Early retirement planning & IFA/FA

pjcox2005

I think you need to work out how much you spend (or want to spend) to live your life.
Personally looks like you’ll have getting close to £1 million of assets (think IHT bill will be lower than you expect) excluding your home with no plans to leave it behind so that would be £25k at year for 40 yrs (very simplistic). Add on £14k a year from 60, which ups to £32k a year from state pension age.
I’m not a financial advisor so learn from here and have a chat to an independent advisor to work out the best way to maintain the pot, secure it (eg in case a bank collapses) and grow but it looks like you just need to be sensible.
I think your biggest issue as you seem frugal now with no lavish expenditure may be how to spend it, so I would work out a plan of how you’d like to spend retirement (which probably can be now at 57 if that’s your preference) and what you’d like to do/experience/own in that period.

tacpot12

The main question that you haven't answered yet is how much income you want to have to live on. Most people find that they don't need as much income when they retire as they do when they are working because they can stop saving for their retirement!  They also need to spend less on travel, and buy less clothes as they are not going to work. Car insurance gets cheaper when you don't need cover for commuting. Some people save a fortune just because they are not buying a coffee in the morning. However you do need money to spend on enjoying your retirement, so you need to give the IFA an idea of how much you think you need to live on if you are to have an good retirement. 

You should continue to contribute to your pensions until you are 60. At that point, whether you draw on the pension or leave it to grow will depend on the options available with each pension. An IFA will be able to advice you on the correct order to start drawing from your pensions. 

Generally you will be better off investing the inheritance rather than buying an annuity with it, at least while you are able to manage an investment - one you cease to be able to manage an investment (or an IFA that is managing it for you), an annuity makes sense. 

Renting the house out will probably give you a better rate of return than investing the proceeds of the sale into the stock market, but it will come at a significant price to your piece of mind. You will have to find contractors to do the work to get it rentable, you will have to select a letting agent, and ensure that all the legal obligations of being a landlord are met, you will have the odd bad tenant who doesn't pay, and will have repairs to do after every tenant. You might have to go to court to evict a non-paying tenant. It really is quite a lot of work for the reward. 

I would recommend selling the Standard Life shares and pooling the money with the inheritance, and some of your cash savings to create a fund that can be invested in a broad range of shares - all your eggs are in one basket with Standard Life/Cheveron. It would be better to diversify via a portfolio of mutual funds. An IFA will be able to suggest a portfolio that is appropriate for your risk appetite.  

You need to keep some cash so that you don't need to sell any investments during a market crash - keeping 2-3 years of income in cash would make sense. Everything else should be invested in moderately risky mutual funds. With the amount you will have available to invest, you don't need to take a lot of risk to get the return you need to have an happy retirement, but you need to take some risk to ensure that the investments match inflation. Bear in mind that if you are investing in a large mutual fund offered by a mainstream financial service provider in the UK, even if they say the fund is "high risk", it is really quite moderately risky compared to investing in Russia, Bitcoin, Art or Whiskey.  

You can leave your friend's child a legacy (bequest) via your wills. The money can come from your cash savings, or possibly via a beneficiary nomination from your personal pension; this will pay any money remaining in the pension to the child. You might also look to leave any remaining money after you have both died to a charity. Since my retirement, I have been volunteering with a couple of organisations and see that there is still significant need that the state and charities cannot meet in the UK and overseas.  

Langtang

BritishInvestor said:

semiplural said:

Hi again Langtang - 
With regards your potential appointment with Quilter - if you are confident in your resilience to not agree to anything in the meeting, it might still be educational and they might present you with some options you had not thought about.
 

I'd be wary of an adviser presenting options in a first meeting - it's my warning sign #3
The first meeting should be about understanding if you're a good fit, and whether they can add value to your situation to cover their fees.

The appointment is with a restricted FA, so basically a salesman. I am coming to the opinion that restricted isn’t for us. I would have assumed that he would think were a good fit anyway, as he’s trying to sell something. I can be a cynical old Hector sometimes, sadly. 

BritishInvestor

Langtang said:

BritishInvestor said:

semiplural said:

Hi again Langtang - 
With regards your potential appointment with Quilter - if you are confident in your resilience to not agree to anything in the meeting, it might still be educational and they might present you with some options you had not thought about.
 

I'd be wary of an adviser presenting options in a first meeting - it's my warning sign #3
The first meeting should be about understanding if you're a good fit, and whether they can add value to your situation to cover their fees.

The appointment is with a restricted FA, so basically a salesman. I am coming to the opinion that restricted isn’t for us. I would have assumed that he would think were a good fit anyway, as he’s trying to sell something. I can be a cynical old Hector sometimes, sadly. 

Restricted is warning sign #2 
A healthy cynicism is a good thing
Being a good fit for everyone is warning sign #1

Albermarle

Langtang said:

BritishInvestor said:

semiplural said:

Hi again Langtang - 
With regards your potential appointment with Quilter - if you are confident in your resilience to not agree to anything in the meeting, it might still be educational and they might present you with some options you had not thought about.
 

I'd be wary of an adviser presenting options in a first meeting - it's my warning sign #3
The first meeting should be about understanding if you're a good fit, and whether they can add value to your situation to cover their fees.

