When can I retire?

Pat38493

Albermarle said:

Roger175 said:

NoMore said:

Tax free status of ISA is a misnomer, its only the gains that are tax free, you've still paid tax on contribution, a lot of people ignore/miss this fact and hear that Pensions are taxed on withdrawal so automatically assume ISA is better because its 'tax free'. In reality there are very few situations where ISA is more tax efficient than Pension, if we are talking about for after pension access age.

At the end of the day, they are both just tax wrappers with different advantages/disadvantages and you should look at them for your situation and work out with is most tax efficient for you. You shouldn't just hear ISA are 'tax free' and assume therefore are the best. 

Totally agree. The only good thing about ISAs is the ability to draw them at any age, compared to minimum 55 (57) for pensions. 

In the worst case, pensions are 6.25% more efficient and can be many many times more. I stated above that I intend to draw down my DC pot to maximise the £12,570 tax allowance, but almost the entire value of my pension was funded by making lump sum contributions each year to mop up what I would otherwise have paid higher rate tax. Therefore every £100 in my pension, effectively only cost me £60, so everything I can draw out tax free over the next 7 years before I start drawing SP, represents a 66.6% gain (before any investment gain). 

I am a pensions fan, but ISA's do have more going for them than just the ability to withdraw at any age .
1) You can add up to £20K pa to them without having to earn that much.
2) They are simpler to operate than a pension, and easier to withdraw money.
3) Rules around pensions are more complicated than ISA's
4) If you have to pay 40% tax on the pension income, the benefit is reduced and becomes negative if you only got 20% tax relief on the way in. 

But weirdly they are more difficult to transfer from one provider to another, as I found recently.

af1963

A few thoughts ...

(Assuming here your target is £30k total household income, net after any tax; all figures in todays prices and allowing a little extra spending for contingency, and assuming no further investment growth or contributions.)

Assuming you retire at 60, you'll have about 7 years where you have no state pension, so your full £12570 tax allowance is available. You can use that, plus the associated tax free 25%, to withdraw almost £17k from the pension, without paying tax on it.  Spouse's state pension adds about £11k to take you to £28k, and you can cover your other spending from the ISAs or cash savings, and pay no tax.   Assume you need to spend £17k x7 from the pension (£119k) and allow £7k  x7 from the savings  (£49k)

After 67 you'll get approx £22k from two state pensions. You're still able to top up your spending from savings/ISA but you'll be drawing a bit more from it; still not paying any tax. Assume you need to draw £10k per year from savings at this point.  You'd start with what's left from your pension ( £230k) and ISA/savings (£650k). Enough there to last 88 years withdrawing £10 annually after age 67 ... 

If you stop earlier than 60, but after your spouse gets state pension, each year "costs" an extra £17k from pension and £7k from savings.  You could stop at 57 and still have £800k available from 67, which is enough for 80 years. 

If you stop earlier than spouse's state pension age, you need to cover an additional £11k per year from savings until their pension starts, So each earlier year 'costs' about £35k.  You could stop at 55 and still have £730k available at 67, enough for over 70 years.  Or stop today at 50 and still have about £550k available at age 67, enough for about 50 years.  (Before you reach 57, your spending would need to come from savings rather than pension.)

Even allowing for a cash fund for possible care needs or an inheritance - all looks like there's plenty available.

If your £30k target is just for you, excluding spouse pension, ( total household income £41k plus a little for contingencies) then the figures for very early retirement get tighter but still possible:
Current savings and pensions: £1050k
each year after 67 you need to spend about £20k
from 60 to 67: £35k per year = £245k; balance about £800k when reaching 67, enough for 40 y
from 57 fo 60 £35k per year = £105k; balance about £700k when reaching 67, enough for 35 y
from 55 to 57 £45k per year = £90k; balance about £600k when reaching 67, enough for 30 y
from 50 to 55 £45k per year = £225k; balance about £370k when reaching 67, enough for under 20 y



If you want to keep working, then while you're still employed, shovelling money into your pension gives it the boost that others have mentioned.  If your employer matches or partially matches your pension contributions, or offers salary sacrifice as a method of contributing ( which saves the NI contributions), it makes even more sense to put as much as you can into your workplace scheme - you can salary sacrifice down to minimum wage level, even if that means using savings for current spending.  And you can add further contributions to a personal pension / SIPP up to a maximum personal contribution( across all pensions) of your total earnings, moving cash from your other savings to get the tax relief.

