Should I work another year or two? 20 January at 10:33PM in Pensions, annuities & retirement planning 26 replies 3.7K views

Alicante6

Hi everyone,

I am single with no dependants. I am 62 and I am thinking about retiring this year.

I have £500k in 3 pensions and contribute £3.3k per month to my company pension. I have £100k in savings, no debts, no ties  and a property worth £200k in the UK. I have no wish to leave anything behind having worked for 46 years my hope is to enjoy the next few years. 

I aim to 'slow travel' in low cost of living countries in Asia and South America and spend summers in the UK. 

I've read such a lot of posts and picked up some brilliant tips but not yet found any that mirror my situation. 

I'm looking to sense check my situation.  I have no sense of how my numbers rank against the average pot size for someone at  62 or if I should continue working for another year or even 2 to boost my funds by a further £80k to provide extra peace of mind in these uncertain times. I enjoy my work but feel myself slowing down.  I aim to drawdown £3k per month in retirement and will receive a full State pension in 4 years and 9 months time. 

It would be great to get feedback whether good, bad or indifferent to help me better understand my position. 

Thank you 

Pat38493

Hmmm - well you are not far off but 3K per month spending might be a little bit ambitious with £600K of funds.  

The rough rule of thumb is you can draw down between 3 and 4% of the money you have each year and be pretty sure that it won’t run out within 30 years.  If you assume 3% you would need around £1million pot to draw down 3K per month in safety.  

You have the state pension coming, but even with that you will probably need 850-900K or so to feel safe.

To look at it the other way around, £2K per month might be a more realistic spend target in your situation.

The other question though is do you really need 3K per month forever for the rest of your life?  You probably won’t want to be travelling the world in your 90s?  If you could target to reduce your spending at a later time this might also help.  Maybe look a bit close at what you really need to spend during retirement as £3K a month is quite a high ongoing retirement spending for most people.

Alicante6

Thanks Pat38493, that's a good point. £3k a month wouldn't be needed beyond say 72. I don't see myself travelling after reaching that age. So the drawdown could be set at £3k initially and adjusted down to allow for the State pension from 66 and stopping travelling at say 72. 

Pat38493

Potentially yes but how are your pension funds currently invested?  If you are looking to make those kind of withdrawals you will need to be invested quite heavily into equities.

If you use well over 4% of your fund per year for the whole of the first decade, you are facing something called the sequence of return risk.  You might be fine if you get lucky, but if investment returns on your pensions are poor in the first years of your retirement, and you get poor returns combined with relatively high withdrawals in the first decade, that’s when you could risk running out of money or taking a big hit in spending power, because even if the investment returns gets much better in the second decade, the damage is already done.

Unfortunately this risk that the call sequence of return risk runs totally contrary to what most people would like to do I.e. spend more in the first years.

What a lot of people do is create a spending plan for retirement based on unavoidable spending and then discretionary.  If you understand what’s the minimum you can live on you can then decide how to manage the risk.  If you are in a  £200k house and you have no debts, no mortgage I suspect your essential spend long term would need a lot less than 3K per month.  

Also for avoidance of doubt everything I’m saying is gross before tax.  If you are looking for 3K a month net then you need even more money.  On the flip side your marginal tax rate will be lower in retirement as you won’t pay any NI and you can get 25% of your pensions out tax free, so you won’t need the same gross income to support your net income requirement as if you were working.

Also if you want to think out of the box you could rent out your house or Airbnb it while you are travelling or suchlike.  

Marcon

Alicante6 said:

Hi everyone,

I am single with no dependants. I am 62 and I am thinking about retiring this year.

I have £500k in 3 pensions and contribute £3.3k per month to my company pension. I have £100k in savings, no debts, no ties  and a property worth £200k in the UK. I have no wish to leave anything behind having worked for 46 years my hope is to enjoy the next few years. 

I aim to 'slow travel' in low cost of living countries in Asia and South America and spend summers in the UK. 

I've read such a lot of posts and picked up some brilliant tips but not yet found any that mirror my situation. 

