Retirment in 2016 advice please

saver861

doloresdavies wrote: »

2: a Lump sum and a slightly reduced pension.

Just to add - this is not usually a good option. The conversion is usually around 12:1 so for every £1000 annual pension you give up you will get a tax free lump sum of £12,000.

Effectively though, in simple terms ignoring tax issues etc, this means after 12 years you will be losing out. This option is only usually good if there are significant health issues.

As for the quarterly pension, as xylophone says, that's not normally how it is paid, even for modest amounts. One of my pensions is a very very small pension paying me £40 per month, but it is per month.

You need to ensure you have all your pension information correct.

patanne

TadleyBaggie wrote: »

In reality you only need 75-80% of your salary once you start taking a pension. The only deduction from a pension would be income tax, however from a salary there is also NI, pension contributions etc.

For example, I was on close to £60K pa. when I retired, to get the same monthly after tax income I only need about £42K pa. from my pension.

This sort of deduction is only possible for someone with fairly high employment expenses. This is unlikely to be the case here. I would assume that being in a tied property rent/bills free means 'living on the job'. The only extra will be no NI to pay. The OP has also got to fund the extra rent & other bills after their retirement.

OP you really need to sit down and work out some numbers. If you are saving lots each month now, then it shouldn't be hard to figure it all out but if you are living up to your income now then it is different. At the moment only you know that.

doloresdavies

Wow! What a lot of questions! I rang the DWP last week to claim my State Pension which has been deferred since 6/1/13 when I became 61 years and 10 months so I haven't paid NI contributions since then. They told me it would be £500 but I didn't ask if it was monthly or 4 weekly, I Just assumed it would be 4 weekly. I am correct about the FSP being quarterly, my husband has £75 every quarter from the same people. We have never been high-earners. I don't know anything about index-linked. This is so complicated that I am coming to the conclusion that it might be just as well to take the large Lump Sum my FSP people are offering, stick it in an Isa or a savings account, and just use it to pay my bills, whatever they will be. Although I tend to agree with Saver 861's figures in #9. Thanks to all of you and Happy New Year

luvchocolate

I had an appointment with citizen advice about my pension I had done a lot of research before but he was very helpful, might be an idea to book an appointment.
Loads of help on here, but you do need to give them as much information as possible.
Happy New Year

RickyB2000

doloresdavies wrote: »

Wow! What a lot of questions! I rang the DWP last week to claim my State Pension which has been deferred since 6/1/13 when I became 61 years and 10 months so I haven't paid NI contributions since then. They told me it would be £500 but I didn't ask if it was monthly or 4 weekly, I Just assumed it would be 4 weekly. I am correct about the FSP being quarterly, my husband has £75 every quarter from the same people. We have never been high-earners. I don't know anything about index-linked. This is so complicated that I am coming to the conclusion that it might be just as well to take the large Lump Sum my FSP people are offering, stick it in an Isa or a savings account, and just use it to pay my bills, whatever they will be. Although I tend to agree with Saver 861's figures in #9. Thanks to all of you and Happy New Year

It is probably worth working out how long you would have to live before the extra pension becomes better value than the lump sum. For example

1) pension of £10k a year
2) pension of £9k a year and a £20k lump sum

If you live for more than 24 years and get no return on the lump sum, option 1) is better value (you have made £24k from the extra £1k pension a year - assuming 20% tax on the 10k pension - 20 years if paying no tax).

Now if you take £84 from the lump sum every month (to get back to £10k a year) and get a 2% return on the money invested, your break even would be 32 years. If you get 3% your break even would be 41 years.

Note this does not include index linking. You should ask your final salary pension whether the pension is linked to inflation. If it is, it should increase in value each year in line with inflation (it may be capped). Inflation will eat into your lump sum, so if your pension is index linked you would need a much higher return to hit the 24 year break even point (i think around 1.5% on a 20k lump sum at 3% inflation). Any less and you will burn through the lump sum quicker.

