Retirement Planning

daparojo

After lurking on this board for a while, I would like some help if possible?

Finally I am getting around to sorting my finances out and looking to plan for my final retirement date.

Me : 46
Wife : 50

Currently employed with a Final Salary Pension currently 23/60ths of a DB Benefit - rough CETV value 450k

Wife NHS Pension 12 years - no real pension prior to this.

Mortgage : 75k - 12 years to run, but overpaying 600 per month, so trying to finish the mortgage within 7 years or so.

We have the following for :
Cash ISA : 20 k
SS ISA : 3 k
Short Term Savings : 26 k
Premium Bonds : 3k
SS ISA : 3k

Currently I am savings 1.2k per month which pays for holidays, home etc as well as into long term, mid term and short term savings.

We are looking to retire, myself at 57 and my wife at 60. This will mean that I could potentially have 34/60ths, in my DB scheme which would be reduced 4% per year if I take it early.

My wife would have 22 years in the NHS Pensions - 6 years in 1995 Scheme, and 16 years in the 2015.

What I would like some guidance with is :

i) Is paying the 600 per month OP worthwhile as opposed to putting this into the SS Isa? My mindset is to clear the mortgage ASAP, I am due to remortage next year so in two minds to carry on as I am, or reduce the term.

ii) Or paying 600 into a Private Pension (I am a higher rate tax payer, my wife lower). Or could split and put 300 in Mortgage OP and 300 into a Private Pension/SS Isa?

iii) My calculations is that if we retire at 57 and 60 as planned, taking a reduction in my DB pension, we would have a total income pre tax of around 30k in todays costs - how does this compare to other couples income during retirement?

iv) Could I do something different to boost both savings / pensions?

Many thanks for your patience and help.

SonOf

Mortgage : 75k - 12 years to run, but overpaying 600 per month, so trying to finish the mortgage within 7 years or so.

Why are you overpaying so much when you plan to retire early and are not doing much to fill the gap between retirement and scheme/state pension ages?

I could potentially have 34/60ths, in my DB scheme which would be reduced 4% per year if I take it early.

Which would be reduced or even removed if you targetted funding the gap rather than overpaying the mortgage as much.

i) Is paying the 600 per month OP worthwhile as opposed to putting this into the SS Isa?

Almost certainly you are paying less interest than the average investment returns and you are not plugging that gap (sorry to go on about that) and would be heading for penalties on what you do have if you do not plug that gap.

ii) Or paying 600 into a Private Pension (I am a higher rate tax payer, my wife lower). Or could split and put 300 in Mortgage OP and 300 into a Private Pension/SS Isa?

Subject to lifetime allowance, pension beats ISA.

iii) My calculations is that if we retire at 57 and 60 as planned, taking a reduction in my DB pension, we would have a total income pre tax of around 30k in todays costs - how does this compare to other couples income during retirement?

No context exists to answer that. In some parts of the country it would be fine. In others it would not be. We do not know your spending habits and you havent told us. You should consider that against your spending habits and plans and not the spending habits of others.

Marcon

daparojo wrote: »

iii) My calculations is that if we retire at 57 and 60 as planned, taking a reduction in my DB pension, we would have a total income pre tax of around 30k in todays costs - how does this compare to other couples income during retirement?

What does it matter how it compares to other couples, unless you and they have similar lifestyles and spending patterns? Focus on how much the pair of you will need to live comfortably, which is all that matters.

daparojo

What I forgot to mention is that I also pay 600 per month into Retirement Planning. This is made up of 200 to Stocks & Shares ISA, 200 Premium Bonds and 200 Cash ISA. This is on top of my OP mortgage payments.

From the great advice I have already received on here, I will look to redistribute 600 + 600 I have at my disposal to the following. I do want to retain some Mortgage OP as I have 12 years to run, and if I want plan to retire at 57, I will have a year still on my current Mortgage.

So, I plan to :

i) Reduce my OP on my Mortgage to 200.
ii) Still put 200 in my Cash ISA each month. I have a return at 1.67%.
iii) Increase my S&S ISA to 700.
iv) Put in 100 into Premium Bonds.

