Retirement plan sense check

tacpot12

I retired at 53, following a very similar strategy to yourself, but with a much lower pot. (£360,000 in SIPP, £120,000 in S&S ISA, Rental Flat bringing £170 pcm). My partner has her own pension that is a bit better than mine, and my children were independent when I retired. I have a couple of small DB pensions (£4K total) that have yet to start paying and a full state pension.

I use monthly UFLPS to withdraw cash from my SIPP and also have a regular withdrawal from my S&S ISA. The cash in the SIPP comes from dividends. SIPP is invested in dividend paying funds (Mainly income-focused Investment Trusts, but also 3 Unit Trusts and 2 EFTs). The natural yield across both the SIPP and S&S ISA is about 4.2% after fund charges. Platform charges from AJ Bell are very low. (> £300 a year). I only pay tax on the rental income as the UFPLS payments are within just within my personal allowance. I keep a cash buffer of about six months of withdrawals in the SIPP. Investment Trusts are supposed to be able to keep paying dividends even if their own income is falling somewhat, and this was borne out during the pandemic. The yield only dropped to 3.8% (so I lost about £1500 of income) which was only about 1 month of withdrawals so my cash buffer allowed me to ride through that event. Capital growth has been poor, about 1.5% pa, but this means my total return is about 5.9% pa which is good enough.

I'm also thinking about passing on more to my children via regular contributions from excess income to somewhat avoid the IHT changes proposed in the last budget, but I'm not in a rush as I want to make sure I can pay for any care I need in later life. Your children would seem to be at least 10 years away from wanting to buy properties, so you have time for your earmark some money and invest it for them, to give you a clearer view as to what money you will have access to until your DB & state pensions kick in.

Don't worry too much about not being able to get all your pension savings out with paying higher rate tax. You'll only be paying 40% on a bit of income. You are well off and have lots of flexibility to avoid paying tax, but at some point you run out of options and there is no point worrying about this. You might stop any further pension contributions until you retire and put these into the ISA to stop making your tax worse, but you are missing out on the tax relief and any employer contributions if you do, so it's unlikely to be a beneficial move.

It does require quite a shift in mental attitude to move from accumulation to decumulation. I'm now 60 and still struggling to not be really frugal. I live on about £20Kpa and my partner does the same. We only run one car now that we are retired as we have lots of flexibility about use. Until your children have their own cars, you might find you still need two in the household.

I spent the first year of retirement doing all the jobs around the house that had been waiting for me to have time. After that, I started volunteering and have greatly enjoyed the opportunity to do something useful without having to take lots of responsibility. The best bit about being retire is that my time is my own. I highly recommend retiring early if you think you will be able to fill your time with things you want to do.

crv1963

I think financially you have enough to retire, but what are you retiring to? I think you need to give this some thought. I went to an employer organised retirement course and of course we looked at finances but I would guess 80% of the time was spent looking at what we were going to do to fill the time that we currently used not only for work but the commute to work, the social side of it (varied between people there, some socialised monthly, some not at all with their colleagues) and the impact of being retired will have on others- spouse/ children/ friends.

My wife retired at 55 and lasted about 3 month before she returned on reduced hours as she found the hobbies and crafts she does for pleasure were a chore doing them fulltime! She is now broadening her hobbies and interests so when she stops she has more variety of things to do. 

Could you reduce hours, say by one shift so only work 4 shifts in a row at a time? Don't do what a friend of mine did- he watched his wife doing housework and then told her that he thought she could do it his way because it was less time consuming. Net result he now does the housework and wife points out bits he's missed!

kempiejon

Looks like you've done the sums, have an idea of income, capital and spends and that bit looks good. Have you made predictions about how spending and activities might change without the daily grind? Making a plan of what you want to do out of work especially for those who have spent decades being defined by and having much of their time filled by work is a worthy exercise.
Filling about 40+ hours m-f week after week is a bit of step change without the routine of early rise, communte and then a structured day at the coal face. Never bothered me mind but I remember my aged P retired and was hanging about the house upsetting the wife who'd been used to life without him at home in the days. They worked it out in the end - she sent him to get a part time job.
As the money looks OK then it's time to ramp up the pleasure of having your own time and finding worthy activities to endulge in.

fuelcrusher

Tabasco_Green said:

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!

