Retiring 1 year early aged 65

Mrnkar_2

Hi,  Hubby has decided to stop working 1 year before he will receive state pension at 66.
I do not work or claim any benefits and due my state pension in 18 months.
He has a Stakeholders work pension and also another private pension.
Our problem is not sure what to do in between money wise.
Have enough savings to live on for about 2 years, so do we

A) Leave his Work and Private pensions as they are. It is our understanding that he cannot pay any more money into his work pension but believe there may still be charges on it. His private pension we don't contribute anything to it at the moment as it's worth quite a lot.
(B) Take some money each month from either one or both pensions using Drawdown.
(C) Savings in quite good paying interest accounts so just live off them.
Any advice great appreciated. Thanks

El_Torro

You can access the pensions now. Whether you should or not depends on what other savings / investments / income you have. We also don't know what your retirement strategy is or how much you intend to spend so difficult to comment. 

Assuming you don't just have the money in the pensions sitting as cash it's worth remembering that share values have dropped this year, so might be worth spending the cash you have and hoping that stock markets recover and the value of your investments increase. It's possible that the pensions continue to lose value though. 

If you're planning to draw down on the pensions (not buy an annuity) it's a good idea to have a couple of years worth of cash anyway, to ride out dips in the stock market. Since you currently have 2 years worth of spending in cash I would be inclined to spend that for now. We don't know if your investments will be worth more in 2 years time than they are today but there's a good chance they will be. 

NoMore

If he's going to have no taxable income until his state pension then it would be prudent to at least take the Personal Allowance out of the Pensions (£12570 or £16760 if you include the 25% tax free).

Beyond that, its up to you, without knowing how much you need and how  much you have, its difficult to advise further.

Mrnkar_2

Thank you both. Yes the value of his investments have gone down and so makes sense to leave them alone for now in the hope that the markets recover.
Our savings are just over what he would have earned in 2 years so think we should be ok on that.
I also have some inheritance in shares which was our emergency fund.

Albermarle

A) Leave his Work and Private pensions as they are. It is our understanding that he cannot pay any more money into his work pension but believe there may still be charges on it. His private pension we don't contribute anything to it at the moment as it's worth quite a lot

All pensions  have charges, whether you are contributing to them or not. Sometimes the pension provider has a management or platform charge, then the investments in the pension will have a charge. Sometimes the two are rolled up into one charge.

It would pay you to take a more detailed interest in the pensions and the investments within them ( unless you already do of course) If the sums are significant and you are not sure what to do, one option is to seek some professional advice from an IFA. Or at least have a chat with the free government service Pension Wise 

.Pension Wise: free pension guidance | MoneyHelper

Often in these situations it is as much about opinion as anything else, and on an internet forum you will get different opinions, and for what it is worth here are mine.

1) I would be reluctant to burn through cash savings too quickly, they may come in handy later.

2) It is likely that your pension investment funds contain a mixture of stocks and shares AND bonds. Both have suffered this year ( after many good years for both ) . Whilst in theory the stock market will recover at some point ( but may take some time) the bond market will take a lot longer to recover fully.

3) Taking both above points into consideration and not knowing your full situation, it would seem a good idea to draw at least some money from one of the pensions, rather than use up all your cash waiting for a recovery that maybe a long time coming. Maybe in line with the suggestion from a previous poster. If he's going to have no taxable income until his state pension then it would be prudent to at least take the Personal Allowance out of the Pensions (£12570 or £16760 if you include the 25% tax free).

Audaxer

NoMore said:

If he's going to have no taxable income until his state pension then it would be prudent to at least take the Personal Allowance out of the Pensions (£12570 or £16760 if you include the 25% tax free).

I agree with taking out the maximum £16,760 out of his pension free of tax even if he wants to keep it invested, as he can just reinvest that amount in similar funds within an S&S ISA, and use your savings for spending. 

Mrnkar_2

Audaxer said:

NoMore said:

If he's going to have no taxable income until his state pension then it would be prudent to at least take the Personal Allowance out of the Pensions (£12570 or £16760 if you include the 25% tax free).

I agree with taking out the maximum £16,760 out of his pension free of tax even if he wants to keep it invested, as he can just reinvest that amount in similar funds within an S&S ISA, and use your savings for spending. 

Thank you. That's a good idea and something we hadn't thought about and will also contact pension wise and chat with them.

Albermarle

Mrnkar_2 said:

Audaxer said:

NoMore said:

If he's going to have no taxable income until his state pension then it would be prudent to at least take the Personal Allowance out of the Pensions (£12570 or £16760 if you include the 25% tax free).

I agree with taking out the maximum £16,760 out of his pension free of tax even if he wants to keep it invested, as he can just reinvest that amount in similar funds within an S&S ISA, and use your savings for spending. 

Thank you. That's a good idea and something we hadn't thought about and will also contact pension wise and chat with them.

Another point is that if you decided to do this you would need to contact the pension provider and/or read the details on their website. Pensions set up many years ago can be a bit inflexible in what they can offer in terms of drawdown options.
For example they may say you have to take all the 25% tax free at once , rather than in stages,