Can hubby retire at 60?

helpmaboab56

My husband would like to retire at 60 in 2 1/2 years time.
Here are the state of our finances.
4 pension pots value then approx. £147000
savings in bank approx. £211000
Do you think he would be able to retire and live comfortably?
Should we pay more into pension pot? ie a lump sum?
I work part time and would continue to do so but only earn about £4000 a year.
Our pension ages are both 66 and I am a year younger than hubby.
Any advice would be gratefully received :-)

dunstonh

Do you think he would be able to retire and live comfortably?

We cant say. We dont know your spending habits. You need to prepare a list of your typical monthly expenses. Then add in your annual costs and a good margin of error (as people usually underestimate). That will give you an indication of your annual expenditure requirements.

BillJones

That's far too open-ended a question for people to be able to give you a very useful answer, I think. Your savings + pension pot would get you something under £10,000 per year as an index-linked annuity (rough estimate, hopefully someone else will give you a more accurate prediction), so you need to ask yourself if that will get you what you need.

Importantly, even that figure is estimated for after you've spent everything that you've saved, and you should probably not do that, as you need some money in case of emergencies.

If you plan to live extremely frugally, then it's possibly doable. If you want to have a life of cruises and holidays, then Id say that it's not enough.

jamesd

It's not possible to know because we need to know:

1. Total spending each year at three levels, minimum, comfortable and nice to have. A good plan would deliver at least the comfortable level, might fall to minimum if exceptionally bad investment things happen but more normally would have enough safety margin so that average conditions get to the nice to have level. That sort of variation is natural with investments because markets go up and down. Exceptionally bad would be something like the great depression that the US experienced between 1920 and 1940; unlikely but bad if it was to happen.

2. Expected state pension - get a state pension statement for each of you.

3. More about the pension pots, are they all defined contribution or are some defined benefit like final salary?

4. How long you want to assume that you will continue to work.

5. Are savings in the bank really in savings accounts, all £211,000 of it? Any use of cash or stocks and shares ISAs? Any idea what sort of drop you'd be willing to accept in a bad year to get say 4-5% plus inflation income and growth in that income? About 30% drop in a bad year with an overall upwards trend could be expected to do that. A bit less with 20% drop using a different mixture of investments and a quite substantial drop if the target is only 10%. I'm asking about drops because investments are like a roller coaster in reverse, a long upward trend but lots of dips along the way. Each person has a different tolerance for drops so it's a case of picking the right mixture for that person that mixes their drop tolerance with the reduced income they can take as a result of it if it's less than about 30%.

Comfortable is very highly variable depending on what people are used to. It's very likely that comfortable can be reached given the resources available but that depends on what the income targets are.

It seems likely that your husband has at least one defined benefit pension pot. Since he is 55 or older he can take a 25% tax free lump sum now and reinvest that within a S&S ISA to provide growth and income. He can also take income using capped income drawdown and recycle that income into more pension contributions. That will get him another 25% tax free lump sum later.

You will both get a state pension under the new rules I assume. That would provide each of you with at least £7,500 of taxable income if you have 35 years counting towards it. That would be enough for many couples to live in what they would describe as comfort. Median average pensioner income is around £18,000 a year.

Many people haven't been tracking changes in pension rules so here's a summary of some of the big ones:

1. Buying an annuity stopped being required in 2006 and successive governments have reinforced that and repeatedly announced it to help people to get the message.
2. At the moment 25% of a personal pension pot can be taken as a tax free lump sum and capped income drawdown would allow taking about 6-7% of the capital as income, depending on the specific age and the interest rate on 15 year duration government bonds at the time the limit is calculated. A long term sustainable rate is more likely to be 4% or 5% but the limit can be used to top up income until reaching state pension age. Alternatively all or any part of the 75% can be taken at any time using flexible drawdown provided the person has at least £12,000 in guaranteed income in payment at the time, guaranteed includes the state pension, work defined benefit pensions and annuities. If flexible drawdown is used instead of capped drawdown no more pension contributions can be made into pensions for that person.
3. The current government has announced that the £12,000 requirement will be eliminated next year, details and restrictions still not known.
4. The current limit on pension contributions each years is the smaller of earned income (from employment mainly) or £40,000 a year. If the earned income is higher than £40,000 and the allowance in the past three years wasn't fully used the unused portion can be carried forward.

This means that pensions are now and are expected to be hugely more flexible than they have been in the past and makes it very likely indeed that it would be good to make large pension contributions using the savings you have.

pjread

What's his tax rate/salary? If this is a serious plan I'd start shoveling that 211k cash into the pension so much if leaves him a non-taxpayer if possible. If he's paying higher rate it's a no brainer, but even basic rate given how near-term you are looking, that 25% tax relief is a massive incentive.