A frugal early retirement ....

marvinandroid

Hi - while showing as a newbie I've been hovering around the forum for years and thought it time to take the plunge. In that context, I'd welcome comments and advice on the wisdom of our plans for possible early retirement as a couple aged 52 & 55. Our situation is:
- Both civil servants in final salary schemes with reasonably long service, but have grown increasingly tired of working in central government and really want to stop.
- Plan is for a financially independent life to give us the freedom to travel more (motorhome), spend time at our static in the Lakes (walking), and indulge ourselves as we see fit.
- We're both very active and love walking and cycling. We also want more time to devote to creative activities and volunteering. In other words Work gets in the way.
- We've two children: one in final year of uni, the other has a family of her own, So financial demands hopefully diminishing.

So, our financial position is, briefly:
- house worth £300k ish with 18k mortgage left - opportunity to downsize (we live in the north)
- fortunate to be able to take actuarially reduced pension earlier giving us a combined pension of around 25k pa with £80k lump sum if we finished in the summer. This sum increases in line with CPI (from 55) with spouse etc protection .
- savings of around £170k
- we've lived below our income for years and recording spend shows we can easily with less than £25k pa even taking into account static and motorhome costs. We like frugality!
- both will quality for full state pension.

We realise we're in a very fortunate position but it still feels like an enormous risk.

Appreciate this question depends on attitude to work and family situation but what would experts do?

Thanks in advance and sorry for long first post.

jerrysimon

Remember your net from those pensions is likely to be higher with no NI or Pension contributions

Although my pension will be around 45% of my salary my net is nearer 60% of my current net.

If you work out your monthly spend and it works then why not do it ?

Its good to have a little tucked away for emergencies which the 80K should provide.

Are you sure you have full state pensions as its likely you were contracted out ? Have you checked on line ?

Others might advise you maximise your pensions by leaving them and funding a few more years through savings etc but you will have seen my many posts on that and the fact I am leaving at 56 and drawing my DB pension early with the associated reduction. Its a choice you will need to make.

You say risk, for me I have realised its not so much a risk as the change to daily routine that is enormous. If the numbers work for your plan, it sounds like heaven to me

PS you may be aware but even though you take your pensions reduced if its like my CS pension, then the rate paid to a surviving partner is 50% of the unreduced rate

Jerry

marvinandroid

Thanks for the response! Re state pensions - yes checked online.

Our emergency pot will hopefully be in the region of £200k once we've factored in paying off the mortgage and other things. Other than the mortgage we have no debt. For this amount I've assumed 4% pa income (on top of the 25k pension)

One of my pros is that I think it inevitable further changes will be made to pensions (state and private) making it much more difficult to retire early. We've had the green paper published this week on private sector DB schemes and Cridland review next month. News this morning on living to 90 only serves to soften the blow for further policy changes.

AnotherJoe

What risk are you referring to? When you would have guaranteed pensions from government and a proven ability to spend under that pension income, plus later SP on top ? Seems like a slam dunk to me.

Go for it !

marvinandroid

Suppose all things are relative but associated with moving from a relatively high income and low spend lifestyle to one where the balance is more real!

jerrysimon

With that size pot as well it seems it may be time to do it.

Re SP what I meant was you would not have the full £155/week.

Re changes in pensions I am not sure what they can do with existing schemes. I think they have to close them down and start new ones to change them but who knows I guess they could do anything.

I did read somewhere that new schemes may now track the SP age with min retirement age no more than 10 years behind.

Jerry

MacMickster

marvinandroid wrote: »

- Plan is for a financially independent life to give us the freedom to travel more (motorhome), spend time at our static in the Lakes (walking), and indulge ourselves as we see fit.
- We're both very active and love walking and cycling. We also want more time to devote to creative activities and volunteering. In other words Work gets in the way.

Work gets in the way of what you both want to do. The financial side adds up. To my mind it is a no brainer. Go for it.

The only slight word of caution. Both your motor home and static caravan are likely to need replacing (possibly more than once each) over what will hopefully be a very long retirement. Make sure that you have the capital for those replacements so that you can continue to enjoy your preferred lifestyle throughout your retirement.

Good luck.

Silvertabby

- both will quality for full state pension.

Your civil service pensions were contracted out (until contracting out ceased in April last year) so you may not get the full £155 per week. It depends on your foundation amount (your State pension as at April 2016) and how many more years you intend to work/pay National Insurance.

marvinandroid

Re SP - sounds right and I need to check again (thanks).

We factored in replacement for the motorhome at some point but not the static - my thinking is that more time in either may negate the need for both.

kidmugsy

I can see a case for waiting until the second of you is 55 so that you get inflation-protection on both DB pensions. You may decide "sod it" and not bother.

Are you both going to use your full Personal Allowance vs income tax in the gap before your State Pensions begin? If not, there's a case for bunging cash into a personal pension of some kind now, while you are still getting earnings, and then drawing down free of income tax later. You'd want to act sharpish before the end of the tax year.

Be sure to split your £200k evenly so that you can each take full advantage of the £5k p.a. dividend allowance and the £1k interest allowance while you wait to get it all tucked away in ISAs. Or, if you prefer, both tuck away the max into personal pensions in this tax year and look upon one (potentially) as an income source and the other as emergency capital.

You're in a good position; plenty of attractive options.

jamesd

As jerrysimon wrote that some would say, taking the defined benefit pensions at normal pension age is likely to be best. It seems that you have plenty of savings and may well be able now to pay yourself an income equal to the full work and state pensions. Then later cut the capital drain rate when you take the work pensions and finally eliminate it once the state pensions are both being paid.

That depends a bit on just which normal pension age you use. I expect that some has 55 or 60 and some state pension age. Not worth waiting for the NPA of the career average bit, just take the actuarial reduction on that.

If your savings aren't in pensions yet, get them there and get the tax relief in the money. You can start to withdraw personal pension money from age 55 so you need to leave enough outside to last until then. The amount you can pay in to a pension is limited to your gross pay or 40k minus the increase in value of your work pension, whichever is lower. You can carry forward unused annual allowance (the 40k) from the last three years.

You can buy years one at a time to get to the full flat rate state pension. Something to plan for, it's a good deal. Each year adds 1/35 of the flat rate maximum until you reach it.

Combined work and state pensions of £41k and plenty of savings means that you've prepared well for retirement, time to start enjoying it.