Fast approaching retirement & worried.

Dex58

Approaching retirement & feeling a bit wobbly….

I’m 63, fit & working full time. My wife is also 63 & she retired in April 21 following a bit of a Covid health scare.

She now receives a small bank dc pension of 3.9k / year.

She also receives non means tested benefits (Personal independence payment, £2872 / year). 

In addition she has a small DC pension pot of £21k.

We also have accessible savings of £30k, mostly from the lump sum from my wife’s small DB pension.

We have both worked since the age of 16 so have full NI contributions (47 years to date) so we can expect two full state pensions from the age of 66, all be it with a small reduction due to a period of “contracting out”.

I have always tried to save for retirement when possible but have never been a high earner (currently £34k / year working in I.T.). Fortunately the mortgage was paid off a couple of years back so we’re debt free.

I have three DC pension pots currently totalling £515k in default funds.

Given my modest means I think this is a pretty substantial figure. £90k of that total is crystallised as I took a £15k lump sum about 10 years ago to make up an endowment mortgage shortfall.

Perhaps I should seek some financial advice but my past experiences haven’t been very positive so I’m reluctant.

My take home pay is about £1700 / month (I currently salary sacrifice 24% of salary to my pension & my employer adds 6%). I was furloughed for about 6 months on 80% of salary and & we seemed to manage adequately on my wife’s income & my reduced salary of £1400-£1500 per month.

Our regular bills (not including groceries) are £760 per month, the single biggest expense being council tax at £285 per month (we live in SE England).

There have been many redundancies at work & part of me was rather hoping for an easy way out. I’ve been there 21 years & although they only pay statutory redundancy & 3 months salary I would still walk away with around £21k & the retirement decision would have been made for me. As it stands, I’m one of the few who’ve been retained.

So here is my plan to get out in April 2022 at age 64….

We’d like to provide a comfortable retirement that bridges the two years till state pension kicks in. I’d also like to leave an inheritance for my children if possible and ensure my wife is provided for assuming I pre decease her.

I’ve used many of the online pension calculators but they’re wildly inconsistent due to the many assumptions they make which don’t necessarily apply to us.

I don’t want to buy an annuity as they appear to be such poor value.

We were planning to use the “marriage allowance” facility to transfer 10% of my wife’s unused personal allowance (£1,260) to my own, thus giving me a personal annual allowance of £13,830. I would then use UFPLS to withdraw £18,440/year (£1,537/month) from my uncrystallised pensions, with 25% being tax free & the remainder falling within my personal allowance. So no income tax.

This would be approx 3.5% of my total pots which I hope will continue to grow. I think UFPLS would be preferable to drawdown as most of the 25% tax free entitlement would remain invested.

We would supplement our income by drawing an additional £10k per year from my wife’s DC pot of £21k. This would fall within her personal allowance (£11,310) & avoid income tax.

If my sums are correct this would provide a tax free income of £35,116 / year (£2962 / month) which is more than our current take home income.

Two years later when we receive our state pensions we can reassess the situation & probably reduce the rate of withdrawal. Our savings would also provide a safety net if the market dipped & we had to reduce it earlier.

I’ve always been cautious about saving & providing, so jumping ship after 47 years of working is a big decision.

Is my plan feasible? Have I missed anything?

Any suggestions or constructive criticism welcome.

QrizB

I'm no expert (some others are, I'm sure they'll be along in a minute) but I think with £500k in your DC pot, two years to bridge until you get two SPs and only wanting £35k pa net between you, you're good to go.

• 64, 65 - £18440/yr, total £36880
• 66 on - about £10k/yr for ~48 years, ie. until you're 114.
  

You might even have been able to retire a year or two earlier!

Dex58

Thanks, I hope I’m good to go but don’t want to burn any bridges.  Hence seeking opinions….Much appreciated. 

[Deleted User]

The fundamental nature of risk for retirees is the threat that events take place that trigger a permanently lowered standard of living in subsequent years. These could be:

1. unexpectedly long life
2. poor market returns
3. spending shocks

You have enough to deal with most scenarios giving the 35k lifestyle.  Having said this, I don’t agree with your view on annuities. I think its a very useful tool for dealing with risks 1 and 2, and in addition it protects against our deteriorating ability to make financial decisions as we get older.  I think annuities provide good value. One can buy enough to cover basic spending needs (the delta between needs and DB/state pension income).  Then the balance can be invested and spent more freely. 

LHW99

As you are both 63, you could potentially buy the remaining years to SPA if you retire from work early - and your wife could do that.

How far short of the maximum are you both? COPE was only relevant for your starting pension amount in April 2016.

Someone here could tell you how much extra you could get with the time you have available (and if your wife has already retired from work, she may be able to buy quite a few post-16 years).

SomeMadeUpName

If you have accessible savings then consider moving these over to SIPP (particularly for your wife) as they will get boosted by 25% as they go in.  Despite no earned income your wife can contribute £2,880 net pa which will get grossed up to £3,600.

You can both continue to do (at least) this until you are 75 years old. 

You probably should both do this even if it means drawing a bit from your SIPP to achieve it.  If you must choose between you  then go with the wife as this will over time balance funds between you for max efficiency tax wise at later draw down (subject to your relationship dynamics allowing for financial planning as a unit).

SomeMadeUpName

I'm surprised your SP is not up to full newSP already.  We are younger than you (so had fewer pre 2016 years) and I was contracted out for a good long period, but I have already boosted up to full newSP with post 2016 years, and my wife will be up there after this year, despite a few years being missing since 2016.

What exactly does your forecast say?

Those of us who were contracted out, but also worked on after 2016 for a while, have done well out of the changes.

molerat

We have both worked since the age of 16 so have full NI contributions (47 years to date) so we can expect two full state pensions from the age of 66, all be it with a small reduction due to a period of “contracting out”.

You obviously misunderstand how the state pension works.  You will either receive a full post 2016 pension, maybe more than the full amount, or you won't.  There is no deduction for contracting out.  What exactly do your forecasts show, not just the top line figure but all of them ?

SomeMadeUpName

Dex58 said:

Thanks, I hope I’m good to go but don’t want to burn any bridges.  Hence seeking opinions….Much appreciated. 

As @QrizB says you appear good to go, but you are right, tread carefully to ensure you maximise the benefit of the provisions you have accumulated over the years.  You two earned them after all.

Linton

Deleted_User said:

The fundamental nature of risk for retirees is the threat that events take place that trigger a permanently lowered standard of living in subsequent years. These could be:

1. unexpectedly long life
2. poor market returns
3. spending shocks

You have enough to deal with most scenarios giving the 35k lifestyle.  Having said this, I don’t agree with your view on annuities. I think its a very useful tool for dealing with risks 1 and 2, and in addition it protects against our deteriorating ability to make financial decisions as we get older.  I think annuities provide good value. One can buy enough to cover basic spending needs (the delta between needs and DB/state pension income).  Then the balance can be invested and spent more freely. 

I agree that annuities provide the best protection against living too long and if I live to say my mid 80's would well buy one even at current prices.  However until you reach the age at which you gain significantly from the early death of others then I believe it is a better use of your money to live off your investments.

LV_426

I would just like to say, well done for building up such an impressive DC pension pot bearing in mind your income. You must have saved like hell for those 40+ years. Your plan seems reasonable to me, but I'm no expert.
Enjoy it now!