Retirement plan?

Zarjaz

Thanks for all the helpful advice - some really excellent points there. 

To clarify, my "normal pension age" in my NHS role is age 60, and benefits are defined. I can sacrifice £1 of pension for £12 additional lump sum (on top of the lump sum I will automatically get). If I do so, it would reduce the likelihood of me going into 40% tax rate (41%, actually, as I live in Scotland), given my additional income - then state pension in 7 years.

My wife is 55, and her NPA is also 60. She is a teacher. The only reason I said that she would work 5 more years is because that's what she said! I'd be happy if it was only 2 or 3 more years. She would have an early retirement penalty if she did that - around 9%.

I have additional income from some professional work as a consultant, and hadn't thought of sticking this into a pension. I will consider that, though I think I may fall foul of the LTA, which I am almost at from my NHS contributions.

I also like the idea of a global equity fund.

Other than perhaps contributing to the cost of a couple of weddings, and perhaps helping with deposits on first flats for my 17 and 23 year olds, I have no plans for spending large amounts. I've just bought a new car, and expect to keep it for 5 years or so.

I think the advice on not buying a flat to let is sound - and when I am retiring, the hassle of attending to this is not tempting!

Again, thanks to all.    

HCIMbtw

Albermarle said:

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.

The stat about buying that guaranteed income is terrifying, but I take a little solace in the fact you are referring to an annuity and I will hopefully be able to hopefully (with a bit more risk) get that type of level of retirement income with a drawdown pension and savings at a lower level.. just 20+ years to go

El_Torro

If your wife does decide to retire early best not to take her pension until 60. You can live on your cash til then and she doesn't take a hefty penalty on her pension. 

While this forum tends to be very anti BTL I think it's justified in this instance. Why open yourself up to the hassle if you don't need the income? Also BTL works better (not necessarily well) as a long term investment. Buy it 20 years before retirement and then sell the property when you retire and hopefully make a hefty profit on the value of the property.

I agree with the suggestion that you give some of it away, to whoever you see fit. I know it's morbid to think about but based on what you've said you're going to have a lot of assets when you do pass away. Why not see those close to you enjoy it while you're still alive? Not sure I could do it if I were in your position, be a better person than me though

enthusiasticsaver

Zarjaz said:

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?!

Our DB pensions more than cover our outgoings and more so consequently we do not keep a lot in cash assets as the returns are so poor.  We use an IFA and have a drawdown plan to withdraw so much each year (if needed) purely to cover long haul holidays/expensive home improvement projects/car replacements or  gifts to our DDs. I am not sure why you are not confident in investing more unless you are investing in funds with a higher risk than you are comfortable with.  The cash assets are losing due to inflation so we only have £50k in cash  and £30k is earmarked for car replacement/long haul holiday next year if we can go.  Normally we just keep £20k as an emergency fund so keeping £200k in essentially cash assets seems a waste to me when the return is so much higher in stocks and shares. I certainly would not buy a flat to rent out though.  Too much hassle with maintenance, possibly bad tenants and very tax inefficient now. 

At the end of the day though you obviously do not have any worries re income so you should do whatever helps  you sleep at night.  Do you want to continue with the part time work? 

Audaxer

Zarjaz said:

I also like the idea of a global equity fund.

A low cost globally diversified fund is a good idea, but bear in mind that if you invest most of your spare cash in a such a fund which is 100% equities, it could drop 40% in value in an equity crash. So it is important to establish a risk level you are comfortable with. A medium risk multi-asset fund with around 60% equities will drop less in an equities crash, so that could be a better option, but you should not rush to invest until do your own research. In your situation I still don't see a problem keeping a healthy cash balance for your short/medium term anticipated luxury spend. 

Zarjaz

enthusiasticsaver said:

Zarjaz said:

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?!

At the end of the day though you obviously do not have any worries re income so you should do whatever helps  you sleep at night.  Do you want to continue with the part time work? 

The part-time work is with a professional regulator, and a fixed-term contract to 2025, with the option of a further 4 years after that. It amounts to around 2-3 days a month. It keeps my brain active!

I recognise that I do need to do a lot more research on how to invest the cash/lump sum. I think my challenge is that I grew up on a council estate, and we didn't have much money. Although I have been successful in my career, and been able to own my home, and save a good amount, I always have a worry about "not having enough in the bank...just in case". In case what, I don't know! My foray into S&S has been via Nutmeg, where I set my "risk level" at 5 out of 10 - hedging my bets. I think that, with much more time on my hands, I will be able to learn a lot more about equities and investments - to then make better informed decisions. 

 I take on board all the comments above about being able to feel comfortable about our income, and savings. It's a state of mind.   

Albermarle

To clarify, my "normal pension age" in my NHS role is age 60, and benefits are defined. I can sacrifice £1 of pension for £12 additional lump sum (on top of the lump sum I will automatically get). If I do so, it would reduce the likelihood of me going into 40% tax rate (41%, actually, as I live in Scotland), given my additional income - then state pension in 7 years.
A commutation rate of £1 for £12 is very poor , in most private sector schemes it is 1 :20 or even a bit more . So you need to balance this against the possibility of paying higher rate tax.

My wife is 55, and her NPA is also 60. She is a teacher. The only reason I said that she would work 5 more years is because that's what she said! I'd be happy if it was only 2 or 3 more years. She would have an early retirement penalty if she did that - around 9%.
You do not lose out as such , as the pension is paid for longer . Normally it evens itself out, or near enough.

 I think my challenge is that I grew up on a council estate, and we didn't have much money. Although I have been successful in my career, and been able to own my home, and save a good amount, I always have a worry about "not having enough in the bank...just in case". In case what, I don't know! 

There are a number of similar souls on this forum, agonising about if they can retire early when they only have £1.5 million in the bank ! Personally I probably worked two or three more years than I needed to for similar reasons ( being from a two up two down in a deprived Northern town ).

My foray into S&S has been via Nutmeg, where I set my "risk level" at 5 out of 10 - hedging my bets

No big problem here , but Nutmegs charges are not the cheapest if you just want a basic medium risk multi asset fund.
You mentioned earlier a global equity fund where you are talking about a risk level of say 8 out of 10 , so you need to be clear in your mind what your risk tolerance really is. 

Albermarle

HCIMbtw said:

Albermarle said:

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.

The stat about buying that guaranteed income is terrifying, but I take a little solace in the fact you are referring to an annuity and I will hopefully be able to hopefully (with a bit more risk) get that type of level of retirement income with a drawdown pension and savings at a lower level.. just 20+ years to go

For an all singing, all dancing annuity ( 50% spouse, inflation linked etc ) the £2.5 million is probably an underestimate to provide a £55K guaranteed income . They are particularly bad value at the moment and in other times the figure would be less.

To get £55K pa inflation linked from a drawdown pension you would need a pot of 
£1.8 Million - being pessimistic
£1.4 Million using the oft quoted 4% rule 
£1 Million using the so called G- K rules or similar ( although many would say this was optimistic)

Remember though this is all based on keeping % chance of the pot running out before you reach say 95 as low as possible. Most likely you will die with a substantial pot still in place, and even you might end up with more than you started .
It also helps a lot if you have a substantial cash buffer in place, and/or the ability to reduce spending in years when the market /investments are depressed.