stepped pension/lump sum dilemma

singinggirl

I am new to this so am unsure as to how to go about things.My husband is 60 this year and is considering early retirement as opposed to re-deployment.his figures give him either a pension of approx k12 per year or a stepped pension of approx k15 both with the option of taking a lump sum(tax free). Our worry is not knowing what to do for the best or just for him to keep on working until 65 in something he really dislikes.Can anyone help please.

bigfreddiel

singinggirl wrote: »

I am new to this so am unsure as to how to go about things.My husband is 60 this year and is considering early retirement as opposed to re-deployment.his figures give him either a pension of approx k12 per year or a stepped pension of approx k15 both with the option of taking a lump sum(tax free). Our worry is not knowing what to do for the best or just for him to keep on working until 65 in something he really dislikes.Can anyone help please.

Is £12k or £15k enough to live on - if yes - jdi (just do it)

not sure i understand the stepped pension bit and what would the lump sum bein both cases - just remember - in 5yrs time his sp will be about £6k and don't forget that when taking your pension there's no NI to pay only tax on evrything above £7475 this year an £8150 next year - i'm in the same position and i'm off intothe sunset in January next year!

atush

It might be helpful to know if you have a pension or are working, and what other assests and investments/cash you hold. If you won a property and is there a mtg?

Loughton_Monkey

Only you can decide.

Basically, if you can't do the mathematics, then on 'safety grounds' I would suggest continuing to work.

There is no magic to it, other than knowing what it costs you to 'live' in the manner to which you are either accustomed or to which you are happy to abide. That's why I tend to say if you don't know the annual cost of living, [and we certainly don't know yours], then retiring on an income that is 'set in stone' forever can be dangerous. Once you have retired, you will have income and capital (savings). You will then have the following types of cost:

1. Housekeeping [groceries, casual spending, 'light bulbs' etc.]
2. Purchases [The things you like/need. New things for house. Memberships, Subscriptions, Dining out. Entertainment.....]
3. Motoring/Travel [All costs, including car depreciation, to keep you mobile]
4. Utilities etc. [Gas, electric, council tax, water, Insurance, phones, Cable TV, broadband.....]
5. Holidays
6. Other [Major repairs, renewals. 'One-off' unforseen expenditure. Painting your house. Unblocking drains. Wedding/Anniversary/birthday presents....]

Tax doesn't fall into any of the above. And all of this must keep up with inflation. Your pensions may, or may not, have some form of annual uplift. Your state pensions may have CPI inflation protection.

Unless you work all this out, you will never know.

When you do work it out, you will get a range of answers:

1. Yes, he can retire easily and you can continue to live 'as normal'.
2. No, he can't quite do it. In this case you do it all the same, and decide to 'step down' a bit in your spending [not recommended]. Or alternatevely, it informs you that he needs another year, or two.
3. No. Not in a month of sundays. He must wait until state pension age to 'get by'.

In a case like your own, where it appears he has 'options', then maybe you need to start off by 'assuming' the re-deployment option. And then using all the calculations above, the question is NOT 'Can I/should I retire at this specific point?'.

The more 'telling' question is 'Given what income and future pension is open to me, at what date can I retire with reasonable comfort that my lifestyle can continue for the reaonable future?' With any luck, the 'answer' will pop out as any date between now and state retirement age.

singinggirl

thankyou everyone for your replies.the stepped pension is apparently a way of easing the transition from work up until the state pension kicks in especially useful for those without many years of pensionable employment,this is then clawed back from your state pension,it supposedly means that there is no huge dip in income.
the lump sum is anything up to K40,however reading advice on this site I am not sure I would like to sacrifice steady income for cash now however tempting.We have done our sums and are reasonably sure we would be ok,I only have a very small pension and looking to transfer that into something else (not sure what as yet).
our query is still whether to take the smoothing out time and lose best part of the state pension when the time,most with not too many years in seem to,but I am not convinced.