How to make retirement possible

yellow123fox

I was wondering if someone here could help me out because I’m not getting my numbers to add up and its making me think that there was no point in retirement saving as we’ll never be able to retire. A few life events have prompted me into an assessment and I don’t like the sound of things so far.

Me and my wife are both 60 and will be able to claim a full state pension at 67 (we’ve checked this). The range of pensions that we have is:

A DC pot in my name currently at circa £380k

A small DC pot in my wife’s name at circa £25k, and

An old LGPS pension in my wife’s name that will only pay about £1k/year

The expression of interest form means my wife would have access to the DC pot in my name should I die first so it makes sense to think of it as a single pot in my thinking. Though this wouldn’t work out from a tax viewpoint really.

I have calculated our “essential bills spend” at £18.5k/year - I can’t believe it so low - but to have this has an income in an early retirement period (I had originally thought we’d have been able to retire at 60 or 62 or 65) you’d need to withdraw £20k from the pension each year.

To be able to do this at at 3% or 4% withdrawal rate though, you’d need to have a pension pot of £500-£666k, and there’s the problem. We’ll never have that sized pot in the time available. 

I wouldn’t really want to withdraw more than that because of the withdrawal of a state pension after the death of a spouse. My mother has now outlived my dad by 15 years and if that were to happen to one of us, they’d need to make some hefty withdrawals from the DC pots. Separately, she’s been in a care home for a while now and knowing the costs of that (at the moment), making provisions for that is also essential.

The alternative of working to state pension age is equally unattractive though. Having a full state pension means you’d be paying full income tax, which to mean sort of defeats the purpose of having a DC pension because then you’re simply not getting your own money out. So I wouldn’t want to do that either, the original plan in my head was to stop withdrawals and live on two state pensions if possible. I certainly wouldn't be wanting to pay tax on pension withdrawals.

Can anyone see an answer to this seeming paradox?

We also have cash savings of something like £225k but thats kept in easy access cash accounts as an emergency/rainy day fund and I’d rather not touch that.

On-the-coast

The good news is you have massively more savings (pensions & otherwise) than is needed for a relatively small 20k per year draw down for 7 years. 

The bad news is that you really need to brush up on your maths….

barnstar2077

No one needs a £200k+ rainy day fund.  Taking a small percentage from it, combined with the DC pots and the £1k DB is the answer. 

kimwp

What will the essential spends be if one of you passes?

Marcon

yellow123fox said:

The expression of interest form means my wife would have access to the DC pot in my name should I die first so it makes sense to think of it as a single pot in my thinking. Though this wouldn’t work out from a tax viewpoint really.

Why not? If you die before age 75 she could inherit the lot tax free under current legislation (although that could change, of course...); otherwise she'd pay income tax at her marginal rate on any withdrawals, so probably no worse than you'd have paid had you outlived her.

Gary1984

I don't understand why you'd avoid taking pension just because you'd need to pay some tax on it. You'll still have benefited from employer contributions, tax free lump sum and tax free dividends and capital gains. Paying basic rate tax on a portion of it isn't the end of the world.

Phossy

Looks to me as though you have ample to retire. From aged 67 you will have approx 23k on state pensions (in todays money) so you are good there. From now (60) to 67 you have £580,000 to see you through, or 82,000 a year. I'd retire now and get spending!

Mutton_Geoff

Phossy said:

Looks to me as though you have ample to retire. From aged 67 you will have approx 23k on state pensions (in todays money) so you are good there. From now (60) to 67 you have £580,000 to see you through, or 82,000 a year. I'd retire now and get spending!

You've hit the nail on the head in your last sentence. It's very hard to mentally switch from the accumulation to decumulation phase for many people.

Nebulous2

Any big decision in life involves compromises.


Think about buying a car, where you want fast, cheap and roomy. The fast ones often won't be roomy. The fast and roomy ones won't be cheap. The cheap roomy ones won't be fast. You need to compromise on these three variables and that will often be very individual where you end up. 

