Any ideas please on what to do in the next 4 years before retirement

Purplelady65

I am hoping people more knowledgeable than I could give me some advice on what to do in the next 4 years before retirement. 

We are currently mortgage free, the house is worth around £500k and we have two cars which are paid for. I have to admit this is not from prudent saving over the years but a sizeable inheritance. We also have around £55k in cash and stocks and shares Isas. 

I will be 60 in fours years time so ideally would like to retire and not have to work again. At the end of 2025 I plan to access my 1995 NHS final salary pension of approximately £23k per annum and a lump sum of around £70k. I will also have around £4K in the 2015 scheme which I can’t access until age 67 unless I accept a reduction and take it early. 

My husband and I are the same age and plan to retire at the same time. He already has a pension of £14.5k and will also have a LGPS pension of around £4.5k if he stops contributing at age 60 and leaves it untouched until age 67. 

In four years time we will both have made the full contributions required for the full state pension which we will be able to access at age 67. We will therefore have 7 leaner years between the ages of 60 - 67 but these are the years that I think would be the most expensive. We really enjoy travelling so would plan to travel abroad more extensively in those years when we’re younger and fitter. We’re therefore considering whether to take the 35% reduction on the pensions we can access at age 67 so we can access them at age 60 instead. 

We set aside money each month for a new car in the future, car maintenance, holidays, house maintenance and improvements, birthdays. Christmas, entertainment e.t.c. 

We have recently finished supporting our kids through university and we currently have £1,300 spare each month that we want to save or invest over the next 4 years for our retirement years. 

What would anyone advise that we do with this amount each month? Would a SIPP be a good idea? I don’t really know much about them apart from that we’d make a saving of 20% tax relief on contributions and then not have to pay tax on 25% of what we take out. Is that why it would be better than an isa? I could take an avc out through the nhs but there are only two providers  - prudential and standard life and the fees seem quite high. Also what happens to your avc or sipp when you die? Does the value transfer to your estate? With our current work pensions we would get a widows / widowers pension if one of us died. Both our siblings have invested in buy to let properties and we also have friends who have done the same but we’re not sure if we would want another property to maintain although it would provide a regular income assuming it’s rented out all the time and the tenants pay up every month. It’s something we’ve thought about but not sure if we want the hassle. 

Any ideas or suggestions much appreciated. Thank you for reading. 

El_Torro

The best wrappers for investing are ISAs and pensions. Both have their pros and cons, in your position I would say that a pension probably makes more sense. Simply because it is more tax efficient than an ISA (for reasons you have already mentioned) and at your age you can pretty much access the money whenever you want anyway. Just bear in mind that when you do start accessing it you are restricted on how much you can continue paying into a pension.

Opinions are varied on whether you should take a DB pension early. Personally I don't like the idea of taking the hit on the income. However I don't have a DB pension (and am unlikely to ever have one) so I haven't put a lot of thought into it. If you crunch the numbers you might find that taking it early is not a big disadvantage. At least if you contribute to your own DC pension you have the option to spend that money and wait until later to access your NHS pension.

michaels

Could you borrow money against your house - say a 10 year fix at 2% and use this to even out your income between now and post state pension (more cheaply than the reduction from taking pension early)?

OldBeanz

Obviously no one would offer unregulated advice on here as that is illegal.
You have not mentioned how much income you require in retirement but on your figures at 67 you will have a total of £70k+ pa. Drawing all your pensions at 60 will still leave you very comfortable.
You mentioned your husband is in the LGPS which allows AVCs to be taken alongside the main pension as cash (there are high limits but in his case about £20k at 60) so tax relief on the way in and no tax on the way out. Any surplus thereafter can buy extra pension or be transferred to a SIPP. Worth enquiring about.
Why would you want the hassle of a rented property.

GunJack

Rough numbers....

at both aged 60 you've already got a combined £40+k income if you take all your DBs at 60

plus your £70k lump sum which would give you £10k tax-free a year for 7 years, so £50+k p.a. from 60-67

That's without any further savings and not touching the £50k you already have in ISAs.

From 67 and 2x State Pensions, you'll have around £60k p.a., without any further saving and still not touching your current ISAs.

From your spare £1300 per month, think I'd be inclined to take OH's LGPS AVC up to the max he'll be able to take out as tax-free, with the rest being put into a SIPP for the tax relief on the way in and the 25% tax-free and 20% on the remainder when drawn down.

As @OldBeanz says, why would you want the hassle of a BTL when you are already going to be very comfortable already in retirement??

atush

Do you have to take the 70K LS, or can you get a higher pension?

Have you made a budget for retirement?  If not , do.  Then try to spend as little as that in the upcoming years, banking the rest in DC/AVC pensions or S&S isas.

Purplelady65

Thank you very much for your suggestions - they are really helpful and have given me food for thought. I’ll go away and look into them further. 

I hadn’t thought of looking into paying extra into my husband’s LGPS pension. Following the suggestion I’ve had a quick Google and can see there are options for APCs which I didn’t know there was such a thing and also AVCs so will look into both of those. I’ll also look further into the SIPP options. 

