Retirement plan sense check

fuelcrusher

Sense check / opinions welcome:

Finances:

Aviva Workplace pension: £810,000 (roughly 70/30 fund)

Sipp: £300,000 (HSBC All world & Moneymarket funds)

ISAs: £138,000 (Global All cap, HSBC All world & Moneymarket funds)

Cash: £100,000 (instant access 4.4%)

Overall allocation of above roughly 70% shares, 15% Bonds, & 15% Cash

Also around £80k in wifes Sipp & ISA.

Spending over last 5 years £37K, £33K, £40K, £40K, £36K, & £33K to date this (financial) year.

No debt. Own home.

 

I’ll be 53 in August; this might be when I decide to retire. I’m currently in the process of reducing my hours at work to 70% of full time.

 

I’m not sure what drawdown strategy I’ll use, looked at lots, can’t decide. Our aim is to maintain our current lifestyle so I think a particular strategy may not be required.

Previous thoughts were always to minimize tax by drawing down from outside pensions then using tax free lump sum and personal allowance to pull from pension at minimal, if any, tax. This would of course mean the bulk of money remained in the pensions later in life. With the IHT changes however I’m thinking to switch this around.

If I use UFPLS I think I can pull around £58,000 from the pension (14,500 tax free, pay just over £6000 tax, Scotland rates) giving me almost £52,000 net. More than we need. Surplus would either go into ISAs or be gifted to children (regular gifts from income).

In a way I like the new plan because it means I leave my ISAs and cash alone. Any major off budget costs that may / will crop up over the years can then use that money and avoid having to withdraw higher rate tax amounts from the pension.

Downside is, according to Voyant, I won’t be able to get all my money out of the pensions at lower rate tax. Massively affected by a DB pension starting at 65 (£7,000 todays money) and state pension a couple of years later.

Issues / stressors:

Having to bridge to 55. Easily have enough for this but nervous about using it. I can start pension at 55 but then the rules change, and I may have to skip a year until 57 (not sure if this is clarified yet). This might also eat into my non pension funds.

Still have two kids at home, 13 and 15, nervous about their future, getting a start at work etc.

We’re considering a house move at some time which may require purchasing first then selling our current home.

Mental aspects of going from accumulation to decumulation.

So, apologies for the wall of text but looking for opinions. Does the above seem a good plan. Am I seeing the tax situation right? Is it time to seek paid advice?

Albermarle

My first thought is do you actually really want to retire at 53? Does your wife want you to retire at 53?
For many people that would be rather early mentally to be giving up work. Only a very small % of people retire at that age.
For others it would be a dream come true of course.
Depends I suppose whether you hate/enjoy your job, or something inbetween, or maybe feel you need a change of direction, or a person with lots of hobbies/sports/interests and you could fill the time twice over.
Just retiring because you can afford it is probably not a good idea.

 Is it time to seek paid advice?

That is a regular question on here and there is no black and white answer. Except to stick with IFA's rather than big companies. 

It seems like you have got a pretty good grip on your finances, but maybe a one off advice session could give you more confidence. Would cost a couple of grand at least, probably more. Also it seems some IFA's are not that interested unless you agree to ongoing charges, and many are quite busy.

Dazed_and_C0nfused

You don't say how old your wife is or what her current income and future plans are but the resources available to you (as a couple) seem massively swayed to you, particularly from a pension perspective.

Also around £80k in wifes Sipp & ISA.

As tax is clearly a factor for you, you seem to be going to end up paying significantly more than if a more equal split was in place.

Certainly until she reaches SPA anyway, assuming she isn't already of course.

Massively affected by a DB pension starting at 65 (£7,000 todays money) and state pension a couple of years later

Massively affected but really only in a very good way.  That £18.5k alone is more than plenty of people will have to live on from SPA!

DRS1

I assume your wife is younger than you?  So why worry about the IHT changes?  She can get your pensions and do so IHT free.  And probably drain them over her lifetime even if she has to pay income tax.

You seem very well set up.  Personally I would like more in ISAs or just outside the pensions especially once you have stopped earning a salary -  kids can be expensive (before you know it they will want their own car and/or a flat).  You mention work but would either of them want to go to University (or would you want them to go?).

fuelcrusher

Albermarle said:

My first thought is do you actually really want to retire at 53? Does your wife want you to retire at 53?
For many people that would be rather early mentally to be giving up work. Only a very small % of people retire at that age.
For others it would be a dream come true of course.
Depends I suppose whether you hate/enjoy your job, or something inbetween, or maybe feel you need a change of direction, or a person with lots of hobbies/sports/interests and you could fill the time twice over.
Just retiring because you can afford it is probably not a good idea.

