Thinking of retiring in 18 months...

HudsonBay

Hi everyone.  I have been reading this forum for a few years and its been really helpful. We are thinking of retiring in 18 months time and would love your thoughts on our plan so heres the numbers.

Me:

Age: 49

Pensions

DC1: £297k

DC2: £93k (currently contributing £5k per month via salary sacrifice)

ISA: £108k

Other half:

Age: 59

Pensions:

DB1:  Will pay £19.8k pa from 60 - index linked and survivor benefits of 2/3

DB2:  Will pay £10.5k pa from 60 - index linked and survivor benefits of 50%

DC: £274.5k (currently contributing £3333 per month via salary sacrifice)

ISA: £165k

Cash ISA: £23k

Mortgage and debt free

Joint saving savings £32.5k (£22k of which is instant access)

State pension:  Other half as full NI contributions, I have 2 years more to do (including this year) so envisaging we will both have full state pensions.

We have a house in the UK and a holiday home in Spain.  I haven’t included values as we don’t intend to sell in the short term.  We may downsize the UK one at some point but not yet certain so I have ignored it for these purposes.

Our number (after tax) is £52k pa.  There is a lot of wiggle room in that and essential expenditure is £31.5k pa (to be fair its probably way more than essential as it would mean we could still get over to Spain but we have classed it as essential as its the base level we would want in retirement if that makes sense).

Plan for the next 18 months is to continue with our pension contributions and up other half’s if we can.  Cash savings between now and then will be to cover cap ex we want in the immediate short term post retirement (we want to do a bit of work to the UK house) and initial cash flow post retirement.  We may get one more ISA done in 24/25 tax year but that will only be if we have enough cash savings (so a bit dependent on whether I get a bonus or not).

We would retirement in December ’25.  We need to look at whether its better for OH to start taking his DB benefits at 60 or wait till April ’26 (if the latter we will cashflow Jan to 5 April ’26 from savings).

Once we retire we will be in receipt of both of OH’s DB pensions and he will access his DC pot up to the higher rate tax threshold, we will use ISAs for the balance.  Once he gets access to his state pension and I can access my DC pot, we will use my DC pots for the balancing amount we need over the DB pots and one state pension.

Looking forward to reading any thoughts on this.  Do you think we need to work for longer to increase the pensions or are we reasonably safe retiring in 18 months time?  

eastcorkram

Thoughts are....I'd love to know what sort of job or jobs , your OH has had!

hugheskevi

Few thoughts:

• I'd be concerned that even with existing savings OH won't be able to extract DC pension without going into higher rate. Income from DB from age 60 is £30K, permitting UFPLS withdrawals of £26.7K for 7 years which would use £187K of the £274.5K. At State Pension, income will be £41.5K. With higher rate tax threshold frozen under Labour, and probably under Conservatives, until 2028 and with Triple Lock under either party along with indexation on DB pensions, that probably means little or no higher rate headroom from State Pension age.

• I'd have no concerns about cashflow, given you can access about £400K of cash if you include a 25% PCLS from OH DC.

• Given the above, I'd be thinking about maximising higher rate relief for OH and probably putting 100% of permitted earnings into a pension for OP, using ISAs if necessary.

• I'd be considering accessing OH's DB pensions ASAP, even right now, depending on the actuarial reduction, and using salary sacrifice of earnings into pension to keep within higher rate thresholds if possible. Commuting for lump sum could be a difficult decision depending on the rate.

• Once OP reaches State Pension age, income needs will largely be met from DB pension and State Pensions, so ISAs and DC only have to cover next 18 years. They need to fund about £25K p/a for 7 years then  about £15K p/a for 11 years, a total of £340K. So there looks to be plenty of funding available and retirement in 18 months seems fine. I'd have thought retirement immediately would be viable.

tacpot12

You are safe to retire in 18 months time. I've put your numbers into a spreadsheet, and done some very rough calculations. Based on these, I would say that you are hardly going to have to touch your own Pension savings until you are in your eighties. I crudely assumed that you would draw on your other half's pensions and ISA savings, and ran these down to zero. In reality, you would want to draw a bit from both pension provision, but due to your age difference there will be an offset as to when you can start doing this. Using up all his provision would keep him going until he was 92 and you 83. You then have 30 years of investment growth in your own investments to keep the two of you going until you die.

