How much to live on

Floss

Maybe we can now get back on topic, rather than divert to the travails of Octopus & DDs....

mrs_slapshot

Talking about getting back on topic.....

I’m on the Slow Living thread and was pointed over to this one, as I’m interested in early retirement. It’s taken a few days to read through all of the posts!

So, a bit about me, and then my numbers. I’m female, 58 (59 at the end of this year). Single with a young adult son of 22 who currently lives with me. I’ve worked since I was 16, with only a few months off mainly for maternity leave (a few weeks between jobs here and there) and a major career change (then back again) mid-40s when I divorced my husband. When we divorced we both had to start again with very high mortgages – through improving my home and increasing the equity, and moving to a cheaper area three years ago (and taking a bit of tax free cash from my personal pension last year) my mortgage is now down to £33k (house value about £225k). I work almost full time, across four days a week, in a stressful job in the education sector. We’ve had a couple of untimely deaths in the family in the last couple of years which has led me to re-evaluate my position. And quite frankly I am knackered and could do with a few months off! One of the untimely deaths was my ex-husband last year – our son has now inherited his house which he will hopefully be moving into very soon…this will leave me in a position to re-evaluate things again. I’m not in a position where I will inherit anything, but hopefully my son will from grandparents (but not taking anything for granted – dealing with his dad’s estate has been extremely stressful). I have thought about early retirement frequently for the last few months in particular – every now and again I’ll have a good day at work but more often than not I wake up and think ‘here we go again…’

I am currently in the USS scheme (hybrid DB/DC) with a NPA of 66. I have a previous LGPS pension too. Both of these are fairly small. My largest pension is a personal pension from when I transferred out of USS previously, about 2015. I’ve taken about 20% of the tax free cash from this, partly to pay off some of my mortgage and part of it is still sitting in a savings account (I know, I know!!).

I’ve been looking at the figures if I was to leave work (and potentially retire) from my current role at the end of this year.

Personal pension – currently £266k

USS pension – would be worth £2398/pa plus LS £15,988

LGPS pension - would be worth £1896/pa plus LS £12,643

Bank/savings – currently have £37k

I’ve got an appointment booked with Pensionwise soon to go over my options, and I’m going to talk to the pension company at work (not USS, we have a staff benefit with a financial services company). I’ve got full entitlement to the state pension at 67.

I wouldn’t fully retire – I would have a few months off, then look for something part time and less stressful. I like to travel, so this would bring in my ‘luxuries’ money – say about £10-12k a year? Some on holidays and some on say home improvements/maintenance.

When my son moves out, or in a couple of years, I would probably move again to a smaller house – but I don’t think this would release any equity as I would be moving to a better area. I may end up having to spend a little bit more.

I would be willing to look at buying an annuity to spend some of my personal pension on – to bridge the gap to state pension age. I have a health condition which I’ve been told may impact the rate favourably.

I’ve plugged my figures into Guiide and it says I’ll be fine but I wanted to see what you all think! I’m looking at a net income of about £1.8k per month (£21.6K pa).

These are my current expenditure costs, and potential costs when my son moves out (reduced utilities mainly!). I’m looking at taking my remaining tax free sum from my personal pension of about £16k to pay towards my mortgage, plus about  £7k from savings to leave about £10k balance. I’d need to keep some cash savings for an emergency fund. I’d think about using my savings to bridge me Jan-March and then look at starting my pensions in the new tax year. I’ll also have some money to save towards all of this for the rest of this year – say about £3k.

	Current	Potential
Mortgage	6,648	1,920
Council tax	1,704	1,284
Water rates	564	420
TV licence	159	159
Gas/elec	2,280	1,680
Union	348	0
House insurance	240	240
Mobile	408	180
Prescription	110	110
TV/Music/BB	1,236	960
Life insurance	312	0
Car running costs	960	960
	14,969	7,913
Food	3,000	2,640
Petrol	900	900
B'Day/Christmas	840	600
Hair/Beauty	420	420
Clothes	420	300
Gym	576	576
Season ticket	450	450
	6,606	5,886
Total (annual):	21,575	13,799

Any views or thoughts welcome!

Organgrinder

Firstly, these are just my thoughts and not any sort of recommendation having got to the point where i couldn't face working full time myself. So much of this are ideas I've considered myself.

At the risk of having read this completely incorrectly, you have £37k in the bank/savings and a mortgage of £33k which is currently costing you £6K a year and could reduce to £2k a year.

