Critique on the Retirement Plan

billywhizz1966

So here goes (and apologies for its length in advance)

We have finally set the date to start the next chapter of our lives - for my wife (June 2021 – redundancy on the grounds of efficiency) and me, the 8th September 2021 (or 100 working days from today to leave the corporate world behind)  

OUR CIRCUMSTANCES

OH is 57 (58 in April) and earns £78k. She has 33 years in LGPS and with a pension forecast of £34.5k p/a (to be taken immediately as being made redundant with a small redundancy payment) and £48k lump sum, all looks fine . She will also take up to £42k tax free AVC’s at this time (putting in almost 80% of her salary into this in April, May and June that bumps this up by £15k from current £27k as at March) so will result in a very nice largely Tax Free nest egg of over £100k .

Me. I am 55. I left LG in September 2019 after 34 years service, and have a deferred pension at 59 forecast at £30k and at 60 of £31.5k p.a plus a £60k TFLS to take when draw DB. I moved into the private sector in 2019 where my significantly increased salary far in excess of what I could have ever earned in LG  has meant I have been able to pay significant sums into my SIPP to top up my company pension which was a minimum contribution one from my employer of 3% . By September when I finish, I will have paid in nearly £130k using up all my unused allowances and maxing out my £40k annual allowance. My plan is to draw this down between ages 55-59 as an income of £32.5k. Tax free in year 1 (2021) and taxable at 20% in years 2 to 4. Is this the best idea ?

ASSETS

House worth £400k (outstanding offset mortgage of £60k that we can pay over next 9 years – seems no point in paying off as no real interest being paid)

We have property abroad worth £150k which we may sell in a couple of years (around 2024 after a few long summers there) or may keep if we decide to rent out to cover costs of say £4k per year. We will review how much we think we will use before deciding?

We have current estimated savings of £236k as at March 2021 (all held in cash of which 50% is earning a pittance in cash ISA’s where it isn’t offsetting mortgage or even less in a normal savings account. I know I need to move but was going to finish maxing out AVC’s and look to invest in some low risk products post retirement to yield hopefully up to 2% to3% interest per annum (is this realistic and what should I be considering going into having regard to the fact that our pension income will cover our daily living costs)

Until I retire my income of £3,600 per month (after pension deductions of 60%) will cover our bills and expenses which including the mortgage and all our costs are currently £3,500

After I finish, my wife’s pension is £2450 per month from the summer and me drawing down from my SIPP at around £2,200 per month post tax will cover our outgoings. In 2025 having taken all the SIPP money, in April 2025, I will take my LG pension which will result in my monthly income being around the same level

Combine this means we will have around £4,600 per month (index linked) meaning excess income of around £1k per month over our estimated monthly outgoings of £3,500 that is a generous number I know. 

Of course this is without taking into account any SP when we both hit 67 in 2030 and 2033 respectively (estimates suggest a full pension for me and one just 2 years short for OH). The mortgage ending in 2029 when we will save another £500 per month so we know that we do not really need to worry about covering living costs or dippng into savings to meet day to day costs.  

With FTLS following release of DB pensions and redundancy should see  our savings at  circa £450k (by the October 2021) and if we sell the villa up to £600k. We envisage using this to fund holidays, house up-keep (or even move in maybe 2025/6), and just anything else to keep us comfortable.

My question

I assume we will have enough ? Can’t see anything wrong with my maths but be good to know

More importantly if I have not made any errors I know I need to see an IFA as no real idea where we are best investing to get the best return that is not risky ? What would you do or where should I start as always been a saver but spent most of my time putting it in the bank or pension/AVC’s since getting serious about this 3 or 4 years ago  when I realised the tax benefits?

