Early-retirement wannabe

Wednesday2000

We decided not to get life insurance yet but we did pay off our mortgage completely! The money is going out of our bank next week.

I know it is more of a psychological benefit as we were on a low interest rate but saying that I am over the moon we paid it off. Our house isn't worth that much, about £300,000 but now we could always buy a smaller/cheaper place if we needed to as we own it outright.

My husband can get his pension at age 50 but it reduces by 33% if he did do that.

This is the ages and by how much they reduce if you take it before age 60.

58 8%

55 18%

50 33%

He has about £480,000 in there. I think he must have about 29 years for a state pension and I know I have 20 years now I made some Class 3 overpayments.

I would rather retire at 45 (he would be 50) and have less money but he thinks he should work until about 55 so we have more money.

We are frugal and we both have had health problems and no kids obviously so I think we would be better off retiring early?

hugheskevi

My husband can get his pension at age 50 but it reduces by 33% if he did do that. This is the ages and by how much they reduce if you take it before age 60.

58 8%
55 18%
50 33%

He has about £480,000 in there.

It isn't clear from this whether he has a Defined Benefit pension, and there is an actuarial reduction for taking it early, or whether it is Defined Contribution with £480,000 and the 'reductions' stated above are just the difference between projected pot amounts at different ages based on a projected rate of return. Having said that, it probably isn't a key point.

You don't mention your position - retirement is best planned jointly to maximise the tax advantages. That can sometimes result in one partner putting most of their income into a pension, for example, or if a partner is not earning then putting the £3,600 into their pension to get the 20% tax relief available to anyone regardless of tax status.

I think he must have about 29 years for a state pension and I know I have 20 years now I made some Class 3 overpayments.

Presumably you have checked your State Pensions, to establish exactly how much you have and how many more qualifying years you need for full pensions. Voluntary Class 3 contributions are usually very good value, so whether you stay in work or retire early you may wish to factor in the cost of getting full state pensions.

I would rather retire at 45 (he would be 50) and have less money but he thinks he should work until about 55 so we have more money.

At very early retirement ages, the effect of 1 more year of work is very significant. For example, assume you could both remain in work and earn £40,000 or retire and live off £20,000 of saved assets. By working one more year you are (crudely, ignoring tax and work-related expenses, etc) £60,000 better off than if you had retired. The advantage of this is that changing a marginal position into a comfortable position may well only require a year or two of extra work.

Retiring before minimum pension age is harder, especially the more years you are prior to minimum pension age, as you can't benefit from significantly tax-advantaged pension saving, so are relying on other assets. Plus you have fewer years to build up a pot. Once at minimum retirement age 25% tax free lump sums can provide significant resources to live off for several years, covering the period before all pensions become payable.

We are frugal and we both have had health problems and no kids obviously so I think we would be better off retiring early?

There is also the shift-down option, ie part-time work, which may be worth considering. There might be key income break-points worth shifting down to, eg, Primary Threshold of £702 per month, below which no National Insurance is payable, Personal Allowance of £987 per month, below which no income tax is payable, higher rate income tax of £3,862 per month, etc. That can increase net £per hour worked, as well as qualifying for another year of State Pension.

There is always a tension between having enough to retire and working a bit longer for a bit more. I find detailed calculations help a lot here - spend plenty of time calculating to be sure what your desired target is, add a bit (but not too much) caution, and when the target is reached, take the exit decision.

Wednesday2000

Hugheskevi - thanks for responding.

I think he has a final salary pension.

I don't have a pension as I was self employed and didn't ever bother to get a private one. I don't work now as I have fibromyalgia and had to stop working. We need to build up our savings again and I am going to start putting the £2,880 away now the mortgage is gone.

We honestly didn't even think about retirement until a couple of years ago.

I know I could possibly claim the Personal Independent Payment but I haven't got around to it yet. The stories about how hard it is to claim have put me off a lot.

I have checked the state pension and we both need 35 years.

