Retiring at 57 13 January 2020 at 8:03AM edited 30 November -1 at 12:00AM in Pensions, Annuities & Retirement Planning 14 replies 1.7K views

LEP

I am 45 and looking into the possibility of retiring at 57. This is certainly possible but I am looking for some advice on how best to use my pot before I can draw the state pension at 67.

Current situation (pension values are in todays value)

DB pension (closed) £6765
DC pension projected pot to be £156000 in 2031
Rental Income 2 properties £10200 (this is after mortgage/insurance etc are paid). I allow about £1000 per year for repairs so call it £9000
Cash - should have around £30000 saved up by 2031

Questions

1. On the DC pension I plan to take 25% tax free and then use the rest either or an annuity or drawdown. Annuity seems safer but when hit 67 I'll have another £8k+ coming in so the flexibility of draw down seems more sensible as I won't need as much from this post once I hit 67. Are there any calculators out there that allow you to flex the amount you draw down as you age?

2. What should I project my rental income to be? I am not asking for predictions on increases in rent but more around interest rates as we all know they could well rise. I was thinking about working out the income on a 5% interests rate to be safe. Good idea or not?

Any other comments welcome.

Thanks

Sea_Shell

The first question you need to ask yourself is what INCOME do I need/want to live on for those 10 years between DC and State pension?

Do you currently live a £30,000 lifestyle or a £15,000 one, and do you expect that to change?

Are you single / children?

LEP

My two kids will have flown the nest by then.....hopefully.

To clarify what I really want to do it maximise my income until I hit my early 70s at which time I expect life to 'slow down' so I'd be looking to get an annual income of £30k+ before then at which point it could drop to around £20k.

lisyloo

LEP wrote: »

My two kids will have flown the nest by then.....hopefully.

To clarify what I really want to do it maximise my income until I hit my early 70s at which time I expect life to 'slow down' so I'd be looking to get an annual income of £30k+ before then at which point it could drop to around £20k.

That’s a big drop and not one I’d want to take if I was a healthy 70 year old still wanting to travel and have hobbies.

It’s personal of course, but some expenses may rise.

The biggest example I can think of is being widowed and no longer sharing household expenses, but household adaptations (stair lift, scooter) and domestic help are other examples.

michaels

How much equity do you have in the BTL? Is concentrating this proportion of your of your retirement pot in this single asset class (with uncertain political and financial implications) a suitable level of diversification? As you already mention it is very unclear what returns you could expect going forward from this asset class.

It might be tax efficient for you to move assets from property to pension but selling one BTL and living of the capital whilst stuffing your DC pension pot as much as allowed based on your income. You might be able to benefit from tax relief, avoiding NI and even employers NI if your employer is generous with sal sac. There is even a possibility that you could reduce your assessed income enough to benefit from tax credits in some years.

Dox

It may be possible but from the figures you've given, it certainly doesn't look as if you are in for a very opulent retirement. Maybe get some proper financial advice from an IFA, who will have all the relevant facts? With your various assets there should be ways to help you ensure a higher standard of living in retirement than might otherwise be the case.

crv1963

LEP wrote: »

My two kids will have flown the nest by then.....hopefully.

To clarify what I really want to do it maximise my income until I hit my early 70s at which time I expect life to 'slow down' so I'd be looking to get an annual income of £30k+ before then at which point it could drop to around £20k.

I think estimating that your lifestyle will drop because of your age is possibly a mistake. I know from observation of my mother and her friends- most are 75+ Mum is 81 next month. They certainly have not slowed down, expenditure may change but not drop, not as many holidays but lots more days out/ theatre trips/ paying for help with heavier tasks.

I'd suggest try a smooth steady level of income throughout retirement with a plan to save some money throughout for the big cost items such as cars/ boilers/ house repairs.

Andrew31

Does your DB kick in a 65 or 60, what are the early retirement factors. I have made a couple of assumptions, but i think its unlikely you will make it. More likely 60 is a realistic age for you, but would depend on many factors.

As suggested, speak to an IFA who should be able to give you a cash flow forecast.

LEP

michaels wrote: »

How much equity do you have in the BTL? Is concentrating this proportion of your of your retirement pot in this single asset class (with uncertain political and financial implications) a suitable level of diversification? As you already mention it is very unclear what returns you could expect going forward from this asset class.

It might be tax efficient for you to move assets from property to pension but selling one BTL and living of the capital whilst stuffing your DC pension pot as much as allowed based on your income. You might be able to benefit from tax relief, avoiding NI and even employers NI if your employer is generous with sal sac. There is even a possibility that you could reduce your assessed income enough to benefit from tax credits in some years.

About 70k across the 2 BTLs. Selling them would not be wise move considering the income they generate for me now.

LEP

crv1963 wrote: »

I think estimating that your lifestyle will drop because of your age is possibly a mistake. I know from observation of my mother and her friends- most are 75+ Mum is 81 next month. They certainly have not slowed down, expenditure may change but not drop, not as many holidays but lots more days out/ theatre trips/ paying for help with heavier tasks.

I'd suggest try a smooth steady level of income throughout retirement with a plan to save some money throughout for the big cost items such as cars/ boilers/ house repairs.

Maybe and I was being overcautious when I said 20k. Even if my rental income dropped to 5k then this along with my DB pension and State pension would mean I'd be getting circa 20k even if I'd used up all by DC pension post and cash.

Plus I can always downsize from a 4 bed to 3 bed which in my area would net me another 100k at todays prices.

LEP

Andrew31 wrote: »

Does your DB kick in a 65 or 60, what are the early retirement factors. I have made a couple of assumptions, but i think its unlikely you will make it. More likely 60 is a realistic age for you, but would depend on many factors.

As suggested, speak to an IFA who should be able to give you a cash flow forecast.

The £6765 is what I can draw from age 57. At age 60 it is £7562.