Retirement Plans – Just looking to slow down, improve my golf handicap, keep fitter and be more at hand to look after our 4 85+ parents. My furlough experience of 8 weeks last year has shown me that I will have no problem doing this after we have worked so hard for so long, living maybe too much within our means to get into this position

Thanks in advance 😊

Linton

Pretty obviously you have more than enough money for your needs so to get into details

1) After paying for the first 5 years retirement and a few expensive holidays what do you want your excess savings for? Do you wish to leave a large ineritance to someone deserving?  This could affect your choice of investments.

2) WIth sensible investing the higher the return the higher the risk.  Often, particularly now, risk free implies sub-inflation returns. Risk here means volatility, not the chance of losing the lot. In your position you could take higher risk with much of your savings since you are not dependent on them for day to day expenditure.  A temporary crash in value would not stop you maintaining your lifestyle.  On the other hand a 50% drop in value may upset you even if it did not matter very much in real terms. And you could take the view that since you appear to have more than you need or could sensibly spend during your lifetime, there is no point in chasing high returns.

There are a number of options if you choose to buy cautious funds with the aim of matching inflation.  One  fund I use for this purpose is Capital Gearing Trust with a very long history of doing just that.  Another option is to have a multi-asset fund which contains mainly safe low return investments but with say 20% in shares.  So if the market drops 50% your investment could drop 10%.

3)  I think you need to find something more fulfilling than just relaxing.  It is fine for 8 weeks but after 8 months or 8 years you may find your time dragging.  WIth your background would there be opportunities for worthwhile voluntary work?

Albermarle

where we are best investing to get the best return that is not risky ?

Although LInton already explained , it is probably worth making sure you understand 100%.

Best /decent returns with no risk is the Holy Grail of investing, and it is best to be clear in your mind that such a product does not exist . In simple terms you have two options ;

1) A savings account with a bank, building society . 100% safe up to £85K ( and pretty safe above that ) In the long term ( and often in the short term as well ) the interest rate will be less than inflation, so the value of your savings will slowly erode .

These are best for a time frame of < 5 years.

2) Risk based investments - Typically shares and bonds- usually a fund that contains a number of these . You can expect these to go up and down but in the long term the trend is nearly always up . There are different types of funds , some with lower & higher risk/return profiles than others but you can hopefully expect to at least beat inflation and during a period of  booming markets you can see some significant gains . These are best for a time frame of > 10 years .

Even if you see an IFA  , it is better to have some knowledge beforehand as you will get more out of the meeting if you are able to understand what they are talking about and trying to charge you for . Have a look at these for starters:

https://www.moneysavingexpert.com/investments/

https://www.nutmeg.com/new-to-investing

https://monevator.com/investing-for-beginners-why-do-we-invest/

fifeken

billywhizz1966 said:

By September when I finish, I will have paid in nearly £130k using up all my unused allowances and maxing out my £40k annual allowance. My plan is to draw this down between ages 55-59 as an income of £32.5k. Tax free in year 1 (2021) and taxable at 20% in years 2 to 4. Is this the best idea ?

Not that it's a big percentage overall but you would lose your 0% tax allowance in year 1 doing it this way, and a larger drop than necessary between years 1 and 2.  Utilise the year 1 tax free £12,570 and keep some of the tax free cash for years 2 to 4.

TVAS

Pension
Good to deplete SIPP non guaranteed fund first before taking DB pension at scheme normal retirement age (NRA). 
236k in cash in your fifties both local govt jobs suggest you are not risk takers. The only reason why you left local govt is because you got made redundant.

Attitude to Risk
The question you need to discuss is are you prepared to put your capital at risk. and can you handle stock market volatility?  

