Where do I start with retirement planning?

Thick_n_Thin

Hi, I wondered if any of you folks would be able to help point me in the right direction when it comes to retirement planning. 

I am 49, would like to retire at 55. Current annual income is 45k
OH is 56, would like to retire at 60.
current annual income is £18k
i have a company pension with aprox £85k currently 
OH company pension is aprox £35k, this will be an annuity unless we tell them otherwise soon. Don’t know if these are good or bad?
OH has recently inherited some cash and this will be around £120k once the estate is settled, we are planning on paying a lump sum of maybe 10-20k from mortgage and then investing the rest for retirement.
Our mortgage is currently £62k with just under 7 years to run however we have started overpayments to try and reduce to 3 years. The aim then being to save for 3 years the mortgage payment which would give us an additional 50k aprox.
i belive we would both be entitled to full state pensions. I belive we could comfortably live on 2k per month with no mortgage. So looking for 24k joint annual income per year.
So my plan roughly is this,
OH retire at 60. 60-67 live on inheritance investments and whatever his pension provides, this would use just over 60%of his inheritance as it stands not invested.
i would then retire at 55 and use savings until 60 so would need 50k to fund this, I would then live on my company pension until government pension at 68, we would then live on state pensions and whatever we had left from savings and investments to top up. Can I take my company pension over that time period? It’s one where the company matches what I put in, don’t know what this is called.

Am I on the right track here?? Any advice would be greatly appreciated, I am very new to this as you can probably tell 🙈

Dazed_and_C0nfused

i belive we would both be entitled to full state pensions

First step would be for each of you to check your State Pension forecast on gov.uk.

It is important to read past the likely headline of £175.20/week to see what you have actually accrued so far (usually shown to 5 April 2019 or maybe 2020 if you're lucky).

You may need to contribute for additional years and stopping work as you plan may impact this.

By checking you will know for certain.

Grogged

I think you need to check your current pension schemes to see what their projections are and how you can take them.
If I understand your plans, then roughly speaking:
Next 5ish years is to continue to work, pay off mortgage and prepare to retire.
Next 7ish years is retired living off company pensions and savings.
Then add in state pension contributions.
I think it would pay you to take some professional advice on how best to maximise your company pensions and invest your £100k inheritance (assuming you pay £20k off mortgage).

Albermarle

Can I take my company pension over that time period? It’s one where the company matches what I put in, don’t know what this is c

Once you reach age 55 , you can take the pension how you like and when you like to a large extent .

To be blunt about your plans , your pension pot of £85K is very much on the low side and the £35 K for the OH is almost nothing in pension terms . For example an annuity payable at 60 from £35K would not even pay a £100 per month .

If at all possible you should increase your % contribution to your workplace pension as high as possible . Pension is the best place to save due to tax relief and maybe if you add more your employer will add a bit more . Also retiring at 55 is normally a luxury for those with big pensions/savings or for those who live pretty frugal lifestyles. You should maybe reconsider this target. 

[Deleted User]

I thought 49 year olds have a retirement age of 57 now.

ffacoffipawb

Deleted_User said:

I thought 49 year olds have a retirement age of 57 now.

A 49 year old would be 55 in 2026. The minimum age doesnt go up to 57 til 2027 (though, technically, no official legislation has passed for this increase).

Linton

Unless I have misunderstood what you are saying I think you need to work through the numbers carefully, perhaps calculating each year where the money would come from:

Were you to buy annuities when you are 60 at current rates you would get just over £400 per year for £10K of pension pot.  This would be at a fixed rate, not increasing with inflation.    So £35K would provide £1400/year and £85K £3400.  Having an inflation linked income would be much more expensive but possibly not necessary given most of your income will come from State Pension.

Given that a full state pension is currently about £9100/year and that you will be using much of the inheritance during your pre-SP years, without having done a detailed calculation your hope of £24K/year looks ambitious to me.

Another thing to look at is what happens if/when one of you dies.  Will the survivor have enough for an acceptable lifestyle?

Note that most people dont use annuities these days, but rather draw down from a lump sum.  However the annuity rates do give some indication of what a reasonable drawdown rate would be.

Thick_n_Thin

Hmmm.... thanks all for replies, maybe I need to do a little more work on the detail, this was done very much off the top of my head and on a scrap piece of paper 🙈
So I am understanding that an annuity for such a low amount would not be worth much, this was what I was thinking so I will definitely get OH not to go ahead with this, next stop would be increase my pension contribution to the max I can afford. This will be difficult as at the moment I am on 20% salary reduction and OH is still on furlough. I will look into our state pension contributions and see if we will both be entitled to full state pension. Maybe I’m being a bit ambitious planning to retire at 55 but maybe part-time would be more achievable! 

One more question, we are currently trying to overpay mortgage by anything between £100- 350 per month, would it be advisable to stop this and pay into a SIPP or get the mortgage gone in 3 instead of 7years.

really wish I had paid more attention to this stuff earlier on in life...

Durban

With interest rates at a historic low, the best thing in financial terms would be not to pay your mortgage off early.

Instead , let it run as long as possible , putting all that extra money into the pension and getting the tax relief.

However , I have not done this.  I also used to overpay on the mortgage until coming onto this board and now I don't overpay the mortgage at all but have not extended it. I plough everything that I can afford into the pension.

In fact , I am actually using the overpayments that I used to pay into the mortgage , putting them into the pension , and then , using those overpayments plus tax relief to pay off the mortgage with the tax free lump sum.


I used to spend most of my time on the MFW board until coming over here

bluenose1

Does yours or your partners employer offer salary sacrifice for additional pension contributions? If so you may be better doing this rather than a SIPP.  With salary sacrifice every £68 your salary reduces, £100 will go into your pension pot.
 I intend to withdraw up to the tax-free amount each year from age 55 to withdraw this before my DB pension start at 60.  Definitely worth working out the sums and putting into a  pension. You need to work out how much you can afford. We have lived off savings to maximise pension contributions.

Say at 55 i had £100k in my  pension pot. This will have actually  cost me £68k in reduced salary, based on above. 
I could withdraw 25% tax free = £25,000. Then each year could withdraw £12,500 tax free. Over 5 years could withdraw £12,500 x 5 = £62,500 plus the £25000 tax free = £87,500. Then if I paid tax on the balance of £12,500, could withdraw £10,000. Total withdrawal £97,500
Therefore it has cost me £68k to withdraw £97,500.
Very simplistic, but really worth doing the sums for your individual circumstances. 
 

DairyQueen

Also, don't forget that exhausting all of your other liquid assets (pensions/cash) by SP age will leave you vulnerable to affording big ticket items and major repairs for the rest of your life.

The point made upthread about survivor income is often overlooked in the first stages of retirement planning. Could the survivor of you manage on one SP? If not, one option may be equity release but this has well-known disadvantages.

A target of £24k (inflation linked) looks ambitious based on your current/projected assets. First step would be to prepare a detailed retirement income budget for you as a couple and for the survivor (your 'number'). Consider things like replacement cars, white goods, new boiler in addition to all annual discretionary and non-discretionary expenses. This will give you a much better idea of your target. Think about how much emergency cash/cash buffer you will need to reserve to feel comfortable.

Once you know your target then research drawdown strategies (many resources available, not least this forum). This will enable you to calculate with some confidence how much you need in order to retire early.