Is early retirement an option?

Sweetmelody_2

I was 52 recently and, although I’ve done a lot of work to understand my income and costs in retirement, I was hoping someone might be interested in looking at my figures and advising whether I might have missed something that could allow me to aim for an earlier retirement date than 60 currently. I feel like I/we are going to be richer in retirement than we are currently and would love to be able to bring income forward to bring my date forward from 60.

I am 0.8 FTE on £60k and currently an active member of the Alpha pension scheme contributing 7.35%. My number, I have estimated, is £35K, splitting all shared costs 50/50 with my husband who is a company director, happy to continue working until 67 (if he can) and has his own pension provision in place (£230k SIPP, £8k rental income, state pension).

I have built up the following:

DB scheme 1: £6,776 pa (at 60) index linked

DB 2: £7,112 pa (at 60) indexed. Can reduce to £5,353 to get a £35,692 lump sum

DB 3: £6,281 (at 60) or £8,012 (at 65) indexed. £63,010 AVC that can be taken 100% tax free 

DB 4: £10,302 (forecast at 60. I’m an active member and have accrued about £5k to date). Can reduce pension at 60 to £6,623 to get a £44,150 lump sum

Rental property: £7,800 pa (£50k mortgage repayable 2029, hopefully from tax free lump sum)

State: £11,502 (max contributions have been made)

DC/SIPP: £21,095 in an old workplace pensions. £62,423 in an AJ Bell SIPP

The challenge is planning with some hefty commitments…. 2 children, aged 9 and 16, who will need supporting in their academic/career choices. We have a £300k mortgage on a fixed rate with 14 years left to run (2038). Currently costing me £1k per month for my share until the fixed rate expires in 2026. Now that my pension provision is in place, a plan to pay off my 50% share of £150k is a priority. 

Thanks in advance

Archerychick

I would honestly consider building out a spreadsheet showing annual income, expenditure & see whether you have the income to retire earlier. I’ve built mine out by month but in hindsight an annual budget plan would be sufficient. 

8 years it potential a large income hole to fill, to include kids if you can’t access your pensions until you’re 60. It looks like you might have one you can access sooner.

its not just filling that 8 year gap, its also making sure you’ve got enough for after then.

2nd_time_buyer

It sounds like you will have ample from 60. Is it an option to sell the rental property to use the proceeds to fund till then? Can any of the DB pensions be taken earlier (with reduction). My gut feeling is that you have enough between the various pensions/assets but it is more a question of timing. With the high proportion of DBs it could mean that you would be comfortable taking greater risks with other investments (e.g. SIPPs) and/or pay off the mortgage later.

Sweetmelody_2

Thank you both - I do have a spreadsheet that I built a couple of years back which needs an update, but didn’t  tell me any more than I will have ‘too much’ come retirement. But I will update it and ogle it a bit more to see if anything jumps out at me that I missed before

2nd_time_buyer said:

It sounds like you will have ample from 60. Is it an option to sell the rental property to use the proceeds to fund till then? Can any of the DB pensions be taken earlier (with reduction). My gut feeling is that you have enough between the various pensions/assets but it is more a question of timing. With the high proportion of DBs it could mean that you would be comfortable taking greater risks with other investments (e.g. SIPPs) and/or pay off the mortgage later.

So CGT is an issue with the rental property but proceeds would contribute to bridging the gap but, as Archerychick has said it is a big gap to bridge. Although it doesn’t need to be 8 years. Once I update the spreadsheet I can look at what is left over and above my ‘number’ and how much can be used to buy extra years. 

The other point Archerychick makes is that I can be more comfortable taking a mortgage into retirement. This is true, but if at all possible to use that excess income to have more disposable income now/overpay now/reduce my hours further, these would all be acceptable compromises if I can’t retire earlier.

2nd_time_buyer

Sweetmelody_2 said:

Thank you both - I do have a spreadsheet that I built a couple of years back which needs an update, but didn’t  tell me any more than I will have ‘too much’ come retirement. But I will update it and ogle it a bit more to see if anything jumps out at me that I missed before

2nd_time_buyer said:

It sounds like you will have ample from 60. Is it an option to sell the rental property to use the proceeds to fund till then? Can any of the DB pensions be taken earlier (with reduction). My gut feeling is that you have enough between the various pensions/assets but it is more a question of timing. With the high proportion of DBs it could mean that you would be comfortable taking greater risks with other investments (e.g. SIPPs) and/or pay off the mortgage later.

So CGT is an issue with the rental property but proceeds would contribute to bridging the gap but, as Archerychick has said it is a big gap to bridge. Although it doesn’t need to be 8 years. Once I update the spreadsheet I can look at what is left over and above my ‘number’ and how much can be used to buy extra years. 