I'm looking to sense check my situation.  I have no sense of how my numbers rank against the average pot size for someone at  62 or if I should continue working for another year or even 2 to boost my funds by a further £80k to provide extra peace of mind in these uncertain times. I enjoy my work but feel myself slowing down.  I aim to drawdown £3k per month in retirement and will receive a full State pension in 4 years and 9 months time. 

It would be great to get feedback whether good, bad or indifferent to help me better understand my position. 

Thank you 

You don't need to know how your numbers rank against average pot size for someone aged 62. You need to know whether the amount you've saved will support the lifestyle you would like in retirement.

You don't really give much information about your current spending patterns, so if you've not yet done so, keeping a spreadsheet giving details of all your expenditure is the only way to make a realistic assessment. Then work through your figures and take out those which won't be needed once you stop work (e.g. travel, work clothes, lunches or whatever applies to you), and add in things which might increase, such as heating costs if you're at home more.

If you still enjoy your job, working for another couple of years and boosting your funds (and having rather a good time spending some of the loot!) makes a lot of sense. Any chance you could work part time, or agree increased holiday entitlement (unpaid leave might be one way to keep it simple)?

Alicante6

Great food for thought, very helpful many thanks both. I clearly need to do some more thinking and modelling. 

enthusiasticsaver

If you need £3k net per month then presumably you will initially be drawing on savings with possibly top ups from the TFLS and the £12k personal allowance from the pension? That £100k should last about 4 years if this is your plan leaving the majority of the £500k invested.  After 4 years and 9 months your state pension should kick in presumably reducing your requirement to about £25k per annum. This is more than the 4% drawdown but as you do not need to protect the pot for inheritance reasons I would not worry too much about that.  If you want to go now then I would especially if you feel your health is starting to decline.  The most expensive years of retirement are apparently the early years so you may need less as you get older and don't travel so much.  

Alicante6

Thanks enthusiasticsaver. My thoughts were to use the £100k to fund the gap thereby allowing the pensions to further grow. In later years I might even look at equity release if there was a need or downsizing to free up some cash from my house. 

GunJack

...or looking at it another way....

£100k plus £125k TFLS = £225k, which you can take at £36k p.a with no tax to pay (as it's not from income). for 5 yrs up to SPA, then £25k p.a. with state pension for another 3 years (still no tax), which takes you to age 70 without having touched the other £375k plus growth left in the pension which will take you to your 72 and still have (probably) between £350-400k in the pension.

sounds to me like you can meet your objectives without working any more, especially if you have no-one to leave anything to...

mumf

You know what? Retire! You have enough. I am 57 and was going to semi retire this year. My pension and income is nowhere near yours,but it would have been quite doable! So what’s the difference now? Six eeeks ago I found out that I am terminally ill! It was totally out of the blue. My experience since means I have met others where this has occurred too. You know what? My non working is quite affordable. There’s enough money,house is paid for ( a long time) savings and no debt. As my wife says, “ two minutes from now your life could change like you never expected “. How true! 

You’ve got the resources,do it my friend. 

Pat38493

GunJack said:

...or looking at it another way....

£100k plus £125k TFLS = £225k, which you can take at £36k p.a with no tax to pay (as it's not from income). for 5 yrs up to SPA, then £25k p.a. with state pension for another 3 years (still no tax), which takes you to age 70 without having touched the other £375k plus growth left in the pension which will take you to your 72 and still have (probably) between £350-400k in the pension.

sounds to me like you can meet your objectives without working any more, especially if you have no-one to leave anything to...

If there is very none or low inflation….

I’m not saying that plan won’t work.  It has a reasonable chance of working but you should be conscious of the risk of having to make significant reductions in your spending power in later years.  Of course your state pension will protect you with an income floor there but it’s less than 10k in today real terms.

This is especially the case if you meant that you want to have 3K net income each month (which would seem pretty high based on the information you have given so far so I also agree that it would be very useful to spend some time analysing your real spending and investigating the cost / month of your winter travel plans.  )

As an aside I would be interested to read a blog or posts about your travel experiences if you actually do carry this out.  Myself and my wife have talked a few times about spending part of the year travelling in the first years of retirement but it’s one area where there doesn’t seem to be a lot of books or literature available from people who have really lived it.