I took tax on £50K of income into account, but there is a risk that the tax thresholds don't move inline with inflation and you end up having to increase your withdrawals to cover inflation AND some extra tax that is due.  

I also assumed that inflation would be taken care of by growth in your investments, but you have so much excess that I don't think you don't need to worry about inflation too much.

Cus

Try the firecalc app, very helpful 

MetaPhysical

My advice to you, if you can afford to do so, is to just do it.  I am thinking the same in 14 months. I am at the point I can't stand the corporate BS another day longer but I must continue for a wee bit longer.  The one thing in your life that is diminishing is your time.  Frankly and brutally, every day that goes by is another day less you have left in your life. Think back ten years.....  Doesn't seem five minutes ago does it???? Just do it. I can think of very few people who can honestly say "I should have worked longer".

HudsonBay

eastcorkram said:

Thoughts are....I'd love to know what sort of job or jobs , your OH has had!

He's in finance and as he says, lucky enough to be old enough to catch the tail end of private sector final salary schemes.  

HudsonBay

hugheskevi said:

Few thoughts:

• I'd be concerned that even with existing savings OH won't be able to extract DC pension without going into higher rate. Income from DB from age 60 is £30K, permitting UFPLS withdrawals of £26.7K for 7 years which would use £187K of the £274.5K. At State Pension, income will be £41.5K. With higher rate tax threshold frozen under Labour, and probably under Conservatives, until 2028 and with Triple Lock under either party along with indexation on DB pensions, that probably means little or no higher rate headroom from State Pension age.

• I'd have no concerns about cashflow, given you can access about £400K of cash if you include a 25% PCLS from OH DC.

• Given the above, I'd be thinking about maximising higher rate relief for OH and probably putting 100% of permitted earnings into a pension for OP, using ISAs if necessary.

• I'd be considering accessing OH's DB pensions ASAP, even right now, depending on the actuarial reduction, and using salary sacrifice of earnings into pension to keep within higher rate thresholds if possible. Commuting for lump sum could be a difficult decision depending on the rate.

• Once OP reaches State Pension age, income needs will largely be met from DB pension and State Pensions, so ISAs and DC only have to cover next 18 years. They need to fund about £25K p/a for 7 years then  about £15K p/a for 11 years, a total of £340K. So there looks to be plenty of funding available and retirement in 18 months seems fine. I'd have thought retirement immediately would be viable.

Thanks for this, really useful and definitely given me food for thought.  I was thinking that one more year was a trap I didn't want to fall into in 18 months time but it looks like we may have already fallen into it!

HudsonBay

tacpot12 said:

You are safe to retire in 18 months time. I've put your numbers into a spreadsheet, and done some very rough calculations. Based on these, I would say that you are hardly going to have to touch your own Pension savings until you are in your eighties. I crudely assumed that you would draw on your other half's pensions and ISA savings, and ran these down to zero. In reality, you would want to draw a bit from both pension provision, but due to your age difference there will be an offset as to when you can start doing this. Using up all his provision would keep him going until he was 92 and you 83. You then have 30 years of investment growth in your own investments to keep the two of you going until you die.

I took tax on £50K of income into account, but there is a risk that the tax thresholds don't move inline with inflation and you end up having to increase your withdrawals to cover inflation AND some extra tax that is due.  

I also assumed that inflation would be taken care of by growth in your investments, but you have so much excess that I don't think you don't need to worry about inflation too much.

Thanks for this tacpot12.  Helps to calm my paranoia

HudsonBay

MetaPhysical said:

My advice to you, if you can afford to do so, is to just do it.  I am thinking the same in 14 months. I am at the point I can't stand the corporate BS another day longer but I must continue for a wee bit longer.  The one thing in your life that is diminishing is your time.  Frankly and brutally, every day that goes by is another day less you have left in your life. Think back ten years.....  Doesn't seem five minutes ago does it???? Just do it. I can think of very few people who can honestly say "I should have worked longer".

It's one we need to think through.  We both have a few things we want to see through in the businesses we work for and neither of us would want to end our careers on not seeing it through but that may come back to bite us as you are completely correct - time is the thing we don't have enough of!