Early retirement - take pension or use savings first?

kidmugsy

MrStanners wrote: »

I have a couple of other small pensions that I can draw at 60 and 65 and I'm not planning to take either of those early. Also I should have enough NI contributions to get the full state pension at 67.

With pensions to come at 65 and 67 I might focus my attention on how much I will receive before 67. Thus 12x£7k = £84k whereas 7x£10k = £70k. That might incline me to draw the DB pension early.

By the way, the current rules don't particularly advantage people who are already drawing their pensions if the scheme goes phut; they advantage those who have reached scheme retirement age.

Except of course, drawing pension early of itself may be advantageous because the PPF pension payments might be on terms inferior to the scheme terms, especially on the subject of inflation-protection.

MrStanners

Thrugelmir - I assume NRA is normal retirement age? For my scheme it is 65. I know you can work past 65 but I didn't pay attention to the details because I'm not interested in doing it.

kidsmugsy - I agree completely. In a way my main focus is how much I get before 67 and how to retain as much of my savings/investments. Interesting what you wrote about if the scheme goes bust. Thank you.

atush

MrStanners wrote: »

Sorry I don't know how to do those text box inserts of earlier comments so I've put earlier comments in quotes and italics.
Reply to atush:

"But your pension will be reduced by more than 70%. AS you wont be adding more years (which you would be isf say you worked for another year or two)."
My pension will be reduced by 30% not 70%. Yes I won't be adding extra years. My annual pension statement tells me what I should get at 65 based on my existing contributions, it also forecasts what I should get if I carry on working to 65. Sorry but I don't get your point. I know that because I will not be paying into a pension it will be less than it could be, but isn't that always the case with early retirement? I prefer my free time instead of contributing a few more years into my pension.

"Another thing to look at, if you have a spouse and dependents, how the survivors pension will be affected"
The spouse pension is reduced by the same factor, 30%, actually I think I had better double check that.

"So, if you can live on 70% of your pension, fine. But could your spouse live on half of that if you get run over no 52 bus a week after you retire?"
I'm not worried about my wife. I know that might sound callous, but she earns more than me & pays into a pension so I'm confident she'll be ok. We have no mortgage or debts. She isn't reliant on my income or pension. Actually, when I give up work she will benefit from a much happier and less stressed husband.

"Lastly how well have your investments done in the last 10 years thru good times and bad?"
Err I don't know the precise figures, the older investments have all done well, the ones in the last few years are more mixed. I'm not planning to touch any of them soon but leave them as long as I can.

Do "check that"

And do get out your old statements and do the requisite calculations. This is far too important than to assume anything

kidmugsy

MrStanners wrote: »

I have a couple of other small pensions that I can draw at 60 and 65 and I'm not planning to take either of those early.

It might be worth your while to get a quote for the CETV (cash-equivalent transfer value) for these small pensions. With gilt yields unusually low some schemes are apparently quoting pretty generous CETVs. That might provide another way to front-load your pension income into the period before payment of your State Retirement Pension.

For completeness you might also enquire about the CETV of your principal DB scheme.

jamesd

Thrugelmir wrote: »

What you are actually missing out on is the further years of accrued benefits.

Yes, but there's no way to avoid that when you're retiring. There are ways to avoid actuarial reductions that are excessive, while still carrying on with a sound retirement plan.

Thrugelmir wrote: »

If inflation is zero then it's highly lightly that investment returns won't be that great either.

It's also highly likely that returns can be great at times of low or high inflation:

1. The equivalent of 19.5% a year, beta offer, invitation only, not available to newcomers yet.
2. Over 24% XIRR from a combination of lending and trading at a P2P platform.
3. A range of loans at rates from 12% through 14% before compounding, around 12.5 to 14.5% AER in effect.
4. A couple of days ago I put £8k into an 11% before compounding loan that offers 1% cash back. Three year term. If I sell after a year I'll be at over 12% interest rate. If held for all three years the yield would be 12.334% if calculated as an AER.
5. Tax free 10% a year from a VCT that also generated a 30% refund of the purchase price from HMRC, eliminating most of my income tax bill last year. Close to 100% secured on property in the case of the VCT that has most of my VCT money.

All of those rates are before possible bad debts, the potential pain of which is greatly reduced by the lending being secured and often by protection funds on top of that.

There are relationships between inflation and investment returns but it doesn't follow that low inflation always has to mean low investment returns.

jamesd

MrStanners wrote: »

In response to a comment by jamesd I hadn't considered transferring any of my pensions into a DC or SIPP because I am married with dependants and so I assumed the DB benefits would be too good in comparison. However I'm curious now so I will request a transfer value from one of my deferred DB schemes, but unless the transfer value is very high I will probably leave it where it is.

Please do let us know how that goes. Usually it's going to turn out to be best to leave it where it is but it's good to check just in case.

In normal situations it'd be no contest, leave it where it is. It's just the quite extreme interest rate situation that's been generating some compelling offers sometimes.