Early retirement idea - is it a stupid one?

Enable2

Been thinking about my early retirement idea for a while but I could do with some perspective on it so thought I'd share my thoughts on here. Would welcome any input or views (I'm a first time poster, though, please be gentle):

I'm 55 in October and the company that I've worked at for nearly 36 years have offered a voluntary exit scheme. Whilst I am fit and full of energy I really want to go and do a degree (my first) and a local college offer a 5 year part time option in my chosen subject. My initial enquiries to the college and the government website suggest I could get a loan to cover all the course fees plus a maintenance loan of up to £6129 per annum. The maintenance loan is only available to those under 60 years - no upper age limit on the course fees loan.

I am a single home owner with 80K outstanding on the mortgage (property worth c. 350K). My savings are minimal due to having to buy my ex husband out in order to keep my home when we got divorced. It's a 100 yr old semi detached property which may need some work in the future (roof strip & retile, some new windows perhaps).

Initial voluntary exit pay out calculations show that I would receive £65,934 (Gross). I can claim my civil service pension which would pay out a lump sum of £22,392.
 These monies would then be set aside to pay the mortgage down.

 An (early) annual pension (gross) of £15,571 to live on. This represents approx. half of my current salary.
In addition to doing a degree I'm also mindful that my fast ageing parents will definitely be needing more help in the future so it'd be good to have the time to manage that going forward.

Crazy plan? Or workable idea?

Of course I could carry on working until I'm 60 (hoping for no redundancies) and try and overpay on the mortgage instead. Then taking up my degree idea at 60 along with my full civil service pension. I'm currently 4 years short of NI contributions to receive the full SP due to being contracted out so staying on working for 5 years more would solve this too. 

Marcon

Depends on your priorities. If you have your heart set on doing a degree/helping your parents, and can live on your exit pay + pension, go ahead and do it. Who knows what the future holds? If you aren't sure, would working part time be an option, either in your current role or elsewhere?

Being contracted out has no impact on your basic state pension. You might want to look again at that, or if hopelessly confused, come back here and someone will be able to help if you provide more info.

grimsalve

Enable2 said:

Initial voluntary exit pay out calculations show that I would receive £65,934 (Gross). I can claim my civil service pension which would pay out a lump sum of £22,392.
 These monies would then be set aside to pay the mortgage down.

As you've mentioned "(Gross)" I'm assuming you're aware of the tax implications? Would another option be to have the voluntary paid straight into your pension? And then using some of the pension to pay off the mortgage at a later date?

(I was wondering about doing something like this last year but I got cold feet)

Audaxer

Hi there, as your exit pay and lump sum cover your outstanding mortgage that seems a good plan. It just depends whether you can afford to live on £15,571 gross a year (including paying off the course fees and maintenance loan) until you get your State Pension in about 12 years time? How much would the course fees and loan payments amount to?

If you do retire you can still make voluntary NI contributions for the 4 years you need to get the full State Pension. It is certainly worth it as I am retired and doing that for the next 4 years until I get my State Pension.

p00hsticks

Marcon said:

Being contracted out has no impact on your basic state pension. You might want to look again at that, or if hopelessly confused, come back here and someone will be able to help if you provide more info.

Being contracted out potentially DOES have an impact on the amount of pension people will get if they assume, as many papers wrongly report, that you only need 35 years for the new full amount. 

The OP said that as a result of being contracted out they were still four years short of qualifying for a full pension (regardless of the fact that they already have at least 36 years, possibly more). It sounds to me like they know what they're on about.

Albermarle

My savings are minimal

Regardless of your plans this stands out as a negative point .

If you do retire early and get the payoff , better not to use it all to pay down the mortgage and have an emergency cash fund instead . The work on the house may get more urgent and be more expensive as an example.

Or you could also consider paying less of the mortgage and taking your civil service pension later and/or not taking the lump sum ( if you have a choice) so your pension income will be higher .

Marcon

p00hsticks said:

Marcon said:

Being contracted out has no impact on your basic state pension. You might want to look again at that, or if hopelessly confused, come back here and someone will be able to help if you provide more info.

Being contracted out potentially DOES have an impact on the amount of pension people will get if they assume, as many papers wrongly report, that you only need 35 years for the new full amount. 

The OP said that as a result of being contracted out they were still four years short of qualifying for a full pension (regardless of the fact that they already have at least 36 years, possibly more). It sounds to me like they know what they're on about.

It has no impact on the basic state pension - and OP's reference to 'full SP' suggests that's what they are referring to. Being contracted out isn't what has left them 'four years short'; the system has never worked like that, so probably a good idea for them to check.

Middlestitch

p00hsticks said:

Marcon said:

Being contracted out has no impact on your basic state pension. You might want to look again at that, or if hopelessly confused, come back here and someone will be able to help if you provide more info.

The OP said that as a result of being contracted out they were still four years short of qualifying for a full pension (regardless of the fact that they already have at least 36 years, possibly more). It sounds to me like they know what they're on about.

That wording indicates their confusion. Contracting out doesn't leave anyone 'x years short of qualifying for a full state pension'.

OP, don't get bogged down in someone squabbling about what you do or don't understand. Check where you stand and if necessary you can voluntary contributions, as an earlier poster has suggested.

gwynlas

You have a great opportunity to retire with sufficient capital to be mortgage free all beit with a reduced incpme,
You would like to do a degree which is currently available, might it be withdrawn in the future?
Could you make use of the degree for future part time employment or is it just for personal interest?
No one can see into the future but I did take the plunge though I was able to forgo my lump sum and increase my pension.
You know that your parents are aging and might need support in the future. Whilst you do not want them to die only you know if there is a prospect of one of them dying and the survivor moving in with you which would help with your outgoings.or might there be an inheritance?
You might consider renting a room which would bring in extra income.
If living alone you would get a discount on council tax. You could perhaps take on a part time job for extra income.
The old style board gives lots of ideas for living on a reduced icome

michaels

If you aer receiving your pension will you qualify for the living expenses 'loan'?

jamesd

Marcon said:

p00hsticks said:

Being contracted out potentially DOES have an impact on the amount of pension people will get if they assume, as many papers wrongly report, that you only need 35 years for the new full amount. 

The OP said that as a result of being contracted out they were still four years short of qualifying for a full pension (regardless of the fact that they already have at least 36 years, possibly more). It sounds to me like they know what they're on about.

It has no impact on the basic state pension - and OP's reference to 'full SP' suggests that's what they are referring to. Being contracted out isn't what has left them 'four years short'; the system has never worked like that, so probably a good idea for them to check.

Careful reading of the initial post would have revealed that:

1. Enable2 had accrued the maximum 30 years worth of basic state pension under the old rules calculation. 35 years today makes this certain because April 2016 was 4 years ago.
2. Basic State Pension is £134.25 which is £40.95 less than the single tier maximum of £175.20. 1/35 of £175.20 is £5.01 and £40.95 is 8.17 years. Four years short means that Enable2 knew this and about the 4 years since April 2016. There will have been some small earnings-related amount to take the requirement below 8.17 years so 8 would suffice.
3. Enable2 is thoroughly on top of the state pension aspects so we don't need to worry about them