About to retire early, options ?

kidmugsy

What's the interest rate on your mortgage if you draw some money out now?

Would you be prepared to extend the mortgage until, say, you are 75? If so it would be wise to do it while you are still in paid employment.


Note that the whole point of (sensible) debt is to allow you to time-shift cash flows. You know your income will go up when the state pensions begin, you suspect that you'd like more income now. So if the terms are right borrow a bit. Or at least spend your Tax-Free Lump Sum capital having checked that the ability to draw from your mortgage is still valid, so that it becomes your emergency fund and yet it costs you zero in interest if you don't actually call on it.

Note that by my calculation, as a couple you'd have more than £2k per month after tax, which seems to be comfortably above your estimate of what you need.

One last point: how will your wife do once you are dead? Presumably she will get half your DB pension and none of your state pension. Will that be enough?

Anyway, in summary: take your DB pension early so that you can stop work in March '17. Defer your wife's LGPS pension until she is 60 to maximise her income and the tax advantages. Keep contributing to her personal pension, drawing out whenever it suits. Check that a mortgage loan will be available whenever you need it. Relax!

Triumph13

+1 on Kidmugsy's point about making sure of your wife's finances if you predecease her - as you are older than her and have medical issues this was the first thing to leap out at me from the thread. Because of this I believe your first priority should be 7 years of voluntary NICs for her to get her up to the full state pension.
Your second priority should be another 8 years of NICs yourself to get you a virtually full state pension too. It makes no sense at all to be discussing whether or no to take your DB pensions early when voluntary NICs are SO much better value - £11k of contributions would give more than £3.4kpa of pension between you.
After that, I would lean towards just taking your DB now with the actuarial reduction, and taking your wife's as and when she retires from her part time work. Assuming her DB is then £2.5k that would then give net income roughly as follows:

• £1,570 a month until your SP age. Spreading £52k of your lump sum over those ten years gets this up to £2k a month.
• £2,060 a month once your SP kicks in
• £2,730 a month once her SP kicks in (party time!)
• £1,620 a month for her after your death (assuming she inherits 50% of your DB)

That all looks pretty comfortable based on what you've said about your spending so congratulations, you made it!

jerrysimon

Indeed thanks so much to you all for suggestions, a lot of it makes good sense. My wife will get 1/2 my DB pension, 10K as its based on the actual not reduced rate, and making up her SP and maxing out her DB pension by leaving it until she is 60 will protect her income for the future as you say. I assume as she is still working, but not enough to have to pay NI, she is increasing her final SP unitl she gives up work ?

She has made it clear that she would move from this house and down size if I was to die.

Jerry

jerrysimon

NoStrangerToDebt wrote: »

I know this is a financial forum but there is another side to this issue that's not all about money.
I retired 10 months ago and my mental health and happiness has never been better.
I retired early with a reduced pension but without a mortgage,you will have the time you need to manage finances more closely.
I now consider my house a potential source of income but would be reluctant to draw cash against the value...I would downsize if needed.
Good luck whenever you decide to go it's great out her with the oldies!

ABSOLUTELY! I have managed to continue for another 12 months to get all my finances in order but to a certain exstent you can't put a value on your health and state of mind.

Jerry

Triumph13

jerrysimon wrote: »

I assume as she is still working, but not enough to have to pay NI, she is increasing her final SP unitl she gives up work ?

I'm afraid not as her earnings of £3k pa are below the lower earnings limit of £5,824pa. I'm afraid she'll need to pay voluntary NICs (or double her hours!).
The fact that she inherits 50% of the un-reduced pension definitely makes things easier, but still well worth paying the voluntary NICs as she only has to survive for three and a bit years after state pension age to get her money back. You'll be paying tax on all of yours so you would have to survive a whole 4 years to be in profit!

jamesperrett

jerrysimon wrote: »

My wife will get 1/2 my DB pension, 10K as its based on the actual not reduced rate,

Are you sure about this? The Classic scheme booklet just mentions it being half the pension you received at the time of your death which would imply that, if you were receiving a reduced pension, your wife would receive half of that reduced pension. Is there some way of increasing provision for spouses that I don't know about?

jerrysimon

I will check and get back to you.

Edit. Just checked my estimate requested for early drawing of pension, states "[FONT=&quot]Spouse's Pension [/FONT][FONT=&quot]£10,044.12 p.a."
[/FONT]
Even better, I think she gets around 4/5 years of my full reduced pension i.e. 17K if I was to die the day after I retired!

Jerry

jerrysimon

Also I checked and I can convert some of my lump sum (inverse commutation) to annual pension. I think this is £1 for every £12 pounds lump sum. Of course that would then be taxable whereas the the lump sum isn't. Probably best to just use the existing lump sum and spread it over 10 years tax free until our SPs kick in.

Didn't realise NI contributions don't count if you earn under £5,824pa

Jerry

Acquinas

Jerry Simon, watch out for that inverse commutation though if you exercise the option under age 60. You won't get a conversion rate of 1:12, which seems a bit of a swizz given that both the annual pension and lump sum would be actuarially reduced anyway. And of course the lump sum is tax free whereas the increased income will be taxable.

Your situation seems quite similar to mine, though I think that I'm a couple of years younger and not sitting on quite so much equity. But the idea of the me and my other half surviving on less than £1500 a month (even with no mortgage) would scare me half to death. My aspiration is to get to £2000 pre-SP. That plan was somewhat kyboshed by the decision to bale our of the Civil Service earlier this year after realising that I was wasting my life crying tears of impotent rage over stuff that nobody in the SCS gave a monkey's about. But rather than pack it in entirely I have switched jobs and, although on a much lower salary, am still clocking up additional service in another occupational pension: a situation which allows me to make additional pension contributions anyway. If and when this job get me down I will bale out completely.

chucknorris

OP it sounds like you don't like your work? Have you thought about doing something that you actually like doing? I retired at 42 (I didn't like my job), but I felt something was missing, so I went back to work as a university lecturer 10 years later at 52 (but only 80%, not full time). A few months ago (aged almost 59) I decided to retire), but they asked me to work one day a week, that is much better than retirement for me because I want to do a triathlon, but I just couldn't find the time to train adequately in all 3 disciplines whilst I was working, but now I will be able to find that time.