Early-retirement wannabe

gadgetmind

blisteringblue wrote: »

Pretty much being demoted, losing my team and "parked".

Yeah, that sounds familiar. Watch out for redundancy - not much you can do, but plan and maybe discuss current situation with an employment lawyer.

True_Blue_64

Thanks to Triumph and enthusiasticsaver for giving me much food for thought in answering my earlier post. I must admit I was thinking of taking the DB from age 55 with a 15% reduction and supplementing that with my isas and/or DC pension depending on how the markets were behaving, followed by the SP at 67. However I can see the tax advantages of doing things the way you have set out as well as avoiding the DB reductions. I will give this further thought over the weekend to try to refine my plans. Cheers

happyandcontented

I would love to jump in here and get a similar set of opinions on finances and how to organise them in retirement.

Now both aged 57 We both want to retire at 60 (possibly 62 for OH maximum)

Monthly outgoings c2k covering everything from food, bills, contingency
Almost new cars 2016 and 2017
No mortgage
70k in savings
DB pension of 21k at 60 no TFLS
NRA 65 it would be c25k if no TFLS taken
DC pension pots c 400k
Two full state pensions at 66
2 small DB occupational pensions at 60 and 66 awaiting projection figures/pot totals on them but both together totalling probably less than 5k PA

Opportunity to increase DC pots for next two/three years and also pay additionals conts into one of the small ongoing DB pensions.

If we pay in for the next two/three years DC pot may be c 430k by age 60. As they are currently 3 pots we plan to amalgamate into a managed Sipp portfolio and add into it and also open a second Sipp if we decide against paying AVC's into existing small DB pension as the max you can buy is an extra 6k PA which seems limiting.

Originally wanted to take the CETV figure but the LTA implications were dire. So plan b is to leave it there as long as possible to avoid the reduction and hopefully have enough in the DC pots to use.

Can anyone help with what income we are looking at from these figures and how they should be used? I would really welcome any thoughts.

Nual

I have two daughters a little older than yours, and retired two years ago. You may want to factor in the not insignificant cost of getting them up and running as they move back out of the family home?

Triumph13

happyandcontented wrote: »

I would love to jump in here and get a similar set of opinions on finances and how to organise them in retirement.

Now both aged 57 We both want to retire at 60 (possibly 62 for OH maximum)

Monthly outgoings c2k covering everything from food, bills, contingency
Almost new cars 2016 and 2017
No mortgage
70k in savings
DB pension of 21k at 60 no TFLS
NRA 65 it would be c25k if no TFLS taken
DC pension pots c 400k
Two full state pensions at 66
2 small DB occupational pensions at 60 and 66 awaiting projection figures/pot totals on them but both together totalling probably less than 5k PA

Opportunity to increase DC pots for next two/three years and also pay additionals conts into one of the small ongoing DB pensions.

If we pay in for the next two/three years DC pot may be c 430k by age 60. As they are currently 3 pots we plan to amalgamate into a managed Sipp portfolio and add into it and also open a second Sipp if we decide against paying AVC's into existing small DB pension as the max you can buy is an extra 6k PA which seems limiting.

Originally wanted to take the CETV figure but the LTA implications were dire. So plan b is to leave it there as long as possible to avoid the reduction and hopefully have enough in the DC pots to use.

Can anyone help with what income we are looking at from these figures and how they should be used? I would really welcome any thoughts.

We'd really need to know how the DBs and DCs are split between the two of you to be able to work out the most tax efficient way to proceed. However it's split though you don't need to worry about having net £24k pa in 3 years' time as you already have enough to be thinking in terms of £40k+ pa if you retired tomorrow.

happyandcontented

Triumph13 wrote: »

We'd really need to know how the DBs and DCs are split between the two of you to be able to work out the most tax efficient way to proceed. However it's split though you don't need to worry about having net £24k pa in 3 years' time as you already have enough to be thinking in terms of £40k+ pa if you retired tomorrow.

The bulk of the pension provision is from the partner that was previously a high rate taxpayer and is now a contractor. The current and ongoing DB pension is for a 20% taxpayer, as is the deferred DB pension.

Is that what you meant?

