Does this retirement plan look realistic?

Triumph13

A lot depends on how much of a disaster you would feel it was if you had to work another year as that drives how cautious you need to be. If you would be prepared to accept say a 10% or 20% risk of having to work one more year then I would definitely be going with a high equity content on the bridging fund. If all goes well you may even find you can go a year earlier as a result. If you feel that you absolutely have to go at your planned date and can't take any risks, then maybe not.


I personally find it more useful to use realistic assumptions for investment growth and then build my safety margins into the income instead as otherwise there is a tendency to put safety margins everywhere and overdo it. It can also lead you to go overly cautious on your investment strategy compared to the timescale.
The assumptions I use in my own projections are 4% real before retirement and 3.6% real afterwards (the higher figure pre-retirement is just because I have the option of continuing to work a while if returns are poor). Both of those are slightly conservative by historic standards, but I'm looking to preserve capital for inheritance.

Temrael

Thanks so much for that, that's really helpful. As you say, the temptation to add a bit of "safety" everywhere could mean one ends up with a plan that is so far removed from what's likely, that it's not useful/meaningful.

Triumph13

Looking at the pension numbers, as long as you both remain basic rate taxpayers I agree with shifting future contributions to your OH to make sure she fully uses her PA in retirement. Other than that I think you can get away with modelling it as a combined pot rather than as two separate ones to make things easier.
£12k pa for 10 years on top of your existing £160k would get you to £370k at your retirement date at 3.5% average real return. Another 7 years growth @3.5% until you start accessing at 59 gets that up to £470k as you start Retirement Phase 2. I would be looking to divide that £470k into 3 pots.

1. A 'permanent' drawdown fund to pay out an income from 59 until death
2. A bridging fund in less volatile stocks to be drawn out over the period until both SPs are in payment
3. The 25% TFLS to be also spent over this second bridging period

If you assume a conservative withdrawal rate of 3.5% real on fund 1 and zero real on 2 and 3 then a rough split of £300k in pot 1 and £170 across the other two can be managed so you pay no tax over that decade, have £30k pa to spend and about £26k left over from funds 2 and 3 to replenish your emergency fund.


That brings us to retirement phase 3 with two lots of SP, your DB and the £10,500 pa drawdown from pot 1 which should be enough for a permanent £30k pa post tax (dropping to £19k or £21k after the first death).


Looking good!

Temrael

Brilliant thankyou! I like the approach of thinking of it as pots to do different jobs.

I wasn't sure whether to include the 25% TFLS as I thought I read somewhere that it was seen as being too generous and could be withdrawn. i.e. That added to the tax breaks on the way in it was too much of a good deal.

Snakey

I'm attempting similar planning at the moment (44, hoping to retire at 50) and my biggest concern is that I'll get merrily to about 56 - and effectively unemployable - according to plan and then they'll raise the pension access age by five years, leaving me having to stretch two years' worth of savings to cover seven years.

I don't think they gave much notice when putting the age up from 50 to 55. The popular view is that only nasty stinky rich people can afford to retire at that sort of age and who cares what happens to them (in fact, let's all point and laugh) and so these sort of changes tend to go through with barely a ripple.

Also, for what it's worth, the last condoc I saw implied that the pension access age would be ten years below whatever the State pension age was at that point. So they don't look at your SP age and knock ten years off, they look at the age currently applicable for the year in question.

Although, given we're looking at events taking place 15+ years in the future, all bets are off really. Who would have guessed at the start of 2002 what today's State or private pension rules would look like? Best to do what you can for now based on current expectations, and revisit in seven or eight years' time.

hugheskevi

I don't think they gave much notice when putting the age up from 50 to 55.

It was included in the 2002 Pension Green Paper, 8 years before taking effect in 2010.

Snakey

Oh, I did not know that! Clearly I wasn't half as well-informed back then. That makes me a bit more relaxed. Thanks, hugheskevi.