The plan - have I missed anything

tmppension

I have been doing some planning and thought I would post some numbers and see whether I'd missed anything. I'm also keen to understand any tips on what I should now start to think about as I head into what is hopefully the last 5 years of the rat race!

I'm 45, Mrs TP is 47 and I believe we now have a plan for exiting the rat race in 5 years time and fully retiring 5 years after that.

We think we need a joint income of £35k per year before tax. Mrs TP is self employed and works the hours she wants, we know that we could both work in that business part time and bring in around £20k per year between us. So, the plan is to do that in 5 years time topping up our income to £35k from savings until we can access pensions.

Assets:
Main home, around £350k equity when current mortgage deal ends in 5 years time, plan is to downsize a little and free up £100k. We could do this now based on house prices in our area even after stamp duty and fees.
We own a property abroad, small mortgage that will be cleared within 5 years. It's worth around £175k. This is one of the reasons we are comfortable downsizing because the plan is to split out time between home and abroad.
Mrs TP rents out a house to family, £65k equity. We're assuming this would carry on and haven't included this money in our plans, the small rental "profit" Mrs TP declares with here part-time income and we'd simply include that going forward if the arrangement stays or we'd sell up.
Savings - in addition to the money we plan to release by downsizing we have approx £100k in cash and shares. Not much in cash just our emergency fund of about £25k, the rest is locked away in shares through work that can only be accessed over the next 3 years.

Pensions:
Both of us will get full state pension, we've checked online.
We both have a mixture of DB pensions available at different times, approx £11k when we are each 65.
I have a DC pot of £190k and over the next 5 years another £100k via salary sacrifice will go into that.
Mrs TP has a small £10k DC pot.

The plan:
In 5 years time both work part-time in Mrs TPs existing business bringing in approx £20k between us and take £15k per year from savings (cost £75k from approx £200k available cash).
I'll then be 55 and we'll start accessing the DC pot (maybe the government will change the age by then?) taking £35k per year, we're assuming we'll stop the business at this point. We'll need to do this for 5 years then DB schemes start to kick in and the amount we take out of the DC pot tapers down to £0 over the next 7 years.
At the point I am 67 our combined income is £40k (DB schemes plus state pension).

Am I missing anything? It feels very doable as there is a decent contingency left in the savings and DC pot. I understand we are both incredibly lucky in that we've benefited from DB schemes at work and now have the luxury of a mixture of fixed guaranteed income and flexible DC pots but I want to ensure we make the most of this flexibility.

MallyGirl

can you not get m ore into Mrs TP's DC pot? it seems a bit unbalanced at the moment?

tmppension

Once we are both drawing our DB pensions it is very even but you are right the DC pot is very uneven. The reason for that is I benefit from tax and NI savings on my salary sacrifice (a chunk of my sacrifice avoids 60% tax!) and she would only benefit from 20% tax uplift. Given the DC pot is only really being used for the period before DB schemes kick in we both thought the fact it was a bit uneven didn't really matter (happy to be proved wrong).
We also don't want to add more than we have going into pensions at the moment because it is locked away and we need to ensure we have savings outside pensions for the time before 55.

MallyGirl

It all depends on Mrs TP's income during the time when you are drawing down from her DC pot. If it is less than her personal allowance then you could accessing some/all of the DC pot tax free whereas if it is all coming from your pot you will be paying tax on a significant proportion of it. Sometimes 20% tax benefit on the way in and 0% on the way out is better than higher rate on the way in and 20% on the way out.
It is slightly different as she is SE. If she was doing sal sac and saving the NI as well then it would be a closer call.

Triumph13

I take it those DBs are £11k each rather than £11k between you?
You state you'll do the part time work from 55 for 5 years, but that DBs are at 65. Did you mean 10 years?
In your place I would calculate on the basis of SP at 69 and DC access date at 59. I'll have a play with the numbers, but it looks good. Have you considered whether the survivor will have sufficient income when the first of you pops your clogs?

bostonerimus

What numbers are you using for inflation and investment returns in your plan. Have you stress tested it with numbers that are significantly outside historical averages? What happens if one of you dies, how are you set for insurance and pensions then?

Triumph13

Sorry, got my head round it now. 5 years working, 5 years PT, 8/10 year gap until DBs then further gap to SPs.
That gives you a bridging requirement of £438k if SP is at 69. If DC access is 59 that splits as £215k before your pension is available, the rest after. That's looking a bit tight and will require the £100k from downsizing - but you could gain some headroom on this by keeping a mortgage on one or more of your properties and paying it off from tour pension lump sum.

tmppension

Thanks for the replies, some answers / more info below

I take it those DBs are £11k each rather than £11k between you?

Yes 11k each, by sheer coincidence our DB numbers are virtually identical but have been built up in different schemes at different times

You state you'll do the part time work from 55 for 5 years, but that DBs are at 65. Did you mean 10 years?

No, the plan is to do part-time between 50 and 55 then between 55 and 65 to stop work and use the DC pot to draw our income. But as you say, by then 55 may have been raised by the government, if that happens we'd need to draw more on savings then replace them from the DC pot at a later date.

Have you considered whether the survivor will have sufficient income when the first of you pops your clogs?

This is interesting (in a slightly morbid way) in that we have started looking at this. Mrs TP DB schemes are very clear, even if she goes before she draws her pension I would get 2/3rds payment going forward. However, my DB scheme is not so clear and states she would get "50% OR a refund of my contributions" if I die before drawing the pension, its 50% once I start drawing it. This is a little worrying as the contributions don't amount to much. We should look at more life insurance I think!

What numbers are you using for inflation and investment returns in your plan. Have you stress tested it with numbers that are significantly outside historical averages?

I'm doing everything in todays money and ignoring inflation. DB schemes rise each year by RPI or 5% whichever is lower, then RPI or 2.5% once in payment. The returns for the DC scheme, I'm assuming 3% above inflation. I've looked at 0% above inflation but maybe I need to look at a reduction compared to inflation. What are people's views on stress test scenarios?

Thanks

DT2001

If DC access date changes we’ll be given a reasonable amount of notice (I hope) so you will have time to adjust your plan. As it stands your plan looks good but is not set in stone and you can tweak it as you go along. My plans evolve especially after reading various threads on here. Good luck