Planning my parent's retirement

ent_moot

Hello,

I'm trying to help my parents plan for retirement and would greatly appreciate your advice. Please shout if any of my calculations or assumptions are wrong.



My parents situation is as follows:

Debts:

Mortgage: £120k outstanding
Loans: £36k
Car finance: £8k

Assets:

House value: ~£275k
Possible assets/payouts: ~£10k
Teachers pension lump sum: £37k

Big Assumption: pension credit + PIP

My dad is disabled and get's PIP plus my mum is his primary carer, so I believe they will get a minimum of £1200 + £550 = £1750 per month from PIP + pension credit. This is because my mum is his primary carer. Please shout if this is wrong!

As far as I can see, this is higher than they can possibly receive from private pensions + state pension + PIP. So, I believe their best option is to retire now, then continue working part-time so that they have enough to pay off their mortgage. Then, when my mum stops working entirely (hopefully after paying off the mortgage) they can fall back to the pension credit cap + PIP mentioned above.

I don't really know how retirement works, but as far as I can understand, it simply depends upon your age. Once you hit retirement age, nothing is stopping you retiring, and nothing is stopping you working too, it's just that the pension is added as taxable income. Is this correct?

If this is true, then I think they should be able to have the following monthly income:


Monthly income:

Teachers pension: £475
Mum's part-time private teaching: £900
(in 2 years time) Mum's state pension (14.5 years): £260
(in 2 years time) Dad's state pension (12 years): £216
(if they get a tenant) Rent-a-room: £340
Dad's PIP: £550

As I understand it, my mum would have to pay tax on: (475+900+260). After tax this would be £1500. So, their monthly income would be:

1500 + 216 + 340 +550 = £2606


Their mortgage is about £1350 per month and has ~8.5 years remaining.

So, the plan is as follows:

• Use the lump sum to nuke the loans
• Use the payout (if it happens) to nuke the car finance
• Continue paying the mortgage for as long as possible
• If the private teaching dries up or becomes too much for my mum, sell up and buy somewhere cheap like Devon with whatever equity is left and fully retire on pension credit + PIP (£1700)

The only issue I see is bridging the cap between now and the state pension retirement age (about 2 years), which I'm happy to do for them.

Does this all look plausible? Am I missing anything?

xylophone

How old are your parents now?

Your parents have both obtained new state pension forecasts?

Your father has no private pension provision at all?

Your mother has a deferred TPS pension?

Your mother currently earns £900 a month?

Re Pension Credit http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true

ent_moot

How old are your parents now?

Both are 63, hence the 2 years until state pension could come into play.

Your parents have both obtained new state pension forecasts

They have worked for (mum) 14.5 years and (dad) 12 years in the UK, so my calculation was:
Mum: (159/35) * 14.5 * 4 = 260 per month
Dad: (159/35) * 12 * 4 = 218 per month

Your father has no private pension provision at all?

Nope.

Your mother has a deferred TPS pension?

She has 14.5 years teachers pension, which I calculate to come out at 37k lump sum + 475 per month (using their online calculator).

Your mother currently earns £900 a month?

Intermittently - I'm still trying to figure out how much it averages out as. I think it should average out at somewhere around this mark, particularly if we try to grow it a little.

Also, this earning depends on their currently location and home: if they sold up and moved somewhere smaller or to a cheaper area, it would be unlikely that she could maintain this income.

Re Pension Credit http://www.ageuk.org.uk/Documents/EN-GB/Factsheets/FS48_Pension_Credit_fcs.pdf?dtrk=true

Thanks, this looks consistent with my calculation for the pension credit top-up.

LHW99

Get their state pension entitlement checked
https://www.gov.uk/check-state-pension

If your mum claimed child benefit during certain years, she may have credits towards her pension even if not working.

Also, if they are 63 now, SPA is probably 66 for both.

xylophone

https://www.gov.uk/state-pension-age/y/age

Your parents should each obtain a state pension forecast as above.


Neither of them has any entitlement to state pension from abroad?

Your mother is not already receiving her TPS pension?

https://www.teacherspensions.co.uk/employers/member-retirement/age.aspx

Read the whole of the PC fact sheet very carefully.

molerat

LHW99 wrote: »

Also, if they are 63 now, SPA is probably 66 for both.

A currently 63 year old woman could reach SRA in November this year so OP / parents need to do some research pdq !

Silvertabby

Sorry molerat, but you're a bit out - a woman born on 1 Jan 1954 (so would have been 63 on 1 Jan this year) gets her State pension at 65 years 2 months 5 days, rising to 66 for those born later in the year.

OP - you'll need to have another look at your mum's State pension entitlement. As she was a member of the TPS, she will have contracted out of SERPS/SP2, and so her pension will be based on the old rules - ie, could be £120/30/14.5 = £58 per week.

A couple of other things - you seem to think that Devon is a cheap area for property. It's cheaper than London, but is still classed as an expensive area - especially the nice parts. Also, you don't seem to have factored in any emergency funds - car breaking down, boiler blowing up, etc.

xylophone

And see also https://www.gov.uk/new-state-pension
which has information about new state pension and a section on working overseas.

justme111

The numbers for teachers pension lump sum seem wrong. Is not lump sum 3 times the annual pension ? If so either your LS or annual pension is wrong.
PIP + pension credit seem too high to me as well, have you used benefits calculator to come up with it ?

[Deleted User]

justme111 wrote: »

The numbers for teachers pension lump sum seem wrong. Is not lump sum 3 times the annual pension ? If so either your LS or annual pension is wrong.
PIP + pension credit seem too high to me as well, have you used benefits calculator to come up with it ?

May have opted for a bigger lump sum but, even so, something does not compute!

Silvertabby

“ The numbers for teachers pension lump sum seem wrong. Is not lump sum 3 times the annual pension ? If so either your LS or annual pension is wrong.
PIP + pension credit seem too high to me as well, have you used benefits calculator to come up with it ?
Originally posted by justme111 ”

May have opted for a bigger lump sum but, even so, something does not compute! Posted by purdyoaten2

It depends on dates of service - but if based on an accrual rate of 1/60th with no automatic lump sum, then would have the (rough) options:

a. Annual pension of £8750 (no lump sum)

b. Commute maximum of 25% at a rate of 1:12 = £5700 annual pension plus £37K lump sum.

There may well be a bit of CARE in there, but that doesn't have an automatic lump sum either.