Actuarial reduction vs longer retirement

chiefie

LHW99 wrote: »

Are your skills suitable to offer as a consultancy role for a couple of days a week?
It would bring in a "part time" salary, and give you control over how many days you work - could be a regular 2 or 3, or a burst of full time for a month and then two months off.

Yes - thanks that's one of the options.

marlot

chiefie wrote: »

I'm struggling with this a bit. Know how good DB pensions are, and taking them 10 years early can halve them...

I'm expecting to retire at about 55, in just over two years time.

Yes there is a difference in the gross pension, but when I modelled up to age 90, I found that after tax, the difference between taking the pensions at 55, 60 and 65 wasn't actually that big. And waiting to 65 was the worst of them all.

This assumes you've stopped working, of course, so not using the tax free and 20% bands.

chiefie

marlot wrote: »

I'm expecting to retire at about 55, in just over two years time.

Yes there is a difference in the gross pension, but when I modelled up to age 90, I found that after tax, the difference between taking the pensions at 55, 60 and 65 wasn't actually that big. And waiting to 65 was the worst of them all.

This assumes you've stopped working, of course, so not using the tax free and 20% bands.

Using the same method if I go at 55 my break even point is 78. At 60 it's about 81. I'm leaning towards going early, using the SIPP as long as I can, doing a bit to add to the savings pot and then taking the DB pots. I'm also going to pay into the state pension to ensure I get the max at 67. (Could be 68 by then). Mrs chiefie is older than me so I want to go as early as possible although she is fit as a Fiddle😍 thanks

robin61

It is a hard decision. Some people cannot get past how much less their income will be versus what they could have by staying longer. I know it's easier said than done but I will be trying to focus on how much I need rather than how much extra I could have.
Of course you can try to plan in advance by investing outside of your company scheme to provide the means to still leave but defer your DB pension and avoid as much of the reduction as you can. That's s probably the ideal if you can manage to do it.

jerrysimon

robin61 wrote: »

It is a hard decision. Some people cannot get past how much less their income will be versus what they could have by staying longer. I know it's easier said than done but I will be trying to focus on how much I need rather than how much extra I could have.
Of course you can try to plan in advance by investing outside of your company scheme to provide the means to still leave but defer your DB pension and avoid as much of the reduction as you can. That's s probably the ideal if you can manage to do it.

I try to think about that but suppose you put asside 60K for three years and then get another 3K on say 17K by leaving it longer.

You spend 60K for three years to gain say 3K. Now if you put that 60K in your bank and started drawing 17K straight away I think I would prefer that option!

Jerry

robin61

jerrysimon wrote: »

I try to think about that but suppose you put asside 60K for three years and then get another 3K on say 17K by leaving it longer.

You spend 60K for three years to gain say 3K. Now if you put that 60K in your bank and started drawing 17K straight away I think I would prefer that option!

Jerry

There isn't a right and wrong answer to this. It just depends on your individual circumstances. Whether the £17k is enough for you and what you would do with the £60k.
If you are just going to stick the £60k in the bank then you won't get much interest on it. If you invest it other ways then you have risk. Some would rather have the bigger index linked DB pension.
How about this. If you invest in a separate DC scheme such as a SIPP you will get tax relief at your marginal rate. So you get a nice boost from the tax man. Then you could use that money to retire early and front run your DB pension. As from next year when the personal tax allowance is £11.5k you will be able to get £15.3k per annum out tax free if you don't take the PCLS initially. So that's cheap money to fund your early retirement.

jerrysimon

Agreed, but I still think sacrificing three or four years earlier pension at the reduced rate to gain the enhancement is never factored in.

A lot probably depends on what you pension is worth and if you can live comfortably on the reduced rate until your state pension kicks in.

Jerry

robin61

jerrysimon wrote: »

Agreed, but I still think sacrificing three or four years earlier pension at the reduced rate to gain the enhancement is never factored in.

A lot probably depends on what you pension is worth and if you can live comfortably on the reduced rate until your state pension kicks in.

Jerry

Yes that's true.
It is something I have been wrestling with for a couple of years and I have changed my mind more than once.

I did a calculation a while ago and did my best to factor everything in and it was looking like it would take about 17 years to profit from deferring.

I think I am just about in the defer camp because of the savings in income tax available by taking any early retirement package in stages over 3 tax years and because the rest will come from the PCLS from my SIPP. I find depriving the tax man very tempting after a lifetime of PAYE.

However it is a close call. I guess having the security of a larger guaranteed pension is also nice.