Triumph13

Okay, I have assumed one partner has all the £400k DC and the big DB paying £21k @ 60 or £25k @65. The other partner gets £2k DB @60 and another £2k @66. I assumed you both retire on 57th birthday and did a quick calculation using each of the two options for when the big DB was taken. All calculations in today's money and using 17/18 tax rates and allowances.


Option 1 - Big DB taken at 65
Once all pensions are in payment this gives a combined post tax income of just over £41k pa. The DC is crystallised to give £100k tax free and £300k for drawdown. Using this DC to backfill to 57 with this same income level takes all of the drawdown money and £75k of the lump sum - so leaves you with £25k of lump sum plus your existing £70k savings as 'spare'
Option 2 - Big DB taken at 60
The 'guaranteed' post-tax income at 67 drops to about £38k (still well above your £2k per month requirement). Backfilling at £38k to age 57 takes £260k of the drawdown pot, but leaves the £100k TFLS untouched.


If you want the £41k of option 1 rather than the extra capital of option 2, you can achieve this on the option 2 route by drawing at a 3% SWR on a fund made up of the leftover £40k in the drawdown pot and £75k of the TFLS. In other words there is little to choose between the two.


Obviously if you do keep working for another 3 years you'll have more, but do you need it?


A couple of key things to think about would be:

• If the partner with the big DB dies first, what percentage of it is inherited by the less well provided partner and would that give them sufficient income?
• The partner with the lesser provision is left with a lot of unused personal allowance in the years before SP. If you aren't going down the route of buying additional DB for them then use some of those savings to put the whole of their taxable earnings into a SIPP or PP before the end of the tax year - eg, if they earned £20k net of existing pension contributions, then put £16k into the PP which will get £4k tax relief from HMRC even though they hadn't paid £4k tax. Repeat for future tax years if you don't retire tomorrow.

atush

True_Blue_64 wrote: »

Hi Silvertabby,

I!!!8217;m as sure as I can be on the state pension forecast. I started a thread on that last year and ended up talking to the government helpline. They confirmed that I had reached the maximum although I!!!8217;m still a bit dubious.

I will expect my daughters to pay me a modest amount to cover groceries but haven!!!8217;t given this a lot of thought tbh.

One other thing to mention is that I expect I will want to use these funds for occasional bigger ticket expenses such as holidays, a new car at some point. On the other hand I will probably downsize in the next 5-10 years, although I haven!!!8217;t factored that in.

Thanks

I charge my boys 200 a month, but they are working. fi they didnt have a job it would be 100.

It doesnt cover 100% of their costs if you add in utilities, but is near enough for me.

happyandcontented

Triumph13 wrote: »

Okay, I have assumed one partner has all the £400k DC and the big DB paying £21k @ 60 or £25k @65. The other partner gets £2k DB @60 and another £2k @66. I assumed you both retire on 57th birthday and did a quick calculation using each of the two options for when the big DB was taken. All calculations in today's money and using 17/18 tax rates and allowances.


Option 1 - Big DB taken at 65
Once all pensions are in payment this gives a combined post tax income of just over £41k pa. The DC is crystallised to give £100k tax free and £300k for drawdown. Using this DC to backfill to 57 with this same income level takes all of the drawdown money and £75k of the lump sum - so leaves you with £25k of lump sum plus your existing £70k savings as 'spare'
Option 2 - Big DB taken at 60
The 'guaranteed' post-tax income at 67 drops to about £38k (still well above your £2k per month requirement). Backfilling at £38k to age 57 takes £260k of the drawdown pot, but leaves the £100k TFLS untouched.


If you want the £41k of option 1 rather than the extra capital of option 2, you can achieve this on the option 2 route by drawing at a 3% SWR on a fund made up of the leftover £40k in the drawdown pot and £75k of the TFLS. In other words there is little to choose between the two.


Obviously if you do keep working for another 3 years you'll have more, but do you need it?


A couple of key things to think about would be:

• If the partner with the big DB dies first, what percentage of it is inherited by the less well provided partner and would that give them sufficient income?
• The partner with the lesser provision is left with a lot of unused personal allowance in the years before SP. If you aren't going down the route of buying additional DB for them then use some of those savings to put the whole of their taxable earnings into a SIPP or PP before the end of the tax year - eg, if they earned £20k net of existing pension contributions, then put £16k into the PP which will get £4k tax relief from HMRC even though they hadn't paid £4k tax. Repeat for future tax years if you don't retire tomorrow.

