How much to live on

Albermarle

Yankee24 said:

I’m an American expat of 30 years and both my parents were in care for short amounts of time in the USA.  The stats there are the same-   Few do require nursing home care, many do require home help.  Unfortunately, you only remember the nursing home experiences that you see….   And they are emotional.   The USA pioneered the “nursing home ins” policies and my father got an amazing deal.  He was so proud of it for over 20 years…,  when the time came, he didn’t last the 90 days you have to self pay first and neither did my mum.  He would have been soooo mad!   Still makes my brother and I laugh.  But as we say, it helped him sleep peacefully.  

Anyhow, seeing those nursing costs, it made my husband and I radically rethink.  We both inherited and we passed it straight thru to the kids who were 20 and 22.  It’s all managed by the family ifa so we have little concerns they are going to go and blow it.  This has been proven correct. They know they are privileged and plan to use it for houses etc.  now my husband and I think we have done our bit with them.  We help them out with extras whilst we are still working-   Childcare fees and tempting them with nicer holidays than they can afford, but that will go down as and when we retire.  As gifts are regular and out of income, there should be no short term issue.  If we need care, the house will cover that.  This completely takes away any planning complexity or silly worries about leaving inheritance.  We were in our mid 50s when we inherited we didn’t need it then.  We needed it when we were thirty.  

Your comments about giving big gifts to family when they are younger/need it make a lot of sense.( if possible of course) 
The only caveat is that for those living off largely  DC ( invested) pensions ( or planning to) it is mainly/partly a self funded retirement. The financial outcome in terms of income/how long it lasts/how much will be left, can be within very wide limits, and of course somewhat unpredictable. Therefore a big safety buffer is needed, and you might be quite old before you feel confident to start giving away significant amounts. Otherwise you might be calling on the adult children to hand some of the money back !

Yankee24

Albermarle said:

Yankee24 said:

I’m an American expat of 30 years and both my parents were in care for short amounts of time in the USA.  The stats there are the same-   Few do require nursing home care, many do require home help.  Unfortunately, you only remember the nursing home experiences that you see….   And they are emotional.   The USA pioneered the “nursing home ins” policies and my father got an amazing deal.  He was so proud of it for over 20 years…,  when the time came, he didn’t last the 90 days you have to self pay first and neither did my mum.  He would have been soooo mad!   Still makes my brother and I laugh.  But as we say, it helped him sleep peacefully.  

Anyhow, seeing those nursing costs, it made my husband and I radically rethink.  We both inherited and we passed it straight thru to the kids who were 20 and 22.  It’s all managed by the family ifa so we have little concerns they are going to go and blow it.  This has been proven correct. They know they are privileged and plan to use it for houses etc.  now my husband and I think we have done our bit with them.  We help them out with extras whilst we are still working-   Childcare fees and tempting them with nicer holidays than they can afford, but that will go down as and when we retire.  As gifts are regular and out of income, there should be no short term issue.  If we need care, the house will cover that.  This completely takes away any planning complexity or silly worries about leaving inheritance.  We were in our mid 50s when we inherited we didn’t need it then.  We needed it when we were thirty.  

Your comments about giving big gifts to family when they are younger/need it make a lot of sense.( if possible of course) 
The only caveat is that for those living off largely  DC ( invested) pensions ( or planning to) it is mainly/partly a self funded retirement. The financial outcome in terms of income/how long it lasts/how much will be left, can be within very wide limits, and of course somewhat unpredictable. Therefore a big safety buffer is needed, and you might be quite old before you feel confident to start giving away significant amounts. Otherwise you might be calling on the adult children to hand some of the money back !

Yes, I agree the vital bit of info missing is we are underpinned by a db pension that is index linked, with a 50% spousal pension that came into payment when I turned 50.  Without that, I’d feel more exposed and conservative.  Working for this particular company for 25 years was a saving grace….  They relocated us at age 27, final salary pension at 50 and I took a golden goodbye redundancy that gave me 3 weeks for every year of employment….  I was soooo lucky. 

