Redundancy looms! How do my figures stack up?

Muppet81

Hello

Pretty lengthy post but if anyone with some financial nouse could persevere and offer an opinion, I would be so grateful.

My husband is likely to be made redundant in March 2012. He will be 57 in February 2012
I will be 55 by then and having retired last year, I am not working.
We are, I think, extremely fortunate that we both have good pension schemes. I am very aware of how lucky we are.

OH is likley to get £32,000 redundancy. We would invest this (advice on how would be apprciated). OH says Premium Bonds, I think we need something better but as safe as possible.
He will get a lump sum of £67,277
We intend to pay off our mortgae of £20,525
This will leave £46,752 plus his annual works pension will be £24,412 (£1728 per month)
Our monthly living costs, if we live just as we do now (and I know we live well) are £2500 (including general home maintenance, hols, clothes and everything else apart from major unexpected items such as the roof blowing off or something! I have always budgeted (fanatically so) for everything we spend so am happy that our figures are accurate as to our living expenses)
This means a monthly shortfall of £772

We have no actual savings to speak of as have been paying maintenance for OHs 3 children and clearing debts from previous marriage until now.

I have created a spreadsheet to track our likely expenses

If we start with our pot of money £46,752 (as above) and draw £772 a month for 1 year whilst adding a nominal interest amount to the pot and then carry on drawing our monthly shortfall, increasing it each year to account for inflation, but adding a nominal interest amount, we will by Dec 2016 have approx £11456 left in the pot.
OH's state pension having kicked in in Feb 2015.

In Dec 2016, I will be able to draw my works lump sum and pension (no chance of getting it earlier) and so can add £31, 757 to the pot of money.
With the £11456 we had at the end of Dec 2016, the invested £37,000 redundancy money (plus interest) and my lump sum, we should have around £80,213

I have allowed expenditure (over the years) from this of -
extension to kitchen £20000 - (tiny kitchen with washer, freezer etc in cellar - accept that as we age we may not be able to trot up and down from cellar so much so want to extend kitchen - as stone house in conservation area, extesion will be pricy)
new carpets at some point £3000
change car £10,000
Holidays (additional to our normal one a year cheapy) - £10,000
New computer £2000

The pot of money therefore will look more like £35,213 in real terms although much of the listed amounts will be spent after Dec 2016, just wanted to identify possible costly items/expenditure

OH will be 67 and I will be 65 and my state pension will then kick in.

This means that with an anticipated monthly spend of £3025 (allowing for inflation over the years)
My works pension of £882 per month
OH's works pension of £1943 (allowing for index linked increases)
my state pension £408 expected
OHs state pension £428 expected
We would be looking at a total monthly income of £3661
With outgoings of £3025 we would be in a position to start saving instead of drawing all the time against our pot.

Hopefully, we would still have 20 years plus of life left together.
Do the above figures look workable or am I in cloud cuckoo land?

Perhaps sticking my head in the sand on a couple of issues.
What if one of us is ill and needs to go into care?
What if one of us dies? I believe I would still get half of OHs works pension in he died first and visa versa.

Any comments would be much appreciated.
We are intending to speak to an IFA but as we will not have a fortune to invest long term due to needing to draw on it monthly till Dec 2016, they might not be that interested?

Phew! worn out after that. Throwing myself on your mercy :A

BLB53

First of all, congratultions on a well presented picture of your situation.
You have 6 months or so until you need to make a decision so I would use the time to do some research.
If it was me, I would open 2 stocks and shares ISAs with an online broker e.g. Interactive Investor - one for each of you. You can tuck away over £21K per year between you.
Purchase a range of quality blue chip FTSE 100 shares which yield above, say 4% (research on Digital Look). If you don't want to buy individual shares then buy a selection if Investment Trusts from the UK Income & Growth sector (research on Trustnet).
Shares offer the best returns over the long term and you are possibly looking at 30 - 40 years. If you dont need all the income from the ISAs you can reinvest them for even better long term returns.
All the income (as well as any capital gains) are tax free and should easily keep pace with inflation year on year.
I am not a financial adviser, but a private investor and have this approach to provide a tax free growing income for myself for many years and the only cost is my time and the initial purchase of shares (and any reinvestment) at £10 per deal.
Of course, your IFA will not suggest such a course but at the end of the day its your money and your decision.
Good luck with whatever you feel is best.
BLB

gadgetmind

It sounds like you've done a lot of thinking. Well done! Have you considered putting this into a cash flow spreadsheet? If you need advice on doing this, just ask.

What bothers me initially is that I see no mention of tax on income in there. Before 65, you'll get your normal personal allowance and then pay tax as usual in pension income. This needs to be in your plan. Is it?

Regards investing the lump sum, this money is critical and can't be replaced, so even though I'm an equity man, you need fixed interest or index linked as you don't need the upside and can't risk the downside. Premium bonds are a sick joke, so ignore them. Consider a series of accounts with various terms and "decent" interest and stage them to deliver the money into an instant access account as and when you need them. Also get this in your name as the interest will be tax free as it won't exceed your personal allowance. If everything is on track, start moving the pot into ISAs as this is where you'd like it once your pension kicks in.

Pension boosting via immediate vesting pensions (put in £2880, get £900 back straight away, and then buy an annuity with the remaining £2700) is an option, but you need the extra before state pension age rather than in ongoing dribs, so I can't see it working.

maggieann155

your husband s state pension wont kick in till 2020 will it, when he s 65, not 2015 cus he ll only be 60? unless i ve read it wrong!!!!!!!

Muppet81

A lot of food for thought there. Thank you so much all of you

I am sorry but I have never mastered entering quotes on here so will reply to you all individually here.

