Options for Early Retirement Plan

RetirementJohn

Hi all

I'm an unsophisticated saver looking for inspiration and ideas about making early retirement work please. 

Status

I have various defined contribution pension pots worth about £248k spread roughly as follows:

• 11% low risk fund
• 75% med risk fund
• 15% med/high risk fund

Additionally on the pension front I have an index linked defined benefit pension of £19k per annum as of June 2012. The transfer illustration for that is £1.1m and although open to ideas there it seems like a good one, including spouse 50% pension on my death, so leaning towards keeping it.

State pension forecast is currently at £142/week at 68.

I have a single property (main resi) with a value of around £2m and a little over 75% equity. 

I have about £50k in premium bonds (for easy access) and currently using those to cover a gap in work. I imagine I’ll use up about £15k before my next role.

No other savings, investment, insurances or assurances.

Married with a young baby. My wife is financially independent with her own business and own rental property (the property mentioned above is solely mine and we use it as the family home).

Plans

I will be 48 this year and looking to retire as soon as possible, ambitiously by 50 and at latest 55.

It's a serious consideration to sell my property to fund retirement from aged 50-55, 50-60, or even 50-65 before accessing pensions. Basics there would be a sale that paid off the mortgage, gave me around £1m for a new, mortgage-free main resi and left me about £500k for that 5-15 year stretch before accessing pensions.

I think I could live comfortably on £35-40k year. I’ll need some emergency cash funds and also something for my child around university age (could utilise a pension lump sum there). 

Would be really interested to hear your opinions and ideas on the above please. I intend to see an IFA but wanted to hear from others and do some further homework first as I am newly looking into all of this. 

Thanks in advance for your consideration.

El_Torro

Cashing in a DB pension worth £19k a year and getting £1.1 million in return (in a DC pension pot) sounds like a very tempting offer to me. Remember though that most people recommend against cashing in DB pensions (with good reason). £19k per year, inflation proofed, is a lot to give up. That along with your State Pension is a guaranteed income that most people would be envious of. Unless you have a plan for that £1.1 million you might be right with your thinking, to leave it as it is. At what age does that £19k start paying out?

If you are willing to downsize (i.e. sell your £2 million property and buy a £1 million property in its place) then sure, go for it. I don't see much of a downside, as long as you are happy with the size and location of the new property. 

I think your plan to see an IFA is a good one, their advice should pay for itself in the long run, bearing in mind the amount of money you are talking about. On the face of it though I can't see much wrong with your plan.

Albermarle

Additionally on the pension front I have an index linked defined benefit pension of £19k per annum as of June 2012. The transfer illustration for that is £1.1m and although open to ideas there it seems like a good one, including spouse 50% pension on my death, so leaning towards keeping it.

If it was worth £19k pa in 2012 it is very likely to be worth more now, as normally they are inflation linked .

At 48 your DC pensions are invested quite conservatively, 

Uni fees are best paid for via Student loan , which will probably never have to be paid back . Some support for day to day living of around £5kpa should be sufficient , so a mere pinprick in your very healthy finances .

Cus

So £500k to keep you going from 50 to when you collect the DB?
A child costs a lot. How secure is the work expectation? 
If I was in your situation, calculate not really getting work by 50, and increasing expenses due to the child. Also be pessimistic on the DC growth. Then if what you have left covers it then great 👍

RetirementJohn

Thanks all for your comments.

Some answers/clarifications to points raised:
1) Yes, the DB of £19k is as of 2012 so will be higher now. I think about £22k in today's money and my illustration is £36k if taken at 65. I have an option to take a reduced amount earlier (for example £17.5k at 55, £26k at 60)
2) Work is secure, so I'm confident I can work until 50, 55 or longer but the aim is to retire asap.
3) Yes the idea would be £500k to get me from aged 50 through to the DB at 65 as that seems most beneficial, and DCs at 65 or earlier if necessary.

I guess if the principle of using equity from the house is going in the right direction (or at least not in the wrong one), then what I'm most unsure of is how to go about investing that £500k to get through. Is it likely a 10 or 15 year annuity or is there a smarter blend of investments? I've seen comments in other threads about timing fixed rate savings to then drop into ISAs etc, but not sure if that would be worth much more than a single annuity - also taking into consideration the management required to be on top of that - which might just be something I need to learn if the upside is there.

Thanks

L9XSS

The transfer value is appealing, my CETV was 560k for giving up 19k of pension at 65 years of age. Needless to say I’m not transferring the DB pension out. It’s guaranteed income. I would look to make other options with your finances, i.e the house sale to fund the gap, etc. The DB pension and your state pension are both in a good position to give you that piece of mind. Your in a very good position already.

fred246

You will need to pay to get the state pension up to £175 per week. Combined with the DB pension you are definitely safe from 68 onwards. You just need to mind the gap. I definitely wouldn't give the DB pension up. Knowing that you are 100% safe is a nice feeling to have.

Albermarle

Giving up the DB pension is an option but be aware that you would have to make decisions about how to manage the Million quid + on offer . As you already wondering how to invest £500K of released house equity then that is probably a sign that you do not have the knowledge ( or maybe the inclination ) to manage £1.5 million , without professional help at least .
It is probably worth knowing that many of the regular posters on here , some of which are very experienced investors ( not me ) tend to hang on to any DB pensions they have, and use them as a backstop in case other non guaranteed retirement income sources do not perform as expected. 

Linton

Giving up a large guaranteed inflation linked pension would be foolish in my view when you have plenty of other assets. ISTM It's the reassurance of financial safety that you need rather than extra £££s.  
I dont thnk you should be treating your wife's and your assets separately unless you live apart with completely separate finances. Is the desired £35K-£40K/year just for you or for you both?

fred246

Retiring on a good DB pension feels like an almost unique position to be in these days. Knowing that whatever happens you have plenty of money coming in each month until you die and it goes up with inflation. I wouldn't easily give it up.

atush

If you transferred your o;d DB pension for 1.1M, and already have 248K in DC pots, you'll be over the LA.  So would pay extra tax?

Both properties should be in both names, so you can claim 2x CGT relief when you sell.