Early Retirement

Jack_Boy

So I am 55 in a month and would really like to retire. I would probably look at taking a part time job.
My wife will continue to work which she is happy to do (earns 28k) in 8 years time will qualify for a state pension of approx. 8K and a DB pension of 9k.
I will receive a state pension of approx. 10k and a DB pension of 3k when I reach 67
We have no debt, no dependents and a house worth £300-350k.
Currently 20k in a cash ISA and 50k in savings. 25k of this I need for a car
My plan is to leave my £440k DC pension where it is (in a Standard Life multi Managed Medium risk Portfolio). I would then live off my savings until April 2020 and then start to drawdown my pension. I only need around 10k a year. Not sure if I should take a large lump sum as I don’t know what to do other than reinvest
After 5 years we would then reassess whether my wife could stop or cut down her work
I keep talking myself out of it as I am I bit worried about the talk of market slumps etc.
I know nothing about investments, stock etc
Does my plan seem sound? Any other options?
I have an IFA but he is very pro Standard Life
Do I go for it?

Bravepants

Hello and welcome...some thoughts from me...


Why are you delaying taking your DC pension for a year?



You could drawdown 2% of your DC per year and meet your £10k yearly expenses and not pay any tax, also benefiting from the 25% tax free. So you could draw £11733 and not pay any tax if you don't have other taxable income. Unless of course your part time job will pay less than the tax allowance £12500 from April?


It's a good idea to keep 2 or 3 years' worth of living expenses in cash in case of a downturn. So I would hesitate to spend my cash savings.



Do you need to spend £25k on a car?

Jack_Boy

I would be required to give 6 months notice so realistically it would be October before I finish and it takes a month for our final pension payment to go in so it would only be a few months of living of my savings.

Ideally if I get a part time job I won't touch my pension was my thought

I tow a big caravan so I need a decent car 25k will be maximum

Linton

Do you know how much total income/year you need to live on? If not a first guess would be how much are you and the Mrs actually spending now and then deduct anything that wont apply during retirement.


The problem then is how best to set up your finances to ensure that you have a secure retirement, or at least as secure as possible given future unknowns. Probably the person best qualified to come up with a proposal is your IFA. Whether its invested with Standard Life or somewhere else is very much a secondary concern. You need the big picture clear first. With your professed lack of knowledge and the size of your pot trying to do this yourself may not be the best course of action.


One detail to add to your current proposal. It would be highly tax efficient if you drawdown sufficient each year before you get your other pensions to entirely use up your tax allowance. Anything beyond the £10K for living expenses could be put into an S&S ISA.


On whether to take the tax free lump sum: it could be better to take your drawdown under UFPLS whereby each drawdown amount includes its own 25% tax free. So with the 2019/2020 tax allowance of £12500 you could drawdown £16667, 25%=£4166 would be tax free and the remaining £12500 would be covered by your tax allowance, assuming you had no other income. The problem with taking the full 25% in one go is that it would take some time to get the money sheltered from tax in an ISA.

Jack_Boy

I only need 6-7k a year to live on.

My IFA has done the usual finance checks and attitude to risk checks and seems pretty chilled about everything (but then it isn't his money!) and has suggested that due to the fairly small salary I require from the pension that leaving it invested as it and only drawing what I need is the best bet but to be fair he hasn't finalised everything yet and seems to want to do that when I actually take the plunge

I have had some other advice from a retired FA who says take 25% can out when I retire and put it in NS&I savings and then take out the maximum I can each year from my pot before paying tax and put anything I don't spend in an ISA or NS&I savings. To me this didn't make sense as the money saved although safe won't even grow at the rate of RPI so I would be losing money

Albermarle

To me this didn't make sense as the money saved although safe won't even grow at the rate of RPI so I would be losing money

I guess the main idea behind this suggestion is 'safety first ' as the money left in your pension will still presumably be invested in the markets in some way . So if markets were to dive at least some of your money will be in a safe place .

Thrugelmir

Jack_Boy wrote: »

To me this didn't make sense as the money saved although safe won't even grow at the rate of RPI so I would be losing money

A famous quote from a well respected investment manager of the past.

“Bull markets are born on pessimism, grow on scepticism,
mature on optimism and die on euphoria.”

Mick500X

Similar position to me.
I'm 57 stopped working in August last year.
I'd received 5 month pay roughly £8000 up to that point
As I wasn't going to go back to work I transferred my tax allowance over to the Mrs as she like your other half is happy to continue working for the time being.
I recently contacted HMRC to claim the tax back on the £8000 as this was below my £11500, received a cheque Sat morning for approx £850.
I've a pension pot from many years ago that's worth £90000 this has to last me until I'm 67.
So my idea is to carry on giving my allowance to my Mrs
£12500 - £1250 Leaves me with £11250 per year
£11250 over 12 month = £937.50 per month
£937.50 - £240 per month into a SIPP £2880 rounded up to £3500 by HMRC
Leaves me with £697.50 per month.
0% tax will have to be paid also 0% NI and as I've already paid over 35 years of full NI I'll still get my full pension when I'm 67 plus a works pension of around £5500 pa and a tax free lump sum of around £52000
With money I have in the bank the £697.50 will be more than enough to last per month and keep the lifestyle that I have now.

The big thing to me is to pay as little tax as possible and by keeping everything under my tax allowance means I'll pay no tax or NI until I actually retire at which point I'll unfortunately probably have to start paying tax again dependant on personal allowance at that time.

So to answer your question a little.
I'd take the biggest tax free lump sum that I could and invest £2880 per year into a SIPP
I'd give part of my tax allowance to the Mrs
And I'd take a drawdown from my pension pot of £697.50 per month and I'd not be bothering with a part time job, to avoid having to pay 20% tax.