Looking to retire in 2 years time when I'm 65

onthemend

Hi everyone, after reading this forum for several months and seeing everyone's plans, I’ve decided I want to look to take early retirement and I would love to hear everyone’s thoughts on our plan. So here are the numbers:

Current - status

Me Age 63Y 5M

Salary 40K – Gross - 31K Net

Pensions

SIPP 1 – 124K

Work SIPP 2 – 34K – currently paying in 5% self +5% company.

ISA 20k

 

Wife Age 63Y 10M – retired.

Small LGPS Pension paying 3.1K

ISA 20K

 

State Pension

Me Full Pension – Nov 27

Wife Full Pension – Jan 27

 

House value £375K

 

Outgoings – The Number - £25K/year – No mortgage – 1 small car

 

The Plan

July 26 – Take early Retirement. – Work  SIPP – take 25% cash – predicted – 10K

July26 – Jan 27 – Fund outgoings from Savings – 7 months – 2K/month + LGPS Pension

Jan27 – Nov 27 – Fund outgoings from Savings-11 months – 1.5K/month + 1 State Pension + LGPS Pension

Jan 27 – Fund Outgoings from 2 State Pensions + 1 LGPS Pension + SIPP Drawdown - 5K

 

I expect cash funds to increase between now June 24 and July 26.

 

Look forward to hearing of any alternative strategies/ideas based on our current income 

p00hsticks

I've not really crunched your numbers, but my main concern if I were in your shoes would be how the surviving spouse is going to manage when the first goes - two full state pensions will meet your number, but one wouldn't come very close, and in my experience outgoings are likely to remain the same or even higher. 

Phossy

Very simplistically, if I read it right, then to cover your £25K spend per year then that is already covered from November 2027 with 2 full state pensions and the LGPS.

That leaves you with £158 K in SIPPS as of right now and £40 K in ISA's.

By my reckoning (don't trust that!), you could achieve £25K net per year by drawing £27,060 per year from your SIPP (16,760 tax free and £10,300 at 20% tax). If you've already used some of your 12,570 personal allowance, then you'll need to draw more from your SIPP. You could also fund that gap from retiring to SPA through savings, though might be better to hold onto those as a rainy day fund or treat pool!

By the time you draw your SP then you probably have at least £120K ish in the SIPP; at 4% withdrawal that would be £3K per annum to add to your state pensions LGPS and savings. Looks Ok to me if £25K net is the target.

All in todays money.

Phossy

p00hsticks said:

I've not really crunched your numbers, but my main concern if I were in your shoes would be how the surviving spouse is going to manage when the first goes - two full state pensions will meet your number, but one wouldn't come very close, and in my experience outgoings are likely to remain the same or even higher. 

It's fair point about assessing the needs of a surviving spouse, however, all the data I see is that a single person typically spend 70±5% of that of a couple (2/3rds to 3/4ths for the fraction lovers).

Triumph13

Surviving spouse is definitely the key issue, as p00hsticks pointed out.

Crunching the numbers, if we just add £8k for the next two years of contributions, that brings your SIPP total to £166k.  That turns into basically £125k taxable and £41k of TFLS.  You have 18 months to bridge until the second SP comes on line which means £37.5k @ £25k pa.  Your wife's pensions bring in just under £15k in that period so you need to burn through about £22.5k of your TFLS or your other cash in that time.

Once all the pensions are online you have £26k pa post tax.  If you draw £5k pa = 4% of your £125k in the SIPPs, that brings you up to £30k pa.  Until your SP comes online that drawdown is tax free so that puts the £25k pa up to £30k pa for that period too.

The crunch is after the first death.  If your wife dies first and you just inherit 35% of her LGPS, then even with the £5k of drawdown you are only looking at £16.7k post tax so 2/3rds of your £25k.  That feels tight and gives very little slack to reduce drawings if you get a bad sequence of returns.

It probably all works, but I think I'd be looking to keep hold of much of your cash ISAs and remaining TFLS as a hedge against the early death of one of you, and I'd definitely not be drawing the full £5k pa from the pension whilst you are both still alive unless market returns have been favourable.

xylophone

Had your wife considered contributing to a pension?

Even with no relevant earnings, up to age 75 she can contribute up to £2880 (net) per annum and the provider will claim tax relief of up to £720 per annum and add it to her pot.

https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired/p2

p00hsticks

Phossy said:

p00hsticks said:

I've not really crunched your numbers, but my main concern if I were in your shoes would be how the surviving spouse is going to manage when the first goes - two full state pensions will meet your number, but one wouldn't come very close, and in my experience outgoings are likely to remain the same or even higher. 

It's fair point about assessing the needs of a surviving spouse, however, all the data I see is that a single person typically spend 70±5% of that of a couple (2/3rds to 3/4ths for the fraction lovers).

.... which sort of makes my point. There will be a shortfall when the survivors income drops to around 1/2 of what they were receiving as a couple 

OldScientist

Just to echo what others have said about the potential for single remaining spouse, although it might be nice to put some numbers to it.

First of all let's look at some rather distasteful statistics, at 64yo, about 50% of males can expect to live another 22 years, while 50% of females can expect to live another 25 years. Therefore, in about 22-25 years, there is a 25% chance of both partners in a M/F couple being alive, a 50% chance of only one being alive, and a 25% chance of neither being alive (these are a rough guide - it is possible to work these out more accurately, but the difference won't be that great). It is only  the middle case that may cause a problem for the remaining spouse.

According to the PLSA retirement living standards (https://www.retirementlivingstandards.org.uk/), minimum and moderate lifestyles need to be supported by £22.4k and £43.1k for a couple and £14.4k and £31.3k for a single retiree.

Your target expenditure of £25k lies just above the minimum standard for a couple (i.e. about 12% of the way towards moderate). Assuming about 12% of the way towards moderate for a single person that would be about £16.5k.

In the long term (i.e. after the SP has kicked in and ignoring tax which will make the calculations a bit tighter) while both of you are alive, you will have more guaranteed income (11.5+11.5+3.1=£26.1k) than you are expecting to spend, so may be able to continue to save (or at least to avoid drawing down the portfolio). I note that for a 30 year retirement, 3% in the following calculations is probably at the lower end for the UK but 4% is probably pushing it. If you both survive for 20 years, then the portfolio only needs to cover 10-15 years and the 3% becomes closer to 5.0%.

Your wife survives
Guaranteed income: £14.6k (11.5k+3.1k)
3% of £125k portfolio: £3.7k
Total: £18.3k

You survive
Guaranteed income:  £12.6k (11.5k+0.35*3.1k) - the fraction of LGPS depends on when your Wife's service was
3% of £125k portfolio income: £3.7k
Total: £16.3k

Your funding is a bit tight, but given the range of assumptions needs some further thought (i.e., trying to estimate your own likely expenses). One way of providing some additional income where you survive would be to take out a term life insurance policy on your wife - the payout can be placed in your portfolio and will then increase your portfolio income. Each £10k on the policy will provide about £300 of additional income, but will (of course) cost in premiums.

I also note that a joint life RPI protected annuity with 100% survivor benefit currently has a payout rate of 3.7% at 65yo (this will depend on your age and gilt yields). This would increase the amount expected from the portfolio from £3.7k to £4.6k, but at the expense of reducing legacy (at least in the short term) and no longer benefiting from markets better than the worst ones from history.

A third way (not nice to contemplate) would be work a bit longer (perhaps reducing hours) since this would increase savings and reduce the amount drawn from the portfolio to cover the period before the SP kicks in.

Lastly, a 4th way -  if necessary, could you downsize to release equity (and income)?