I am not far to the limit with regards to my allowance in pension each year, so hence the S&S ISA.

I currently have my SS ISA through Cavendish on the Fidelity Platform.

Is this going along the right lines?

Many thanks.

NoMore

As a Higher rate tax payer you would be better putting some or all of that extra into a separate pension to take advantage of the tax relief, rather than ISA's or Premium Bonds. Even if you weren't a HRT it would still be better to pay in to a pension rather than others and just manage drawdown tax efficiently.


Use this pension and other savings to bridge the gap between 57 to 60 therefore reducing the need to take the DB pension early and suffer a penalty.

jimi_man

As a very simple example, if you took that £600 overpayment and put it into a private pension, then it would be made up to £750 in the pension with a further £150 per month available from your tax return, so you’d be better off by £900 a month. Assuming that you put it all into your pension, then over the 11 years, not taking into account any investment returns, that’s a pot of £111K. The 25% tax free portion would easily clear any remaining mortgage, leaving you with the rest to bridge the gap between 57 and 60.

Obviously you’d need to be far enough into the 40% bracket to take advantage of the whole amount (£10K a year).

The reason I mention this, is because someone on here explained exactly the same thing about three years ago, which I took on board and as a result I’m about halfway to that figure at the present time. I was going to overpay but thought better of it.

MaxiRobriguez

If you want to retire at 57 and your wife at 60 then you both need about ten years worth of living expenses to get you through to when your DB pensions and state pension kicks in.

You have £55k between you in non-pension, non-house assets, which means you're at least £150k short, if not more.

Your plan of £700 a month for ten years before retirement into a S+S ISA may get you there. That's capital injection of £84k, so you'd need to make almost 100% in returns over ten years, which is about 7-8% in gains per year, every year.

So you're banking on getting a decent compound return when markets are already stretched, in order to achieve living of £20k per year between you for ten years.

Personally if it was me I'd park the overpayments of the mortgage completely (especially if under 2%) and focus on building up the S+S ISA pot.

I'd also consider whether a DC SIPP would be more appropriate than a S+S ISA as you'll get tax benefits up front rather than at crystalisation. If you're a basic rate taxpayer that benefit is 6.25%, if you're a higher rate tax payer it's much more.

Albermarle

If you're a basic rate taxpayer that benefit is 6.25%, if you're a higher rate tax payer it's much more.

A higher rate taxpayer in employment , who is a basic rate taxpayer in retirement , gains a tax advantage of 27.5% from investing in a pension, as opposed to a non pension investment.

So normally this is the 'no brainer ' route, as long as you can wait until you mid/late 50's to access the money . There are some rules though , such as :
You can not claim more 40% tax relief than you have actually paid in a tax year.
There is an annual allowance limit for adding to a pension each year of £40K

jimi_man

Albermarle wrote: »

A higher rate taxpayer in employment , who is a basic rate taxpayer in retirement , gains a tax advantage of 27.5% from investing in a pension, as opposed to a non pension investment.

So normally this is the 'no brainer ' route, as long as you can wait until you mid/late 50's to access the money . There are some rules though , such as :
You can not claim more 40% tax relief than you have actually paid in a tax year.
There is an annual allowance limit for adding to a pension each year of £40K

Yes, and bearing in mind you pay into a DB pension I think its the increase in this that counts towards your annual allowance as well.

[Deleted User]

Overpaying mortgage and putting money into your cash ISA and bonds is 6 and two 3s. Except that your mortgage rate is likely a little higher so your effective return is a little better.

AlanP_2

daparojo wrote: »

I am not far to the limit with regards to my allowance in pension each year, so hence the S&S ISA.

Are you sure you are near the limit for pension contributions?

You haven't said your salary but you are a HR taxpayer, so if we assume £60k a year then your Pension Input Amount across all pension pots could be the £40k Annual Allowance level, and possibly higher if you haven't used up previous 3 years Annual Allowance carry forward.

With a typical DB scheme you need to be getting significant pay rises and/ or promotion based increases each year to get up to the £40k level.