Also while you're still working, you might want to reduce your hours as you approach retirement.

af1963

You also say spouse has "little" private pension, is 60, and is not working.  Assuming this is a defined contribution pension, they can access up to £17k annually from their pension *right now* without paying tax on it; even if they just stick it in savings/ISA. Leaving it till later (when SP has started), 75% of the withdrawals would be taxable.

Roger175

af1963 said:

A few thoughts ...

(Assuming here your target is £30k total household income, net after any tax; all figures in todays prices and allowing a little extra spending for contingency, and assuming no further investment growth or contributions.)

Assuming you retire at 60, you'll have about 7 years where you have no state pension, so your full £12570 tax allowance is available. You can use that, plus the associated tax free 25%, to withdraw almost £17k from the pension, without paying tax on it.  Spouse's state pension adds about £11k to take you to £28k, and you can cover your other spending from the ISAs or cash savings, and pay no tax.   Assume you need to spend £17k x7 from the pension (£119k) and allow £7k  x7 from the savings  (£49k)

After 67 you'll get approx £22k from two state pensions. You're still able to top up your spending from savings/ISA but you'll be drawing a bit more from it; still not paying any tax. Assume you need to draw £10k per year from savings at this point.  You'd start with what's left from your pension ( £230k) and ISA/savings (£650k). Enough there to last 88 years withdrawing £10 annually after age 67 ... 

If you stop earlier than 60, but after your spouse gets state pension, each year "costs" an extra £17k from pension and £7k from savings.  You could stop at 57 and still have £800k available from 67, which is enough for 80 years. 

If you stop earlier than spouse's state pension age, you need to cover an additional £11k per year from savings until their pension starts, So each earlier year 'costs' about £35k.  You could stop at 55 and still have £730k available at 67, enough for over 70 years.  Or stop today at 50 and still have about £550k available at age 67, enough for about 50 years.  (Before you reach 57, your spending would need to come from savings rather than pension.)

Even allowing for a cash fund for possible care needs or an inheritance - all looks like there's plenty available.

If your £30k target is just for you, excluding spouse pension, ( total household income £41k plus a little for contingencies) then the figures for very early retirement get tighter but still possible:
Current savings and pensions: £1050k
each year after 67 you need to spend about £20k
from 60 to 67: £35k per year = £245k; balance about £800k when reaching 67, enough for 40 y
from 57 fo 60 £35k per year = £105k; balance about £700k when reaching 67, enough for 35 y
from 55 to 57 £45k per year = £90k; balance about £600k when reaching 67, enough for 30 y
from 50 to 55 £45k per year = £225k; balance about £370k when reaching 67, enough for under 20 y



If you want to keep working, then while you're still employed, shovelling money into your pension gives it the boost that others have mentioned.  If your employer matches or partially matches your pension contributions, or offers salary sacrifice as a method of contributing ( which saves the NI contributions), it makes even more sense to put as much as you can into your workplace scheme - you can salary sacrifice down to minimum wage level, even if that means using savings for current spending.  And you can add further contributions to a personal pension / SIPP up to a maximum personal contribution( across all pensions) of your total earnings, moving cash from your other savings to get the tax relief.

Also while you're still working, you might want to reduce your hours as you approach retirement.

af1936 - Almost the perfect answer, thanks!
The OP's figures are not actually too different from mine, apart from the distribution (I have more in Sipp and less is ISAs etc) and your answer is hugely reassuring. I have just retired at 60, but am beginning to think I should have gone earlier!  

FIREDreamer

Roger175 said:

af1963 said:

A few thoughts ...

(Assuming here your target is £30k total household income, net after any tax; all figures in todays prices and allowing a little extra spending for contingency, and assuming no further investment growth or contributions.)

Assuming you retire at 60, you'll have about 7 years where you have no state pension, so your full £12570 tax allowance is available. You can use that, plus the associated tax free 25%, to withdraw almost £17k from the pension, without paying tax on it.  Spouse's state pension adds about £11k to take you to £28k, and you can cover your other spending from the ISAs or cash savings, and pay no tax.   Assume you need to spend £17k x7 from the pension (£119k) and allow £7k  x7 from the savings  (£49k)

After 67 you'll get approx £22k from two state pensions. You're still able to top up your spending from savings/ISA but you'll be drawing a bit more from it; still not paying any tax. Assume you need to draw £10k per year from savings at this point.  You'd start with what's left from your pension ( £230k) and ISA/savings (£650k). Enough there to last 88 years withdrawing £10 annually after age 67 ... 

If you stop earlier than 60, but after your spouse gets state pension, each year "costs" an extra £17k from pension and £7k from savings.  You could stop at 57 and still have £800k available from 67, which is enough for 80 years. 

