Early Retirement Plan

Green.Lander

I work in IT and hope to retire at 60 later this year. This is mainly due to stress at work and with my age no doubt a deal could be had with my employer to leave early, perhaps 6 months’ salary. I would look for contract IT work but doubt I would be lucky so the plan is ideally then a small local “non stress” part time work say around £5k. 

I am forecasted to receive a DB sum of around £29k gross at 65, have a full state pension and currently have a DC pot of around £440k. My wife works for the NHS part-time so have not included this in my thinking but she will hopefully get a full state pension as well and a small NHS. 

 I do not have much saving and only a couple of small loans (Kitchen mainly). So, here's my plan.

60 – 65 - survive off DC pot of money 
65 - 67 - survive from my DC and DB 
67+ - state pension + DB + what is left of DC Pot

Ideally £35K net would be my aim in early retirement but just checking with you clever people if I took the full tax-free allowance (i.e. 110k) this is the best way to minimise tax or do you see any issues or alternatives. 

marlot

Looks reasonable.
You'd do well to read up on the lifetime allowance tax.  You'll be pretty close to the limits, depending on how your pensions do.
I too worked in IT, and went last year, at 55.  Even with the covid issues, I don't regret it for a moment.
If your wife's pension isn't enough for her to pay tax, consider putting money into a SIPP in her name.

greatkingrat

If you are in danger of breaching the lifetime allowance then you may be better off taking the DB pension earlier than 65, even if it is reduced.

Linton

From a quick calculation you seem fine just on your own income/DC pot.  Add in the wife's SP and NHS pension and you should both be pretty comfortable in retirement.

Have you checked both your and particularly your wife's State Pension forecast?  If either of your do not have the full amount voluntary contributions are highly lucrative as you get all the money back in just 3-4 years of extra SP. 

See https://www.gov.uk/check-state-pension

AnotherJoe

Similar to my timing. On the face of it you are/ will be nudging the max LA.

I took the full TFLS from my DC so i could get as much out tax free before other pensions kicked in and i started to pay tax. And also minimize tax paid.

So, , take out the 25% from DC and start putting into ISAs (you can put £40k a year if two of you)

Between 60 and DB age, take out the personal allowance each year and live on that plus some of the 25% you took out earlier.

I would also pay off those small loans as that will be a much better return than you'd get on cash.

Green.Lander

Thanks everyone - Another Joe that a good idea about the Personal Allowance i never considered that.

Albermarle

60 – 65 - survive off DC pot of money 
65 - 67 - survive from my DC and DB 

I don't think 'survive' is quite the right phrase. More 'live very comfortably' 

AnotherJoe

Green.Lander said:

Thanks everyone - Another Joe that a good idea about the Personal Allowance i never considered that.

All thanks due to Jamesd who put me on to that. One of those "obvious in retrospect" things. 5 years at £12,500 from crystallised money saves you £10k+ in tax. (eg £2k+ a year) that you'd otherwise pay if you took it out once other pensions kick in.

 

itwasntme001

Do you have any children?  Depending on the value of your total estate it may be preferable to leave at least some of the money untouched in the DC pension so that it can be passed onto your heirs without even entering your estate for IHT purposes.  Obviously this is after using the DC pension to satisfy your income requirements, particularly to bridge the gap to state pension.

atush

I am worried about your lack of savings.  You really need it for cash emergencies/replacement of goods plus to draw on when markets fall.

Normally i'd say take your DC TFLS in yearly tranches as part of drawdown but in your case Id take it upfront to provide a cash buffer.  You also need to check out your current DC provider to see if they support DD and what the charges might be.

saver_ali

I would think it’s worth modelling on a spreadsheet, on a year by year basis, taking into account tax, inflation, investment growth, etc. 

We’re in a broadly similar situation to the OP, although my husband has much more in his DC than his DB. Not only is he taking enough out to use the personal allowance, but also the basic rate tax band. In 4 years time, when he gets his state pension and his DB, he won’t be able to get much out of the DC without paying 40% tax, so we’d be stuck with money we can’t easily get out. I know that it’s good to leave some in the DC for IHT purposes, but we can put any excess cash in ISAs for now, and use it to help our sons buy houses when the time comes. And who knows if pensions will still be exempt  from IHT in the future. My spreadsheet model is really helpful for looking at different scenarios.