Future shortfall in early retirement

tgon

I've taken early retirement at 60 following compulsory redundancy last year and extensive but fruitless efforts to return to paid employment. (Arguably, a cash shortfall in an early retirement means my decision to retire isn't viable at all but please bear with me...)

Our (+ wife) savings and draw down from an old personal pension scheme will keep us solvent in a basic but comfortable living style until 2019. In 2021/22, I will receive a full state pension and my wife a slightly reduced state pension, plus a steady income from my final salary pension scheme more than sufficient to meet our needs. The latter includes £68k tax free cash which would replenish our savings.

My future shortfall is in 2020 by £9k. I could take my final salary pension earlier to cover it but this will have an impact that, for the sake of £9k, isn't really desirable. Apart from returning to paid employment, is there another way to "bridge" this gap in funds?

mgdavid

one way might be with a 0% or low rate credit card - as long as you are able to meet the minimum monthly payments.

nearlyrich

Can you squeeze your outgoings a little each year to ensure you have enough to manage ? Do you have any skills you can use to run a small business from home? Would you be entitled to any benefits to cover that last year ?

kidmugsy

Could you both do the trick of running £3600 p.a. gross through personal pensions of some kind? Your profit would be £720 p.a. each (less charges), adding up to over £5k.

You could simply borrow to plug the small remaining gap: mgdavid has suggested a method.

I'm assuming that you are both already maximising use of high-interest current accounts - there's not much sense in keeping your money invested for such immediate needs.

kidmugsy

Or take in a lodger: you can make £7500 p.a. tax-free using the rent-a-room allowance.

jamesd

How is the money you have invested? I'll probably suggest some P2P usage to change from a certain shortfall to only a possible shortfall if the investments don't do as well as hoped.

The £720 a year from pension contributions is assuming that you each have at least £2700 of personal allowance unused. Can drop as low as £180 gain if none is available. If you're both between 55 and 74 and haven't made pension contributions yet in this tax year, get £2880 net paid into a personal pension for this tax year now for each of you. Hargreaves Lansdown is one place that can get it all done in fifteen minutes.

If you have earned income this tax year you can pay in the whole earned income and make some nice money on it. I'm assuming that your earned income is less than £40k or that you have unused personal allowance from the lest three years. Also do deduct existing pension contributions made this tax year out of your own pocket. Given your situation you'll probably make about 25% profit over about 8 weeks on anything you can manage to pay in because you'll be able to take it all out over a while tax free. If you were on 40k there's enough gain just from doing this to wipe out your whole shortfall.

You can leave the pension money in cash until you take it out if you don't want to take any investment risk with it.

Equity release is also a fine tool to use for your purpose. Assuming P2P use you can probably defer this until the last year or two, or if the investments don't do so well.

However, rather than staying at a basic level, I favour deliberately planning to take an unsustainable level of income and using equity release to top things up to get a level income throughout retirement. You seem to have ample lump sum then income in the future so it's just a case of shifting some to the present. And equity release is a useful tool to do that. You're not short of money, you're just not having it available when needed, so do some borrowing to make the time shift.