Thank you so much. Your assumptions are correct re the pension split. The figures for the less well provided for partners' second DB pension reflect them retiring at 66 which is not going to happen!

Re your questions:

We realised recently that the big DB pension had a clause in it which meant that if the person died before it went into payment the return of premiums c £64k was the only benefit, no spousal pension. This was what sparked the interest in the CETV. If it is in payment the spousal benefit is 50%. We are currently looking at either term or whole of life assurance to bridge that gap.

We have now discounted the option of taking the CETV due to the tax LTA implications. The CETV was c 810k which, added to the DC pots, took us well over the LTA. We were thinking about the legacy aspect here for our children, but it didn't seem the sensible option in the end.

Re whether they could manage, they would probably downsize and free up equity but we don't want them to have to do that, as we do love where we live and have we have great neighbours, so, to have to move at such a time, wouldn't be ideal. They would, however, have the whole DC pot. In part, this is why we are not retiring tomorrow and actively considering adding to the pot.

We have considered and are still considering buying a smaller property locally ( very locally!) and renting it out until we are ready to downsize.

Doing that would require taking the TFLS as we would be looking at spending c£200k on that which would free up c£150k equity from our current home. Plus, we would be very picky about where it was and what it was, but doing this before it has to be done would be easier for whichever partner was left.

We are a bit clueless about tax so when you say:

"The partner with the lesser provision is left with a lot of unused personal allowance in the years before SP" what implications does that have?

That partner is now working only part-time and earns c15k and is likely to reduce their hours further prior to 60. Their earnings now after tax and deductions are c£1000 pm.

Thanks so much for these figures/options. We have discussed it with an IFA but that only makes us see how much we have to learn and how big the decisions are.

enthusiasticsaver

happyandcontented wrote: »

I would love to jump in here and get a similar set of opinions on finances and how to organise them in retirement.

Now both aged 57 We both want to retire at 60 (possibly 62 for OH maximum)

Monthly outgoings c2k covering everything from food, bills, contingency
Almost new cars 2016 and 2017
No mortgage
70k in savings
DB pension of 21k at 60 no TFLS
NRA 65 it would be c25k if no TFLS taken
DC pension pots c 400k
Two full state pensions at 66
2 small DB occupational pensions at 60 and 66 awaiting projection figures/pot totals on them but both together totalling probably less than 5k PA

Opportunity to increase DC pots for next two/three years and also pay additionals conts into one of the small ongoing DB pensions.

If we pay in for the next two/three years DC pot may be c 430k by age 60. As they are currently 3 pots we plan to amalgamate into a managed Sipp portfolio and add into it and also open a second Sipp if we decide against paying AVC's into existing small DB pension as the max you can buy is an extra 6k PA which seems limiting.

Originally wanted to take the CETV figure but the LTA implications were dire. So plan b is to leave it there as long as possible to avoid the reduction and hopefully have enough in the DC pots to use.

Can anyone help with what income we are looking at from these figures and how they should be used? I would really welcome any thoughts.

Triumph has already given you great advice but would say that you obviously wont have any problem meeting your income requirement in retirement given your high DB pension at £21k plus the 2 smaller DB pensions.

You need to watch the LTA depending on the split in pensions as that DB pension at £21k at 60 and £25k at NRA of 65 will have a high CETV so if the majority of that £400k is in your name as well you may well go over the million allowance. That is my first thought.

You need to check the provision for your wife (or husband) if he or she is the lower earner as although presumably they would get 50% spousal pension from the high DB pension this would not be high enough to cover outgoings unless they still had a large investment pot. Obviously once state pension kicked in though they would be fine so the crunch years are between 60 and 67 or spa.

You will be straying dangerously into higher tax bracket area once you have your DB pension and state pension so I would use the pension commencement lump sum from the DC to live off initially and delay taking the DB pension and withdraw up to the PA in the early years to crystallise without paying 40% tax. After spa if you have around a £23k plus sp of £8k then withdraw up to around £40k from DC pot or leave invested.

Any focus on further investment should be in the lower earners pot to make most tax efficient use of allowances.