Retiring Early Is A Moneyloser ?

Schrodingers_Cat_2

I recently took the opportunity, before the deadline in April for those wishing to retire at 50 ( I'm 53....the minimum is now 55 ), of getting an annuity from one of the number of smaller pension ( no longer paid into for quite some time ) funds I have scattered about. Importantly...one with no 'penalty' for early retirement

Having once worked for a pensions company myself..I know the advice is generally that it is inadvisable to 'retire' so early. However, a little maths makes me wonder if that advice is quite so true as one might think...

The annuity now brings in £200 a month. That's £2400 a year. Over the 12 years to my 'normal retirement date'.....that adds up to £28,800. And, of course, I'll still be getting the £200 a month after that date.

Now of course....the whole idea was that the original value of that fund was suppose to increase over the years, hence the idea of waiting. Well, I've not exactly seen the fund leaping in value lately. My view was that even a average 6% rise a year ( which would double the fund value in 12 years ) was probably optimistic.

So lets assume that I kept the policy and it doubled in value and I retired at 65 and got the same level of annuity. I'd then be getting £400 a month.....£4,800 a year. Double what I get for retiring early.

But hold on ! Retiring early....I get £28,800 payments BEFORE age 65. I will already effectively be £28,800 better off at 65. And of course....I'll still be getting £2,400 a year after that.

SO...what one has to do is work out, at what age will the cumulative payments from retiring at 65 exceed the cumulative payments from retiring at 53. It's a simple calculation, as it is the period of time in which the excess of the £4,800 a year pension over the £2,400 a year pension.....i.e £2,400 a year......is greater than the money received up to that date from the retiring at 53 pension.

I make that 12 years. In other words....it would not actually be until I was 77 years old that I'd be 'better off' from having retired at normal retirement date.

Given that average life expectancy for men is 81.....I'd have just 4 years in which to enjoy this !

Personally ( and of course people will raise the issue of inflation, annuity rates 'may' rise again, etc ) I think I made the right choice.

standinman2009

I agree with you i retired at 50 and got a pension of about £2500 and a lump sum i get an increase each year with inflation each year so happy days .
Oh by the i admit ive a shed load of other investments so no probs and happy days ,into my 4 th year retired trust me i dont get board ,what with holidays abroad twice a year and loads of time to loaf about,

sandsy

Of course, if you make average life expectancy, you'll lose out by over £9000.

By age 81, you'll have received £200pm for 28yrs, ie. 28*12*200 = £67200
If you retired at 65, you will receive £400 for 16 yrs, ie. 16*12*400 = £76,800.

And if you live even longer, you lose out more.
Of course, the other perspective is that if, by age 65, you're not in the best of health and you can get an enhanced annuity for being an impaired life, you could do better form the late retirement rather sooner than age 77.

Which all goes to demonstrate that annuities are nothing more than a bet you take against the life insurance company!

McKneff

So can you suggest a date when the op should die when everything evens out and it there are no wins and no losses. lol:rotfl:

novice-saver

The key advantage for the original poster is getting payment without reduction for taking it early.

There can't be many who could get those terms now.

But if he has a fixed return, which is how his post reads - IE £200 per month for life - there will come a point where it will not buy much, and from age 50 he may be looking at a life expectancy of another 40 years.

Case in point - my recently deceased father had a fixed annuity which paid out for about 26 years.
He took it fixed as he did not expect to live very long due to heart problems.
During that time the value of the payments reduced by nearly a third.

Have look at historic price conversions if you want a fright.

For amusement, my monthly wage after tax as a trainee in 1972 was just under £100

dzug1

sandsy wrote: »

Which all goes to demonstrate that annuities are nothing more than a bet you take against the life insurance company!

Not really - a bet that you will or will not survive longer than the average for your contemporaries.

CLAPTON

Schrodingers_Cat wrote: »

I recently took the opportunity, before the deadline in April for those wishing to retire at 50 ( I'm 53....the minimum is now 55 ), of getting an annuity from one of the number of smaller pension ( no longer paid into for quite some time ) funds I have scattered about. Importantly...one with no 'penalty' for early retirement

Having once worked for a pensions company myself..I know the advice is generally that it is inadvisable to 'retire' so early. However, a little maths makes me wonder if that advice is quite so true as one might think...

The annuity now brings in £200 a month. That's £2400 a year. Over the 12 years to my 'normal retirement date'.....that adds up to £28,800. And, of course, I'll still be getting the £200 a month after that date.

Now of course....the whole idea was that the original value of that fund was suppose to increase over the years, hence the idea of waiting. Well, I've not exactly seen the fund leaping in value lately. My view was that even a average 6% rise a year ( which would double the fund value in 12 years ) was probably optimistic.

So lets assume that I kept the policy and it doubled in value and I retired at 65 and got the same level of annuity. I'd then be getting £400 a month.....£4,800 a year. Double what I get for retiring early.

But hold on ! Retiring early....I get £28,800 payments BEFORE age 65. I will already effectively be £28,800 better off at 65. And of course....I'll still be getting £2,400 a year after that.

SO...what one has to do is work out, at what age will the cumulative payments from retiring at 65 exceed the cumulative payments from retiring at 53. It's a simple calculation, as it is the period of time in which the excess of the £4,800 a year pension over the £2,400 a year pension.....i.e £2,400 a year......is greater than the money received up to that date from the retiring at 53 pension.

I make that 12 years. In other words....it would not actually be until I was 77 years old that I'd be 'better off' from having retired at normal retirement date.

Given that average life expectancy for men is 81.....I'd have just 4 years in which to enjoy this !

Personally ( and of course people will raise the issue of inflation, annuity rates 'may' rise again, etc ) I think I made the right choice.

if you once workied in the pension industry (and with a name like Schrodingers cat), however didn't you know this 30 years ago?

bristol_pilot

What about the salary you would have earned if you had not retired early?

hugheskevi

So lets assume that I kept the policy and it doubled in value and I retired at 65 and got the same level of annuity

Why would you expect to get the same annuity rate aged 50 as you would at age 65?

Looking at comparative annuity rate tables, and based on twice the pension pot, I'd expect that £2,400 p/a pension at age 50 to generate more like £6,400 p/a at age 65.

(for anyone unfamilar with annuity rate comparison tables, take them as a guide only, none of them necessarily show the best possible rate)

dunstonh

bristol_pilot wrote: »

What about the salary you would have earned if you had not retired early?

I like that question as that is the benchmark you have to compare early retirement to (based on the question in the thread title).

i.e. if you are earning £100k a year and you retire at 50 on £15k income then clearly it is a money loser from a financial point of view.

Most people earn less in retirement. So by definition, its a money loser.

lamb1102

Is there a case for working less and enjoying" later working life" a bit more thanks to the pension ?
After all when you get into your 80s your not really going to need as much to spend. Maybe getting rid of your estate while youre alive will keep the govts grubby hands off your childrens inheritance.
Spend your childrens inheritance before your children get their grubby hands on your childrens inheritance even !