Value of 'one more year'? Is 5% more a year for life worth working an extra year for?

michaels

My workings are as follows:
12 months additonal pension = £2k pa*
12 months additonal salary = £26k**
Spend from savings minus £10k
12 months fewer for pension to provide livelihood = 50k

50K + 26k - 10k x 3.5% swr = £2.3k

So 'one more year' is worth £4.3k gross pa - say £3.5k after tax for 'the rest of my life'

Does this sound correct?

* actual additonal pension at 67 is £2.5k but 2k is the difference in actuarially reduced pension of 27.5k taken 12 years early vs 30k taken 11 years early
** it is true, while working my annual spend is about mid 30s k pa as opposed to the 50k plus pa I expect to achieve when retired.

Sarahspangles

Are you really saving £50k by shortening your retirement?

michaels

Sarahspangles said:

Are you really saving £50k by shortening your retirement?

Thanks for your input

So current calcs say if I retire this year my 'safe' annual amount is about 50k so if I retire a year later I don't need to draw that 50k from my pension pot.  However I think I am double counting as 16k of the 50k will come from my DB pension which I have uprated for taking a year later in another part of the calculation so perhaps my SWR pot is only 34k larger with a 12 months delay.  And of course I am also saying I will only spend 36k this year rather than the 50k I would be spending if retired so should probably actually be factoring in a 50k spend to be fair so another 14k of the SWR pot savings.

So rather than 50k+26k-10k times swr I should have 34k+26k-24k times 3.5% = £1.3k

Add on the extra DB of £2k and take off tax and I get £2.6k pa (5%) more to spend each year for 'one more year'

Marcon

Depends how much you hate your current job, I guess! Only you know whether it's 'worth it' in emotional as well as financial terms.

michaels

Argghh - I am making this hard.  The 26k income will not be added to my SWR pot either but the pot might grow by say 2% in real terms.

Linton

I think your calculation of 1 more year being worth £4.3K gross (or whatever) is a false argument.

1) 1 more or less year is for your duration in retirement is pretty irrelevent compared with the lack of certainty of when you will die.  

2) You are basing your calculation on an SWR figure.  If you are not hit by an early SOR event your pension pot should be pretty much self-sustaining for well beyond your lifespan.  An extra year at the end of your life wont make much difference.  Neither will it make much difference if you are hit by SOR as 1 more year working is unlikely to be the difference between success and failure in the final year of your life.  

3) An SWR figure is far too inaccurate to plug into an annual calculation to expect to get a useful number out at the end.  SWR should only be used as a rule of thumb, not as a primary factor in the calculation.

4) Assuming £50K/year spend when your curent expenditure is £35K gives you lots of leeway, far more than I suspect most people assume.  Certainly far more than I did.

So if you have enough in your pot to be reasonably confident of meeting your £50K predetermined needs then retire.  Of course this rather depends on whether you really want to.

Sarahspangles

Your model seems fine, it’s just you can’t easily factor in the non-monetary value of your free time in retirement. The amended title is the real question!

AlwaysLearnin

Not sure if I've got this wrong, but I read it as 1 more year will cost you £10k (from savings, to supplement the £26k income), but result in £2k p/a more from your DB, and not having to take £50k out of the savings (i.e. net £40k remaining in savings)?

As others have said, given the pre/post retirement income difference, I'm not sure it matters much.  I guess a compromise could be to take £36k out of savings, of which you'd be using £10k anyway, and not bother going to work every day...?😁

Either way, given the time and attention you've clearly given to your preparation over the years, I think you'll be absolutely fine - time to enjoy that hard work I reckon!

Universidad

I'll say this - I've spent getting on for two years of my life in the Civil Service primarily aimed at vesting a decent amount of DB pension to make up the shortfall in my pension expectations, having spent the first 20 years of my career in the University sector in an environment of, frankly, constant decline.

By just about any metric my new job is superior, and it's the first time since the financial crisis that I've found myself with a sense of having golden handcuffs back on my wrists - I don't know of anywhere that I could move easily that would improve my circumstances.

And yet, those two years have felt like a long time, as I wait for the pension vesting gamble to finally pay off.

And yet, if I thought I could stop working tomorrow, I would do that.

BlackKnightMonty

I think you might enjoy ‘the lotus eater’ short story by Somerset Maugham.

FWIW; cash out early and enjoy another year not working.

Secret2ndAccount

             

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