DT2001

Albermarle said:

Yankee24 said:

I’m an American expat of 30 years and both my parents were in care for short amounts of time in the USA.  The stats there are the same-   Few do require nursing home care, many do require home help.  Unfortunately, you only remember the nursing home experiences that you see….   And they are emotional.   The USA pioneered the “nursing home ins” policies and my father got an amazing deal.  He was so proud of it for over 20 years…,  when the time came, he didn’t last the 90 days you have to self pay first and neither did my mum.  He would have been soooo mad!   Still makes my brother and I laugh.  But as we say, it helped him sleep peacefully.  

Anyhow, seeing those nursing costs, it made my husband and I radically rethink.  We both inherited and we passed it straight thru to the kids who were 20 and 22.  It’s all managed by the family ifa so we have little concerns they are going to go and blow it.  This has been proven correct. They know they are privileged and plan to use it for houses etc.  now my husband and I think we have done our bit with them.  We help them out with extras whilst we are still working-   Childcare fees and tempting them with nicer holidays than they can afford, but that will go down as and when we retire.  As gifts are regular and out of income, there should be no short term issue.  If we need care, the house will cover that.  This completely takes away any planning complexity or silly worries about leaving inheritance.  We were in our mid 50s when we inherited we didn’t need it then.  We needed it when we were thirty.  

Your comments about giving big gifts to family when they are younger/need it make a lot of sense.( if possible of course) 
The only caveat is that for those living off largely  DC ( invested) pensions ( or planning to) it is mainly/partly a self funded retirement. The financial outcome in terms of income/how long it lasts/how much will be left, can be within very wide limits, and of course somewhat unpredictable. Therefore a big safety buffer is needed, and you might be quite old before you feel confident to start giving away significant amounts. Otherwise you might be calling on the adult children to hand some of the money back !

I agree with Albermarle about getting the strategy right regarding inheritance/gifts. MIL was advised by her IFA about potentially breaching IHT limits in the early 2010’s however having, with her job, seen the cost of care at home or in a home didn’t want to give away funds just to avoid tax. Her IFA came up with the idea of putting a limited amount of insurance company bonds in to trust and her ISA’s (which were surplus to her requirements then) into a portfolio geared to income. The excess income funds one child’s pension and grandchildren’s investments. The grandchildren were, at birth, given a few £k and together with the ongoing additions all have a good start to house deposits. We have involved our children so hopefully the funds will be used, as we see, wisely. MIL has peace of mind as she knows the income can be switched if her requirements for care increase. I think this type of situation, with ‘inheritance’ missing a generation will be more prevalent with increased life expectancy - our retirement plan ignored inheritance and has a built in safety margin being mostly SIPP and ISA based.

MarzipanCrumble

Ohh OK as I read this you set up a regular (monthly?) income Standing Order out of income.  I am thinking about this too.

Anything I should take into consideration?  Yes I can prove it comes out of income and not capital.

DT2001

MarzipanCrumble said:

Ohh OK as I read this you set up a regular (monthly?) income Standing Order out of income.  I am thinking about this too.

Anything I should take into consideration?  Yes I can prove it comes out of income and not capital.

We have set up a separate account into which is fed all ISA  and bond income. This then feeds monthly standing orders.
All MIL’s expenditure is run another account which is funded by her private and state pensions proving she isn’t using capital to fund her own living costs.

A few years ago I assisted with an IHT gift calculation and had to construct income an expenditure worksheets going back 7 years using chequebooks etc. So anything to aid that process such as separate accounts would help whoever has to submit probate forms.

Organgrinder

Well I've finally had my phased retirement calculations from teachers pensions. Roughly 3% more than i'd calculated on my final salary part. Presumably they do some form of revaluation at the point you take the pension which makes sense when you consider the April increase in year 1 is based on the proportion of the full year increase depending on date of retirement.

I decided to leave 75% of my career average as otherwise i'd be paying 40% tax and a side benefit is that it increases by inflation plus 1.6%.

You can clearly see how teachers pay has not kept pace with inflation though. My best years have been revalued and are some £5000 more than my current earnings despite being on exactly the same pay scale.

Other things I've done are to start a new SIPP - not a huge amount but a tax efficient way of saving - and my forecasts are a nice reserve pot by the time I fully retire. I find it bizarre that by taking a reduced pension early and reinvesting it that I end up better off in the long run and can reduce my hours. Reducing my hours was my plan, the other things are side benefits. 

