Would it be foolish to stop work at 52?

ChocolateWombat

I don’t like work.  I spend far too much time thinking about pensions and getting out.  The question is, whether my most recent idea is foolhardy.

I am currently 50 and my DB pension is due to payout £14k pa from 60.  I will have accrued another £1.5k that will pay out at 67.  I’d probably take it all at 60 and take the actuarial reduction on the £1.5k.  I will have reached 31 years state pension contributions by 52 and would plan to fund the final 4 years.  My DB pension will pay an automatic lump sum of about £40k.

DH is same age and plans to keep working until 60 and likes work.  He earns about £3k net after tax, pension etc.  We can live on that, but probably wouldn’t save much.  At 65 his DB pension will pay £12k and at 67 it will rise to £22k in total.  He will have full state pension at 67.

At 52 we will have about £50k in savings and another £20k in SIPPs/ISAs.

At 52 our last child will be going to Uni.  We will have put aside £60k for them - probably to be given as house deposit in their late 20s, but could always pay off student debt if that seemed sensible once they started work.

We also have a small buy to let with no mortgage.  It usually brings us £6k net after all costs and taxes.  We are mortgage free on our own property.

Question - in my position, would you stop work at 52?  We could manage, but it will mean we don’t really further accumulate savings/investments.  This would be our peak point, as it were.  Is this enough or should I be pushing myself to keep working more to accumulate more.  Currently, our net income is about £5.75 k per month.  About £3k of it goes into savings and investments of various kinds, so we live on under £3k ish.

In retirement we won’t become big spenders.  We will want to eat out sometimes and go on holiday and replace the car etc, but will no doubt stil be pretty frugal.

Is 52 too soon and not really secure enough? Is there anything you’d adjust or ways you’d use the money to give a best balance in terms of income stream etc.  Thanks.

ChocolateWombat

Lots of people are looking - thank you.

I know there’s no right answer.  But, with these finances, would you consider stopping work at 52 or would you feel you needed to build up bigger reserves for retirement?  Thanks.

BillyHorner

It's a how long is a piece of string question. It really depends on how much you really don't like work balanced against how frugal/comfortable a retirement you would desire.

If I was in your position, though, I'd probably be aiming for a middle ground of retiring on my 55th birthday. I'd spend the next 5 years chucking as much earned income as possible into a SIPP (probably held in cash to remove any investment risk), to get the benefits of the tax relief. If that meant dipping into savings, then so be it.

For me, 5 years is not massively longer than 2 years, but could make all the difference in terms of retirement income. You could use the SIPP income to fill the gap between retirement and drawing your DB pensions. Then, if there's anything left over, you can use it to top up your DB pension income before SP kicks in.

Given your current age, you shouldn't be affected by the move from 55 to 57 in minimum pension age, provided you draw the SIPP at age 55. That's what I'd be planning to do anyway, but it's really a question only you can answer.

dunstonh

Lots of people are looking - thank you.

Don't assume views = people viewing.   All the bots and spiders will be classed as a view.

At 52 we will have about £50k in savings and another £20k in SIPPs/ISAs.

That is a very low amount for a 52 year old looking at extremely early retirement.

urrently, our net income is about £5.75 k per month.  About £3k of it goes into savings and investments of various kinds, so we live on under £3k ish.

£2750 net per month x 12 is £33,000.    five years of that is £165,000.   eight years (to get you to 60) is £264,000.    You have nowhere near that based on what you have said so far.   

Even if you include the £500pm rental to offset that, it still leaves you way short.  But £500pm initial profit is just £6k a year and refurbs will eat a good chunk of that.  So, its not a clean £6k a year.

ChocolateWombat

Thanks dunstonh.

Do you really think it’s totally inadequate?

We would be looking at managing until I am 60.  At that point I will probably have £15k from my DB and could release perhaps £10k per year from my lump sum and SIPPS to get us to 65.  From that point on, DH’s pension will yield £12k per year too.  All of the time, we would have perhaps £5-6k from the BTL too.  (The BTL figures have included funds for renovations, voids etc)   So from 65 we would have £33k.  From 67 we would have the extra £10k of DB oension and state pension.  At that point, we would have around £55k.

I guess that an option will be to take some of the DB early.  We really won’t need £55k per year from 67.  Perhaps bringing some earlier to 55 or 58 or even 60 would be a good idea?

