Best way to save/invest for early retirement bridging?

ChocolateWombat

Thanks.
I think I looked at that recently.  If I recall at my age I could buy an additional £1k of pension for about £17k if I paid a lump sum and it cost about £18.5k if paid for out of salary.  By the time it’s actuarially reduced, I’m not sure if it’s a good deal really or not.

And a further thing that this all makes me think about, is the fact that the current projections give us a pension of about £55k from our DB pensions and our SP from 67/8.  This is a lot of money.  It seems too much for this phase of life and probably would be better to have less from then and more in the earlier 10 years.
But our current plan already gives us enough for our ‘number’ of about £32k from 55 - achieved via DH working until 60 to provide more than this, plus from 60, the variety of pensions and lump sums mentioned in my opening thread.

So, there’s this odd issue….too much money for our needs ! Can this actually be the case?


Any thoughts on bringing some of this pension that’s there from 67/8 forward?  And given the £32k we need is already possible in our plan, how much would you bring forward? I guess an extra £8k per year in the early part might be good to aim for.  Is that achievable from 55+ by reducing what’s available at 67/8 and would that be a good idea?  Or would you look at stopping sooner than 55 (me) and husband (60).  This had never really been our thinking and we already thought we were doing well to be looking to stop at 55 and 60, so considering sooner is a new thought.

Sorry - lots of questions.  Realise we are fortunate to have options.  Seems important to make plans and organise it if possible to pay out at the best times for us and to minimise tax.

Thanks again for your thoughts.

barnstar2077

ChocolateWombat said:

Thanks.
I think I looked at that recently.  If I recall at my age I could buy an additional £1k of pension for about £17k if I paid a lump sum and it cost about £18.5k if paid for out of salary.  By the time it’s actuarially reduced, I’m not sure if it’s a good deal really or not.

And a further thing that this all makes me think about, is the fact that the current projections give us a pension of about £55k from our DB pensions and our SP from 67/8.  This is a lot of money.  It seems too much for this phase of life and probably would be better to have less from then and more in the earlier 10 years.
But our current plan already gives us enough for our ‘number’ of about £32k from 55 - achieved via DH working until 60 to provide more than this, plus from 60, the variety of pensions and lump sums mentioned in my opening thread.

So, there’s this odd issue….too much money for our needs ! Can this actually be the case?


Any thoughts on bringing some of this pension that’s there from 67/8 forward?  And given the £32k we need is already possible in our plan, how much would you bring forward? I guess an extra £8k per year in the early part might be good to aim for.  Is that achievable from 55+ by reducing what’s available at 67/8 and would that be a good idea?  Or would you look at stopping sooner than 55 (me) and husband (60).  This had never really been our thinking and we already thought we were doing well to be looking to stop at 55 and 60, so considering sooner is a new thought.

Sorry - lots of questions.  Realise we are fortunate to have options.  Seems important to make plans and organise it if possible to pay out at the best times for us and to minimise tax.

Thanks again for your thoughts.

If you are pretty confident that you will have more than enough throughout your retirement then why not live a little now?

Albermarle

I know no-one can guarantee what will happen, but assuming we don’t need to take anything out for 10 years, is that enough time to ‘ride’ the ups and downs would you say?

Normally yes but not guaranteed of course . Also as you will be adding new money during the 10 years period , that makes the outcome less predictable . However if you leave it in cash, the outcome is predictable - it will lose value.

Also when investing it is not necessary to be 100% all in the stock markets of the world ( although some do ) - there are more medium risk options available. 

RetSol

Thrugelmir said:

As @tigerspill suggested. Use a SIPP to hold low risk investments. Take the free money in the form of tax relief. 

I am interested in knowing what suggestions for low risk investments @Thrugelmir and others may have for this purpose as I am in a similar position to the OP.  I have cash in my (small and fairly new) SIPP at present. 

ChocolateWombat

Thanks.  By low risk do you mean going for the 20/80 type options people like Vanguard offer, where only 20% are in equities and 80% in bonds?  I appreciate that if you want a return, nothing g has zero risk, and that if you go for very low risk, the return is likely to be small.  Is there anything else I should look at apart from these 20/80 type models which seem to be aimed at people like me who when filling in an attitude to risk sheet, come up as fairly risk averse.  I think they show as level 3 on the Vanguard risk level approach.  I think that if you come up as Level 2 or 1, they suggest simply using savings products instead as you’re not willing to entertain even short term drops.

I’m thinking that although there will be dips, I have enough flexibility so that if at the point I’d like to start accessing the money, it’s in a dip, I will have other resources to use instead and can wait out the dip until a recovery.  No dip surely lasts forever.  Fortunately these SIPPs or ISAs are a supplement to my DB pension, rather than the bulk of my retirement income.

I’m also thinking about the little gear term retirement - 68+ when all pensions are in payment, and particularly about surpluses at that point.  Given expenditure might be passing its peak (having retired at 55 and probably got most of the big travelling etc out of the way before 70) is  it be better to be receiving more DB pension income at that stage (having used SIPPs to fund the early bridging period) or is it better to have had the DB pension actuarially reduced to fund early retirement, and be using the SIPPs in later life/ as a surplus?

