Is my income enough to retire on?

rosierunner

comeandgo said:

The bit that concerns me is "I don't have much in the way of savings".  Are you taking any of the  tax free lump sums?  Do you have a car?   Owning a car and house can eat slowly into any savings.  

no I don't have much in the way of savings, I bought my ex husband out of the house so it's invested in the property I suppose. Ive been ploughing money into making sure my mortgage is paid off for last 10 years so that is what my lump sum will be used for.  My calcs show that I can still save upwards of £1k per month to cover car and holidays etc and I do intend to find a part time job or temp contract work (I'm a highish earner with a professional transferrable qualification). I thought it more important to invest my money Into a regular pension income rather than accumulate savings (hence the SIPP) I hope that was the right thing to do in retrospect!

Audaxer

rosierunner said:

Audaxer said:

Around £27k is thought to be enough for most couples in retirement which means it should be more than enough for a single person, dependent of course on your lifestyle. You will know how much you currently spend on average each year, and you may make some savings in say, commuting costs when you retire, while you may plan to spend more on other things, so you should be able to calculate whether £27k is enough for you.

The only other thing you need to consider if you have not already done so, is whether there is definitely enough in your SIPP to bridge the gap of 8 years or so until you get your State Pension. Assuming it is invested, are you satisfied there will still be enough if there is poor sequence of returns in the stock markets over the next few years?

Thankyou i have worked out my SIPP income based on what the capital value is now rather than assuming any growth.  I suppose the question is with the current uncertainty with COVID that this can't be guaranteed but the market seems to be gaining some ground fingers crossed!  I'm feeling fortunate, the youngsters must be feeling very concerned about their future but they are resilient and we 50+ year olds survived the Maggie Thatcher years!

That's good. I would also want to ensure I had a decent cash buffer of at least a few years income as cover for any equity crashes when I wouldn't want to be selling capital.

rosierunner

Audaxer said:

rosierunner said:

Audaxer said:

Around £27k is thought to be enough for most couples in retirement which means it should be more than enough for a single person, dependent of course on your lifestyle. You will know how much you currently spend on average each year, and you may make some savings in say, commuting costs when you retire, while you may plan to spend more on other things, so you should be able to calculate whether £27k is enough for you.

The only other thing you need to consider if you have not already done so, is whether there is definitely enough in your SIPP to bridge the gap of 8 years or so until you get your State Pension. Assuming it is invested, are you satisfied there will still be enough if there is poor sequence of returns in the stock markets over the next few years?

Thankyou i have worked out my SIPP income based on what the capital value is now rather than assuming any growth.  I suppose the question is with the current uncertainty with COVID that this can't be guaranteed but the market seems to be gaining some ground fingers crossed!  I'm feeling fortunate, the youngsters must be feeling very concerned about their future but they are resilient and we 50+ year olds survived the Maggie Thatcher years!

That's good. I would also want to ensure I had a decent cash buffer of at least a few years income as cover for any equity crashes when I wouldn't want to be selling capital.

The idea is that I run down the capital value as my state pension will kick in and guarantee the same income?  I don't need growth I just need to avoid loss. Any growth is a bonus!

atush

comeandgo said:

The bit that concerns me is "I don't have much in the way of savings".  Are you taking any of the  tax free lump sums?  Do you have a car?   Owning a car and house can eat slowly into any savings.  

I agree.  If you want to retire in just over a year you need to save like mad.  You need an emergency fund, id say of around 1 years income

GunJack

I think you said the lump sum from pubic sector pension will provide your cash savings pot? At least some of it should, depending on how much it is and whether the SIPP does what you want, it'll also be there to top up the odd year or two if needs be.

rosierunner

Oh dear I was feeling reassured and now I am feeling worried. I saved and invested based on the principle that cash savings  reserves sitting without much interest had far less importance than a regular guaranteed income for life?  I will re-evaluate and maybe consider taking more of my public sector pension as a lump sum in exchange for more cash reserves

mark13

No expert, but seems ok to me. If you can afford to retire early , go for it. Seems like you will have sufficient income. You still have a bit of time to decide and to double check your finances. Its a big step and can be a bit scarry. 

p00hsticks

A couple of points -

As you say you are in the public sector then you will have been contracted out until 2016, when the new State Pension was intorduced. You should therefore get a personal State Pension forecast if you haven't done so already, as you may find that you have an opportunity to increase your State Pension amount further by making voluntary NI contributions after you 'retire'.

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

Also, if you don't already keep a detailed track of expenditure, I'd suggest you start doing so now, to get a realistic idea of how much you actually need to live on. To paraphrase Mr McCawber, an annual income of £27k  with expenditure of £26k - result happiness, but expenditire of £28k results in misery.

Audaxer

rosierunner said:

Oh dear I was feeling reassured and now I am feeling worried. I saved and invested based on the principle that cash savings  reserves sitting without much interest had far less importance than a regular guaranteed income for life?  I will re-evaluate and maybe consider taking more of my public sector pension as a lump sum in exchange for more cash reserves

You're probably okay, assuming you have enough in investments to cope with any equity crashes that last a few years. If for example you need £8k per year, rising with inflation, for these 8 years, then £70k in cash savings would probably cover it. However if you had only £70k and it was in investments, while it will do better than cash long term, it is less certain that it will do better in an 8 year period. If you have substantially more than that £70k sensibly invested then you should not have a problem, even if there are equity crashes in the 8 years. Basically I'm saying if the figures are tight and you have just enough to cover your 8 years income requirements, I think it would be safer held as cash.

Gary1984

Commuting DB pension for cash tends to be a bad choice so try not to do it if you can help it. You have a guaranteed income from your DB pension so need less of a cash buffer than someone relying entirely on their SIPP. Perhaps just enough to replace your car and boiler if they both needed replaced in the same year? 

Anyway £27k of mostly guaranteed income for someone debt and mortgage free should be loads. Try not to stress over the details as ultimately you're in a great position.

Even if the SIPP falls in Value it's only accounting for 1/3 of your total income in the early years only so should be easy enough to reduce your income for a year or two until markets recover or your state pension kicks in. A larger cash buffer can help here but I wouldn't say it's essential for someone with a high proportion of fixed income.

Consider investing the SIPP in defensive funds such as VLS20/40 or Capital Gearing Trust if you're worried about market falls. Or take as much tax free cash and withdrawals under the higher rate tax threshold as you can from the SIPP and put it all in premium bonds and FSCS backed fixed rate savings for security? 

I think a general principle of state pension changes is that you' d get 10 years' notice so I wouldn't worry about that either.

Congratulations on getting to this point and enjoy all that glorious retirement time when it comes!