Retirement plan. Pie in sky or do-able?

Superdude0499

Hello, avid follower, frugal poster.

Want to use forum as a sounding board for mine & OH current retirement plan.

Both OH & I are 51 years old. Intention is for both to retire at 60. Required joint income for comfortable retirement is approx. £33,000 (in today’s money)

Current situation…

Me.

Completely reliant on DC pension pot + S&S Isa.

DC Pot currently £300,000

Current contributions me + employer £30,000/year.

invested in 100% Global equities.

 

Isa currently £17000 (100% Global equities)

Current contributions £300/month to increase to £1000/month in 18 months’ time on completion of mortgage.

 

OH.

NHS Pension (won’t know what this is worth due to complex 1995/2008/2015 scheme combo until OH decides to take at 60). TRS unavailable.

Been in NHS employ since 1996. By my own reckoning using 2015 reasoning will be worth c£15000 at age 60 (allowing for actuarial reduction).

Both will be entitled to Full state pension if we contribute NI for another 1-2 years (Me-1 OH-2)

 

Intention will be to take full 25% TFC from DC Pot to basically spend on stuff (car, home improvements, holiday(s)) and help out our two kids, should they need it.

 

By my reckoning at SPA OH DB NHS Pension plus 2 x State pensions should cover about 80% of our ‘comfortable’ retirement (diminishing as we do!), so only really concerned about the bridge whereby I will need to supplement OH DB from DC/ISA to provide the needed cash between 60 & 68 (if that is what SPA it is!)

 

Whatdya reckon. Pie in sky or do-able? Or could bridge be lengthened? i.e. go slightly earlier.

Thanks in advance for any responses.

bownyboy

For an income of £33k a year you would need a combined pot of £825k based on the 4% 'rule'.

Taking your DC pot of £300k and adding £2.5k per month (£30k per year) and assuming 6% growth for 9 years would give you a pot of around £870k.

Your ISA pot is £17k so adding £250 a month for 18 months and then 7.5 years of £1k and assuming 6% growth would give you a pot of around £150k.

Then you have your OH DB pension and state pensions on top. 

I think you have more than enough!

El_Torro

By the time you retire your DC pension should be worth about £650k, in today's money. Depends on how your investments do between now and then. Assuming you spend / give away 25% of that this leaves you with £487.5k. You then need to decide how much you take every year. Even if you go with 4% a year (some would consider this too high) you'll have £19.5k to spend a year, or £1,625 a month (minus tax). You may want to take more before your state pension kicks in and less once it does kick in. 

Not a bad start. I guess one big question is how much the NHS pension will give you. My knowledge of DB pensions is little to none, but it sounds odd that you won't know how much it will be until your OH retires. 

Remember that it's a good idea for at least some of your pension to not be 100% equities as you get closer to retirement. Depends on how much of it you want to take. If you're spending 25% of it straight away I'd start thinking about this now, since you're only 9 years away. 

My first thought is that you're on a good track, especially since you will have ISAs to help you out, and you'll be paying a decent amount into it for a few years before retirement. There are some question marks though.

Marcon

El_Torro said:

Not a bad start. I guess one big question is how much the NHS pension will give you. My knowledge of DB pensions is little to none, but it sounds odd that you won't know how much it will be until your OH retires. 

With a DB scheme you never do know ahead of time (unless you have that fabled crystal ball and can predict salary increases if you are currently contributing to the scheme; or if you've already left active membership, it can predict inflation rates, which dictate how your pension revalues in deferment), although you can normally get reasonably accurate projections as you get closer to retirement. With 9 years to go it's no surprise that there is still much uncertainty in terms of how much the pension/lump sum might actually be.

Superdude0499

El_Torro said:

Remember that it's a good idea for at least some of your pension to not be 100% equities as you get closer to retirement. Depends on how much of it you want to take. If you're spending 25% of it straight away I'd start thinking about this now, since you're only 9 years away. 