I’m surprised though that given our DB provision and the fact husband will keep working, that you think the picture looks so bleak.

Alice_Holt

 "I will have reached 31 years state pension contributions by 52 and would plan to fund the final 4 years." 

   I believe 35 yrs relates only to the new state pension (post 2016).
As you will have a mix of the old and new scheme, your assumption may not hold.

Probably a good idea for you to get a pension forecast to confirm how many years voluntary contributions may actually be needed for a full pension. 

ChocolateWombat

Thanks Alice.  Yes, I have done that.  I can see that by 52 I will have 31 years and would need to work another 4 to hit 35.

I guess I am thinking about this as being us becoming a single-income family.  Lots of households have a net income below £3k and manage fine.  This is what we will be for 8 years from 52-60 as husband will keep working.  I wonder if DunstonH missed the fact my husband will be working still.

From 67 our pension income will be £55k - far more than we will need.  It would be even more if we sold our BTL place.  

But perhaps the thing I need to look at is bringing some of that income forward so we have it sooner rather than later.

Dazed_and_C0nfused

Thanks Alice. Yes, I have done that. I can see that by 52 I will have 31 years and would need to work another 4 to hit 35

Is 35 years relevant to you?  What does your forecast actually say, in full?

Having 35 years guarantees nothing unless you only started paying NI after April 2016.

michaels

I think you are saying you can live on your DH salary until he retires at 60.  then at 57 you have lots more than you need.  Can you take all the DB at 60 with the reduction (and possibly some lump sum?)  basically you want to move forward some of that income 'excess' when you both reach 67 to cover the 60-67 period.

ChocolateWombat

My state pension forecast tells me I can get the full £179 per week if I work another 6 years.  That’s why I say I will have 31 years at 52.  I’m happy to pay for the years I don’t accrue so I get the full amount.

Yes michaels, I hope we can live for 8 years on my DH salary of £3k net and the £6k BTL income.  I think this will be sufficient.

All our DB pensions are public sector.  They can be brought forward.
Almost all of mine pays out at 60 anyway.  About half of my DHs pays at 65 and the rest at 67.  If he were to bring the 65 pension forward to 60, he would lose about 18% I think.  To take the 67 pension at 60 would involve a loss of about 30% I think.  Instead of £22k, by having it at 60 he could probably have £16k.  I think it might be worth it.  We’d have my £15k, his £16k and the £18k state pensions which looks like plenty.

I guess a question is whether our lump sums are enough.  I will have £40k pension lump sum and we have £70k in SIPPS and savings - it’s over £100k.  If we take the DB pension early, we wouldn’t really need to touch it just for living.

hugheskevi

I think you would be fine. The challenges are managing the age 52-67 period, ideally bringing forward income from the post 67 period. Then there is managing risk, which is increased by being a one-earner household. Some things I would be considering:

• Moving the BTL into your name, as you would be a non-taxpayer
  
• Taking SIPPs at age 57, as you would be a non-taxpayer
• Perhaps taking the DBs early, depending on actuarial reduction factor
• Maybe selling BTL at some point, releasing capital for the period in which it is needed. Or if you keep it, consider it as a contingency option should it be required, which should give valuable peace of mind and reassuance.
  
• Mortgaging either main home or BTL, with view to repaying mortgage from additional income you will have post age 67. Or maybe take out a mortgage something like this and 100% offset it, giving yourself access to a pool of capital should you need it for reassurance. As you get closer to age 60, you could perhaps take out a 10 year fixed rate mortgage and work out how best to pay that over the duration. This is all with the aim of smoothing income by moving resources from later in life to earlier.
  
• Working part-time - enough to earn about £12,500 thus paying no tax and getting State Pension qualifying years
• Getting a different job that you enjoy but which may not pay as much (or even a very low salary, key is not the salary level but enjoyment level) - you probably have enough to retire, so even an additional £10K a year or so would make things comfortable

Obviously you wouldn't do all the above, rather, it is just things which could contribute to one strategy or another.

Key point for me is that you don't like work and are in a position where you don't need the money. The question I would be asking myself is what the compelling reason to continue doing the work is - what is the reason you have to do something you don't like? I think it is very viable to either stop work, or do something else, or work part-time - the hardest part of decisions like this is usually just taking the decision and then everything else is just a matter of detail and making it happen, as long as you are have worked out it is viable.