Early-retirement wannabe

MargaretG

I am 51 and after thinking long and hard about retiring early , I have opted for partial retirement for now and then probably work for another year before leaving completely. I received in the post today, quotes from my employer and I am required to decide within the next10 days. My pension is not much but I am trying to decide on the implication of taking the maximum lump sum allowed by HMRC. ( this comes with the warning that my pension will be reduced by £1 a year for each £12 of lump sum I take) . What happens if I opt for a fixed amount of lump sum instead ? (Same warning applies). I understand that taking a lump sum eats into my pension but what I am not clear on is whether opting to take a fixed lump sum instead of the maximum means I might be losing out in the long run. I know I have gone on a bit but I really need some pointers.

jamesd

Are you seriously ill or with some major medical problem that is expected to greatly reduce your life expectancy? If you aren't, then the normal life expectancy is around 88 years old. That 12:1 rate is horrible, but the normal bad deal offered in the public sector schemes. You'd be giving up 37 years of income and only getting 12 years as a lump sum.

The best plan for those of normal life expectancy is usually to take the smallest lump sum that doesn't involve "reverse commutation" to buy more income.

Is 51 the normal pension age for your scheme? It's usually older and if it is, it's normally best to take the pension at the normal pension age instead of earlier, if you can afford that, else to put it off as long as possible. This is because the actuarial reduction from taking it early is normally a bad deal.

Using savings to delay taking the pension while still having the income come out of the savings instead is probably a better move.

It can be a fair bit of work to sort out what level of income you could take while allowing for work pension, state pension, other pension, savings and investments and any resources available from a spouse, so you might try starting a new topic so we can do a better job of going over your whole situation.

bigadaj

MargaretG wrote: »

I am 51 and after thinking long and hard about retiring early , I have opted for partial retirement for now and then probably work for another year before leaving completely. I received in the post today, quotes from my employer and I am required to decide within the next10 days. My pension is not much but I am trying to decide on the implication of taking the maximum lump sum allowed by HMRC. ( this comes with the warning that my pension will be reduced by £1 a year for each £12 of lump sum I take) . What happens if I opt for a fixed amount of lump sum instead ? (Same warning applies). I understand that taking a lump sum eats into my pension but what I am not clear on is whether opting to take a fixed lump sum instead of the maximum means I might be losing out in the long run. I know I have gone on a bit but I really need some pointers.

The easiest way to look at it's that the lump sum, known as commutation, can be reversed to give an idea of what it is worth in terms of future income or returns.

So 1:12 in reverse is 8.5%. So that means to get the same income you need to find somewhere that will give you a risk free return of 8.5%, as you're no doubt aware that isn't popular.

It's actually a bit less than that generally as the lump sum is tax free, and you may be paying tax in the pension income, but still a return that can't be matched elsewhere, at least without taking in a fair bit of risk.

atush

hugheskevi wrote: »

Another annual update...split into 2 posts this time - one on the softer side of my plans, and the other on the financials. Quick recap - myself and my wife are both aged 39, live in London, no kids nor plans to have any. Retirement plan started back in 2009.

The last year has been quite different to the last decade, as I decided that I'd head off on a pretty tough 3 month trip to Africa to climb Kilimanjaro and drive across the Congos, so a lot of the year has been preparing for that. The trip is coming up in May, and I decided to do it last July. I've spent a year traveling Africa previously, but that was back in 2003-04. For anyone interested in more detail, the trips I'm doing are at this link and this link.

An initial attraction of the trips was that doing them would be quite tax efficient due to reduced earnings. However, I ended up being greedy and conjuring up a way of doing them using paid leave from across 3 years. That was probably a mistake, as I've had hardly any time off in the last 14 months and I wouldn't do it this way again. Even so, the trip is somewhat expensive. My wife is climbing Kilimanjaro and coming on the first month of the trip, and I estimate the total cost for both of us is approaching £15,000. That is a decent aggregate amount, but the amount per person per day is pretty low at around £120. However, that is only a fairly short delay to early retirement and effectively just switching some travel I would have done post retirement to pre-retirement so not really a delay at all.

Anyone familiar with the Democratic Republic of Congo will know it is rather unstable and that carries inevitable risks. I find that I research things that affect me in much more detail than less immediate concerns, and it has been interesting to fully document all my death and survivor insurance just in case, which is something a lot of people pay far too little attention to. Although I had plenty in place, I'd never quite fully investigated and quantified all the cover in the detail I have now. In the unlikely event the worst happens, my wife would have enough to pay off all debts and live on an indexed income of £36,000 for life. Given she has her own well paid job and pension, that would be plenty.

Knowing the trips would be physically quite testing, I've also significantly improved fitness levels. Like many in their late 30s, I'd managed to steadily put a kilo or two each year. Since July, I've lost a bit over 2 stone in weight (14kg) and added running to the 80 miles of cycling I already did each week. I wasn't in bad physical shape, so that puts me at ideal weight, and my 5K running time is down to 22m 23s after not running at all for about 5 years, and I hope to get it below 22 minutes by the time the trip starts. When I get back I'm going to make sure I stay in good physical shape and don't let things drift again. For anyone wanting motivation, I'd recommend Parkrun as a good starting point.

I am going to worry about you until you come back lol. Cant help it

MargaretG

Thanks Jamed. No, I am not Ill or anything like that, I have just had enough of working in the public sector and thinking of going self employed. You are right , I have worked in the public sector for just over 19 years in the somewhat low band category and mostly part time hours. So I don't have much in my pension pot am afraid:-( . I was on the classic scheme until a few years ago when My employer moved me on to the Alpha scheme. Earliest I can retire on classic is 50, which is why I am contemplating this. However it is starting to look like it is not a good idea. I really want to leave as I am no longer motivated to work in this sector ; I I need some dosh to start up my own business, hence the thought of early retirement. You suggested I start a new thread, I think I would do just that as I am really clueless and desperate:(

Marine_life

Since this popped onto the first page I thought I might just drop a few lines.

We're still on track for 30 June (48 days to go) and I'm just now waiting for my 'leaving' contract (not actually leaving but going down to one-day a week).

One of my retirement goals is to build an early retirement blog with a twist....it will be about how not to procrastinate on your early retirement decision ;-)

jamesd

Marine_life wrote: »

One of my retirement goals is to build an early retirement blog with a twist....it will be about how not to procrastinate on your early retirement decision ;-)

With almost seven years of practice you'll be well prepared for that blog.

bigadaj

Marine_life wrote: »

Since this popped onto the first page I thought I might just drop a few lines.

We're still on track for 30 June (48 days to go) and I'm just now waiting for my 'leaving' contract (not actually leaving but going down to one-day a week).

One of my retirement goals is to build an early retirement blog with a twist....it will be about how not to procrastinate on your early retirement decision ;-)

Very good, just make sure you don't rush it.....

mark55man

bigadaj wrote: »

Very good, just make sure you don't rush it.....

You can do it Dreckly - a Cornish word like Manana but without the sense of urgency

enthusiasticsaver

Good to see you are set to go now ML. I too intend retiring at the end of this year. Just at the stage of checking benefit projections now to finalise finances for the early part of retirement. We had a 5 year plan to save for early retirement and at present have 60% of our savings in stocks and shares and 40% in cash earning pitiful rates. I am looking to move a further 20% into stocks and shares and drawing the pension but that may change depending on quotes.