I can see that the DB pension is good for providing a pension for spouse (at rate of 50% of most of mine or 37.5% for husbands) and of course is guaranteed and index linked income.  However, can also see that SIPP has flexibility I. Terms of drawn down and can also be passed fully to survivor or to another relative.  Is this understanding correct?  Would anyone see a particular advantage of one approach rather than another?  I’m a woman, so likely to outlive husband and my DB pension gives him 50% on my death, whereas he’s a man and his gives me 37.5% on his death…which I suppose is the more likely outcome.  We are the same age.

it’s hard to know if it’s best to actuarially reduce to fund the early retirement from DB or fund the early retirement form SIPPs etc and run those down, leaving the DB pension to be taken in full at thr ages they pay out - 60, 65, 68 for different parts.  Fortunately, either way we know I can stop working at 55 and husband at 60, so it won’t determine the actual point of stopping work, just the funding method (and also therefore where we might put money in the period before we stop work)

Thanks again for your insights.  Really helpful.

RetSol

Thanks.  By low risk do you mean going for the 20/80 type options people like Vanguard offer, where only 20% are in equities and 80% in bonds?

I imagine that another "low risk" option is a target retirement fund.  I am not sure what, if any, difference there is between, say, V20/80 and a trf with a similar allocation except that the latter's allocation will shift further towards a "near cash" position over time.  Which may or may not suit.... 

Albermarle

  By low risk do you mean going for the 20/80 type options people like Vanguard offer, where only 20% are in equities and 80% in bonds?  

The problem in todays financial markets is that the outlook for bonds is not great , so the traditional formula of less equities + more bonds being less risky may not apply in quite the same way over the next few years.

Everybody has different opinions but I do not think you will find anyone on this forum currently suggesting a 20:80 option as a good idea.

Possible alternatives are to 

go to at least a 40 or 50% % equities fund and hope there is not a spectacular and prolonged crash in stock markets .

Split between a 100% equities fund and cash ( say 50:50) 

jeelz

You are going to be well provided for by the time you reach 68 with approximately £64K before tax when you take into account just your DB pensions, state pensions and BTL income. Given your figures your target income of £32K net should be easily achievable for the bridging period.
Would you consider selling the BTL to free up more money for your more active years and provide you with a ‘smoother’ but much higher ‘target’ retirement income early on?
What are your current incomes and who owns the BTL as far as the taxman is concerned ?

tigerspill

RetSol said:

Thrugelmir said:

As @tigerspill suggested. Use a SIPP to hold low risk investments. Take the free money in the form of tax relief. 

I am interested in knowing what suggestions for low risk investments @Thrugelmir and others may have for this purpose as I am in a similar position to the OP.  I have cash in my (small and fairly new) SIPP at present. 

When I put money into my AVC pension when I was working (with Standard Life) they automatically used a Targeted Retirement fund using our SP age as the expected retirement date.  This fund reduces the investment risk as you approach that date.  We could update this date as the fund mix would be adjusted in Line with this.
We had the opportunity to manage our own funds so could have moved away from this.

In this context, I believe lower risk was moving towards more bonds and fixed interest and less equities.

ChocolateWombat

Jeelz, thanks - that’s encouraging.

At the moment, we each have a salary of £45k and earn £3k each (after tax and costs) from the BTL.  We have remained under the 40% tax bracket.  The property is owned jointly.

It could be a possibility to sell the BTL.  It would be worth about £200k.  We have it for the income it generates and also the capital gain, but of course when sold there will be CGT to pay.  That’s fine - we knew that would occur one day.

We could boost our pre 68 retirement income by either taking the DB pensions earlier at actuarially reduced levels, or by running down our SIPPs, lump sum (achieved from DB pension at 60) In lots of ways, it makes sense to have the income earlier when we are more active, rather than only post 68, as long as there will be enough for post 68.

One issue is we are by nature frugal.  We have always been careful with money and looked to the future.  We don’t go without and have a nice house, holidays and leisure, but don’t spend hugely on any of it.  That’s our nature.  And it’s likely to continue into retirement.  Given we have an income now if about £5k per month and probably live on £2k-£2.5k per month, we don’t imagine we will suddenly start spending double that at any point.  But close to double that is what will be available after 68.

I know this is an odd ‘problem’ and of course it’s not a problem at all and something lots of people would love to have to consider. We will certainly be looking to help children into the property ladder and perhaps to pay off student loans (some money is already set aside for these in separate accounts not mentioned here) and I like the idea that SIPPs can be passed on as part of one’s estate, whilst DB pensions can only pass in part to the spouse.

So we are in a good place thankfully and could just let it all happen, but I feel it incumbent on me to act to minimise tax and to arrange affairs so the DB pensions pay out at the right time for us (whether that’s actuarially reduced or at the standard times) and so there isn’t too much erosion by inflation, and money isnt wasted in retirement.  But then of course, you can’t take it with you!  And I think that the spending if it, rather than continuing the habit of saving and being careful and always looking to the future (although our lives will end) is the thing we will struggle with.  It’s all a bit odd really.