I’ll do some number crunching re taking the pensions we can access at age 67 at age 60 instead and what impact the 35% reduction would have over time. Using the £70k lump sum to supplement income in those 7 years is potentially something we could do although I would like to give some of the lump sum to the kids for house deposits. The suggestion of a short term mortgage is something that hadn’t occurred to me either so will crunch the numbers on that vs. Taking a reduction in pension. Re the suggestion of giving up some of the lump sum for a higher pension I don’t think that’s an option in the 1995 scheme. I could give up some of the pension for a bigger lump sum but my side of the family seem to live quite a way into old age so I think I’m better sticking with not reducing the pension. I have done a rough budget for retirement and when we can access the state pension we should be fine, it’s just the 7 years from 60-67 where we’ll have less income but are likely to spend more that I need to have a plan for but the suggestions have been really helpful so thank you - much appreciated. 

MX5huggy

Is the LGPS AVC available via Salary Sacrifice from the employer? If so you should plough as much as you are allowed into this before retirement including living off savings saving NI and tax.
Personally I would take the DB’s early. Note you could also delay getting your SP’s to increase this post 67. 

jim8888

I'm not an expert but from my own experience I wish I'd had a bit more cash in ISA's, as opposed to in pensions when I retired, basically because ISA's are tax free and as painless to use as a bank account (even when invested in equities). I've found pensions more complicated, less flexible and with tax implications.
(If you are drawing more than the personal allowance of £12,570 from a pension and/or SIPP, you will be taxed on it.) 
What do you plan on doing in retirement? Travel? Buy a caravan or mobile home? Spend time abroad? What kind of cars will you need? Do you want private health cover? The more you can pin down what you want retirement to look like, the better chance you have of attaining it. But, from what you've outlined, it could be quite a fun exercise to do it. 

Albermarle

I'm not an expert but from my own experience I wish I'd had a bit more cash in ISA's, as opposed to in pensions when I retired, basically because ISA's are tax free and as painless to use as a bank account (even when invested in equities). I've found pensions more complicated, less flexible and with tax implications.

ISA's are easier to use/access and without any tax . 

However an ISA did not gain any tax relief when being added to .

From a tax point of view a pension will always beat an ISA, sometimes very significantly , depending on personal circumstances .

Purplelady65

Thank you very much for the suggestions. 

MX5Huggy - my understanding is the AVC contributions attract tax relief only and are not salary sacrifice. Prudential is the only provider within my husband’s LGPS and I have read a number of negative reports recently where people have been waiting months for their payments which puts me off a bit and there is only one provider to choose from. As the contributions only attract tax relief I’m assuming there isn’t any advantage to paying into an AVC compared to a SIPP. Another option is to pay into APCs which would cost £11.5k net for £1k extra pension at age 67. So my husband would need to live until he was 78.5 to make it worth the investment. The widower’s pension would be one third of that amount so around £330. I need to calculate if it would be worth taking the 35% reduction and taking it at 60. 

Jim8888 and albermarle - we do have a couple of ss isas - one is doing well and the other is in deficit!  We also have a cash isa. We don’t have any sipps so against the isa we would make the saving of tax relief in and 25% tax free on the way out. Re plans for retirement travel abroad features heavily in our plans. We love travelling independently and on top of our usual holidays have been lucky enough to get a month off work every few years so our last trip pre Covid was a month spent backpacking around Vietnam which we loved. We went to the main tourist sites but also went to some amazing places which aren’t on the main tourist trail yet.  

I’m conscious though that the older we get the less likely it is that we will travel independently and might end up going on organised tours (which cost quite a bit more than doing it ourselves), package holidays e.tc. Part of me is tempted to save less and spend more on bigger trips while we’re younger and can do these things - Japan, Argentina, Laos and Cambodia are on the list. We also spend quite a bit on food (some eating out but mainly cooking at home), socialising, music events/festivals, theatre e.t.c so potentially we may spend more doing those things when we’re retired as we’ll have more time. However we do a lot of countryside and hill walking so that is negligible cost - generally just petrol and sometimes a pub meal. Although we want to do more long distance walking when we retire eg Pennine Way, Leeds -Liverpool Canal, Pembrokeshire Coastal Path so that would incur accommodation costs. We have hired a motorhome in this country a few times for festivals and a holiday but I found them to be too cramped and that was two of us in a six berth! They are not a cheap option either either for hiring or buying although they do hold their value.  Re a budget for retirement I’ve done a rough budget and at age 67 we’ll have roughly what we live on now so will have a surplus for car maintenance, holidays, general house maintenance but we won’t have a surplus to save for big maintenance jobs so we’ll need a fund in place before we retire for eg new roof, new bathroom etc. I find it difficult to plan just a couple of years ahead let alone far into the future as it’s something I’ve never done and my husband has no interest in it either. However as we’re four years from retirement I’ve decided I need to try! 

Thank you for taking the time to reply -  much appreciated, it’s been really helpful.