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

Albermarle

we do have a couple of ss isas - one is doing well and the other is in deficit! 

Although investments can go up and down, recent years have been very positive for investors . Even the Covid dip of of 2020 is well behind us .So it is actually quite unusual to have investments that have gone down . Is the ISA invested in something unusual ?

DT2001

Purplelady65 said. 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.

Budget - just checking that you have removed all work expenses from your current spend and on the income front are only deducting tax (no NI). 

If you took all pensions at 60 then at 67 you’d have about £4.5k p.m.  net assuming 20%BR?
If that is enough then you will have your £55k, £70k and say £60k (net from £1300 p.m. saving) to help with children’s deposits, provide an emergency pool and fund ‘shortfall’ in expenditure from 60-67 which is a minimum of £126k (7 years of SP x 2).
I therefore think the key is your budget at 67 as it drives the way best to fund the bridging time and amount available.

I’d look to do as much travel as you can whilst your younger and fitter. MIL back packed around the world for 3 months at 70 with a friend but had reduced her travels abroad considerably with 8/10 years.
Have you looked at house swaps to keep costs down?

Good luck.

Purplelady65

Abermarle Although investments can go up and down, recent years have been very positive for investors . Even the Covid dip of of 2020 is well behind us .So it is actually quite unusual to have investments that have gone down . Is the ISA invested in something unusual ?

I don’t think it’s anything unusual. There are 12 funds in the ss isa so some have gone up or down by 1-2%, the highest increase is 10.5% but the Baillie Gifford Japanese Small Companies has decreased by 17.45% and the Baillie Gifford American has decreased by 23.14% since we invested so today across the 12 funds it’s an overall loss of 1.63%. 

Purplelady65

DT2001 - thank you for your suggestions as you’ve just made me do some number crunching that I probably wouldn’t have done otherwise. I love to hear about older people backpacking around the world so that’s brilliant your MIL was doing it at 70! I hope I will be too! Although as you say better to do it when you’re younger. Some of our friends are already starting with ailments - bad hips, knees etc which means they can’t walk long distances or long term conditions which limit their activities so you just never know what’s round the corner. Re house swaps it’s not something we’ve done but might consider it or house / pet sitting to keep travel costs down. 

I don’t really have many work expenses now apart from union and professional membership fees as since Covid we’ve all been based at home and my employer is looking to make this a long term / permanent arrangement. This saves me £250 a month on petrol which is a big saving over the year and I also save on clothes as I used to buy clothes and shoes regularly for work but most of them just sit in my wardrobe unworn now so that’s a saving as I haven’t bought any work clothes since Covid started. 

Re a net income of £4.5k per month at age 67 that would be fine as our current monthly net income is £5.8k and we currently have £1.3k spare per month. I’ve just calculated that if I took the 35% reduction on my CARE pension it wouldn’t be until I was age 79 that I would be any worse off which I was a bit surprised about - I thought it would be sooner. I’ve calculated it on the gross amounts £4K and £2.6k with the 35% reduction and at the age of 79 I would have received £52k in total from either taking it at 60 or waiting until 67. I think I’ve calculated it correctly. So I think taking the pensions early is the right thing to do. So taking all the pensions at 60 would give us a net income of £3.2k per month. We definitely don’t have £2.6k a month spare with our current income so we would then have to use the lump sum, isas or what we save in the next few years to supplement our income between age 60 - 67 or make quite a few changes to our lifestyle so we spend less. We would probably be ok on £4K a month with keeping a closer eye on our spending so would need around an extra £800 a month so £9.6k a year x 7 = £67.2k so this is around what we’re hoping to save over the next four years so would leave the lump sum and the current isas untouched to help the kids and emergency fund. Thank you and roll on retirement! 

Albermarle

Purplelady65 said:

Abermarle Although investments can go up and down, recent years have been very positive for investors . Even the Covid dip of of 2020 is well behind us .So it is actually quite unusual to have investments that have gone down . Is the ISA invested in something unusual ?

I don’t think it’s anything unusual. There are 12 funds in the ss isa so some have gone up or down by 1-2%, the highest increase is 10.5% but the Baillie Gifford Japanese Small Companies has decreased by 17.45% and the Baillie Gifford American has decreased by 23.14% since we invested so today across the 12 funds it’s an overall loss of 1.63%. 

These are relatively /risky /volatile funds , so in fact not so surprising , especially if we are looking at a relatively short time scale .
What I was alluding too was that an ISA invested in a plain vanilla index fund or multi asset fund , would have seen  good growth over the last 12 months/5 years 

Purplelady65

Abermarle - yes this isa was opened just over a year ago. It doesn’t have a lot invested in it (less than £10k) but I think for future investments I am just going to go with passive / tracker funds. I thought learning about investing might be of interest and have read a few books but have decided it’s not something that interests me enough to spend the time that would be needed to know enough about investing to do anything other than passive investing going forwards. 