Without knowing the interest rates why not pay it off? If I've read your other figures correctly you'll get lump sums of over £28k on your pensions too. Based on the above this gives you £32k in savings after paying the mortgage off.

Your annual expenditure would drop too to around £12k with an income of £4k from pensions and with £266k in your pension pot you could draw down up to your personal allowance without paying tax. 

If you want a buffer of £10k, that £32k in savings will last 3 years assuming you stick to budget or you could start tax free drawdown and use savings for additional spending.

As for draw down.....well if you can do something like the above you get to 62 without touching your pot. Even taking out the bare minimum you need you'd still have over £220k before your state pension kicks in. Even if you touched your pot rather than use savings you would still have over £190k. Now clearly you need to consider growth and inflation which is what your advisor should be able to do.

I know you mentioned using your savings to cover those 3 months but I'd suggest if you could avoid that you'd be able to look at something like the above.

At 67, you'll be getting £11.5k state plus your £4k so £15.5k. 

Obviously speak to your advisor is the best thing to do.

Albermarle

I am currently in the USS scheme (hybrid DB/DC) with a NPA of 66. I have a previous LGPS pension too. Both of these are fairly small. My largest pension is a personal pension from when I transferred out of USS previously, about 2015

You maybe surprised to learn that your two DB pensions are probably worth not far short of £150K, although it is only a theoretical value. It seems a lot but it reflects that providing guaranteed income for life with inflation linking is expensive.

When my son moves out, or in a couple of years, I would probably move again to a smaller house – but I don’t think this would release any equity as I would be moving to a better area. I may end up having to spend a little bit more.

Good that you are being realistic. Many people are overoptimistic when it comes to how much they think they can gain by downsizing.

I would be willing to look at buying an annuity to spend some of my personal pension on – to bridge the gap to state pension age. I have a health condition which I’ve been told may impact the rate favourably.

Annuity rates are affected by many things as well as health conditions. Having a level income as opposed to one that increase every year for example. Also if you only want one for a few years, then you may well get back at the end, as much as you put in. Sounds a bit crazy but you will have lost out on interest, investment growth etc.

If you have more detailed questions you would probably be better off asking on the Pensions forum.

mrs_slapshot

Thanks @Organgrinder and @Albermarle for your thoughts.

The mortgage is an interesting one - for years, I have wanted to be mortgage free - that's why I moved to a cheaper area three years ago (which was a good move as I would have struggled with the higher interest rates we've had if I'd stayed in my more costly home). However, now I'm in a position to significantly reduce it to an amount where I could fairly easily pay it off (£10k or less), I'm keen to actually keep it. I feel like it gives me 'skin in the game' as it were, and it would be easier to add to it if needed (new roof for example....). My fixed rate ended in December 22 and I've been on the SVR ever since. But obviously I do want to reduce it significantly so it's not costing *too* much in interest.

The other thing to say is that my personal pension is currently managed by an advisor for which I pay fees of £4-£5k a year. It hasn't performed brilliantly and I'm going to do some analysis comparing to how it might have grown if it was in, say, the Vanguard SIPP over the same period. I'm seriously thinking of moving into a lower cost pension, as I feel the fees are something that has seriously hindered growth over the last few years.

My USS pension benefits are due to be restored in April (we had a huge campaign in my union to fight the cuts they imposed, and we won), so I imagine that will mean more pension and lump sum - so I might ask for a quote in April to see what it will be. I don't think it will be huge for me.

My current home will be too big for me once my son moves out, so I would definitely look at buying something smaller - probably newer too, so more energy efficient - but as I said, it will be in a better area so not necessarily cheaper.

Having been thinking about this even more overnight, I think I've made the decision to go, and so the advice I ask for from the pension advisor will not be 'can I do this' but 'how best can I manage this'. And it might even be that I go in the summer rather than wait until the end of the year.

I have to say that reading on this thread, and others, about how people manage on far less money than I 'thought' I needed has been eye opening and inspirational. Thank you to everyone who has posted, because I have learned something from you all!

Organgrinder

I think for every one of us there are at times many things we come to understand that influence our decisions.

For me, I looked at my then take home pay and stripped out all costs I wouldn't have at 67. I realised that I'd effectively be better off even if I took home £850 a month less.

I then looked at what I have now and developed a plan to cover the years between retirement and state pension age. Previously
I had assumed (wrongly) that my pensions (DB) would need to be sufficient on their own and it looked unlikely I'd be able to retire early.