The appointment is with a restricted FA, so basically a salesman. I am coming to the opinion that restricted isn’t for us. I would have assumed that he would think were a good fit anyway, as he’s trying to sell something. I can be a cynical old Hector sometimes, sadly. 

As far as I understand an FA is still heavily regulated in how they deal with a client and they are not allowed ( or certainly should not ) offer products or solutions that are patently unsuitable. So the product they offer should still be suitable for your situation but maybe not be the best and almost certainly not the cheapest.
Pretty much everybody is trying to sell you something in the personal finance world. Even IFA's are effectively  trying to sell you the idea of paying them for their time and expertise. 

kangoora

When you have your inheritance sorted out I don't see any particular reason why you won't be able to retire immediately subject to investing it wisely and choosing an appropriate withdrawal rate (personally I would sell the house unless you really want to be a landlord with all that entails when you are actually retired). You could have up to £1.2m in assets , at 4% that would be £48k per year plus your private/NHS pensions at 60 adding £13.5k and when state pensions are due an extra £18k/year - so from age 67 your pensions/income could be approx £80k/year - getting on for £2k/month more than you currently earn when working (plus you won't be paying pension/NI/commuting etc costs)!

It seems like to me that your problem will be how to spend it, rather than running out of money. Maybe it's time for a bit of extravagant living

With these sorts of assets and you 'not having a clue' about investments I think you would almost certainly benefit from an IFA (you definitely want an INDEPENDENT Financial Advisor) - certainly check back here before signing up to an IFA firm for opinions on proposed charges. An IFA should structure your assets to reduce tax paid and be able to plot out an income stream for you - that's their job after all.

Just a couple of things on the will thing, please make sure the executors are getting 'paid' for their efforts on your will (if not a solicitor) and I'd advise you not to leave monies to a charity as a residual beneficiary (leave them a specific amount). I've seen a few posts on the funeral/probate forums about charities being absolute a****s when it comes to getting their 'dues' from a will if they are residual beneficiaries. 

Albermarle

With these sorts of assets and you 'not having a clue' about investments I think you would almost certainly benefit from an IFA

I agree, but worth noting that the OP will get more from an IFA , if they beforehand do some background reading so at least they have a little clue about investments . 

please make sure the executors are getting 'paid' for their efforts on your will 

I know in the US it is common for executors to take a % of the estate for their efforts , even if they are family members or friends. I think that is less common here and I have some experience that offering payment can cause embarrassment in some cases , so maybe a sensitive area?

Thrugelmir

Langtang said:

I read somewhere on a recent thread about someone with a £750k pension pot being told that it may only last him 15 years, so maybe we cannot afford to retire early! 

Hence the point about jam today or jam tomorrow. To provide a degree of perspective. Assuming no inflation , no growth and the sum being taxable. That sum would allow a daily spend of £115 per day over 15 years. Hardly a sum to provide a luxury lifestyle. 

semiplural

Langtang said:

They say you should aim for two thirds of your total annual income as a pension, so can we afford to retire and take our pensions early?

I would not put much store by generalisations like 2/3rd of your annual income, it really is up to you as an individual, so I would echo others who suggest your first step should be to work out what income you want in retirement.

I was a bit confused at your income being 24-32k - that is quite a large variation!

Very roughly I guess your combined take home pay (after tax, NI & pension contributions) is somewhere between about 35k & 42k?

You can deduct from that any work related expenses (eg commute, work clothes, staff canteen vs eating at home), also would you still want to run two cars & renew them every 3 years?

But add to the total any extra things like overseas holidays (actually those are often cheaper than UK holidays!) that you might what to enjoy in retirement.

Just to get a sighting shot of how this would look, if the pluses and minuses balance out and your target net income is 42k:

Just for an illustration  I am ignoring inflation for the moment. (Essentially this means that; your spending requirements, your pensions and your savings all rise by inflation over time.)

Based on your figures from aged 60 to 67 combined pension income would be 13,683 (below the tax threshold) leaving a shortfall of 28,317 - so you would have to deplete your savings  by just short of £200k over those 7 years. (Taking money from your savings incurs no tax of couse!)

Once the state pension kicks in at 67 (2030) after tax your pension income would be c. £30k so a 12k pa shortfall per year. If you both lived to 110, you would have to deplete your savings by another £528k to fund this gap.

That is all HUGELY superficial but it looks to me that you easily  have enough to comfortably retire at 60, in it strikes me you probably do it just as soon as you settle the estate. In practise even if you do decide to go on a (controlled) spending spree in early retirement I am pretty sure that if you do both manage to reach 100 you will find your expense significantly reduced - although you might want to leave a buffer to ensure you get quality later life care if you need it.

 This is just some random guy on the internet reviewing some numbers though and you should trust an IFA who will look at your personal circumstances far more than me!

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One thing though I would really suggest that you double check - are you sure that if you retire early you will both qualify for the full state pension?

It is relatively easy to check here : https://www.gov.uk/check-state-pension and it is relatively inexpensive to buy extra years if you have a shortfall.

snookered1

My initial thought on this, Is it might be an idea for you both consider maxing your pension's through a SIPP until retirement  in circa 3 years, initially from savings, as you appear to have the space to add cash here and take out tax free,  even if you do absolutely nothing with it and leave it in cash in the SIPP, if managed right on the way out should see it with a 25% increase from what it is now, the other aspects I think are a little more complex and need more thought.