Retirement plan?

Zarjaz

I retire next year, at 60. My monthly pension (NHS defined benefit), after tax, will be circa £2500/m. I have additional part time income of £6000-£10000pa. Mortgage free. I will get a tax free lump sum of £120k. I've S&S ISA of £100k, £50k premium bonds, £50k NS&I fixed term, and around £100k in one and 2 year fixed term savings. 

No immediate need to spend any of this - though wife and I plan some cruises! Wife won't retire for 5 years, and will get pension of around £1800/m after tax (again, defined benefit), plus £50k lump sum.

I think I have too much in '"cash assets", but not confident of sticking more into S&S. Maybe I should though? How does one plan what to do with savings in retirement, when one's pension, and wife's salary, is more than enough to cover outgoings?

One thought is to buy a flat, and maybe rent it out. I suspect, however, that what I need is some independent financial advice?!

Audaxer

You are in a very healthy position with over £4k per month in DB pension income once your wife retires in 5 years time, with State Pensions still to come. Some people in that position would agree you have too much in cash, and they are probably right. In your position, I would still keep a healthly cash balance for you planned luxury spend, and any you don't need immediate access to, you could consider a low cost globally-diversified multi asset fund with an equity percentage to match your risk level. These funds are discussed a lot on here and are perfectly good solutions. You could also do some research on sites like Monevator, before even considering whether you need expensive financial advice.

I personally wouldn't like the hassle of buying and renting out a flat, with no guarantee that it would produce better returns that a straightforward globally diversified multi asset fund. 

jimjames

Could you explain why you're not confident putting more in a S&S ISA but are considering a property purchase?

Zarjaz

I suppose it's because I've seen the value of our home increase year on year, substantially, whereas S&S are more volatile? That's a poor rationale, I know!

Currently putting £3k/month into ISA between my wife and I. Nutmeg and Evestor.

tacpot12

I would agree that equities are more volatile than house prices, but your cash will suffer the ravages of inflation. Historically and generally, equities have alway increased in value over the very long term. You might be retired for 20 or 30, or even 40 years if you are lucky, so I would encourage you to think about putting half the lump sum into a well capitalised global equity fund. 

An IFA is likely to recommend some from of investment, and is very unlikely to recommend investing in residential property, especially if you have no history of being a landlord/property investor. I have recently sold one of my rental properties because its position (much further way than my other rental property) was making it harder to manage. Its much easier to manage when the money is investing in the stock market, and there is no risk of a substantial fine, or rogue tenants.  

jimjames

Zarjaz said:

I suppose it's because I've seen the value of our home increase year on year, substantially, whereas S&S are more volatile? That's a poor rationale, I know!

If you look at the price of equities once a year they probably look less volatile. Houses aren't priced daily!

bostonerimus

If your DB pensions cover your spending then do whatever makes you most comfortable. With healthy DB pensions you can afford to take lots of risk with your savings, on the other hand you don't need to do that either, but I would not recommend taking on the risk and worry of becoming a landlord just as you retire. Keep things simple. I would probably just leave everything alone and put the 120k lump sum in your S&S ISA over a few of years.

I have a DB pension and don't have to worry about generating retirement income so I keep 2 to 3 years of spending in cash for large expenses and cash flow and put the rest in low cost global equity tracker funds. I don't look at my balance anymore and sleep well at night which is good as a retiree - I think you can probably do the same.

MX5huggy

What’s the theory behind your wife working 5 more years? What is the effect of her retirement being the same as yours on the numbers. 

My dad retired at 60, he was expecting a long and healthy retirement, he didn’t see his 62nd birthday. 

You and your wife should be dumping as much money as possible into pension in these final working years and live off your savings exactly how much this is depends on you earnings, Annual Allowance limits and Lifetime Allowance. Do you have the option of taking smaller lump sums for bigger annual pensions? 

After taking your DB if you still earn you can still contribute it all to a DC pension if you have not taken taxable DC pension income otherwise the limit is £3600 (gross). 

BTL capital gains are clobbered by tax (28%) and you can’t spread the gain across multiple years. 

Albermarle

With over £50K of guaranteed income and then later state pensions , you are sitting pretty as they say .
To buy this amount of guaranteed income ( presumably increasing with inflation) would cost around £2.5 million ,Then two x State Pension later. In reality whatever you do with your other savings and investments will probably have little effect on your life/happiness, so the first thing is not to get too worried about making the 'right' decisions. Or giving yourself more hassle unnecessarily like having a BTL property .
Also as said above you should think clearly about why your wife continues to work for another 5 years . Even if she had to take a reduced pension for retiring early you would still be in a very good position financially.

Otherwise taking advantage of tax relief by investing in a new DC pension/SIPP seems a good idea.

tebbins

Firstly, are you sure that the pension amount you've been quoted is adjusted for early retirement. It may help to ask for a formal quote to be sure. From your post it seems like you're already ahead of this.
£4,300/mo DB income, before state pensions which are at most 7 years away for you (though I don't know your wife's age) adding an extra £1500/mo jointly, is a very comfortable situation to be in.
The way Jack Bogle puts it is to look at your total portfolio. The capital value of your DB pensions can generally be estimated at 20-30 times the income and, as this is guaranteed government inflation-linked for life, it can be considered as safe as cash in your total portfolio. £4300 x 12 x 20 = £946k, nearly a round million. You have £320k of other cash and £100k in a stocks and shares ISA. Your portfolio is 93% cash 7% stocks.
I would keep the NS&I PBs and keep the NS&I fixed if they are index-linked savings certs and at least £10k in your current account, then cram the rest into S&S ISAs/SIPPs. A vanilla 100% global equity index fund/ETF or multi asset fund will do fine.

You've basically already won the game and IMHO can afford to take the risk.

Linton

What do you want your saved money for?  How much? When do you want to use it?  Unless there are some basic requirements it is impossible to say what you should do with your money in the meantime.  I suggest you pencil in a plan and then allocate your savings around that, cash to cover up to 5-10 years requirements and S&S investments for anything later. The longer the outlook the more you could sensibly put into shares/funds of shares. You can always change the plan later.

If you have no needs for the money then it doesn't matter much what you do with it.  Many retired people simply keep their spare money in cash for convenience. Do you have any children, relations or favourite charities who would appreciate a gift sooner rather than potentially much later after your death?

Why would you want the hassle of buying and renting out some property?  With your skills perhaps there are better ways of spending your time then worrying about blocked toilets, broken central heating and whether redecoration is required.  If you want to access the money tied up in the rental then you will have to sell the whole thing.  With S&S investments or cash you can simply and quickly release whatever money you need.