Then I realised I had a small DC pot I could draw down on until I reached 67. I'm currently adding to that pot too and at 61 I should have enough in savings to see me through till roughly 67 without touching the pension pot at all. This wasn't actually the plan but it's nice it has worked out this way.

I went to 4 days a week last year and have 3 or 4 more years to do. At no time is my disposable income ever lower than when in full time employment and at times is up to £500/month more.

We're not frugal either. We holiday 3 times a year plus have a few weekends away too. We both drive. But I'm not one for flash cars, nor for that matter designer labels etc.

I acknowledge I've been fortunate to have 30+ years in DB schemes plus a short period in a DC scheme where enough was put in to make this possible, more by accident than design. 

I hope you find yourself too in a position where it all makes sense to you.

BooJewels

mrs_slapshot said:

The mortgage is an interesting one - for years, I have wanted to be mortgage free - that's why I moved to a cheaper area three years ago (which was a good move as I would have struggled with the higher interest rates we've had if I'd stayed in my more costly home). However, now I'm in a position to significantly reduce it to an amount where I could fairly easily pay it off (£10k or less), I'm keen to actually keep it. I feel like it gives me 'skin in the game' as it were, and it would be easier to add to it if needed (new roof for example....). My fixed rate ended in December 22 and I've been on the SVR ever since. But obviously I do want to reduce it significantly so it's not costing *too* much in interest.

I'm glad that you brought up your mortgage - it was the one thing I'd thought of to mention.  If you're planning on a forthcoming move, it might be useful to keep a mortgage going, so that you can potentially extend it if necessary for your move.  Maybe reduce the balance if the saving to be had is better than any early repayment fees and lost interest on your savings, but perhaps keep it going for now, until you've firmed up your future plans.  Also moving whilst you're in employment might also be advantageous, for the same reason.

My mortgage is paid off and I've been vaguely thinking about moving since I lost my husband - but without the ability to get a mortgage, I'd be limited to a cash purchase - and as the point of a move would be to go somewhere nicer - I'd probably have to pay more than I'd get for mine, even factoring in some downsizing. 

Kim1965

Mrs Slapshot. You mention a health condition. Are you likely to he able to retire without reductions on your db pensions due to health considerations?
 

Albermarle

The other thing to say is that my personal pension is currently managed by an advisor for which I pay fees of £4-£5k a year. It hasn't performed brilliantly and I'm going to do some analysis comparing to how it might have grown if it was in, say, the Vanguard SIPP over the same period. I'm seriously thinking of moving into a lower cost pension, as I feel the fees are something that has seriously hindered growth over the last few years.

There are regular long and detailed threads on the Pensions ( and Investments ) forum, regarding the value of using financial advisors and maybe moving away from them. For example

Is it worth hiring a Financial Advisor? — MoneySavingExpert Forum

Rather than get into too much detail here, I will just make a couple of observations.

Advisor charges of £4kto £5K pa on a £260K pension are very high. Are you sure these charges do not also include charges for the pension provider, and charges for the investment funds as well?  In this case they are still a bit high but more credible.

Are they are a tied advisor, or an Independent FA ?

The Vanguard SIPP ( or any other pension) itself does not grow or perform, it is the investments you choose within the pension. You may fully understand this difference, but many people are confused/unaware of it.

Organgrinder

Albermarle said:

The other thing to say is that my personal pension is currently managed by an advisor for which I pay fees of £4-£5k a year. It hasn't performed brilliantly and I'm going to do some analysis comparing to how it might have grown if it was in, say, the Vanguard SIPP over the same period. I'm seriously thinking of moving into a lower cost pension, as I feel the fees are something that has seriously hindered growth over the last few years.

There are regular long and detailed threads on the Pensions ( and Investments ) forum, regarding the value of using financial advisors and maybe moving away from them. For example

Is it worth hiring a Financial Advisor? — MoneySavingExpert Forum

Rather than get into too much detail here, I will just make a couple of observations.

Advisor charges of £4kto £5K pa on a £260K pension are very high. Are you sure these charges do not also include charges for the pension provider, and charges for the investment funds as well?  In this case they are still a bit high but more credible.

Are they are a tied advisor, or an Independent FA ?

The Vanguard SIPP ( or any other pension) itself does not grow or perform, it is the investments you choose within the pension. You may fully understand this difference, but many people are confused/unaware of it.

The very thought of dealing with anything other than a level of risk scares the life out of me!

I decided to let someone else manage my pension, transferred my DC pots in and make monthly contributions. So far I can't complain. Up 7% in 6 months.