Nice People Thread No. 15, a Cyber Summer

silvercar

michaels wrote: »

then I would really like to retire before the kids all finish uni - assuming they all go to uni but have no idea what that will cost in 10 years time. Then I don't know if houses prices will mean that downsizing is an option to bring more capital nor whether or when I might get any inheritence and finally know one knows if the state pension can continue in its current apparently unsustainable form.

I was surprised when DS2 GF said her parents were looking to retire, as she is the eldest. I hadn't really woken up to the fact that we were relatively young (30) when we had our younger one. I thought that was average. At the tender age of 30 you don't really consider the age your kids will be when you retire.

IME kids definitely require more financial support as students.

zagubov wrote: »

One problem I'd face if I retired is that I have massive life insurance through work that would be expensive to replicate. Important when there's a mortgage to be paid off, and you're the main wage-earner.

Our theory is that ideally the mortgage is repaid before retirement.

LydiaJ wrote: »

Am I correct in guessing that F and SW are pension providers?

I find the pension question quite confusing, partly because my pension arrangements are so atypical, and so are my income arrangements now. The bit I find most difficult is getting some kind of feel for how much income I would need in retirement in order not to find retiring too financially painful. So I have some question for any retired NP who would be willing to answer them:

1) How does your pension income compare with your income before you retired? (I'm not asking you to disclose your actual income, natch, but some kind of "My income from my pension is about x% of what my salary was" would be very helpful.)
2) Does this feel like enough?
3) Did stopping working (or anything else that occurred around that time) create significant decreases in your expenses (eg no longer needing to pay expensive train fares to work, paying off mortgage before retiring etc)?

1) We've discussed this with our IFA. The theory is that the mortgage is paid off and the kids are financially independent. So no mortgage, endowment or related life insurance or income protection plan. stop pension contributions. Knock off a bit more because your marginal tax rate will be lower. Take off a bit more (average is 15% of salary) for commuting costs, work clothes and work socialising (inc presents for colleagues).

2) Don't know yet. IFA reckons on initial retirement expenses are still high as your health hopefully means you are still gadding about, maybe with time for long and expensive holidays. As you get older you gad about less and so need less money.

Heavily linked to the age and dependence of the children is the opportunity to downsize, in size and location.

GDB2222

michaels wrote: »

There are some useful threads on the pensions board, one about the number and another looking for and failing to find people who feel they retired too early and ahould have worked longer to secure a higher income.

I fell for those with pension funds rather than defined benefit schemes there are too many unknown unknowns, I know how much I hope to contribute but I have no idea what those contributions will be worth when I hope to retire nor how much income I could sensibly draw from them (assuming annuities still feel like poor value at that time) then I would really like to retire before the kids all finish uni - assuming they all go to uni but have no idea what that will cost in 10 years time. Then I don't know if houses prices will mean that downsizing is an option to bring more capital nor whether or when I might get any inheritence and finally know one knows if the state pension can continue in its current apparently unsustainable form.

I probably have the best handle on how little it is possible to live on.

Annuities are not poor value at the moment; they are stark staring bananas! The reason is simply the yields on government stocks, which have been driven down by a mixture of Quantitative Easing and regulation of pension funds.

The yield on index linked government stock maturing in 45 years time is MINUS 1.7%. That means that people investing in that are guaranteed to lose 1.7% of their investment in real terms every year for the next 45 years. Which most people would think is bananas.

When index linked government stocks were first issued, at a time of rampant inflation, they gave a real yield of 2%. That's plus 2%. So, why are yields so much worse now, in today's relatively benign inflation climate.

If you buy an annuity the rate you are offered will reflect today's bananas investment climate.

Non indexed annuities are much the same, as fixed interest stock yields are 1.5% with inflation expected at an average 3% or more.

Compare that with a drawdown plan invested in shares with a dividend yield of 3.5% currently and a reasonable expectation that the shares will more or less keep pace with inflation.

Pyxis

Regarding pensions/reduced income etc........

I'm in a mess at the moment.

I retired a bit earlier than I would have liked, due to a health problem. My mortgage had finished a couple of years earlier.

Offspring were independent. I used part of an modest inheritance to provide the deposit for them to buy a flat each.

The rest of that inheritance funds my holidays: I had had very, very few foreign holidays in my entire life up to that point, for a couple of reasons, so I wanted to make up for lost time. With interest rates being so low, I felt I wasn't losing anything by doing that.

With no mortgage, no more school or University fees, and doing far less driving (no commuting etc), I was surprised at how a reduced income didn't actually seem to matter!

I have three small personal pension pots which have matured, but I have as yet made no decision as to what to do with them They aren't a massive amount, and won't provide anything like my income when I was working. (It was very difficult to save more, due to school and university fees).
There's no way I want to buy an annuity, and I've felt too unwell for a long time to try and find out what I should be doing with it. Very stupid, I know, but I am terrified of making the wrong, and irreversible, decision.

I also have a small occupational pension which I have yet to claim, as I'm letting it build up, but I should really claim it now.

I'm probably a financial advisor's nightmare, as I've been ostriching, but that's been due to the health problems I've had.



The point is that if your mortgage can finish at or before retirement, and if you don't have any other large drain on your income, like school fees, or other large debts, a lower income doesn't necessarily mean a lower standard of living.