I did think about us both getting part time jobs but this was before I became ill. My husband doesn't really mind his job so he would be quite happy to carry on until 55. His job is fairly well paid and very easy to do.

happyandcontented

Wednesday2000 wrote: »

Hugheskevi - thanks for responding.

I think he has a final salary pension.

I don't have a pension as I was self employed and didn't ever bother to get a private one. I don't work now as I have fibromyalgia and had to stop working. We need to build up our savings again and I am going to start putting the £2,880 away now the mortgage is gone.

We honestly didn't even think about retirement until a couple of years ago.

I know I could possibly claim the Personal Independent Payment but I haven't got around to it yet. The stories about how hard it is to claim have put me off a lot.

I have checked the state pension and we both need 35 years.

I did think about us both getting part time jobs but this was before I became ill. My husband doesn't really mind his job so he would be quite happy to carry on until 55. His job is fairly well paid and very easy to do.

Something that might be worth checking out (and may have a bearing on whether you take out insurance) is whether the FS scheme pays a spousal pension across the board, or whether, like ours, that is only payable if the pension is actually in payment.

If it is not in payment at the time of death only the personal premiums paid in are returned and the rest is lost. For this reason, we have taken out a term assurance to cover us until NRA even though we will both be retiring much earlier.

Wednesday2000

happyandcontented wrote: »

Something that might be worth checking out (and may have a bearing on whether you take out insurance) is whether the FS scheme pays a spousal pension across the board, or whether, like ours, that is only payable if the pension is actually in payment.

If it is not in payment at the time of death only the personal premiums paid in are returned and the rest is lost. For this reason, we have taken out a term assurance to cover us until NRA even though we will both be retiring much earlier.

Oh, really. I didn't know that. I will have to look into that.

happyandcontented

Wednesday2000 wrote: »

Oh, really. I didn't know that. I will have to look into that.

No, we didn't know that either, and it came as a bit of a shock when our IFA looked closely at the pension documents. Not every scheme is like that, but it is not uncommon apparently.

Wednesday2000

My husband said if he dies while he is employed there I would get 4 times his salary.

So, does that mean we should wait to get life insurance after he leaves work or would it be easier to get extra life insurance while we were younger?

happyandcontented

Wednesday2000 wrote: »

My husband said if he dies while he is employed there I would get 4 times his salary.

So, does that mean we should wait to get life insurance after he leaves work or would it be easier to get extra life insurance while we were younger?

It is up to you, my husband changed jobs and became a contractor and so his benefits package (Death In Service etc,) went with that job. Now he has to provide his own benefits package!

If 4 times his salary would provide for you into old age then perhaps you need not bother, but if you would also have no pension provision in addition to that lump sum, then it might be worth thinking about it.

It was only when we began to look into what pension provision he had (like you, he had paid into the works scheme and just not bothered thinking any more about it!) that we discovered that loophole existed.

Wednesday2000

happyandcontented wrote: »

It is up to you, my husband changed jobs and became a contractor and so his benefits package (Death In Service etc,) went with that job. Now he has to provide his own benefits package!

If 4 times his salary would provide for you into old age then perhaps you need not bother, but if you would also have no pension provision in addition to that lump sum, then it might be worth thinking about it.

It was only when we began to look into what pension provision he had (like you, he had paid into the works scheme and just not bothered thinking any more about it!) that we discovered that loophole existed.

I think a lot of people just pay into a pension without really looking at the details. That is lucky that you got an IFA to check and found out.

I think he should get life insurance on me, thinking about it. Damn, I wish I had thought of this before I was diagnosed last summer, I was healthy until then!:D

happyandcontented

Wednesday2000 wrote: »

I think a lot of people just pay into a pension without really looking at the details. That is lucky that you got an IFA to check and found out.

I think he should get life insurance on me, thinking about it. Damn, I wish I had thought of this before I was diagnosed last summer, I was healthy until then!:D

We have only taken out insurance on my husband as if I died first he would still have a substantial pot and would be ok for income. My pension is nowhere near as big as his as I gave up work for quite a few years to facilitate his career (which involved a lot of stress and international travel) and also to look after our children and then ageing parents.

It depends on your circumstances.