IFA
Beware of the risk rating of any funds the adviser recommends they often will want to put you into a) higher risk funds i.e. higher than the risk you are willing to accept. You have capacity, this means if you invest 100k and the whole lot is lost you will not be begging in the trust. The question is are you willing to undertake such risk. Most advisers do not understand the difference and the mentality they have is they can afford it which is not the same as they are willing to afford it. 
Beware of them putting you into a discretionary fund which is expensive and will reduce the value of your fund you do not need discretionary fund managed because you are not an experienced investor. The other side ifyou invest in  a low risk fund with guarantees. These charges are high and because growth is expected to be lower low risk lower growth there might not be any growth because the of the charges.
Beware
Adviser charges negotiate they will also ask for an ongoing advice fee 1% p.a. offer 0.25% p.a. They are supposed to at least give you an annual face to face meeting to discuss performance. If they send you a computer generated report in the post this will not justify their fee and you can write to the provider to remove the fee from any all of your investments if you do down the investing route.
Beware
Read all the documents do not rely on what the IFA says.

Golf and Holiday Home
You mention golf and house abroad. I have a house in Spain house not villa so nothing exciting however spending the winter is Spain with clear blue skies everyday and 22c on New Years' day. I know you need to look after elderly relatives in the short term but in the longer term do you not want to be playing golf in warm winter sunshine?  

Save Britain
Spend lots of money in the UK we need it. Be patriotic!

Good luck. 

billywhizz1966

Linton said:

Pretty obviously you have more than enough money for your needs so to get into details

1) After paying for the first 5 years retirement and a few expensive holidays what do you want your excess savings for? Do you wish to leave a large ineritance to someone deserving?  This could affect your choice of investments.

2) WIth sensible investing the higher the return the higher the risk.  Often, particularly now, risk free implies sub-inflation returns. Risk here means volatility, not the chance of losing the lot. In your position you could take higher risk with much of your savings since you are not dependent on them for day to day expenditure.  A temporary crash in value would not stop you maintaining your lifestyle.  On the other hand a 50% drop in value may upset you even if it did not matter very much in real terms. And you could take the view that since you appear to have more than you need or could sensibly spend during your lifetime, there is no point in chasing high returns.

There are a number of options if you choose to buy cautious funds with the aim of matching inflation.  One  fund I use for this purpose is Capital Gearing Trust with a very long history of doing just that.  Another option is to have a multi-asset fund which contains mainly safe low return investments but with say 20% in shares.  So if the market drops 50% your investment could drop 10%.

3)  I think you need to find something more fulfilling than just relaxing.  It is fine for 8 weeks but after 8 months or 8 years you may find your time dragging.  WIth your background would there be opportunities for worthwhile voluntary work?

Thanks Linton
No inheritance expectations. I have a stepson who can have whatever is left
We have talked about options (lots of long travel away from home, using the villa for months and even moving but will all rely on parents health  
On volunteering front I already do a number of things that will keep my hand including a charity I set up 8 years ago that now employs 5 people and could keep me full time employed if I let it and I sit on the boards of a few bodies but I will try to keep things in balance. After working, having plenty of me time sounds good but I understand what you mean
Re investments, thank you to you and Albermarle, I will formulate a clearer idea of our plans and tweak the spreadsheet to try and ascertain when I expect to need any lump sums. I appreciate we are in an enviable position      

stephenadarglas

Keep us updated with your decision making - it's all useful stuff to the people on this board.  Many thanks.

SomeMadeUpName

Two things:

1 - Whilst it might be a bit of a drop in the ocean: Buy a couple of years for your other half in the run up to SPA (unless they are in very poor health at the time). You only need to live 3.1 years to recoup.
2 - Donate to good causes, you should have the spare. Though if you do just be careful your altruism doesn't mean you end up on 'suckers lists' in later life.

billywhizz1966

Thanks #somemadeupname
A drop in the ocean is fine and we most likely will buy the two missing years which I understand we can do anytime. Mrs W has many talents so if does do some s/e work that may allow her to contribute that way although not the plan at moment
Re donating to good causes. My philanthropic nature sees me do that as well as give time volunteering as I said already but no doubt will identify what we want to do. Be nice to turn left on the plane and do a reasonable bucket list based on taking in world sporting events so don't think I will struggle to spend it (or that is the plan)