How much to retire on and how to get it ?

morgana

I need some advice as to what to do next.
Just been reading a thread from Dec 2009 "What is the Number" where people posted about their financial requirements for their retirement.
They all seemed to be from people who had final salary / NHS / civil service pensions in addition to the state one and say they would need £ 22,000 minimum to live on in retirement.

How I wish I could have that ! As a single parent to 4 sons I didn't have the wherewithall to save or take out any sort of pension until they grew up. So now I am nearly 64 and am still working because my state pension doesn't pay even my food/ rent / utility bills that amount to nearly £8,000 pa. That is not accounting for holidays, repairs, emergencies etc or running a car.
I do have a small Prudential pension that may bring in around £1,500 / year from 2011 and in my self employment I've managed to save £40,000 in ISAs and shares but added together, they won't amount to anywhere near the £22,000 pa. income that the others expect as a minimum.
A local FSA and Hargreaves Lansdowne both ask £450 + for their advice but who would advise better, local or HL and is this the best course / value for money with such a small "pension pot"?

yelf

A local IFA everytime. Basically you're scuppered. There are some very good income producing investments, but as for increasing what capital you have? Not much hope unless you start investing heavily in equities

utigers

I'm not sure on the limit you can transfer in one go, but you could move your ISA money into a SIPP which would increase its value to 50k which then can be used to generate income.

chris_m

The first thing to do is to ignore other peoples' "numbers" and work out what you consider you need - not everyone feels they need £22K, I certainly don't and I'm planning on retiring early so will have quite a wait before the state pension kicks in. Do re-read that thread and check how many of those £22K people are actually talking of that to support a couple, if you are still single you may well not need that much.

dunstonh

I would say a local IFA would be better that thats obvious. However, there will be differences. Larger firms tend to be more expensive (HL certainly are) but they have a lot more glossy material. That can sometimes make them look more professional than a local firm that is likely to print on their laser printer on demand. The best advisers typically work as directors, owner, partners of their own firms. Employees tend to move around a lot as well giving you less stability of contact.

I fear that really though you are looking at this too late to realistically make a big impact but you could still do some fine tuning to get what is best for you.

Self employed get lower state pensions than employed. That is because you pay less in tax/NI in general which allows you to use that saving to fund for your own provision/protection. The general view being that self employed prefer to be less reliant on the state and be in control of their own finances.

As Chris_m wisely says above, dont focus on £22k. You are not going to achieve that and you may not have to. Look at what you need and see what you need to do to achieve that. Analyse the options available to you and look at what your plans are going forward and if you can achieve them and what you need to do to achieve them. All these things an IFA can help with. It may be that taking the Pru pension now is not a good idea. Instead adding to it (or a more modern option if its an old pru plan) whilst you are still working and deferring commencement. If it has protected rights as part of it then waiting until after April 2012 would boost your income when protected rights rules change for example. There are so many ifs, maybes and buts that could apply. Rather than look at outcomes, you need to focus more on what you want first

middlepuss

utigers wrote: »

I'm not sure on the limit you can transfer in one go, but you could move your ISA money into a SIPP which would increase its value to 50k which then can be used to generate income.

Er, I don't think you can transfer £40K into a pension and get tax relief unless you have taxable earnings of £40K in the tax year, can you? And what would be the point anyway? Yes, you'd get an increase in the capital but tax on the income from the SIPP would more or less cancel that out (except for the 6% or so benefit you could get from then taking out 25% of the SIPP as tax free cash).

yelf

middlepuss wrote: »

Er, I don't think you can transfer £40K into a pension and get tax relief unless you have taxable earnings of £40K in the tax year, can you? And what would be the point anyway? Yes, you'd get an increase in the capital but tax on the income from the SIPP would more or less cancel that out (except for the 6% or so benefit you could get from then taking out 25% of the SIPP as tax free cash).

The 6.25% tac relief cant be sniffed at though considering it is effectivley risk free.

middlepuss

yelf wrote: »

The 6.25% tac relief cant be sniffed at though considering it is effectivley risk free.

It's not risk free: what if the market rises 6% while you're transferring your money from ISA to pension or from pension to cash before you manage to reinvest it? Of course it could work in your favour - a good example of what risk means: you take a chance and you might win and you might lose.

Gatser

middlepuss wrote: »

It's not risk free: what if the market rises 6% while you're transferring your money from ISA to pension or from pension to cash before you manage to reinvest it? Of course it could work in your favour - a good example of what risk means: you take a chance and you might win and you might lose.

I agree Middlepuss.

With such relatively small amounts, I would certainly not gamble it (within a pension) on the stock market. Better to maintain full access to the capital as a rainy day fund rather than lock away in a pension.

dunstonh

Better to maintain full access to the capital as a rainy day fund rather than lock away in a pension.

Pension could return a net equivalent income of around 8% or more ignoring growth. Savings are around 3%. So, savings would require capital erosion to match the pension. So, the pension option should not be ignored for some of the money as it could slow down the erosion of the savings that are left.

jamesd

morgana wrote: »

I need some advice as to what to do next.
Just been reading a thread from Dec 2009 "What is the Number" where people posted about their financial requirements for their retirement.
They all seemed to be from people who had final salary / NHS / civil service pensions in addition to the state one and say they would need £ 22,000 minimum to live on in retirement.

I've posted there also. My target back then was about £12100 a year while renting and is now £10050 after buying. I don't run a car or have an extravagant lifestyle (by choice at the moment).

First thing to do is get a realistic minimum budget together, that doesn't include things like a car if you don't need one and that takes cheap or no holiday if you can do that. Bare minimum to live and enjoy TV.

Now look at the income side to find out how much income you have now and will have from the Prudential pension. That'll give you the target income that you need to get together somehow.

The Prudential pension may be one that accumulates money and buys an annuity. If so, one step is to not treat it as "a pension" but to treat it as "a pension pot that could be used for an annuity purchase or other things". If you want to buy an annuity it's unlikely that Prudential will offer you the best deal so one easy step is to get an IFA to find you the best available deal for the money.

You could also consider leaving it invested or adding other pension contributions to it, perhaps after moving the pot somewhere else.

The £40,000 in ISAs and shares if invested could be expected to produce around 6%, or very cautiously 4%, income, growing with inflation, for the rest of your life. That's potentially another £2,400 a year.

If you start putting the money into a pension, putting in up to the amount you can get 20% tax relief on, that money can over the years be increased by the 25% extra that tax relief ads. That increases the income to £3,000 a year.

Adding the £1,500 a year and that's potentially another £4,500 on top of your state pensions.

About £10,000 a year of taxable income is free of income tax when over 65, so that should help also.

If you're still working that's more money you can potentially add, so if you have a range of targets from bare minimum to lowest desirable and nice you can use that to set yourself saving and working targets to help you to get there as soon as practical.

I found that working out and setting clear targets helped me to stay focused on what I was doing because I could see myself gradually getting closer to those targets.