The other point Archerychick makes is that I can be more comfortable taking a mortgage into retirement. This is true, but if at all possible to use that excess income to have more disposable income now/overpay now/reduce my hours further, these would all be acceptable compromises if I can’t retire earlier.

That all sounds good. I think ironically  your problem might be that you end up with too much money at 68ish when the state pension kicks in, and your spending will tend to decrease.

As you say though, your careful saving, has bought you the freedom, to reduce hours or change job without the pressure of having to save any more. Congratulations!

theoretica

When can you access your SIPPs?  That looks a potential for bridging some years before 60.

I agree, that putting money to savings you can access before 60 (do you have ISAs?) might give you more freedom when you want it than putting that money towards the mortgage.  And you can always change your mind and pay off the mortgage later.

Sweetmelody_2

2nd_time_buyer said:

Sweetmelody_2 said:

Thank you both - I do have a spreadsheet that I built a couple of years back which needs an update, but didn’t  tell me any more than I will have ‘too much’ come retirement. But I will update it and ogle it a bit more to see if anything jumps out at me that I missed before

2nd_time_buyer said:

It sounds like you will have ample from 60. Is it an option to sell the rental property to use the proceeds to fund till then? Can any of the DB pensions be taken earlier (with reduction). My gut feeling is that you have enough between the various pensions/assets but it is more a question of timing. With the high proportion of DBs it could mean that you would be comfortable taking greater risks with other investments (e.g. SIPPs) and/or pay off the mortgage later.

So CGT is an issue with the rental property but proceeds would contribute to bridging the gap but, as Archerychick has said it is a big gap to bridge. Although it doesn’t need to be 8 years. Once I update the spreadsheet I can look at what is left over and above my ‘number’ and how much can be used to buy extra years. 

The other point Archerychick makes is that I can be more comfortable taking a mortgage into retirement. This is true, but if at all possible to use that excess income to have more disposable income now/overpay now/reduce my hours further, these would all be acceptable compromises if I can’t retire earlier.

That all sounds good. I think ironically  your problem might be that you end up with too much money at 68ish when the state pension kicks in, and your spending will tend to decrease.

As you say though, your careful saving, has bought you the freedom, to reduce hours or change job without the pressure of having to save any more. Congratulations!

Thank you so much ☺️ When I realised (while having a stressful time with work/homeschooling during Covid) I changed job to a less senior role with no staff to manage and a three day week. The pay cut was a shock but I was able to make the change safe in the knowledge that I’d saved enough. I’ve allowed my hours to increase in the same role which has been handy as costs have increased so much over the last couple of years and we moved house for the last time (hence the mortgage hike). But I’m now looking ahead to whether I might be able to ease off again before 60 given that when I get to 67 I will certainly have too much. 

2nd_time_buyer

The James shack planner covers most of the things you might want to look at e.g. profits from property, proceeds from property sales, DB pensions, changes in mortgage costs etc. It could save a lot of time compared to starting from scratch with a spreadsheet. It is worth watching the YouTube "instruction" video first. 

https://james-shack.co.uk/retirement-planner-download

Albermarle

 2 children, aged 9 and 16, who will need supporting in their academic/career choices.

If we assume you are referring to Uni fees, rather than private school fees. Then also assuming they will get minimum maintenance loans, then parents usually need to cough up about £6K per year. Again assuming the tuition fees are paid via a student loan.

Have you thought about building up funds to maybe help them on the housing ladder at some point, although by then you might be both retired and getting the SP as well. 

Sweetmelody_2

2nd_time_buyer said:

The James shack planner covers most of the things you might want to look at e.g. profits from property, proceeds from property sales, DB pensions, changes in mortgage costs etc. It could save a lot of time compared to starting from scratch with a spreadsheet. It is worth watching the YouTube "instruction" video first. 

https://james-shack.co.uk/retirement-planner-download

Not heard of this so will definitely take a look. Thanks 

Sweetmelody_2

Albermarle said:

 2 children, aged 9 and 16, who will need supporting in their academic/career choices.

If we assume you are referring to Uni fees, rather than private school fees. Then also assuming they will get minimum maintenance loans, then parents usually need to cough up about £6K per year. Again assuming the tuition fees are paid via a student loan.

Have you thought about building up funds to maybe help them on the housing ladder at some point, although by then you might be both retired and getting the SP as well. 

Yes uni costs. The £6k figure is the one we heard too and thankfully should be able to fund most from  savings that have been ringfenced for this. 

Very keen to help them buy a home. We were thinking that anything I inherit from my parents, i would have liked to pass on directly for this purpose only. Parents are on board with this but they are mid 70s so timing (hopefully!) will be an issue.

 Are you suggesting we could fund this by SP income in your last sentence? Wasn’t sure what you were trying to say.