Retirement Plan Evaluation

ExitStrategy

Hi All,
My wife and I have only really taken an interest in our retirement plans over the last couple of years so we’re still trying to educate ourselves on pension and investment fundamentals. We’ve made some basic plans below but frankly our estimations are based on blog posts or articles we have read so I’m not sure if they are overly ambitions or not.

We have read some great contributions on this forum so we thought we would throw out our basic plan and look for feedback to see if we’re on the right track or completely off beam……

All comments and feedback (positive, negative, constructive) gratefully received.


Goal – Both of us retire at 60 years old (both 44 now) with £25,000 per year of household income (in today’s money).

Current State
Me
Currently 44 years old
£164000 in Aegon Growth Pension
Saving £890 per month into Pension

Wife
Currently 44 years old
Expected NHS Pension: £7000 per year from Aged 60


Estimating Growth of Aegon pension fund to average 3% above inflation
Amount at 60 years old should be around £480,000 (in today’s money).


From aged 60 to 68
Move savings to a lower risk fund (say, averaging 1% growth above inflation)

Income
£7,000 per year from wife’s NHS pension
Withdraw £18,000 from my pension fund
Total £25,000 per year


Over 68 years old
Estimated pension funds remaining at 68 - £360,000

From 68 we should both receive full state pensions
£7,000 per year from wife’s NHS Pension
£8,500 per year from wife’s state pension .
£8,500 per year from my state pension .
£2,000 per year from my pension fund
Total £25,000 per year

Of the £360,000, this should be enough for any emergencies or elderly care we may need.

Linton

1) I dont see the need to move your investments to much lower risk funds. At 8X£18K+£2000/year drawdown most of your pension funds wont be touched for many years (if ever), certainly sufficient time to justify a fairly high equity portfolio. However you should set up a few years cash buffer several years prior to your 60th so that you do not need to sell equity investments should there be a crash.

2) you have enough money for a higher spend rate. Why only £2K/year from your approx £360K? £10K/year post 68 could be sustainable. Any great wish to leave a large inheritance?

3) Is the £25K based on current expenditure?

Mnd

I make your total after 68 to be 26000 not 25000, however your wife will pat some tax.so you may use the married couples tax allowance

ExitStrategy

Many thanks for your thoughts Linton

To answer your question: £25k per year is roughly our current household spend. With that, we are paying the mortgage of around roughly £6500 per year and bringing up 4 children.

The thinking is that by the time we are late 50's the kids will have gone through further education (if that's what they chose to do) and the mortgage will be paid off. So we should have a little bit extra to spend on ourselves in retirement.

While I do like the idea of a higher spend rate I much prefer the idea of us retiring a couple of years earlier (or at least having the option to). I think it will depend if the kids decide university is for them.

As for an inheritance, I'd like to leave something but it's not essential. The house will be enough to keep the kids happy.

ExitStrategy

Mnd wrote: »

I make your total after 68 to be 26000 not 25000, however your wife will pat some tax.so you may use the married couples tax allowance

Good spot! Thank you!

Happier_Me

I would look to draw down up to your personal allowance plus 25% from your pension when you reach 68, even if you stick it in an ISA, it's available free of tax when you want to spend it.

Someone's also mentioned transferring some of your allowance to reduce your wife's tax after 68, but you would be benefit from receiving some of your wife's allowance pre 68 also.

I think you could afford to retire several years earlier than 60, obviously depends on how much you want/need to support your children with uni etc.

What are your plans in respect of emergency savings and lump sums to cover things like new cars, the odd expensive holiday, new kitchens etc?

I'm aiming for £35k at 55 household income - a way to go yet, but I also want a lump sum that isn't funded from a downsize (although this is perfectly doable where I live).

ExitStrategy

Thanks Happier Me,
In terms of emergency savings, we like to keep it at around 10k. Thanks for the tip about transferring to my wife's pension to save tax. I'll be doing that.

35K at 55. Now that would be nice

Triumph13

Assuming you are both basic rate tax payers, rather than just transferring 10% of her allowance to you 60-68 it would make more sense to put some of the pension savings into a private pension for her instead of you that she can then draw out tax free over that period. At current figures she could take out (£12,500 - £7,000)/0.75 x 8 = roughly £59k tax free.

atush

As above, consider her pension.

is her pension reduced for taking it at 60 instead of 67? It probably is, so consider a DC pension for her so that she can leave the NHS pension a few more years than taking it so early/reduced?

Audaxer

ExitStrategy wrote: »

To answer your question: £25k per year is roughly our current household spend. With that, we are paying the mortgage of around roughly £6500 per year and bringing up 4 children.

Wow, I'm amazed that your current yearly spend is only £25k including annual £6.5k mortgage payments and you are bringing up 4 kids. We are retired with no mortgage and no kids, and our annual spend is well over £25k and we are not big spenders by any means.

I think you are well on track for a comfortable retirement.

ExitStrategy

Thank you for the advice folks. Triumph13 - That's an interesting idea of transferring some of my pension saving to a pot for my wife to save tax. I'll definitely be looking into that!

Atush - the £7000 NHS pension from 60 years old is a figure from discussion my wife has had with the financial advisers within the NHS. I'll ask her to double check that it takes account any potential reductions and get it in writing.

Thanks Audaxer. We live in the countryside in an area of the country where the cost of living is lower than average. 3 of the kids are quite close in age and the eldest is pretty self sufficient already so there are lots of big 'one-pot' meals. We are both quite lucky with our jobs. My wife works part-time shiftwork and I can work from home up to 4 days a week so childcare cost is at a minimum.

I'm sure the household cost will rise as the kids get older but we know we can cope comfortably on the 25k figure.