Early retirement is no different. To fund a lifestyle from your own resources requires compromises.. A big one is often do I work for another year to get a bigger income in retirement or do I stop now to get that extra year doing what I want, and have a bit less to spend. 

An issue I see is that you have hemmed yourself in with arbitrary rules and aren't willing to compromise. You don't want to pay tax. You don't want to spend your emergency funds. You don't want to draw more than 4% in the initial years when you need more money until state pension kicks in. 

You have retirement funds at a level many people can only dream of. You only need to work out what is important to you. 

A couple of other practical thoughts.

Firstly pension for your wife. I'm a tax payer due to my DB pension and will continue to be for the rest of my life in almost every possible scenario. My wife is unlikely to be a tax payer until state pension age. It's frustrating that we can't use her personal allowance at the moment. 

You regard your pension as effectively joint, but the law doesn't. I'd get more pension into her name so you don't end up in the position we are in, and can use her personal allowance before the state pension. She can pay up to her income every year into her pension. You could do that and live on your savings - gain on the tax relief - then withdraw it all tax-free before SPA. 

Final thought. You haven't said what you earn,  or what you spend at the moment. The phrase 'essential bill spend' seemed unusual. You need to enjoy retirement and not just meet the essentials. How much we need in retirement is individual. The what is your number thread at the top of the forum gives a huge range of answers. I'd have another look at that in terms of what do we need in retirement, rather than what is essential. Remember two personal allowances will let you have about £25k tax-free per year. 

Good luck. You're in a strong position and with some adjustment in your thinking it will certainly be possible to retire sooner than SPA. 

SouthCoastBoy

yellow123fox said:

I was wondering if someone here could help me out because I’m not getting my numbers to add up and its making me think that there was no point in retirement saving as we’ll never be able to retire. A few life events have prompted me into an assessment and I don’t like the sound of things so far.

Me and my wife are both 60 and will be able to claim a full state pension at 67 (we’ve checked this). The range of pensions that we have is:

A DC pot in my name currently at circa £380k

A small DC pot in my wife’s name at circa £25k, and

An old LGPS pension in my wife’s name that will only pay about £1k/year

The expression of interest form means my wife would have access to the DC pot in my name should I die first so it makes sense to think of it as a single pot in my thinking. Though this wouldn’t work out from a tax viewpoint really.

I have calculated our “essential bills spend” at £18.5k/year - I can’t believe it so low - but to have this has an income in an early retirement period (I had originally thought we’d have been able to retire at 60 or 62 or 65) you’d need to withdraw £20k from the pension each year.

To be able to do this at at 3% or 4% withdrawal rate though, you’d need to have a pension pot of £500-£666k, and there’s the problem. We’ll never have that sized pot in the time available. 

I wouldn’t really want to withdraw more than that because of the withdrawal of a state pension after the death of a spouse. My mother has now outlived my dad by 15 years and if that were to happen to one of us, they’d need to make some hefty withdrawals from the DC pots. Separately, she’s been in a care home for a while now and knowing the costs of that (at the moment), making provisions for that is also essential.

The alternative of working to state pension age is equally unattractive though. Having a full state pension means you’d be paying full income tax, which to mean sort of defeats the purpose of having a DC pension because then you’re simply not getting your own money out. So I wouldn’t want to do that either, the original plan in my head was to stop withdrawals and live on two state pensions if possible. I certainly wouldn't be wanting to pay tax on pension withdrawals.

Can anyone see an answer to this seeming paradox?

We also have cash savings of something like £225k but thats kept in easy access cash accounts as an emergency/rainy day fund and I’d rather not touch that.

I don't understand the issue as you have 630k and in the post you say you need between 500 and 666k, so you have what you want?

cfw1994

Phossy said:

Looks to me as though you have ample to retire. From aged 67 you will have approx 23k on state pensions (in todays money) so you are good there. From now (60) to 67 you have £580,000 to see you through, or 82,000 a year. I'd retire now and get spending!

Indeed.
or die the richest in the graveyard🤷‍♂️

An odd first/only post: let’s see if they return to thank people here, or if this is just a teasing troll testing our replies 👀