Early-retirement wannabe

jdw2000

OneInTheHat wrote: »

I would love to retire at 55 but not sure it will be feasible

I am 43, single mother with 2 teenage children.

I have a mortgage which I am hoping to pay off in 1-2 years time.

I only started a pension 2 years ago (hangover from the divorce...long story...but ex got to keep his extremely well funded final salary pension while I got the house but had to take out a mortgage to give him a portion of it, london house prices have a lot to answer for)

I am in a well paid job now so am maxing out my pension contributions but subject to the annual allowance. I can save over and above that so am also maxing out ISAs.

I only have 12 years to go.

What I am finding hard to define is how much I might need to live on. I also need to consider that the children will still need funding for a few more years.

There is a limit to how much you can pay into your pension? I looked this up a few days ago and thought there wasn't.

OneInTheHat

jdw2000
well there's the annual allowance which caps contributions at £40k (unless you're a very high earner in which case it is capped on a downwards scale towards £10k) - if you exceed that allowance (or 100% earnings, whichever is lower) you don't get any tax relief and you face a tax charge on the excess contributions.

It sounds a lot but I was starting from nothing and had some savings I wanted to put in too.

Triumph13

baj25 wrote: »

So, should I relax or develop a taste for baked beans? (Seriously, I have genuinely had sleepless nights already)

Lots of good points by James above, but you should also weigh up the other option of living off savings whilst deferring your DB pensions so as to have a much smaller actuarial adjustment and hence a much bigger guaranteed income - that might be particularly useful if you are the kind of person prone to worry!
You need to weigh up carefully your aims in terms of higher income vs more capital to spend on specific things and / or leave as an inheritance and should also fully consider what income the survivor will have after the first of you shuffles off this mortal coil, but the bottom line is that you are loaded and can afford to at least double your planned expenditure without ever having to work again. Say 'thank you' for the redundancy cheque then go and have some fun.

jamesd

Yes, if there are significant actuarial reductions it'll probably be a better idea to draw from other sources first, since the DB pensions will provide the guaranteed higher income long term, without investment risk. Reductions depend on the scheme so one might be more severe a reduction than the other.

baj25

Thank you very much for replies, I do feel more confident now that my calculations are not way off. SIPPs look like an excellent way to avoid paying 40% tax on payoff, using several previous years allowance I should be able to significantly reduce the tax hit. Having had a bit more time to digest my changed circumstances, and a bit of help on here, I'm a lot more positive about the future now. Thanks again.

westv

My current thinking is to perhaps use £150k of my potential pot to cover:-

9 years between current estimated early retirement age in 2020/21 and receiving my SP (9 years to £8k) and DB pension (2 years to £5k)
Wife's DB pension (9 years to £8k).

That should leave about £230k to drawdown at 4% = £9k

Total income = £30k

Perhaps convert pot to annuity once my wife is due her SP when I'm 74

DancingBadger

westv wrote: »

Total income = £30k

Less tax...:cool:

westv

DancingBadger wrote: »

Less tax...:cool:

True, but a lot of the income will come from the 25% lump sum.

ex-pat_scot

westv wrote: »

My current thinking is to perhaps use £150k of my potential pot to cover:-

9 years between current estimated early retirement age in 2020/21 and receiving my SP (9 years to £8k) and DB pension (2 years to £5k)
Wife's DB pension (9 years to £8k).

That should leave about £230k to drawdown at 4% = £9k

Total income = £30k

Perhaps convert pot to annuity once my wife is due her SP when I'm 74

I'm sure that is all clear to you, but not to the reader (me!)
It would be rather more helpful to set out:


1. your proposed income sources and start year
2. same for your wife (keep her money separate, so you can more accurately predict the tax and therefore net income)
3. current funds (split between you and wife), with proposed strategy for drawing them down (amounts, timing)
4. any planned addition to the pots

westv

ex-pat_scot wrote: »

I'm sure that is all clear to you, but not to the reader (me!)
It would be rather more helpful to set out:


1. your proposed income sources and start year
2. same for your wife (keep her money separate, so you can more accurately predict the tax and therefore net income)
3. current funds (split between you and wife), with proposed strategy for drawing them down (amounts, timing)
4. any planned addition to the pots

I didn't realise I was entering a personal finance exam. :rotfl: