A Paupers Pension Tale (Not many nuts to dig up)

gambleruk

michaels said:

• would I be happy with the current number standard of living for life or would I regret not working longer and having a higher standard of living
• is SWR really safe over 40+ years despite what the models say

On the bottom 2 topics all I will say is that it was this time last year when I seriously thought about packing my job in, I had been furloughed for 2 months and realised I did not want to go back so these very questions were high on my list, a year in and I honestly do not think I will ever regret not working longer, yes I would love to be planning another trip around the Usa or just going out and buying a new tv without thinking or budgeting for it but they to me are so minor details now, I enjoy balancing the books every month and like I have said before my life has never been better. 
I realise that something is going to put a spanner in the works in the future, hopefully not divorce lol, I still have 16 years to SP but if I can get there still with some of my pension pot still in tact then that will work out for me fine. Another thing I have realised is that my health is the most important thing, what's the point in having a huge pension pot if you can't enjoy it. I am as healthy as I have ever been thanks to being able to have time to go running and walk the dogs everyday instead of using the old excuse I am tired from work etc. So when I do have the odd moment of doubt I just think back to how life use to be before, living for the weekend (which the wife works a lot so wasn't always time we could spend together), and holidays whilst the rest of the time dealing with all the stress life throws at you whilst working. You will be amazed on how much easier it is to deal with problems when you have the time to do so and also on just how few arguments you have, hence I suppose going back to the divorce comment that in my humble opinion I think you are much less likely to get divorced once you retire.

Amateurretiree

We certainly don’t have massive pension pots but enough to cover our outgoings with some left over for a decent holiday every year and to cover any domestic emergencies like a new boiler etc.
I am 59, DH almost 63, so a way to go before SP, though I do have an NHS DB and DH has a SIPP currently in drawdown. Two thirds of the SIPP will be gone by the time we both are eligible for SP.
All I can say is, if you want to give up work and you think the numbers stack up, go for it.
We have led a very simple life during lockdown, walks in the countryside close to home have been our main form of entertainment, though we do childmind our granddaughter 3 days a week so she keeps us entertained!

Neither of us have ever been happier, as previously stated, stress levels are so low, there is always enough time to do whatever you need, we have got our monthly outgoings as low as possible( I can’t believe how low to be honest!) having had time to work on it.
We rarely have a cross word, and we spend a lot of time doing our own’stuff’ through the day and in different parts of the house, so I think that helps.

I can’t imagine now how I would have felt if I had had to work to 67, though I still get up at 5.30 I don’t have to jump in the shower, gulp a cup of coffee and run out the door, and collapse in the chair when I get in on a night. It feels like a different world to me. And I don’t think I will ever get bored of this ‘simple life’, I’ve been doing it for four years and it just gets better and better!

harlequinnyc

My current thought is that I am going to tough it out at work for another 7 months and hand my notice in the week before my 51st birthday. Those months will top up our savings a bit more, giving us enough to live on (husband still working and happy to continue) to see us through to my DB pension at 55; thought then is to take my lump sum to live on and maybe leave my pension where it is until later?. Not sure whether to exchange the max I can of £1 pension for £12 extra on lump (it would still be tax free, right?). This will see us through to SPA. Our future plan is to sell our house at around (very approximate) age 75-80 and move into rented accommodation, as we have no dependents, therefore freeing up more cash to live on. I also have access, should I need any, to an inheritance but honestly, so confused whether to leave this alone in case it may needed to pay for care, or be spending and getting enjoyment out of it now (I do have the parents blessing to use this btw). Any thoughts/advice? Am I missing anything, as it does all maybe seem a bit simple and too good to be true? I've done the SP forecast, I have 35 years full NI contributions, which it is saying is 3 years short of the full SP; which I can live with. I do not think I can put another 3 years of work in for a few more pounds of SP.

Only other question is when I let my boss know of this plan?  The naughty me says meh, give him 4 weeks notice, he hasn't done you any favours.  The kind me says give him around 3 months forewarning, as I do think he will struggle to find a replacement in four weeks. 

Malthusian

michaels said:

what to plan for on longevity of self and spouse as 2 x full state pensions make up 60% of our modelled post SPA income

• what about the risk of divorce (no plans currently but 40 more years is twice as long as we have been married so far)

Basically impossible to plan for.

Divorce and living as a bachelor or spinster on your share of the marriage assets increases costs compared to living as a couple, but you might have divorced because one of you has caught the eye of a wealthy dowager / dowagerer*, so who knows.

It may improve things from a tax-efficiency perspective because divorce is the only time you are allowed to redistribute pension funds in the most tax-efficient manner. (May not seem that important if SPs account for 60% of your income, but the personal allowances and the ability to maximise them might come into play.)

The key question is not "how big is the risk" but "what can I do about it". Spending less money than you could afford to spend on the grounds you need to hold some money back for divorce is a self-fulfilling prophecy.

*if a male widow is a widower then presumably...

is SWR really safe over 40+ years despite what the models say

No, because that's not the point of SWR.

The models for SWR generally assume someone retiring in their 60s, so the standard timeframe would be more like 20 years or at least 30 than 40+.

SWR allows for depletion of capital and assumes you are home safe if you die with nothing to your name except a cheque to the undertaker that bounces. In reality almost nobody would spend an ever-increasing proportion of an ever-decreasing fund that way.

The research into "safe withdrawal rates" assumes that a rate is "safe" if it results in an acceptably low percentage of people running out of money. But it wouldn't be safe for that small percentage of people. The small number of people who get so unlucky with the timing of market returns that a "safe withdrawal rate" turns out not to be safe need a plan for their retirements too, and "spend what studies say is a safe withdrawal rate, run out of money and live on cat food" is not a good one.

Individuals need to consider how much they need to withdraw from their fund, whether that is sustainable and what their plan is if the markets crash and their fund starts to deplete. (Whether that means stopping withdrawals and spending cash instead, tightening their belt for a bit, or taking the risk of having to cut spending later in life.) SWRs are of no relevance to you unless you are a cohort of millions of people living in the sandbox of an academic paper.

Terron

Malthusian said:

 SWRs are of no relevance to you unless you are a cohort of millions of people living in the sandbox of an academic paper.

I am sorry but that is rubbish. SWRs are relevant. They aren't guarantees, but they are useful guidelines, which is all that you can reasonably hope for. Just because following them blindly might fail does not make them irrelevant.

The original SWR reasearch was done assuming a 30 year retirement, but people have looked at longer ones since then.

People have also looked at what conditions cause the few failures, and looked at ways to avoid them.

People have also worked out schemes that include adjusting spending if things aren't going well.

The original 4% SWR figure is a useful rule of thumb for determining how much you need as a minimum in your pension pot (25 times your expected spend). It's not perfect but it is a good first target to aim for.

Bravepants

Terron said:

Malthusian said:

 SWRs are of no relevance to you unless you are a cohort of millions of people living in the sandbox of an academic paper.

I am sorry but that is rubbish. SWRs are relevant. They aren't guarantees, but they are useful guidelines, which is all that you can reasonably hope for. Just because following them blindly might fail does not make them irrelevant.

The original SWR reasearch was done assuming a 30 year retirement, but people have looked at longer ones since then.

People have also looked at what conditions cause the few failures, and looked at ways to avoid them.

People have also worked out schemes that include adjusting spending if things aren't going well.

The original 4% SWR figure is a useful rule of thumb for determining how much you need as a minimum in your pension pot (25 times your expected spend). It's not perfect but it is a good first target to aim for.

A few years ago at work, we had a pensions seminar, which was provided by our finance department.

The lady who gave the presentation started out by setting expectations, saying that for a pension of £10,000 per year, it is generally accepted in the industry that people would need to save £250,000.

I immediately recognized this number as being equivalent to the 4% rule.

michaels

Terron said:

Malthusian said:

 SWRs are of no relevance to you unless you are a cohort of millions of people living in the sandbox of an academic paper.

I am sorry but that is rubbish. SWRs are relevant. They aren't guarantees, but they are useful guidelines, which is all that you can reasonably hope for. Just because following them blindly might fail does not make them irrelevant.

The original SWR reasearch was done assuming a 30 year retirement, but people have looked at longer ones since then.

People have also looked at what conditions cause the few failures, and looked at ways to avoid them.

People have also worked out schemes that include adjusting spending if things aren't going well.

The original 4% SWR figure is a useful rule of thumb for determining how much you need as a minimum in your pension pot (25 times your expected spend). It's not perfect but it is a good first target to aim for.

Yes - I am not talking a traditional 4%/3.5% but more what is the most I can withdraw with zero failures to age 96 based on the full historic data set.  However that set is very limited in modelling terms - a couple of hundred observations.  Monte Carlo is of course more traditional but can come up with some very low rates unless you factor in some form of reversion to mean.

But in a way this is all about modelling the known unknowns not the black swan events where the past is no guide to the present.  once your retirement time horizon is increased from 30 years to 45 years the odds of such an event goes up to - I'm not sure if it is linear increase in risk with time or actually exponential.

bluenose1

harlequinnyc said:

My current thought is that I am going to tough it out at work for another 7 months and hand my notice in the week before my 51st birthday. Those months will top up our savings a bit more, giving us enough to live on (husband still working and happy to continue) to see us through to my DB pension at 55; thought then is to take my lump sum to live on and maybe leave my pension where it is until later?. Not sure whether to exchange the max I can of £1 pension for £12 extra on lump (it would still be tax free, right?). This will see us through to SPA. Our future plan is to sell our house at around (very approximate) age 75-80 and move into rented accommodation, as we have no dependents, therefore freeing up more cash to live on. I also have access, should I need any, to an inheritance but honestly, so confused whether to leave this alone in case it may needed to pay for care, or be spending and getting enjoyment out of it now (I do have the parents blessing to use this btw). Any thoughts/advice? Am I missing anything, as it does all maybe seem a bit simple and too good to be true? I've done the SP forecast, I have 35 years full NI contributions, which it is saying is 3 years short of the full SP; which I can live with. I do not think I can put another 3 years of work in for a few more pounds of SP.

Only other question is when I let my boss know of this plan?  The naughty me says meh, give him 4 weeks notice, he hasn't done you any favours.  The kind me says give him around 3 months forewarning, as I do think he will struggle to find a replacement in four weeks. 

Couple of thoughts.
Can you take your lump sum without taking your annual pension? Not sure this is possible with most schemes.
Have you considered living off savings/ inheritance so not giving up guaranteed annual pension inflation increase.
Have you factored on the effects of inflation of taking your full 12/1 Commutation at 51. I found it really useful doing spreadsheets of the difference scenarios a) taking max lump sum b) taking normal lump sum to compare the difference by 67. 
If short of SP worth buying the additional years as think it pays for itself after 4 years. Also you can claim credits if you are caring for someone with Attendance Allowance, so if you have elderly parents may be worth waiting to see what future holds..
I would only give the 4 weeks notice, doesn't sound like he deserves more. Plus you never know if a VR scheme will come up in the meantime.

[Deleted User]

I agree bluenose1. You cannot take a lump sum from a public sector DB pension and leave the pension payment for a later date. They have to be taken together. I am sure private sector DB schemes are similar. In the public sector you can retire and defer your pension to a later date (both lump sum and payment). One possible way way around this is to take a phased retirement (I did this as a member of the Teahers Pension Scheme.) However, the drawback is you have to keep working either with less responsibility or go part time. For example in the teachers pension scheme you were allowed to take anything up to 75% of your benefits but had to cut your income by at least 20%. I achieved this by giving up senior leadership responsibilities.

Absolute no brainer to pay voluntary NI for those remaining years. Every extra year paid for gives you about £5 a week extra for life.

Three years voluntary would cost about £2600 in total and would be recouped in under 4 years. Everything after that is profit. If you live to 80 (which is more than likely) you will receive £10140 extra if you claim from age 67. A bargain!

harlequinnyc

Great advice, thanks so much. Great point about claiming credits for NI, as I am sole carer for my Mother. I will also look into the married couples tax relief. Unfortunately, no chance of VR for me. Really appreciate your input.