Retirement planning, shortfall between 60 and 67

Audio68

Thanks everyone for your opinions so far, just to explain. At 67 we plan to move into a rented retirement flat probably with Abbeyfield who are a not for profit and popular near me. There are several nearby and you can live there from age 60 onwards. Typical rent is around £800/month for the 1 bed flat we’d need. At age 67 we’d likely have sold up and have around £300k in the bank and a combined net pension of around £52k per year

Audaxer

Audio68 said:

Thanks everyone for your opinions so far, just to explain. At 67 we plan to move into a rented retirement flat probably with Abbeyfield who are a not for profit and popular near me. There are several nearby and you can live there from age 60 onwards. Typical rent is around £800/month for the 1 bed flat we’d need. At age 67 we’d likely have sold up and have around £300k in the bank and a combined net pension of around £52k per year

If you are planning to retire at 60, why not sell your house and move into that rented accommodation at that time instead of waiting until you are 67? If I understand your situation correctly, you would then have more than enough to cover the £50k shortfall in pension income until you get your State Pensions?

marycanary

tacpot12 said:

Have you considered the idea of buying an apartment? In my area, ex-Council three bedroom flats sell for about £75,000. At least with this arrangement you would not be responsible for the building maintenance.

As you have no dependents, you might also be able to come to an arrangement whereby you buy a ex-council flat on the open market, but gift it back to the council in exchange for the rent being set at a peppercorn level. This would give you some long term security. I don't know whether this idea is viable, but I think a local authority might jump at the chance to recover a property to its portfolio essentially for free, even if they have to wait 20+ years to be able to let it to anyone else. 

1 bedroom ex council flats go for around £100k here.  You have to pay an annual service charge and contribute to major works like reroofing, painting etc.. So you are very much responsible for the cost of building maintenance, although the timing and extent are decided by the council - would you want that?

There is no chance a council would accept nil rent in return for getting a flat when you die.  Do you envisage this arrangement including the council picking up the cost of maintenance as well? If the council wanted the flat why wouldn't they just buy it themselves? In that way, they could let it to someone homeless or on the waiting list, rather than a couple who are adequately housed but want to sell their home to raise cash.

Just keep an eye on Abbeyfield's performance, The Regulator of Social Housing said, "we have identified a number of governance weaknesses which Abbeyfield needs to address. The provider has not had an external review of board effectiveness for several years and its control and risk management framework is under-developed with further work required to reflect the implementation of Abbeyfield’s revised strategy. Whilst we have evidence that Abbeyfield has strengthened its strategic planning, in part by enhancing operational and financial data, the provider has yet to improve its financial performance. 

Mr_EDATD

Have you actually worked out how much you need to enjoy a good retirement or are you just trying to match how much you will have once you are in receipt of state pension? Without the extra £50k you would have about £45k per annum to live on. I am sure plenty of people would consider that a good retirement. Other than that I think it is a case of needing to save more now and maximise any tax relief available (SIPPs or some sort of additional contribution into your workplace pension if available).

billy2shots

Selling the house would see you with lots of cash. That cash will be raided if one of you moved into care to pay for the fees. 

The house wouldn't be taken into account if one of you had to move into a care home. 

That's a no brainer for me. 

rents will increase over your planned 20-23 years and if your 'cash' doesn't keep pace. Ultimately you will pay more in rent than you sold your house for meaning you are financially worse off anyway. 

Your idea feels very short sighted. 

Altarf

Audio68 said:

Me and my wife both have full workplace pensions that payout at age 60 and if possible we would like to retire then. Our state pension is payable at age 67. The two combined are sufficient for us to enjoy a good retirement. We also own our own home without mortgage but plan to sell and move to rented or seriously downsize at around 67. We have no dependants.  We also will have lump sums and savings but are there any suggestions for funding a £50k shortfall between 60 and 67?

Audio68 said:

Ok so further info. We’re both 52. We’ll get full new state pensions (forecasts done). Our workplace pensions are final salary civil service with 40 years contributions. We are also saving and have been for 10 years. At age 60 we will use most of our lump sums and all of our savings to pay ourselves the state pension amounts every year as a top up. We’ll be around £50k short but will be selling a £300k house at age 67 and move to rented. I don’t want to save any more each month as that would effect our standard of living. We already save £500/month

So you are anticipating £18k a year state pension at 67, so £126k for the 7 years between 60 and 70, you must anticipate having £76k in lump sum and savings.

You say you will have a full civil service pension which will pay out at 60. At 52 that means you have 8 years to go, so even if you are banking on using the McCloud remedy to put your post 2015 service back to an age 60 retirement, that won't be the case for service from 2022 onwards.

Anyway, to fund the shortfall you have three choices - 
- Save money now to fund it.
- Borrow money from 60 to 67 and then pay that back from the increased income when you get the state pension
- Liquidate assets by downsizing at 60 not 67 - as for renting forever - brave, very brave.

jamesd

Audio68 said:

We’re both 52. ... At age 60 we will use most of our lump sums and all of our savings to pay ourselves the state pension amounts every year as a top up. We’ll be around £50k short but will be selling a £300k house at age 67 and move to rented. I don’t want to save any more each month as that would effect our standard of living. We already save £500/month

You wrote saving but does that really mean savings accounts? For your purpose it should be going into personal pensions and within them, investments. That's because you get a tax gain of at least 6.25 and actually 25% if you ae withdrawing no more money than your income tax personal allowance. The investments could be a moderately cautious 50:50 mixture of global equity (shares) and global bonds tracker funds.

Beyond that, do you still need the house? Downsizing to a purchased fat in the next few years could significantly reduce your spending.