With effectively no mortgage (i've not paid it off as it's fixed until Dec 2025 at 1.64% and the lump sums I got are earning more interest at an average of 5% net), my wife has also started a SIPP on top of her LGPS. 

I've also changed my shopping habits. I used to pop into Tesco or Aldi every day. I now do a big shop and pay for Clubcard Plus. I never thought I'd pay £7.99 a month for the privilege of a loyalty card but it's a net saving overall.

Other plans are to carry on paying into my SIPP once retired. I believe the max is £3600 gross.

I was considering solar and a battery. Not a big set up as we use relatively little. However my wife is not keen despite the payback period being only 8 years. Maybe when flush fit panels are an affordable option!

It feels strange starting a new school in Sept, especially on reduced hours. Results day was yesterday for my A level class. 2 A*, 2A, 1B and 1C. Nice way to finish.

Things to do next. New work clothes for Sept. Sign up to my language class for next year. Sort next summer's holiday.

All in all, a very positive outcome. :-)

MarzipanCrumble

so glad your wife is also paying into a SIPP.  

Organgrinder

MarzipanCrumble said:

so glad your wife is also paying into a SIPP.  

It just makes sense. 

She's consolidated some small pot pensions and is paying £6k per annum into a SIPP. She also has a LGPS, a guaranteed annuity payable at 60 of £2k per annum and a scheme that moved into PPF from way back. 

Plan is to draw down on the SIPP at age 61 along with taking other pensions and then have SP at 67.

So all looking good for retirement for her in 5 years.

louby40

Organgrinder,  I'm wondering whether a phased retirement may suit me, but a bit confused as to how it works and whether I'd benefit financially.

I'm 55 next February and would like to go part time but still have a mortgage so it's not really financially plausible yet. My mortgage is also fixed at 2.3% until 2027. I'm overpaying at the moment and it should be £34k when the fixed rate ends. I think I may be better putting my £150 a month mortgage overpayment into a high interest account rather than paying it off my mortgage , so that's something I need to do. 

I've been teaching fulltime for 27 years and am ready to think about reducing my hours and then retiring at 58/59. 

Do you get your  lump sum when you do a phased retirement? I find it all very confusing with paying tax on a pension/ salary etc. 

Organgrinder

louby40 said:

Organgrinder,  I'm wondering whether a phased retirement may suit me, but a bit confused as to how it works and whether I'd benefit financially.

I'm 55 next February and would like to go part time but still have a mortgage so it's not really financially plausible yet. My mortgage is also fixed at 2.3% until 2027. I'm overpaying at the moment and it should be £34k when the fixed rate ends. I think I may be better putting my £150 a month mortgage overpayment into a high interest account rather than paying it off my mortgage , so that's something I need to do. 

I've been teaching fulltime for 27 years and am ready to think about reducing my hours and then retiring at 58/59. 

Do you get your  lump sum when you do a phased retirement? I find it all very confusing with paying tax on a pension/ salary etc. 

It is entirely possible to take a lump sum.  Let's assume your pension is £20,000 and you take 50% of your pension. Now let's take that £10,000 and reduce it for early retirement leaving you with say £6,500 pa. Then for every £1 you give up you get £12 as a tax free lump sum. So giving up £1,500 yields £18,000.

The £5,000 remaining as annual pension is not subject to NI or pension contributions so on basic rate tax would leave you with £4,000 pa or £333.33 a month.

Don't forget your remaining pension is still added to at 1/57 of your salary for each year you continue working.

I should add that you can take up to 75% of your pension benefits and that the portion you don't take continues to be added to. Eg in the above scenario you could take 75% of your pension, in this case £15,000 and it would be reduced to £9750. If you gave up £2,500 it would yield a lump sum of £30,000 and a reduced pension of £7250, or £5,800 after tax £483 a month.

In this scenario you leave £5,000 in your pension but of course you continue to add 1/57 of your salary as above for every year you continue.

In both scenarios your remaining pension is subject to a reduction if you retire early.

With regard mortgages, it's very easy. If you're investing at a higher net rate of return do not overpay, invest it.