Early Retirement. Full monthly Pension or Reduced pension with Lump sum

aspers288_2

I am thinking of taking early retirement and I have a small company pension which offers a higher monthly income or a lump sum with lower monthly income.
So, which is the best option ?

Linton

In purely financial terms it depends on how much pension you lose per £ of lump sum gained. Generally we find that the lump sum is a worse deal than the pension. So if you don’t need the lump sum don’t take it.

However your circumstances may change things. For example if you are in ill health with a significantly reduced life expectancy or have expensive debts then the lump sum could be the better bet.

Let us have the numbers and we can comment in more detail.

Triumph13

You need to work out which is more useful to you. A lump sum that sits in a bank with you being too scared to spend it is useless. A lump sum that lets you pay off your debts to Big Tony who's threatening to kneecap you if you don't pay could be a literal lifesaver.

Extra pension that you wouldn't spend because you already have enough is of little use. Extra pension that makes the difference between living comfortably and scraping by is priceless.

Mick70

I have similar scenario (if dont get to transfer out)
an annual pension of £26200 (+rpi) and lump sum £78,500
OR
annual pension £23,300 (+rpi) and lump sum £157,000

I am unsure which is the better option to take , don't have any major debts and lump sum would prob be pout in bank towards spouse pension unless invested in some form but unsure what

any advice appreciated

Mick

swindiff

The only way of being sure which is the best options is if you know the date of your death.

Mick-H

swindiff wrote: »

The only way of being sure which is the best options is if you know the date of your death.

Has to be the best answer I've seen and the exact same conclusion I came to.

I'm 58 and now retired, I'm planning on being here till about 75 give or take a few years.
Hope to be in good enough health to take two 2/3 week holidays and 3/4 city breaks per year untill I'm 70 then slow down a little.
I've £100000 in the bank and the same in a private pension that has to last me 9 years, at which point I get my state pension and works pension, which will be roughly a lump sum of 35k and yearly of 16k.
Not mega amounts compared to some but it's enough to keep me in the same std of living that I'm used to and I'm not having to work 40 hours a week to do it.
All in all life is good.

nigelbb

Mick-H wrote: »

Has to be the best answer I've seen and the exact same conclusion I came to.

I'm 58 and now retired, I'm planning on being here till about 75 give or take a few years.

You need to revise that. For a 58 year old man average life expectancy is 85 with a 25% chance of living to 93 & 5.7% of living to 100.

mapleoak

At 93 I expect the holiday insurance would be more than the value of my pension :rotfl:

Mick-H

nigelbb wrote: »

You need to revise that. For a 58 year old man average life expectancy is 85 with a 25% chance of living to 93 & 5.7% of living to 100.

Current health issues and family tree of people dying in mid to late 70s gives me my target age.
Don't get me wrong I wouldn't mind hanging around for a few more years health permitting but by mid 70s I dare say I'll be spending less money than I'm getting so all good.

MK62

Mick70 wrote: »

I have similar scenario (if dont get to transfer out)
an annual pension of £26200 (+rpi) and lump sum £78,500
OR
annual pension £23,300 (+rpi) and lump sum £157,000

I am unsure which is the better option to take , don't have any major debts and lump sum would prob be pout in bank towards spouse pension unless invested in some form but unsure what

any advice appreciated

Mick

It could depend on your spouse's position.........if you could finance a significant increase in your OH's pension provision with the extra lump sum between now and OH's retirement, that could be very beneficial to you as a couple.......but you'd need to run the numbers.

You'd be giving up £2900pa in return for a lump sum increase of £78500.......around 27:1, but you need to consider that the £2900 extra pension would be taxable....that makes it more like 34:1......(after BR tax that £2900pa would become £2320pa).....you'd have to confirm whether the entire extra lump sum is tax free though.....
On the flip side the extra pension is index linked RPI......any returns on the extra lump sum are not (and so could be more or less than RPI.....less if it stayed in a bank though).

jimi_man

MK62 wrote: »

It could depend on your spouse's position.........if you could finance a significant increase in your OH's pension provision with the extra lump sum between now and OH's retirement, that could be very beneficial to you as a couple.......but you'd need to run the numbers.

You'd be giving up £2900pa in return for a lump sum increase of £78500.......around 27:1, but you need to consider that the £2900 extra pension would be taxable....that makes it more like 34:1......(after BR tax that £2900pa would become £2320pa).....you'd have to confirm whether the entire extra lump sum is tax free though.....
On the flip side the extra pension is index linked RPI......any returns on the extra lump sum are not (and so could be more or less than RPI.....less if it stayed in a bank though).

One of the most important factors affecting the conversion rate is the age at which you can get this. My commutation rate (public sector) was 22:1 which doesn't sound too bad. However this was at age 51, which then made it extremely poor.

27:1 at age 55 is a lot worse than 27:1 at 65.