How much to live on

Organgrinder

Tastiger said:

I'm 57 in September, and having number crunched the finances until the cows come home I've decided to go part time and take my teacher pension early. I've been teaching for 32 years and the teacher pension is a good DB one. I have to take an actuarial reduction which worried me a little, but have argued to myself I'm not losing money - I'm getting less but for longer. Has anyone else gone through this?

Trying to do something similar myself. I'm 56.

Here's my rough figures.

I worked prior to teaching and have much better commutation factors than the TPS. This allows me to take a lump sum big enough to pay off the mortgage, buy a new car and put solar panels on roof to reduce my bills. 

With the phased retirement scheme I will be about £600 a month better off after factoring in the reduction in the mortgage.

I intend recycling this into a SIPP which won't break the recycling rules as it will be less than 30% of my lump sum over 3 years. I currently have another pot valued at about £35k.

I intend to retire fully at 60 years and 7 months.  The shortfall in income will be funded either from savings or the above pots until 67 when state pension kicks in. I've factored in holidays, cars etc etc.

During the whole period my effective income is higher than now because I won't be paying a mortgage and importantly I'm still able to save £400 a month or thereabouts until I retire which is rainy day money for the gap until state pension.

To me, it makes no sense flogging myself to remain working full time any longer.

GunJack

Albermarle said:

For a DB pension, whether to take the lump sum or not is dependent on the commutation rate ( £ of lump sum  for each £ of pension given up ) For some public sector schemes, it is only 12, which is poor, so is best avoided if possible. For other public sector and most private sector it is typically 20 to 25. In this case it gets a bit more 50 : 50 and depends on personal circumstances/preferences. Plus the lump sum is tax free.

Don't forget that many public sector schemes have an automatic lump sum built-in so you'll get one almost no matter what (there are some that offer reverse-commutation but not many). It is a point that is oft-overlooked (especially on the Pensions board )

blue.peter

Tastiger said:

I'm 57 in September, and having number crunched the finances until the cows come home I've decided to go part time and take my teacher pension early. I've been teaching for 32 years and the teacher pension is a good DB one. I have to take an actuarial reduction which worried me a little, but have argued to myself I'm not losing money - I'm getting less but for longer. Has anyone else gone through this?

Something very like it. I was made redundant at 56. The greater part of my pension was in a good DB scheme. I lived on my redundancy money for a year or so before drawing that DB pension and accepting the significant actuarial reduction. In principle, I have no problem with the concept: as you say, the expectation is that the lower pension will be paid for longer. The question that could be debated endlessly is whether the amount of the reduction is fair, but that'll depend on the actual numbers used by the particular scheme. (In my case, the reduction was then 4% pa simple for each year early.)

Before making the decision, I did a lot of number crunching. I deliberately based it on moderately pessimistic assumptions. Could I maintain my then-current standard of living on the pension that I expected to be payable? I concluded that I could.

Seven years or so on, I have no regrets. It's worked out well for me. But you do need to be very careful in checking the numbers before committing yourself.

jevbanx1

Yes I too fretted about the actuarial reduction to my LGPS scheme but rationalised it like you have, I'm not losing, I getting less for longer. If you have crunched the numbers, trust in it and go. I left fully, and have had to cut my cloth accordingly, but it's very doable.
Best wishes 

Bobinyorkshire

I decided to use a SIPP to fill the gap to my NHS 1995 Pension NRA of 60 in less than 4 years. One reason (out of many) being the higher pension my wife would receive in the event of my death (50%)

Brighton01

Hello everyone. This is my 1st post but I’ve read the whole thread & thank you to everyone for sharing their numbers- it really helps. I think I’m ready to make the decision to retire early this year….
I’ll be 57; TPS of approx £19k topped up with the lump sum until I get the state pension. 

The £19k will cover monthly costs & the lump sum will be for holidays mainly. I’ve put aside an extra £20k as my house needs some work. Also have about £170k in savings (ISA S& S; cash ISA & premium bonds)
I’m struggling to make the final decision…
Do the numbers add up? What helped you make the decision?
Thanks for any thoughts 

Albermarle

If you are sure £19K pa will cover everyday costs ( including recent inflation) then as this is guaranteed and inflation linked, then it should continue to cover these costs.

Then you will have £170K + the lump sum, to cover major one off expenditures and holidays for the next 10 years until the state pension kicks in. Hopefully at that point you will still have some reasonable savings left to top up with.

As some of the £200K + savings will probably not be used for many years, I would not hold the large majority in cash as it get devalued with inflation. Ideally you need a mix of cash for the short/medium term and investments for the longer term.

So looks OK, but as always another year or two at work would improve your financial position further, but in the end that is your choice.

Brighton01

Thanks for your thoughts Albermarle

Yes - it's whether I do one more year as don't want to have to count every penny or just go for it!

Tastiger

https://forums.moneysavingexpert.com/discussion/comment/80026736#Comment_80026736

I am pretty much in the same boat as you. Even our numbers are close. Does your £19K and lump sum take into consideration the McCloud judgement?

Daffodil1234

Good luck @Brighton01 with your decision,

For your proposal of living on the ~ £19k mainly per year- when you ask what to consider, it wasn't clear to me whether you have already tried living on this amount per year already ? Does this cover a full year's spending for you for everything ?

The other query to consider would be - what do you hope to do once you have finished work, and will there be any additional costs to think about ? E.g. any additional costs for any hobby / interest / groups / societies / travel which become part of your regular monthly spend ?