Having to take early retirement.

Xenon123

I'm nearing 57 and was diagnosed with fairly serious health issues several years ago.  Medication has been effective but ultimately I am looking at a reduced life expectancy.
Although able to work, I have come to the conclusion that life is short and my family have encouraged me to take early retirement while I remain relatively healthy.  Its not what I had planned for financially, as I had hoped to work on for at least another 5 years which I could have used my increased savings power being mortgage free to really bolster my pot.  However, I have looked at this long and hard over the last few years and I believe retirement is viable.  
I am planning on going later this year.  Like most I expect, this has me feeling exhilarated yet a bit scared given the choices to be made.  Ultimately, I just want to ensure that I make the right calls for what looks likely to be a bit of an unconventional retirement.  I am lucky in that we (wife and I) have next to no debt having cleared our mortgage a year ago.  We own 2 cars with no payments and the offspring have all left home and are self sufficient. My direct debits total little more than £150 a month, and that mainly on broadband, streaming's services etc.  My biggest monthly outgoing currently is my Sky bill!  We currently budget £800 a month to cover food and essentials.

I have a DC pension with my current employer with a value of approx £105k.  I also have 2 other frozen pensions with approx £100k in them.  That gives me approx £205k of a pension pot.  My wife will retire in about a year with a final pension of approx £20k pa and a lump sum of £60k.  By the time I retire, I expect we will have savings of £30k which would give us a nest egg of £90k.   My investment pot will be £205k.
Our net income per month currently is approx £5900 pm.  However, we have been saving £2.5k to £3k pm towards retirement since paying our mortgage off.  I am planning for a joint income of £3.2k net pm after retirement which should allow us to maintain our current standard of living whilst still being able to save a bit and enjoy a few treats. I will need to be contributing £1500 pm to this to reach that figure.
Given the scenario I face, I won't have the funds I had hoped to have to allow for a decent annuity, nor in reality the life expectancy to make annuity worthwhile. 
My preference now is to go down the drawdown route using my pot to bridge the income gap until 67 when we can draw our SP.  Most of the projections I have seen using various online drawdown calculators seem to suggest this is possible but it seems likely that I will exhaust my pot getting to state pension age.
I plan on accessing advice soon, as I want to make sure this is the best way to go.  I suppose the question I have here is whether there are other alternatives that I might be advised to look at as an alternative to drawdown, or to compliment it?  I would have the option to take my tax free lump sum, and that would give us a lump sum of £145k to supplement the pension.  My wife also has the option to increase her lump sum above 25% tax free, so there are avenues I need to explore.  I would love to be able to drawdown at a sustainable level, but to reach our monthly income target that won't be possible.  Bridging income until 67 seems the most viable option, but will eat up my whole pot.
Again, this is not the ideal scenario I had envisaged, but rather early retirement is somewhat forced by circumstances.  Could I ask for some thoughts on my path or whether I should be considering other choices?

Albermarle

Just a couple of points for clarity.
I have a DC pension with my current employer with a value of approx £105k.  I also have 2 other frozen pensions with approx £100k in them.
Just because you are not contributing to them , does not mean they are frozen . They will still be invested , hopefully growing and charges will still be being levied . You do not mention how any of these pensions are invested?
If you go down the drawdown route you will maybe better to consolidate into one , just because it can make it easier with tax codes etc . Also newer pensions should have more flexible drawdown options.
I would have the option to take my tax free lump sum, and that would give us a lump sum of £145k to supplement the pension
Normally you would take the tax free part , but you do not have to take it all at once . With a modern pension , flexible drawdown is possible, where you take the tax free part in stages with or without taxable income . This can help minimise tax paid over a number of tax years .

My wife also has the option to increase her lump sum above 25% tax free,
Your wifes DB pension is your biggest asset as a couple . £20K pa guaranteed for life if it is inflation linked is worth about £500K to a Million pounds depending on how you calculate it . Before taking more lump sum and giving up some of the pension , you need to think very carefully . It will depend on exactly what is offered. 
Just this plus two state pension would give you a comfortable income later in retirement.

Xenon123

Thanks.  Yes, my wife pension is certainly the keystone to this as her pension is for life. I would veer towards not increasing the amount taken as a lump sum, as I think £90k will give us enough cushion for unforeseen events and I would probably want to invest at least half of that to supplement the pensions.  My scenario would see all of my pension pot used up between now and turning 67, with reliance then on my wife's pension plus 2 x SP's which would still give us £39k per annum linked to inflation.
My plan for now is to drawdown £1500pm in addition to the wife £1650pm pension, which would give us £3150pm up to state pension age.  To have my £1500pm drawdown increasing with inflation, I would have to avoid taking the tax free lump and use the whole £205k in drawdown (according to several calculators Ive accessed)

Brie

Is there any option of requesting an ill health pension from your employer?  Perhaps not if you are "merely" ill but still able to work even if it's in a reduced way.  But worth asking perhaps?