Thanks all for comments. In reality I would hold back say 3 years worth of income (to go on top of OH DB) as a buffer during poor market returns which would only leave me at the mercy of the stock market for 5/8 years. After which I should only need to drawdown a relatively small amount to supplement DB and 2xSP.

tacpot12

I would disagree with El_Torro about not wanting to be invested 100% in equities as you approach retirement. Even if you retire at 60, if you are intending to drawdown your pensions rather than buy an annuity, you are investing for a 30 year time horizon, anything other equities will leave your poorer.

Of course, you are not just investing for retirement, you are also saving for the short term, so having a cash buffer and some cash savings would be sensible.  

I would also agree you have enough and could go earlier, if you can figure out what your OH's NHS pension will be. It is possible to call the NHS Pension Service and ask to be sent all the details so that you can know what pension entitlement has been earned already, and to allow you to track how it will increase as she approaches retirement. If she has service in the 1995 scheme, then there will be a lump sum that can form part of the bridge to state retirement age, and also help avoid claiming on the 2015 scheme any earlier than necessary. It would be sensible to use most of your cash savings to put off claiming on the NHS pensions for as long as possible, and use the lump sum to restore the savings once the 1995 scheme pension is in payment. If you are not aware of the impact of the McCloud judgement, you might have a look at this. While it might seem to make things more uncertain, in reality, any difference will only be in your OH's favour.
 

El_Torro

tacpot12 said:

I would disagree with El_Torro about not wanting to be invested 100% in equities as you approach retirement. Even if you retire at 60, if you are intending to drawdown your pensions rather than buy an annuity, you are investing for a 30 year time horizon, anything other equities will leave your poorer.
 

My point was that since the OP is planning to take 25% of the pension at 60 (and spend the whole tax free lump sum straight away) it would not be a great idea to be 100% in equities right until the day they withdraw the money. Sure, some of the pension can stay 100% in equities, since as you say it will be some time before all the money is gone.

Johnny_Doe

You easily have enough and could both retire at 55. With SP for both of you, of the total £33k income required this reduces to £13k ish (assuming SP will rise to £10k or more). Also spending habits will no doubt change after 75. Bridging the gap between 55-67/8 is perfectly doable and you have more chance of reducing your tax liability.. Your wife alone could be earning £25k yr at 67/8

Have a go with the firecalc (Google it), this will tell you the likelihood of running out of money (you can choose total number of yrs retirement, most people go up to age 90-95 - so 35-40 yrs if retiring at 55. The 4% rule from Trinity study is based on 30 years but doesn't take into account SP, dynamic spending based on sequence of returns etc..

Most people are understandably cautious and don't want to run out of money but end up saving way too much which is a risk in itself (you could end up the richest guy in the graveyard). That's why the subject of pensions is so fascinating, the unknown variable of mortality and associated element of luck (good genes etc)! 

Superdude0499

Thanks for the heads up regarding FIRECalc (I had used before a while back and have now revisited along with another tool, FiCalc - a little more polished but essentially does the same thing). Inputting the values I mentioned in original post both tools suggest a decent chance of success at 55. Luckily I don’t hate my job so will probably hang on until at least 57 (providing rules don’t change and I can still access DC at that age). OH would very much like to give up before 60. Obviously all depends on returns over the next 6 years.

[Deleted User]

tacpot12 said:

I would disagree with El_Torro about not wanting to be invested 100% in equities as you approach retirement. Even if you retire at 60, if you are intending to drawdown your pensions rather than buy an annuity, you are investing for a 30 year time horizon, anything other equities will leave your poorer.

 

For a family with zero DB pension except state, this would be poor logic.  Sequence of return is a thing.  Someone approaching retirement could suffer too much damage if he is 100% in equities so that “30 year time horizon” could become a bad thing as the money runs out sooner. 

With a DB pension from NHS, the spouse going 100% stock is more tolerable but even then I would have some liquidity in fixed income  to rebalance if the markets take a hit.  Tolerance for stock volatility is very different for a 30 and a 60 year old.  A hypothetical wel off 80 year old might be back to 100% stocks as a 90% equity drop could still last him a life time. A 60 year old who has just retired (or about to) is the most vulnerable individual.