Thinking seriously of cashing in final salary pension

AnotherJoe

Finst wrote: »

The only other point I would mention is your statement on how much income you really need in your 90s - no-one like to think of it, but personal care and care home fees? Generally speaking, needs in retirement are highest in your 60s (active retirement), lowest in 70s and early 80s, and then rising back up again thereafter.

I disagree that this is an issue. For two reasons.
1. Most people won't need to pay care home fees, and the percentage is significant lower if you say what percent will need to pay these fees for more than a year. Maybe 5% from figures I've seen.
2. For the small minority that do need to pay fees for years, they are so high that attempting to cater for them out of drawdown is either not possible, or will mean they live their healthy pensionable years in utter penury as they squirrel away money for fees that will likely not happen.

If you need to go into a care home, sell your property and fund it that way.

rudebhoy

Triumph13 wrote: »

I've managed to work out what's going on with your numbers and have a few observations:
1. Life would have been much simpler if you'd just worked in today's money rather than inflating the capital and income by the same percentage every year!
2. You are probably overstating your capital a little in that your inflation calcs assume you take the income in one go at the end of the year.
3. That £300k odd you show at the end is actually only worth a bit over £100k because of inflation, so things are much tighter than they look.
4. How much does the BG pension actually drop by at SPA under your bridging arrangement? You seem to have dropped by £7,500, but that is after 10 years of inflation so only £5,822 in today's money (you see why I said you should have done your calcs in today's money?)

on 4 - the letter I got from BG states "should you wish to take up this option, your annual pension would be £3969 more until SPA. Thereafter it will be permanently reduced by £6203.

So £3969 plus RPI from 56, then £6203 plus RPI (which i have calculated at £7500 based on 2.5%) from 66.

rudebhoy

another point which maybe i should have mentioned, i already have a portfolio of 240k invested, so I guess my starting point for my calc should have been 850k not 613k.

mortgage is paid off, house worth circa 200k plus i also have a half share in a holiday home which generates about 2k a year in profit for me. the holiday home is worth 100k, so my share is worth 50k.

AnotherJoe

rudebhoy wrote: »

mortgage is paid off, house worth circa 200k plus i also have a half share in a holiday home which generates about 2k a year in profit for me. the holiday home is worth 100k, so my share is worth 50k.

Only if you are able to sell that half

Linton

AnotherJoe wrote: »

I disagree that this is an issue. For two reasons.
1. Most people won't need to pay care home fees, and the percentage is significant lower if you say what percent will need to pay these fees for more than a year. Maybe 5% from figures I've seen.
2. For the small minority that do need to pay fees for years, they are so high that attempting to cater for them out of drawdown is either not possible, or will mean they live their healthy pensionable years in utter penury as they squirrel away money for fees that will likely not happen.

If you need to go into a care home, sell your property and fund it that way.

I agree with this approach to planning (or not planning) for care home fees. However far more people than go into care homes stay in their own homes and employ part time carers whose roles my vary from weekly cleaning or secretarial duties to extended personal care. It would be very sensible in my view to ensure that one has enough money in late life to pay for this and so delay or remove the need to go into a care home. Council help is available but is rather limited. Paying for your own home care gives you much more flexibility and power to choose whatever help you really want.

AnotherJoe

Linton wrote: »

I agree with this approach to planning (or not planning) for care home fees. However far more people than go into care homes stay in their own homes and employ part time carers whose roles my vary from weekly cleaning or secretarial duties to extended personal care.

It would be very sensible in my view to ensure that one has enough money in late life to pay for this and so delay or remove the need to go into a care home. Council help is available but is rather limited. Paying for your own home care gives you much more flexibility and power to choose whatever help you really want.

Good points..I think I'm OK there, partly if only because if I'm not taking fancy dan holidays due to needing that level of care, by definition there's some spare funds for at home care.

kidmugsy

AnotherJoe wrote: »

If you need to go into a care home, sell your property and fund it that way.

That's OK for the survivor of a couple. What about the first one to need care? The other still needs the house.

AnotherJoe

kidmugsy wrote: »

That's OK for the survivor of a couple. What about the first one to need care? The other still needs the house.

Downsize.

And if downsizing isn't possible, well then you lose the gamble, it comes back to my original point, the odds are very low, do you want to mortgage your entire future pensionable lifestyle on that small eventually, and for most, they couldn't even raise the money to do that, e.g. It's simply out of reach anyway.

You'd be looking at I reckon easily an extra £500k to cater for around three years In a quality dementia home once tax on income is taken into account, most people here won't have that much for their whole pension let alone put aside for this aspect.

kidmugsy

AnotherJoe wrote: »

Downsize.

I'm sceptical about the wisdom and practicality of downsizing for many people. I suspect that equity release might be a better bet.

Triumph13

One final question for Rudebhoy if I may. Why do you actually want to do this? The numbers may well suggest that you would probably end up with more money in the pocket of your shroud this way, but that isn't, of itself, a good reason to give up the certainty provided by the DB scheme. Is the intention to actually try a have a larger income in return for taking on more risk? Or is it to leave a larger inheritance to children? Either of those could be perfectly good reasons - although you would have to weigh them up against any impact on your quality of life from not having your income 'guaranteed' - if that's the kind of thing that might stress you.
Any decision like this is about more than just arithmetic.