Xenon123

To answer your question re how my pots are invested.
My current employer DC pension is worth approx £105k. this is invested in a mix of Annuity bond funds and Mixed investment funds 
I have an amount of £61k with L+G invested approx 60/40 with Unit linked funds/ With profit funds
I have an amount of £56k with Aon in a Defined Benefit pension.  Last statement I received in 2019 it said I would receive a pension of £2,827 pa.

My thoughts were to do as you touched on, and consolidate into one pot for drawdown, but with the £56k in Aon, this is a DC fund and I might be better keeping that there?

Gary1984

You may be eligible for enhanced annuity rates due to your reduced life expectancy. Something to ask the advisor about perhaps?

I think generally though your plan sounds sensible. The key thing is funding until age 67 by which time your wife's DB and 2 state pensions will see you through.

Sorry to raise an unpleasant thought, but have you considered how you'd manage if your wife were to die first? That would be a considerable drop in income that you'd need to cope with.

Xenon123

Thanks Gary.  If my wife died in service I would receive half her pension (£10k pa) plus the lump sum plus 3 times her salary. We also have separate Life insurance for £150k each.  That would be on top of my £18k pension and savings.
If she died in retirement, I would receive £10k pa from her pension, £18k of my own pension, £150k life insurance, plus our own savings which should be fine.  Our house is also worth circa £450k and its unlikely I would remain here on my own, so could raise a fair bit by downsizing.

Thanks for the answers so far.  I have not discussed my thoughts outside of with my wife, and I suppose I am looking for a sanity check from some neutral standpoints.  I was looking to gauge if I was nuts to drawdown all of my pension pot to exhaustion, but I think my plan is sensible enough.  Of course, its always hard to know if the monthly income I am predicting will be enough, but I suppose its all a big guessing game at this stage.  The general train of thought is that spending will go down in retirement, and certainly in later years, so we should cope ok.  As long as we can maintain what we have, get away once or twice a year and be able to enjoy a few meals out and keep a decent motor I think we will be ok.  Theres a bit of savings to cover large expenditure like a new kitchen down the line. Our house is less than 20 years old and well maintained, so its not going to need a fortune spent on it.

Xenon123

Brie,  Im not sure if I can ask for an ill health pension.  The company pension site doesn't really go into great detail.  I don't know what their threshold is for ill health.  I have heart failure which is a ticking time bomb.  At the minute Im coping, but have been advised that every time my health deteriorates that will be the new plateau and I won't improve from that position.  Its only the medication that is keeping me going.  My energy levels are a lot lower than I feel I need to continue with the job, but my employer may not see it that way.  Is it possible to get an ill health pension after 55?  I would have thought that with the new legislation allowing retirement from 55, they would just suggest going and claiming my pension whatever it is at that time rather than offering me any sort of enhancement?

draiggoch

Just wondering, as you are saving £2.5 -£3k a month, is much of this going to your pension to get the tax relief? As £1500 net per month would mean you pay very little on it coming back out.

Xenon123

Its not.  I pay 6% of my salary into my pension.  With our mortgage paid off about a year ago, the £2.5 to £3k a month is just going into a savings account. We had little savings prior to that, and felt that we needed to have a nest egg built up prior to retirement.

Albermarle

I have an amount of £61k with L+G invested approx 60/40 with Unit linked funds/ With profit funds
I have an amount of £56k with Aon in a Defined Benefit pension.  Last statement I received in 2019 it said I would receive a pension of £2,827 pa.

These facts change the situation . You have two DC pensions that would be easy to merge and drawdown . The AON pension is a DB pension ( like your wife's ) so totally different . You do not have £56K in a pot in this scheme, What you have is a promise to pay you a guaranteed pension of £2827 pa ( probably inflation linked and from age 65) possibly with a lump sum of a few thousand Pounds ? The £56K is called a CETV ( Cash equivalent transfer value) and it is an offer from the scheme to buy you out . That figure will change every time you ask .  If you wish to transfer out of a DB scheme with a CETV > £30K , you need to take expensive financial advice . If the advice is not to transfer out ( which it probably will be ) you effectively are stuck.

Normally this is no bad thing as a guaranteed pension is a valuable thing to have , but I guess it throws a spanner in the works of your plans ?

 I would have to avoid taking the tax free lump and use the whole £205k in drawdown (according to several calculators Ive accessed)

Normally this not the way to do it . You take the tax free cash and put it in another account ( savings or investment) and use this to supplement the drawdown from the remaining pension pot.

Also as Draiggoch says , you are missing out on some tax relief by saving money rather than adding to your pension.

Looking at the overall situation and your limited knowledge , I am wondering whether getting some professional advice from an IFA could be useful ?