Early retirement - what is the best way to use pension and savings

Well_excuse_me.

jamesd wrote: »

Yes, it appears that your situation is one where a transfer out is likely to be beneficial since the investment returns needed to match the pension are only 3% plus inflation to preserve all of the capital. Around 15,000 a year should be fine.

Cfiresim is a tool that can be used to examine various possible income levels and you can find a walkthrough of one example here.

To get started on your own I suggest that you change these settings:
Retirement end year: 2055
Portfolio Value: 350000
Spending Plan: Guyton-Klinger
Initial Yearly Spending: 17000 (which normally increases with inflation but not at bad times)
Spending Floor: Defined Value or 10500
Ceiling: 20100 (initial plus 30%)

With that combination you'll find the success rate is 98%, drop the initial spending to 15250 and it rises to 100% with a median average income level of 16775. 100% success rate means that even if the worst combination of investment returns seen in the last hundred plus years was seen the plan would still work and continue to deliver at least the minimum 10500 income, plus inflation on that. Median average remaining portfolio value is 353000, since most conditions aren't worst case.

Cfiresim uses US investments but see the initial post on the thread I linked to for more adjustments to make beyond using Guyton-Klinger's rules that should more than compensate for that.

I sort of understand that. So, what is it going to cost?
Transfer out and ongoing ?




Thanks.

jamesd

Transfer out would cost whatever the IFA you choose charges, perhaps in the £1,000 to £3,000 range assuming it's done on fixed fee rather than percentage basis. Be sure that you specify inheritance as a significant motivating factor.

Ongoing depends on the places you choose to invest. Perhaps 0.5%-1% a year, though you should be able to get to the lower end of that range if using trackers. You can ask the IFA to advise on a place if you want to and that would be chargeable advice as well, or you could pick a place on your own.

Well_excuse_me.

jamesd wrote: »

Transfer out would cost whatever the IFA you choose charges, perhaps in the £1,000 to £3,000 range assuming it's done on fixed fee rather than percentage basis. Be sure that you specify inheritance as a significant motivating factor.

Ongoing depends on the places you choose to invest. Perhaps 0.5%-1% a year, though you should be able to get to the lower end of that range if using trackers. You can ask the IFA to advise on a place if you want to and that would be chargeable advice as well, or you could pick a place on your own.

Thanks.
A couple of mates have financial advisors (mates as in business owners £2m+ net worth), its good to know a ballpark figure, I'm guessing Hargreaves Lansdown are OK, but not the cheapest to hold the investments and pay the pension ?

jamesd

HL definitely aren't close to being cheapest for the sort of amounts you're using. Their platform charge of 0.45% of the first £250,000 with them and 0.25% of the nest part up to a million makes them relatively expensive for your sort of amount, £1,375 before any costs for the investments. Even no charge for fund (but not ETF, share or investment trust deals) is unlikely to compensate because you can do a lot of trades for that sort of money.

ukdw

Ok. Still thinking about 5 years time, but ignoring inflation and compound interest, but considering tax.
Not sure if my logic is flawed but..
If you took £14,300 DB now with say £11.000 tax free that would be £13,640 after tax.
Compared to £16,520 after tax from £17,900 gross. So a difference of £2,880 per year after tax.
If you took the £13,640 and make it to 60 you would have received about £68k which you would not have had to spend out of savings.
If interest rates improve to 3% in 5 years time, the interest on that £68k it would come to about £2,000
So you would be about £880 a year worse off at 60, but to counter that would have £68k extra cash in the bank than if you waited until 60 to take the pension.

Also if the DB pension is at risk then would you be in a better position if you were actually in receipt of the pension when it failed, rather than being a deferred member.

I have a similar dilemma myself and am not sure whether to take a DB pension at 55, 60 or somewhere in between. At the moment I am thinking about taking it about half way in between so that in the first year I take it the whole lot is tax free.

marlot

HappyMJ wrote: »

£14,300 times 25 is £358,000
£17,900 times 20 is £358,000

If you live past 80 you're going to get £3,600 more every year.

Those are pre-tax rates.

If the OP has no other income, then after income tax, break even is about four years later, ie at 84.

I've been modelling similar for my pensions - despite conventional wisdom being to leave the DB pensions alone, I'd be missing out on £55k (5 years x £11k) of unused personal allowance.