still alive. Unfortunately, my Mother now lives in this three bedroom house by herself. I never took any rent or money from my parents from the day i purchased this house as I was thankful for the investment opportunity . My wife has been ubale to work for thirty years as a result of caring fror my severely disabled daughter, but does qualify and receives the carers allowance. I think by reading the various responses, and by doing my sums again, that a £14,000 per annum retirement need might be a little of an under estimation. It's very difficult to estimate how much money you will need.One final question would be .......can I be safe in my assumption that most/all Independent Financial Advisors will give me sound advice, as whilst I desperately need to retire at 55 (60 maximum), I obviously want to secure a reasonably healthy fiscal life from that point onwards.
Thanks again
Best wishes
John

jamesd

You can be confident that if you get advice and ask people to review it here, you'll get a useful response that will point out any significant issues with the advice.