My plan

Spreadsheet_Addict

I'm currently 50, planning to retire at 55. Wife to follow 2 years later.

We currently have monthly income after tax of £5200, pay £2100/month on the mortgage (will be paid off in 3 years) and 1000 a month supporting 2 sons at university (they finish next year.) so we live on about £2000 a month.

At 55 I will be able to draw £10,000 p.a. NHS pension (after actuarial reduction) and £8000 LGPS (after actuarial reduction.) I will have a £33k TFLS from NHS pension and plan on having approx £70k in LGPS Prudential AVC (which will be tax free if drawn at the same time as the pension.) I already pay into the AVC and will up the payments when the mortgage goes and kid's uni finishes to maximise what I can pay in before retirement without incurring tax penalties for exceeding limits. The rest will go into wife's Pru AVC.and should have reached more than £30k by the time I retire.

At 55, wife's DB pension will be £10,000pa after actuarial reduction.

Wife's salary is £2200 per month after tax so when I retire, we will continue to pay £1700 per month (£1400 per month felt in the pay packet) into her teacher's pension PRU AVC (£1400 a month is roughly what my two DB pensions are worth after tax)

Wife will get £12,500 TFLS and her AVC will be approx £70k (but is taxable, less 25% TFLS) so will be drawn down gradually to minimise tax hit.

Plan to spend £50k on house developments and newer cars, £20k on a holiday of a lifetime and then use the remaining lump sum over the 12 years to add a £5-8k additional holiday fund (allowing for unexpected expenses which reduce the lump sum) for each year until my state pension kicks in at 67.

I calculate about £200 of costs will fall out of the monthly bill between now and 55 (union fees etc I won't be paying when retired for example.) and after next year I don't intend taking 2 adult sons on holiday with us unless they pay their own way.

According to my calculations, I'll be slightly better off each month on the basics and the £5-8000 extra will get us a couple of holidays in the sun each year plus some days out until the state pension kicks in (mine at 67, wife's just after 67 thanks to the increase to 68 being brought forward.)

Questions:
1) Are there any serious flaws anyone can see with my reasoning?
2) Am I better off putting the lump sum into a drawdown pension (especially since most of it is tax free) or would some other investment (e.g. Vanguard) be a better option?

Linton

Your and your wifes guaranteed pensions and your wifes employment are clearly sufficient to meet your ongoing requirement for £2K/month from when you retire. My real concern is the free abandon with which you appear to plan to use up your tax free lump sums. Do you have no other savings? Surely you need a significant fund to cover future large cost items and emergencies over the next say 40 years. What about the next perhaps 3 cars? Are you really going to have only one "once in a lifetime" holiday or never do up your house again?



You cannot put put your lump sums into a pension unless you have the earned income to cover the amount as this is the limit you can put into a pension each tax year. You seem confused on this area. Vanguard is primarily a fund manager whose products may be used (like those of many other fund managers) in a tax shelter such as a pension or an S&S ISA. Or they could be held unsheltered in which case they could be liable to Capital Gains Tax, though for a small investor this can readily be avoided.



If you want long term investments you should feed the money into S&S ISAs using the £20K/year each allowance. If on the other hand you see yourselves using most of the money over the next say 10 years it may be best to use a savings ladder whereby you put fixed sums into 1 year, 2 year .... up to 5 year fixed term deposit accounts. Each year as one matures you either spend some or all of the money or put it into another 5 year account. In this way you have access to some of your money once every year but are getting the highest standard interest rates available.

Spreadsheet_Addict

Thanks for that feedback Linton. Very helpful.

I probably didn't express myself well on the lump sums. With the AVC lump sums I was trying to figure out (at least for the tax free ones) whether I can/should immediately transfer them into a drawdown product or whether a pension wrapper was not really necessary to give it sufficient growth to protect vs inflation and therefore some other investment might be equally as good. Your "savings ladder" model is worth my further study, I think. The wife's AVC would probably go into a drawdown product.

I do take your point on our rather profligate planned use of the lump sum - we will probably keep back a £20-30k emergency fund (hence my £5-8k annual holiday fund estimate, with £5k meaning more being kept back as a lump and £8k meaning spending the lot) and part of the £2000 a month expenditure we have already is savings that would go into any remaining pot of money (we also get an annual holiday out of that £2000 now, but not an expensive one.)

The main point (for us) of the lump sums is to serve as a stop-gap between drawing our DB pensions and the state pension kicking in. At the point when my state pension starts, we will be getting more a month than we have ever had to spend as a disposable income - some of that would undoubtedly be put in a "car replacement/extra holiday/roof collapses fund" but I should probably model that into my plan.

We don't plan a luxurious retirement - more a comfortable one where we live much as we do now but with more holidays. We run two cars now (12 years and 13 years old) and will decide after retirement if we really need 2 as we live close to good transport links by rail and bus. We live in the North East and costs are relatively low compared to other parts of the country.

I don't want to leave huge amounts behind when we're gone - the kids can have our house (if Corbyn and McDonnell don't steal half the value of it in the name of wealth redistribution) - we figure we only get one life and the period 55-67 will be a time where we are well enough to enjoy money we won't get as much use of in our 70s and beyond. When we are both 67, we will have more again, so we are assuming we will be able to afford cars, extra things from the house from that, though point taken, the lump will never be allowed to go to zero.

Linton

Spreadsheet_Addict wrote: »

........we figure we only get one life and the period 55-67 will be a time where we are well enough to enjoy money we won't get as much use of in our 70s and beyond. When we are both 67, we will have more again, so we are assuming we will be able to afford cars, extra things from the house from that, though point taken, the lump will never be allowed to go to zero.

From personal experience, just, there is plenty of opportunity to spend money in your 70's. These days many people are not getting decrepit until they are in their 80's or beyond. Also by the time you are getting on a bit holidays for example will become more expensive as you will be less prepared to rough it.


Our plans assume that expenditure stays the same until death and also allow for a significant lump sum to finance care should that be necessary.

Spreadsheet_Addict

From personal experience, just, there is plenty of opportunity to spend money in your 70's. These days many people are not getting decrepit until they are in their 80's or beyond. Also by the time you are getting on a bit holidays for example will become more expensive as you will be less prepared to rough it.


Our plans assume that expenditure stays the same until death and also allow for a significant lump sum to finance care should that be necessary.

Thanks - our assumption is similar - our after tax income will be £2300 or thereabouts when my wife retires. This will rise to £2900 when my state pension kicks in 10 years later and £3500 two years later when my wife's state pension commences, so the plan is for income to rise as I age as the lump sum diminishes.

The lump sum to us (aside from a reasonable emergency fund being retained, which I'm definitely factoring in now) is just a way of smoothing the period from 55 to 67 since our actual income will rise significantly when I'm 67 and again when I'm 69, so I won't be relying on lump sums for holidays etc.

I don't have any intention of leaving large cash amounts to cover care costs. That may seem irresponsible to some, but I think I've made far better provision for my old age than most and I want to spend some of my retirement doing the fun things that I haven't been able to do in the last 30 odd years. I'm spending the next few years trying to get to the healthiest weight I can, upping exercise and trying to get "match fit" for retirement. If I need care later in life and the pensions I have don't cover it, then that's a risk I'm willing to run.