It sounds risky to be relying on the lump sum to pay for essential bills, unless your break even point is a high number you are unlikely to live to. What happens when it is gone? Will you be able to resist spending it on other things?

Robin9

doloresdavies wrote: »

Hello there, I know my State pension will be in the region of £500 pm. I am in tied accommodation which I will have to vacate, my rent, electricity and water rates are not paid my me, but when I find a new home I will have to take these new bills into consideration. I take home about £1100 pm. So without looking at the utility bills....I need to get another £600 pm month coming in to equal what I'm currently getting, plus then I will have to increase this amount to cover the Utilities.

Do you pay your own Council Tax ?

Robin9

doloresdavies wrote: »

Hello there, I know my State pension will be in the region of £500 pm. I am in tied accommodation which I will have to vacate, my rent, electricity and water rates are not paid my me, but when I find a new home I will have to take these new bills into consideration. I take home about £1100 pm. So without looking at the utility bills....I need to get another £600 pm month coming in to equal what I'm currently getting, plus then I will have to increase this amount to cover the Utilities.

Have you had any thoughts about your new home? Flat, house, rent, buy, location, location, location ? Use your months before retirement to do a lot of research.

Have a look at the Estate Agents and see what there is on the market? If renting how much - in a tied property you have been a bit sheltered from the costs of buying and running a home.

saver861

RickyB2000 wrote: »

1) pension of £10k a year
2) pension of £9k a year and a £20k lump sum

If you live for more than 24 years and get no return on the lump sum, option 1) is better value (you have made £24k from the extra £1k pension a year - assuming 20% tax on the 10k pension - 20 years if paying no tax).

Now if you take £84 from the lump sum every month (to get back to £10k a year) and get a 2% return on the money invested, your break even would be 32 years. If you get 3% your break even would be 41 years.

Not quite sure how you worked this out but I don't think it is correct. From your figures, if OP takes an additional £10k and reduced annual pension by £1k, the breakeven point will come much sooner than 32 years.

If she takes £84 per month from the extra lump sum, that is £1,008 per year. So, in ten years she will have taken out the full additional lump sum i.e. £10,080. Even allowing for growth of the lump sum at 3% that would be just £300 in the first year and would decrease each year as the capital is being reduced. So, even averaging 2% for the 10 years would add around £2k which essentially is just two more years to the break even point.

So, unless I am misinterpreting your figures, I think the breakeven point on those figures would be maximum 12 years, not allowing for tax, index-linking etc.

RickyB2000

saver861 wrote: »

Not quite sure how you worked this out but I don't think it is correct. From your figures, if OP takes an additional £10k and reduced annual pension by £1k, the breakeven point will come much sooner than 32 years.

If she takes £84 per month from the extra lump sum, that is £1,008 per year. So, in ten years she will have taken out the full additional lump sum i.e. £10,080. Even allowing for growth of the lump sum at 3% that would be just £300 in the first year and would decrease each year as the capital is being reduced. So, even averaging 2% for the 10 years would add around £2k which essentially is just two more years to the break even point.

So, unless I am misinterpreting your figures, I think the breakeven point on those figures would be maximum 12 years, not allowing for tax, index-linking etc.

I was working on a lump sum of £20k for £1k less pension. I was also assuming tax on the 1k which won't be on the £20k - so to get £20k back in your pocket, you would only ge looking at £800 a year from the pension - so 25 years. The calculations were quite rough, more to give a steer on the impact of getting a lump sum when we don't have any numbers to work from.

saver861

RickyB2000 wrote: »

I was working on a lump sum of £20k for £1k less pension.

Ah right. You are working on a 20:1 ratio. Not sure you would get that ratio anywhere. Its usually about 12:1 max but there will be different rates in different schemes.

You are correct though that op would need to consider tax implications against index-linking etc.

I had the same option when I retired to take some additional lump sum for reduced annual pension. I declined, even with paying tax and allowing for investment return, I figured it would be around 14 years when I reach breakeven. As there is a good chance I was going to be drawing my pension for more than 14 years I concluded it was not a good option. The ratio was 12:1.