SingleSue

Think my dad is quite lucky, with his combination of state pension and private pensions, he is receiving pretty much the same as he was before he retired but minus the costs he had for commuting to work etc.

He really upped his contributions though in the final 10 years and his final employer also contributed generously, much more than was the norm (I had the same pension plan as we were both working for the same company - mine is a lot smaller but bearing in mind the time I worked there, fairly healthy compared to what it could have been).

He was also investing heavily into an ISA so that they had cash reserves over and above the pension.

Their mortgage was paid off 30 years before retirement.

Their issue is that they are still living like they did when times were tough and feel guilty about giving themselves a treat saying they have to keep it for a rainy day, we keep telling them that this is their time to enjoy themselves and enjoy the rewards of the years of saving and going without they did. They still can't let go though, mum desperately needs a new cooker, will she get one? Nope, she is worried they cannot afford it!*

*No debts, no credit cards. They have never believed in credit apart from the mortgage, everything has been saved for and then purchased.

LydiaJ

Thanks for the thoughts everyone.

I can't see any ways in which my life would get cheaper when I retire. I only commute 2.5 miles, I don't spend more than I can help on work clothes - as a teacher I try to be reasonably smartly dressed but don't need to look expensively dressed - and work socialising is pretty cheap too - we go out a few times a term, and the others only occasionally let me buy a round because they all drink and I don't. I bought my house with life insurance and other money associated with LNE's death, and I own it outright, so no mortgage payments. The amount I currently spend on my kids is quite possibly less than the income I receive because of them - the survivors' pensions from LNE's pension schemes that are payable to me for their support, plus my widowed parent's benefit, child benefit & child tax credit - although I don't have exact numbers. My PV panels will stop paying me FiT when I'm 67, which is my state pension age.

I do understand that I'm lucky to be in the TPS, but with a career of almost entirely part-time work, it's only going to provide me with about half the pension that a career full-timer would get. I've opted for TPS "faster accrual" - pay higher contributions to accrue 45ths of career average salary instead of 57ths - but I'm not sure if there's anything else I can do to improve things. Presumably once my kids have left home I should increase my percentage of part-time and try to boost my pension that way. On the plus side, about 20% of my current income is from a widow's pension that will continue for the rest of my life.

Also on the plus side, I'm in no hurry to retire. I'd rather have the quality of life I get from working part-time, and go on working for more years, than sacrifice the time now in order to be able to retire earlier. I come from a very very long-lived family, and hope to have plenty of years of healthy post-retirement living even if I stay in part-time work until 67. Family history suggests a high probability of needing expensive care in extreme old age, though, so I need to plan for that.

Pyxis

Lydia, if your monthly outgoings don't go right to the wire of your monthly income, you could consider starting a Personal Pension Plan, paying an amount in each month for all the years up until you retire.
I think you still get tax relief on the payments, (someone correct me if I'm wrong), so that boosts the amount you're paying in considerably.

Whether that's worth doing rather depends on how old you are now. I didn't start mine until I was about 46, mainly because before then I was on a very low income indeed.

Or you could pay the monthly amount into some other sort of investment, rather than a formal pension plan. to mature when you are 67, or similar. You'd need to ask a FA about that, as I haven't a clue! You wouldn't get the tax relief, though.

LydiaJ

Pyxis wrote: »

Whether that's worth doing rather depends on how old you are now.

Thanks Pyxis. I'm 47.

DQWD:

At present I am spending a lot more than my income. However, a great deal of that is on therapy for the three of us, all of which should get reimbursed by the defendants (first meeting with new solicitor later this afternoon ). Besides which, in the compensation claim, I got a lump sum to cover all the maintenance LNE would have paid until the children are grown up, so to some extent it's expected for me to be spending more than my current income as I gradually use some of that over the years it's supposed to cover. Furthermore, the therapist is encouraging me to spend money on whatever makes my life more manageable and less stressful, which is beneficial for my mental health and therefore increases the support I can give to my kids with theirs. It all makes it much more difficult to make calculations for the future, though.

See what I mean about atypical finances???

Pyxis

It might be an idea to have a chat with a couple of independent FAs and see what they come up with.

LydiaJ

Pyxis wrote: »

It might be an idea to have a chat with a couple of independent FAs and see what they come up with.

If the new solicitor turns out to be able to do what he says he can do, I'll do just that. Think I'd better get my financial spreadsheet up to date first, though. Better have that as one of my targets for "getting things done in half term", I think.

How does one go about finding an IFA??

Masomnia

It sounds to me like you're in a decent enough position Lydia, being mortgage free and paying into a pension. In terms of your spending I would see that as 'investing in yourself', and definitely worthwhile

What to do next is tricky. It might be worth seeing a professional when you are in a position to save, or at least post on the Savings and Investments board for a starting point. There's a debate as to whether it's worth going with a further pension or a stocks and shares ISA, as both have advantages and disadvantages.

ETA: You can find IFAs on www.unbiased.co.uk

My mum is looking to retire in the next 5 or so years so we're having this kind of conversation a lot. She works in the NHS and with their scheme you can buy additional pension for a fixed amount, which if you plan on living a long time works out at very good value on the face of it. I don't know if there is a similar option with the TPS, but it might be worth investigating.

Interview went ok I think this morning, they said it's actually just for four months (I thought it was 6), but really that works in my favour as I think they'll be more likely to hire me. So we shall see!