What should I do

FANG

In a few years time I will be entitled to a small final salary pension. I have a couple of options regarding the way that I can take this.


Could someone give me the best option so that I can maximise the return over 10 or 20 or 30 years if I live that long.


Here are my options:-


Retire at 60 and receive £8,500.00 per year + interest per life.


Retire at 55 and receive £6,400.00 per year + interest per life.


Retire at 55 and receive £4,750.00 per year + interest per life and a receive a lump sum of 31,500.00.


If I take the pension early I will save and invest the pension that I would receive for the 5 years before I am 60 or should I take the reduced pension and save that along with the lump sum of 31,500.00


It seems to me that if I take a lump sum up front or have the pension early. Then over about 20 years I would be financially better off than if I just wait until 60 and take the full amount.


If live a lot longer then I may be worse off but surely the interest that I would be gaining on the lump sum and/or 5 years saving would make me more money.


What would you do - take the money early or wait until I'm 60


Are the any apps out there that can let me model the costs and factor things to help me make a decision.


Thanks


Fang

lvader

You don't say if you will be still working or receiving other income, that would be an important factor as you don't want to be paying more tax than you need to.

FANG

Hi Ivader


I will be living off my savings + partners pension so hopefully paying no tax or as little as possible.


Thanks for your help.


Fang

lvader

I think I would take the pension at 55 taking the £6400 amount, I would then pay £2880 into a personal pension each year which the government will top up to £3600. I'd do this until 60 and then start to withdraw the money to make the most of the annual tax allowance before the state pension kicks in.

DesG

Retire at 60 and receive £8,500.00 per year + interest per life.

At age 65 you will have received: 42500
At age 70 you will have received: 85000
At age 75 you will have received: 127500

Retire at 55 and receive £6,400.00 per year + interest per life.

At age 65 you will have received: 64000
At age 70 you will have received: 96000
At age 75 you will have received: 128000

Retire at 55 and receive £4,750.00 per year + interest per life and a receive a lump sum of 31,500.00.

At age 65 you will have received: 79000
At age 70 you will have received: 102750
At age 75 you will have received: 126500


Up until about age 75, the last option is best, after about age 75 the first option will start pulling ahead.

Of course this is just the amount of money you receive, if you spend it all that's all you will have, but of course, if you are investing what you receive the amounts will be different, and the last option (depending on what you invest in) may be better.

So how long do you plan on living And are you just spending it all, or investing it to have a prosperous 107th Birthday.

d70cw6

how healthy are you? do you think you'll hit 60? 70? 80?

lvader

I think he could die at 90 and potentially still maximise his retirement income by retiring at 55.

atush

DesG wrote: »

Retire at 60 and receive £8,500.00 per year + interest per life.

At age 65 you will have received: 42500
At age 70 you will have received: 85000
At age 75 you will have received: 127500

Retire at 55 and receive £6,400.00 per year + interest per life.

At age 65 you will have received: 64000
At age 70 you will have received: 96000
At age 75 you will have received: 128000

Retire at 55 and receive £4,750.00 per year + interest per life and a receive a lump sum of 31,500.00.

At age 65 you will have received: 79000
At age 70 you will have received: 102750
At age 75 you will have received: 126500


Up until about age 75, the last option is best, after about age 75 the first option will start pulling ahead.

Of course this is just the amount of money you receive, if you spend it all that's all you will have, but of course, if you are investing what you receive the amounts will be different, and the last option (depending on what you invest in) may be better.

So how long do you plan on living And are you just spending it all, or investing it to have a prosperous 107th Birthday.

If you'd done the projections to 80, 85 and 90 it would have shown a different story?

And I am positive the LS would not been invested, or at least not all of it. Human nature.

FANG

Thanks for all your help.


At the moment I am pretty healthy but you never know what is around the corner.


I have always been of the mind set to take or make as much money up front and try and invest or save for the future.


I will really try to save and invest all of the lump sum to maximise the return.


Ivader made a good point about taking out another pension but I am really naïve when it comes to pensions so I would need to research this and take advice about any good ones out there. You hear such horror stories about annuities. Does any one have any recommendations about a good pension company.


I can appreciate that as I get to 80 to 90 then option 1 will be more profitable however If I am immobile or in wheelchair will I really need that much money.


Fang

kidmugsy

FANG wrote: »

In a few years time I will be entitled to a small final salary pension. Here are my options:-


Retire at 60 and receive £8,500.00 per year + interest per life....

I don't think that quite makes sense. It can't be "interest" for life - do you perhaps mean inflation-linking for life? If that latter is right, then a bigger pension makes more sense compared to a lump sum. That's because a lump sum would need to be invested to protect it from inflation, and the only guarantee of success would be with the government's Index-Linked Gilts, which don't yield much income. On the other hand the case for a lump sum becomes stronger if you need some capital either to clear debts, or for some planned big expenditure, or to act as a cash emergency fund.

Just as a precaution, it's probably also wise to get a forecast of the State Retirement Pension you can expect. It's not urgent but it's well worth doing.

kidmugsy

FANG wrote: »

Ivader made a good point about taking out another pension ... You hear such horror stories about annuities. Does any one have any recommendations about a good pension company.

There's no point your buying an annuity. What Ivader is suggesting is a legitimate way for you to boost your income. Suppose you opt for "Retire at 55 and receive £6,400.00 per year...".

Now you take £2,880 from your savings and invest that in some sort of personal pension (my own experience of a SIPP at Hargreaves Lansdown is good: other people speak highly of pensions at Cavendish Online). The provider then claims £720 from the government, and your fund therefore grows to £3600. After waiting a few weeks for all this to take effect, you then withdraw the £3,600, closing the pension. Your income for that tax year is therefore £6,400 + £3,600 = £10,000. The tax-free personal allowance for 2015-16 is £10,500, so you'd get your income free of income tax. You can do this year after year if you like. Your profit is £720 per year, less the provider's charges. You can return the £2880 to your savings and wait to repeat the operation in the next year. So effectively your annual income becomes £720 + £6,400 = £7,120 (less charges).

I suppose it's possible that a future government would put a stop to this, but until then it's absolutely above board.