Best way to save/invest for early retirement bridging?

jeelz

Yes a nice problem to have!
You definitely want to make use of the tax advantages of your SIPP. From 55-60 you could be taking £16760 from your SIPP without paying any tax if you have no other income, a bit less if you still have the BTL. If you don’t need that extra income it could be used to fund his SIPP and he could repeat the process bridging the 60-65 gap when he has no income. 

ChocolateWombat

Thank you Jeelz.  That’s exactly the kind of idea that’s really useful to me.  It’s tax efficiency that I really do t know much about.

Thrugelmir

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. 

By low risk. I'm suggesting mitigating the downside. Rather than attempting to produce positive returns on the investments themselves. The upside is the tax relief received. Perhaps bonds will start to offer better returns in the not too distant future. As Central Banks turn the QE taps down. Refinancing Government debt will become more expensive. 

RetSol

By low risk. I'm suggesting mitigating the downside. Rather than attempting to produce positive returns on the investments themselves. The upside is the tax relief received. 

That seems realistic.  Thank you. 

I saw a quote recently from a bond fund manager who was selling his wares as follows: "Well, yes your investment will halve in value in real terms eventually but it will do it more slowly than if it was in cash.".

And, as @Thrugelmir points out, in a SIPP, one is (hopefully) getting a return on cash which would otherwise have gone straight to HMRC. 

jimjames

Alternatively you have the option of S&S ISAs. No tax relief but can access money immediately and they're entirely tax free so could be a useful addition to the taxable income. Some of your existing £50k could be used to start one

Albermarle

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.

As mentioned on a similar thread during the weekend , there is no certainty that the current inheritance rules for pension pots will remain in place forever.

Lifetime Allowance/Inheritance Tax Plan — MoneySavingExpert Forum

ChocolateWombat

Thank you.
I think I’m veering towards taking some of the DB pensions a bit earlier.  I think I might take my main chunk at 60, which is the standard age, but bring the small part which pays out at 67 forward to 60 as well - will mean getting an extra £2.5k instead of the £4K I’d get if waiting until 67.  Might also have husband take the bulk at 65 as the standard age for it, but bring the additional  £10k he would get at 67 back to 65, which will reduce it to 9k.  I think it’s worth us taking these small hits later to get the payments earlier.  By the time we are 67/8 the SP will be paying out anyway.

I could look into bringing husband’s pension back to 60 as well, but I think the reduction for doing that would feel too harsh.

Has anyone gone for really extreme taking benefits early, which have resulted in significant actuarial adjustment?  

RetSol

Has anyone gone for really extreme taking benefits early, which have resulted in significant actuarial adjustment?  

Hello @ChocolateWombat.  I don't know how extreme this is but I took my civil service pension two years ago at 55 and a half (NRA 60).  I inversely commuted the lump sum which increased the actuarially reduced pension. 

I had been working on short-term contracts for a number of years (my choice) and, when it became feasible, decided that I wanted the security of a reliable income, particularly following a couple of age-related health scares. 

The pension went into payment two weeks into the first lockdown and I have been extremely grateful to have been able to sit out the pandemic without any job or income worries. 

Others on here are better qualified than me to discuss the purely financial aspects of an actuarially reduced pension but for me there is more to a decision like this than pounds, shillings and pence.  

It was time for me to move on, I had the means to do so and so I did it. 

ChocolateWombat

RetSol, I feel a bit like this too.  On one hand, it’s important to maximise income for the retirement you choose (whether you opt for early or later you want the most you can for your scenario) but as you say, maximising income or payout fully, to the extent if disregarding everything else, seems to miss the point if retirement.

I’m happy to overall receive a bit less, if it means I can stop work sooner and enjoy retirement, especially that earlier phase of it.  None of us know how long we have.  So if I retire early and take actuarial reduction which means overall I receive a bit less than if I’d waited to take the pension, I’m fine with that.  That’s if course speaking from a position where such a choice won’t leave me in poverty at any point, and I realise that choosing actuarial reduction and to take pension early, would result in poverty for lots.  But given it won’t for me, I honestly can’t imagine lying in my deathbed and swaying ‘I wish I’d worked a bit longer or waited another 5 years to take my pension as then I’d have got an extra £3k over the full payout  of my pension’

A guy called Dave Fountain runs a blog/website called The Classroom In RearView about pensions and retirement for teachers.  What he says could be applied to most DB pensions, certainly the public sector ones.  Interestingly he calculates the point at which you ‘lose’ financially by taking actuarially reduced benefit early.  He shows calculations which consider this before and after tax implications.  I think he shows that if you take the pension 5 years before the NPA it takes 19 years to start losing out slightly and if tax is factored in, over 23 years.  Yes, if you live to a mighty old age, you might overall need a few quid worse off,but not until into your 80s and crucially, it has probably enabled you to enjoy some years of retirement in your 50s or 60s and leave the rat race sooner.  These things can have a monetary value placed on them, but for many in jobs they’re not enjoying, that stopping sooner rather than later is worth so much more than money, even when there might be a small financial implication over 20 years later.

I’m running a balancing act now.  I’m not quite sure when it’s ‘too early’ to stop.  It’s probably affordable now (at 50) just about and by 55 will certainly be.  Obviously if I keep going until 55 I will have more later…but it’s hard to judge when there’s enough and also in my case, when stopping work is just too young.  I think at 50 or 55 and probably at 60 too, people need a purpose and that’s more than just a couple of hours of voluntary work.  Finding the new purpose is as important as having the cash to stop work too, because otherwise it might not be as good as we all hope stopping work will be.

RetSol

Yes, if you live to a mighty old age, you might overall need a few quid worse off,but not until into your 80s and crucially, it has probably enabled you to enjoy some years of retirement in your 50s or 60s and leave the rat race sooner. 

My thoughts exactly.

Finding the new purpose is as important as having the cash to stop work too, because otherwise it might not be as good as we all hope stopping work will be.

Again, I agree.  

I trained in a new career in my early '50s and now have a small business. I don't see myself as "retired" so much as "repurposed". 

If you haven't found it yet, the "How much to live on" thread in the Over-50s Money Saving Forum is inhabited by souls who have taken a fairly holistic approach to retirement.