BLB 53 Thanks. All sounds very good but I have no experience of shares at all so would have no idea how to do this myself. Sadly, I think your congratulations were premature :-( Maggieanne155 has pointed out a grave error in my calulations.

Gadgetmind - Well spotted. The £1728 is net so I have accounted for tax.
I agree about Premium Bonds
Excellent advice about puttinmg ISA in my name for tax benefit furposes. Will investigate ISAs thouroughly in advance
I have created my own spreadsheet but suspect yours may be more proffessional than my codged one. is there a set process you could outline?

Maggieann155
!!!!!!! How can I have been so stupid! You are of course correct. It will be 2020. This of course means that by Dec 2016 our pot will have sunk to £25,369 allowing for the extension and other costs anticipated. Take off that the £9600 required to cover the monthly expenditure shortfall between 2015 and 2020 (now pension of 428 not there) and by 2020 when his state pension kicks in our pot will be £15,769 which does not allow much of a fudge factor.

If we could get to that stage on plan, we would then have the extra income from his state pension then mine 2 years later (unless they alter the age at which you get it!). Things look tight though.

Suddenly I can see sleepless nights looming. I really thought we would be OK so long as we were careful but I am now wondering.

fairleads

Muppet81 wrote: »

I have allowed expenditure (over the years) from this of -
extension to kitchen £20000 - (tiny kitchen with washer, freezer etc in cellar - accept that as we age we may not be able to trot up and down from cellar so much so want to extend kitchen - as stone house in conservation area, extesion will be pricy)
new carpets at some point £3000
change car £10,000
Holidays (additional to our normal one a year cheapy) - £10,000
New computer £2000
/QUOTE]

A penny saved is a penny earned is the phrase that springs to mind

Muppet81

Tomorrow I will re-do my spreadsheet as things seem to be getting a bit confused now.

The other thing I forgot to mention is that we will, once we have paid off the mortgage, have an asset worth in excess of £200,000. As we get older, and if money did get tight, I suppose we could release equity in the house. Would not be an option I would want to follow but if needs must!

atush

2000 for computers sounds expensive unless you want to buy 3.

You are not working but can. So do, even if part time. Will help tremendously in both income and NI contribs.

Go the the budgeting board and post an SOA. See where you can trim costs. How long has it been where you have checked your insurance, utitlities, phones etc to save? What luxuries you do you have that you don't need (magazine subscriptions, cigarettes, posh coffees, trips down the local pub etc)?

Loughton_Monkey

I retired at 56, having continually "spreadsheeted" my retirement for the previous 10 years or so.

After 6 years, I haven't looked back at all, and I owe it to the following:

1. Making my assumptions 'conservative', and allowing for inflation.

2. Making full use of tax-free status where possible [shifting cash between us for investment income] and filling ISA's etc. Even use the £3,600 pension contribution allowance giving an extra £720 each 'tax rebate equivalent'.

3. Optimising the savings. These days it takes work to sniff out the best fixed rates, the best 12 month bonus rates, Regular Savers etc.

I would very strongly point you to two apparent 'red flags' in your post. Firstly, I would ditch the Premium Bonds. Complete waste of money. If you must, put it in a good fixed rate paying monthly interest, and use the interest to buy lottery tickets on rollover days. Personally I would put it into good savings accounts.

Secondly, unless you have a 'punative' mortgage rate, why pay it off? It is probably low interest (mine's only 1½%) and it will inflate away over the next 10 years so that you can pay it off almost out of petty cash.

Additionally, you can probably 'squeeze' a lot more from your spending. Once retired, you have the time to review all the 'non-lifestyle' expenses. Insurance, Broadband, Premium TV, Mobile Phone etc. and save loads on these. Although it probably does not apply to you [I'm a cigar smoker, and we drink an awful lot of wine, Champagne, beer etc.] a couple of shopping trips to Calais saves us well over £5000 a year!

It is surprising, but true, that even today, I still follow the same budget on the figures I forecast just before retirement [after 10 years of iterations]. In summary, the 'highlights' are as follows:

1. I had underestimated the pension income, and some of the maturity values for some Life policies.

2. Investment growth from ISA's (S&S) has been disappointing [have you seen the stock market lately?]. But it had managed just to be on track up to July this year, and the current losses are currently just 'paper' losses.

3. We manage perfectly well within the expense budget. Just as when we were working, we simply lead the lifestyle we want. It happens to fall regularly 'inside' what I have available. I am meticulous in my recording of it, and the analysis of it, but simply buy whatever we want or need. [My budget includes approx £10K a year for 'one-offs'. This has been mega holidays/trips, new bathroom... and this year - painting the house and a trip to Florida]

4. As a result of all the above, I have 'salted away' well into 6 figures of 'contingency' now. This represents net value in excess of my 'budget'; a virtuous circle, since that brings in another £3k or so interest income which itself is on top of budget....

Good luck.

Muppet81

Loughton Monkey - Bless you! Some excellent pointers and advice.

I will read all my replies again tommorrow. make careful notes of all the things I need to investigate further and re-do my spreadsheet. I feel I have over budgeted but prefer to err on the cautious.

I think what you say will ring true of me and my way of handling our finances.

I think this is going to be the start of an exciting adventure! Thanks all. off to bed now and tomorrow the adventure starts. perhaps you will keep an eye on me for a while and see how i am getting on? :A

maggieann155

sorry but i think i may be throwing another spanner in the works!

i dont think you ll be getting your state pension until you re 66,as
i m 56 now and know that i wont be able to get hold of mine until i m 66 in 2021

but good luck anyway.

we re still waiting for a quote from his company pension admin (over 3 months now!) to see if my husband can retire next march!! its very stressful waiting for the post to drop on the mat every day .