Early Retirement - No Brainer?

Brynsam

If the money side of things stacks up, surely the emphasis turns to how you want to spend the next years of your life. If you love your job, go on working; if you'd sooner do other things, don't go on working.

Don't get so carried away by the sums that you fail to factor in the most important commodity of all: your time.

zagfles

ex-pat_scot wrote: »

In my view, you have to be absolutely alert to the possible consequences of changes in political power.
As you say, the sensible plan is a globally diversified portfolio.
However my biggest perceived risk to my plans is not the state of the UK economy, but rather the political tinkering and taxation plans of the government.
Specifically:

1. changing the age at which you can access your personal pension (Osborne once said that 55 is far too early to stop work, and there have been suggestions of pegging the earliest access to SPA minus 10 or even SPA minus 5)

2. tax on pensions:

2a - pension tax relief changes - flat rate or cut to HR relief

2b - NICs or other tax on receipt of "pension income". There has been recent noise about pensioners paying their way in terms of the great cost they place on the NHS


2c - further AA or LTA restrictions

These are the main ones on my radar.
For these reasons, I am alert to the risks posed by politicians!

I think that's completely the wrong way round. What happens to the economy will have a much bigger impact than political tinkering around the edges with taxation/allowances etc. Inflation is the big one. You think you have a safe DB scheme which will protect you from inflation? Look carefully at the rules, most will cap inflation increases at 3% or 5%. So if we get inflation rates we saw in the 70's, or we see now in some countries, your DB pension could be halved in real terms quite easily. Look at the inflation rates in the socialist paradise of Venezuela (a regime admired by Labour leadership), or less extreme examples like Turkey.

What happens in the economy, whether it be down to Brexit or loony lefties, will also influence what the govt is forced to do - they may have no choice but to target wealth and those with big pension pots. The Tories already have with massive reducions in the AA and LTA, and that's having an effect on doctors retiring earlier, refusing to do overtime etc, and that's the actions of a Tory govt! Just imagine what Labour would do!

So that would affect you even if you have mostly foreign investments as a hedge against Brexit and potential loony UK goverments or any colour.

zagfles

ffacoffipawb wrote: »

I have been quoted an early retirement pension of £9,200 from age 55 for a scheme with an NRD of 62.

The early retirement factor applied is 0.79.

Ignoring inflation, if I took this option at age 62 I will have received 7 x 0.79 = £5.53 pension per £1 due at NRD.

From NRD I will be 0.21 worse off per year.

Hence early retirement wins if 5.53 + 0.79y > y

I.e. y < 26.33

I.e. if I die before age 62 + 26 = 88.

Seems like a no brainer to take early retirement. It will also reduce any LTA charge on my other pensions.

Is there a flaw to this logic?

Other things to look at are how the spouse benefit is affected (if applicable), also whether it might be better to take it at some age between 55 and 62. It looks like it's probably a simple 3% reduction per year, which if so, works out to more than 3% in the earlier years (eg at 56 you'd get about 3.8% more than 55).


Also you can apply the same logic to transferring out, although the scale of risk is obviously greater.

LadyTC

Good luck with your early retirement plan - looks like it can work.

I suppose Boris becoming PM - if he wins - won't have much impact on markets and I guess that Brexit is a little parochial in terms of global events. But the FTSE does seem to be lagging behind other indexes and this could be Brexit related.

Boris may also have a say on the LTA as he wants to help out the docs and the NHS - he will prob need to get rid of Hammond first.

EdSwippet

zagfles wrote: »

I think that's completely the wrong way round. What happens to the economy will have a much bigger impact than political tinkering around the edges with taxation/allowances etc.

In the long term perhaps, but not so much when one's retirement horizon is short.

By way of example, I gave up work at age 56 rather than at age 60 because the LTA reductions would otherwise have cost me 25% of those extra four years of earnings. Working out the final four years of my career at an effective 75% of previous compensation did not appeal, and I had the capital to leave, so I did.

At age 30 or 40, governments moving the goalposts is less of a problem because the goalposts are still far away., and long term effects such as markets and inflation will dominate At age 50 or 60, though, government goalpost-moving has far larger proportional effects, not least because some of it can be immediate cliff-edge rather than phased.

ffacoffipawb

AnotherJoe wrote: »

Plus you get 7 years not working. Whats not to like. Go for it.

PCLS due soon and pension starts next month. Lovely.

Final figures are 3% higher than initially quoted which is odd for an imminent defined benefit. Not complaining though.

Uses up a but more LTA than expected so now used up 89% LTA approximately.

Remaining pensions uncrystallised (DB and DC) are around 30% LTA I think. Less if the DB can be taken early, possibility of this at 58 and will be about 8% LTA.

Dallyfam

Read your thread with interest, I have also been given quote from administrators for taking pension exactly 2 years early .... tax free lump sum of £90,635 and annual income of £13595. Early retirement factor is .947 ..... company however, will only give quote for 2 years early payment but won't give forecast for if leave another 2 years, aged 60. Is anyone able to calculate how much would loose both on lump sum and pa by taking early, as thinking of doing same thing. 🤔🤔🤔 and this type of thing is way over my head !!!!! So as example if loose out on 9k by taking early, but have chance to invest 13595 minus 20% tax x 2 years surely this is also no brainer or is it not that simple.