 Is it time to seek paid advice?

That is a regular question on here and there is no black and white answer. Except to stick with IFA's rather than big companies. 

It seems like you have got a pretty good grip on your finances, but maybe a one off advice session could give you more confidence. Would cost a couple of grand at least, probably more. Also it seems some IFA's are not that interested unless you agree to ongoing charges, and many are quite busy.

I have been a shift worker for around 25 years. Currently a Shift leader in a power station control room. I'm certainly tired of the shifts (12 hours each). The responsibility, especially of course when things are going wrong, is something that makes me wonder why I'm still here. Hence why I'm about to cut hours as a first step. I've always felt that working 12 hour shifts helps with knowing how you'll cope in retirement due to the time off in between work blocks. I get a week off between each set of 4 or 5 shifts and I'm never bored.
Honestly, the wife is less keen, but she doesn't have any interest in the financials so I don't think she really believes we can afford me retiring. She also thinks I'm a tight spender and thinks it'll just get worse when I'm not earning.

Tabasco_Green

Deciding to retire and when and how is a very personal decision as everyone’s aspirations and circumstances are obviously unique, so giving advice is tough.

However I’d agree that seeking a review from a carefully chosen and well regarded IFA would be a smart move. 

It’s a nauseating process and probably won’t tell you anything that you don’t already know. But they will have the ability to model a number of retirement scenarios, to a greater level of detail than most individuals, and also provide guidance on tax efficiency, both in regard to income and what you want to pass on.

I’m not an IFA btw, but was in a similar position to you and used two to help crystallize my thoughts.

Anyway, good luck!

QrizB

fuelcrusher said:

Honestly, the wife is less keen, but she doesn't have any interest in the financials so I don't think she really believes we can afford me retiring. She also thinks I'm a tight spender and thinks it'll just get worse when I'm not earning.

It looks to me like you can certainly afford to retire, and to continue spending as you have been - possibly even pushing the boat out a bit more!

Somebody

I would say you're in a good place being debt and mortgage free.  As already mentioned, kids are expensive.  We said to ourselves we would only give up work when ours graduated and got jobs - we subbed their uni accommodation costs. 

fuelcrusher

Dazed_and_C0nfused said:

You don't say how old your wife is or what her current income and future plans are but the resources available to you (as a couple) seem massively swayed to you, particularly from a pension perspective.

Also around £80k in wifes Sipp & ISA.

As tax is clearly a factor for you, you seem to be going to end up paying significantly more than if a more equal split was in place.

Certainly until she reaches SPA anyway, assuming she isn't already of course.

Massively affected by a DB pension starting at 65 (£7,000 todays money) and state pension a couple of years later

Massively affected but really only in a very good way.  That £18.5k alone is more than plenty of people will have to live on from SPA!

My wife is 50. Yes, I realised too late that our finances were too heavily biased but as she doesn't work all I could do was start a Sipp for her, contributing the £3600 each year, currently at £28k. And because I've always prioritised pension over ISA, again realising maybe too late that it was too much, the £60k I put away each year furthered that split.
I realise that any stresses I have from my initial post and the 'tough' descisions to make, are good ones to have.

molerat

Still have two kids at home, 13 and 15, nervous about their future, getting a start at work etc.

Have you factored supporting 2 kids at uni for 4 years in your calculations ?  At least the course fees would, under current rules, likely be free but £?K a month for rent could be a stinger.

fuelcrusher

DRS1 said:

I assume your wife is younger than you?  So why worry about the IHT changes?  She can get your pensions and do so IHT free.  And probably drain them over her lifetime even if she has to pay income tax.

You seem very well set up.  Personally I would like more in ISAs or just outside the pensions especially once you have stopped earning a salary -  kids can be expensive (before you know it they will want their own car and/or a flat).  You mention work but would either of them want to go to University (or would you want them to go?).

Yes my wife is a couple of years younger at 50. We have five children altogether so the IHT reasoning is purely around keeping more money in the family rather than going to the taxman... at some point. Hence the plan to purposely pay the lower rate tax to get the money out of the pension, 1, to avoid the potential higher rate tax, and 2, to hopefully give some of it away before it becomes inheritance.
After doing the planning with Voyant yesterday and realising my situation, I've sent an email to reduce my pension salary sacrifice to the minimum for the employer match. It seems any money going in now will not be able to be drawn out at any tax savings and will not accrue me any more tax free lump sum so it might as well go straight to ISAs and savings instead.
Both children still living with us find education challenging, I'm certain Uni is not in their future. Worst (financial) case will be supporting them through low paying jobs / apprenticeships and them staying with us for a good while.