Retire at 62?

John1965

Would like to retire in just over 8 yrs aged 62. To bridge the 5year gap to 67 I was wondering if it is feasible to pay approx 7k per year into a SIPP or would I be better continuing to pay into s&s VLS 80 isa? I estimate I would have 56k in SIPP plus 50k in isa & cash. In theory this could provide an income of approx 20k per year until my LGPS & SP kick in.
Mortgage free, no debt, 20% tax payer, earn 34k per year.
Wife works part time LGPS 30yrs but no plans to retire early.
15 yr old daughter, prob university in 2 years but have other funds put away for her.
Main question is can I run down SIPP for 5 years (approx 12k) per year?
I would also access 7-8k per year from isa/cash savings.
Is this feasible or do I have to reconsider. Help please
Apologies I meant to post this on pensions forum.

Mr.Saver

If you pay 7k (net) per year into an SIPP, in 8 years, you will be able to accumulate 7k*1.25*8 = 70k in the SIPP (assuming 0% growth).

By the time you are 5 years away from SP age and decide to retire, you can then take 25% (17.5k) tax free, put them into a cash ISA or savings account (depends on the rate at that time) for access later.

Now, for each year, recycle 3.2k (net) from the tax free lump sum back to the SIPP and earn the 20% tax relief. Take the amount up to your Personal Allowance (12.5k for 2019-2020 tax year), and this will meet (and exceed) your "approx 12k" per year expectation.

Assuming 0% growth rate, and the PA remains at 12.5k, you will have those numbers in your accounts at the end of each retirement year:
Year 1: 14.3k in ISA/savings, 44k in SIPP
Year 2: 11.1k in ISA/savings, 35.5k in SIPP
Year 3: 7.9k in ISA/savings, 27k in SIPP
Year 4: 4.7k in ISA/savings, 18.5k in SIPP

By the time your reach the 5th year, you can further take 25% (4k) TFLS from the 16k contributions you made over the last 4 years, and then take all the remaining 14.5k in one lump sum and pay a bit tax on the part exceeds the PA (or maybe not, if the PA raises).

You should not invest in risky funds. Just keep it up with inflation and you will have enough cash for the 5 years before your SP & LGPS kick in.

John1965

Although I don't fully understand this (give me time I'm new to this) you have made my Saturday night! Would you recommend any particular provider or investment? Thanks again.

Thrugelmir

Are you prepared to suffer the risk of capital losses from investing over such a short time frame? There's no guarantee of a positive return.

John1965

I am willing to take some risk but obviously would be looking at low end of risk.
I am not expecting massive returns but if I can get close to the numbers you have illustrated then I would be able to manage for the 5 years until LGPS & SP.

Mr.Saver

John1965 wrote: »

Although I don't fully understand this (give me time I'm new to this) you have made my Saturday night! Would you recommend any particular provider or investment? Thanks again.

I would not suggest any investment. As Thrugelmir said, your time frame isn't long enough to ride the up and downs.

I don't know much about the pension platforms about their interest rate on cash, but my gut feeling is this is going to be low. Someone else may be able to give you some more useful recommendations on this.

LobsterMemory

For Sippdeal, interest on cash for this sort of amount would be nil

Sea_Shell

The other key to this type of planning is knowing what your annual expenditure is. Do you know, with any accuracy, what you spend p.a. currently?

Zero_Sum

John1965 wrote: »

I am willing to take some risk but obviously would be looking at low end of risk.
I am not expecting massive returns but if I can get close to the numbers you have illustrated then I would be able to manage for the 5 years until LGPS & SP.

But you dont have yo wait til 67 to claim LGPS. You can just take a slightly reduced one at 62. Given that you're mid 50's most of your pension will be protected under old rules so you could get more than you think you might.

NoMore

I have almost the exact same plan, I need to fund a gap between 55 and 60 when my DB pension kicks in. I need a income of 20k a year in that gap, so are saving the maximum amount in a SIPP that I can withdraw over 5 years tax free, so currently that's £83333 (12500 tax free allowance per year + 25% tax free from the sipp)

So that's £16666 per year I can draw from the SIPP, the rest (approx £4k + inflationary increases) will come from my other savings vehicles.

I'm happy to leave the money as Cash in the SIPP as its over a short time period (7 years) and the 20% tax relief (effectively more for me as I'm a higher rate tax payer) is more than enough 'return' for me. So the £83K saved in the SIPP effectively costs £62.5k for a basic rate payer.

Good explanation of the advantages of using a SIPP in this way here:

https://simplelivingsomerset.wordpress.com/2015/03/02/sipp-opportunities-for-db-pension-workers-who-want-to-retire-early/

Ermine (the author of above post) occasionally posts on here.

xylophone

I am willing to take some risk but obviously would be looking at low end of risk.
I am not expecting massive returns but if I can get close to the numbers you have illustrated then I would be able to manage for the 5 years until LGPS & SP.

You might consider Hargreaves Lansdown SIPP.

https://www.hl.co.uk/partners/search/sipp?theSource=PCHLS&Override=0&adg=G+HLBS+HLS&gclid=EAIaIQobChMIgbXL2vSa4QIVQSrTCh0R_wKiEAAYASAAEgJf1vD_BwE

There is plenty of information above for you to read through and they are helpful on the phone.

It would be possible to hold it entirely in cash and pay no charges.

A tiny amount of interest would be payable on the cash but you might be prepared to regard the tax relief as quasi interest.

You could take the PCLS at age 62 - this could be deposited in a savings account of some description and fund your needs for a year.

Assuming rules remain the same, as a non earner, you would still be permitted to pay £2880 per tax year into a SIPP and receive tax relief of £720.

You would be able to take a PCLS from this, and some income as well as income from the balance of the old SIPP.

Presumably you would keep this within your Personal Allowance.

There is the inflation risk from staying in cash but at least you would know how much you had to play with.