ChocolateWombat

I’m looking at a similar scenario to you.

The more I’ve looked at it and thought about availability of funds at early retirement if 55, 60 when some DB pay out, 65 when others do and finally 67/8 when SP pays out, the more I think you have to start at the point of SP age snd what you need then and work backwards to see how much can be released early, so that you have what you need at 67+ without it being too much, so you can benefit from the rest sooner and make that early phase of retirement better.

If like us, you’re fortunate enough to look at your 67/8+ figures and see a large net monthly amount being available, beyond what you really need (and I think I’d look again at what you really do need for that phase - is it quite as high as you think) then you can take some of the DB or all of it early to give yourself the early phase of retirement you want, rather than the scrimping version.

I think those of us who have saved hard and put off current expenditures to fund retirement, find it hard to come out of this mindset.  We are always looking defer spending and gratification and to live on less, so there is more for later.  But, time will run out.  Assuming the only focus isn’t just to leave a huge pot to descendants, but we actually want to enjoy some of the fruits of our labour, we need to start spending it and the key time to do some of that is 50s and 60s and possibly early 70s.  As we all know, some people start declining in health and can’t enjoy it.  You’ve really got to enjoy it when you can as no-one knows the future and you can’t take it with you.

For us, my conclusion is to stop looking at maximising 67/68+.  Instead, ensure a newt income of £3k-£3.5k will be available plus pots of money to draw in for new car, house maintenance etc and any large gifts we want to give, and then to look to pull the rest forward to 55/60 etc.  I think we can easily manage to get £3.5-4K per month for the early part by doing that and it’s better than having the £5k plus we could have at 67+ by not doing it.

With this in mind, it doesn’t feel sensible to me to buy additional DB pension which will need to be actuarially reduced.  Extra income per month isn’t actually what’s needed and the DB pension will always pay out for life rather than bridging.  Bridging money seems best out into  SIPPs/ISAs and only funds already accumulated in DB brought forward, rather than extra added with a view to taking early at this stage.

Do you think you will spend all of your monthly net income in early retirement or will you actually end up saving a big chunk still?  What will it all go on?  If you’re going to end up saving large chunks?  If the latter, perhaps you need less than you think??

cfw1994

ChocolateWombat said:

I’m looking at a similar scenario to you.

The more I’ve looked at it and thought about availability of funds at early retirement if 55, 60 when some DB pay out, 65 when others do and finally 67/8 when SP pays out, the more I think you have to start at the point of SP age and what you need then and work backwards to see how much can be released early, so that you have what you need at 67+ without it being too much, so you can benefit from the rest sooner and make that early phase of retirement better.

I think you’ve nailed it with that line!
Rarely are things simple: we have a few (modest) DB schemes that kick in at various points, so my planning sheet looks a little like this (sanitised version available, message me!)


 
Yes, simple spreadsheets cannot tell you everything….but frankly, most future-looking financial things are wizardry and crystal balls.  I believe it helps.  Come back in 10 years to see if I made it okay to SPA 🤣

NedS

ChocolateWombat said:

For us, my conclusion is to stop looking at maximising 67/68+.  Instead, ensure a newt income of £3k-£3.5k will be available plus pots of money to draw in for new car, house maintenance etc and any large gifts we want to give, and then to look to pull the rest forward to 55/60 etc.  I think we can easily manage to get £3.5-4K per month for the early part by doing that and it’s better than having the £5k plus we could have at 67+ by not doing it.

With this in mind, it doesn’t feel sensible to me to buy additional DB pension which will need to be actuarially reduced.  Extra income per month isn’t actually what’s needed and the DB pension will always pay out for life rather than bridging.  Bridging money seems best out into  SIPPs/ISAs and only funds already accumulated in DB brought forward, rather than extra added with a view to taking early at this stage.

I absolutely agree with everything you posted. Addressing the quoted portion above, buying added pension and taking it early with actuarial reduction may be appropriate for a person who is less confident in managing relatively large DC investments during a 12 year bridging period and wants the certainly of an index-linked fixed income. If you are happy taking the responsibility, and have the flexibility to reign in spending if required, then having the flexibility of a DC/SIPP in combination with the security of DB income is probably the ideal position to be in.

I'm in a similar position, but maybe with not so much in the DB as you, so I'm continuing to purchase added DB pension now as I know it's guaranteed to at least match inflationary increases and I'm not 100% confident I can match that in my SIPP going forward in a higher inflationary environment with lower expected returns such as we may see in the next decade or so. But as you say in your post, it's all about getting the balance right between that guaranteed index-linked income and the flexibility of a DC pot / income.

uss_tish

@ChocolateWombat I have done as you described, took my DB pension at 55 and have invested the DB&DC lumps sums to draw down over next 12 years to bridge income gap to SP. 

What I do struggle with is spending it! Never a problem when I was working😉. I’ve only been retired since October 2020 and I think once my expenditure patterns settle I’ll feel more comfortable spending it on ‘treats’.