If you stop earlier than spouse's state pension age, you need to cover an additional £11k per year from savings until their pension starts, So each earlier year 'costs' about £35k.  You could stop at 55 and still have £730k available at 67, enough for over 70 years.  Or stop today at 50 and still have about £550k available at age 67, enough for about 50 years.  (Before you reach 57, your spending would need to come from savings rather than pension.)

Even allowing for a cash fund for possible care needs or an inheritance - all looks like there's plenty available.

If your £30k target is just for you, excluding spouse pension, ( total household income £41k plus a little for contingencies) then the figures for very early retirement get tighter but still possible:
Current savings and pensions: £1050k
each year after 67 you need to spend about £20k
from 60 to 67: £35k per year = £245k; balance about £800k when reaching 67, enough for 40 y
from 57 fo 60 £35k per year = £105k; balance about £700k when reaching 67, enough for 35 y
from 55 to 57 £45k per year = £90k; balance about £600k when reaching 67, enough for 30 y
from 50 to 55 £45k per year = £225k; balance about £370k when reaching 67, enough for under 20 y



If you want to keep working, then while you're still employed, shovelling money into your pension gives it the boost that others have mentioned.  If your employer matches or partially matches your pension contributions, or offers salary sacrifice as a method of contributing ( which saves the NI contributions), it makes even more sense to put as much as you can into your workplace scheme - you can salary sacrifice down to minimum wage level, even if that means using savings for current spending.  And you can add further contributions to a personal pension / SIPP up to a maximum personal contribution( across all pensions) of your total earnings, moving cash from your other savings to get the tax relief.

Also while you're still working, you might want to reduce your hours as you approach retirement.

af1936 - Almost the perfect answer, thanks!
The OP's figures are not actually too different from mine, apart from the distribution (I have more in Sipp and less is ISAs etc) and your answer is hugely reassuring. I have just retired at 60, but am beginning to think I should have gone earlier!  

Same as me, could have gone 3 years ago at 57, but it’s never a bad thing to have more money!

kempiejon

FIREDreamer said:

Roger175 said: I have just retired at 60, but am beginning to think I should have gone earlier!  

Same as me, could have gone 3 years ago at 57, but it’s never a bad thing to have more money!

I was all set to go a few years back. Year end 04/2019 I had just about investment income to live off satisfactorily. I was going to rerun the test 04/2020 and confirm I had reached financial independence. Making work optional and a glide out possible. Then we had Covid. That slammed the brakes on my plans as capital and income from my investments got quite badly affected.
I was employed throughout and I suppose we all saved money by not doing anything. I upped my investments and added more pension years to my local government pension.

That idea of hanging on for another year or two to fatten the income or safety net is reassuring, as it putting off that big decision.

One More Year Syndrome is the urge to continue in your job for another year even though you have achieved financial independence. It is the fear of not having enough money to retire early and the fear of anticipated regret about pulling the trigger too soon.

FIREDreamer

kempiejon said:

FIREDreamer said:

Roger175 said: I have just retired at 60, but am beginning to think I should have gone earlier!  

Same as me, could have gone 3 years ago at 57, but it’s never a bad thing to have more money!

I was all set to go a few years back. Year end 04/2019 I had just about investment income to live off satisfactorily. I was going to rerun the test 04/2020 and confirm I had reached financial independence. Making work optional and a glide out possible. Then we had Covid. That slammed the brakes on my plans as capital and income from my investments got quite badly affected.
I was employed throughout and I suppose we all saved money by not doing anything. I upped my investments and added more pension years to my local government pension.

That idea of hanging on for another year or two to fatten the income or safety net is reassuring, as it putting off that big decision.

One More Year Syndrome is the urge to continue in your job for another year even though you have achieved financial independence. It is the fear of not having enough money to retire early and the fear of anticipated regret about pulling the trigger too soon.

It was also a lack of confidence. I bought an RPI JL annuity last October pretty much at rates peak at an annuity rate of 3.8% (close to a theoretical SWR) to cover all day to day spends leaving the residual drawdown pot for big spends and luxuries (as well as a S&S ISA).

Could confidently make the retirement jump afterwardx - such annuity rates were not a possibility 3 years ago. And no bond investments to take a hit either - pensions and ISA always been equity.

Sadly come state pension any drawdown income will be at 40% tax rate so will leave that for the kids then - even if subject to inheritance tax at 40% (better than drawing at 40% with 40% inheritance tax on top which is a tax rate of 64% - yuk!)