Thanks. Yes I have been considering it, especially after watching one of James Shacks videos where he describes a big part of what his team does is the mentally convincing of the client that they are safe to retire. I think that's what I'd benefit the most from. However I'm too tight to do this lol. Maybe I need to pay for therapy to convince me to see an adviser ha ha.

fuelcrusher

QrizB said:

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!

Thanks. We run to a household budget or around 3k a month which really gives us what we need at the moment. As my salary increased over the years we never really changed our standard of living, hence more went to pension / savings. It's hard to convince yourself to spend more, especially when there's no real need. Part of my plan will be to start giving away regular amounts to the children.

fuelcrusher

Somebody said:

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. 

Indeed, Three have already flown the nest, the two youngest to go. Current state of the country has me worried for them. 

fuelcrusher

molerat said:

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.

Both have alot of challenges at school, I'm almost certain neither will go to Uni. One reason for reducing hours just now is so I can spend more time at home with the eldest one to help him through his exams in May.

fuelcrusher

tacpot12 said:

I retired at 53, following a very similar strategy to yourself, but with a much lower pot. (£360,000 in SIPP, £120,000 in S&S ISA, Rental Flat bringing £170 pcm). My partner has her own pension that is a bit better than mine, and my children were independent when I retired. I have a couple of small DB pensions (£4K total) that have yet to start paying and a full state pension.

I use monthly UFLPS to withdraw cash from my SIPP and also have a regular withdrawal from my S&S ISA. The cash in the SIPP comes from dividends. SIPP is invested in dividend paying funds (Mainly income-focused Investment Trusts, but also 3 Unit Trusts and 2 EFTs). The natural yield across both the SIPP and S&S ISA is about 4.2% after fund charges. Platform charges from AJ Bell are very low. (> £300 a year). I only pay tax on the rental income as the UFPLS payments are within just within my personal allowance. I keep a cash buffer of about six months of withdrawals in the SIPP. Investment Trusts are supposed to be able to keep paying dividends even if their own income is falling somewhat, and this was borne out during the pandemic. The yield only dropped to 3.8% (so I lost about £1500 of income) which was only about 1 month of withdrawals so my cash buffer allowed me to ride through that event. Capital growth has been poor, about 1.5% pa, but this means my total return is about 5.9% pa which is good enough.

I'm also thinking about passing on more to my children via regular contributions from excess income to somewhat avoid the IHT changes proposed in the last budget, but I'm not in a rush as I want to make sure I can pay for any care I need in later life. Your children would seem to be at least 10 years away from wanting to buy properties, so you have time for your earmark some money and invest it for them, to give you a clearer view as to what money you will have access to until your DB & state pensions kick in.

Don't worry too much about not being able to get all your pension savings out with paying higher rate tax. You'll only be paying 40% on a bit of income. You are well off and have lots of flexibility to avoid paying tax, but at some point you run out of options and there is no point worrying about this. You might stop any further pension contributions until you retire and put these into the ISA to stop making your tax worse, but you are missing out on the tax relief and any employer contributions if you do, so it's unlikely to be a beneficial move.

It does require quite a shift in mental attitude to move from accumulation to decumulation. I'm now 60 and still struggling to not be really frugal. I live on about £20Kpa and my partner does the same. We only run one car now that we are retired as we have lots of flexibility about use. Until your children have their own cars, you might find you still need two in the household.

I spent the first year of retirement doing all the jobs around the house that had been waiting for me to have time. After that, I started volunteering and have greatly enjoyed the opportunity to do something useful without having to take lots of responsibility. The best bit about being retire is that my time is my own. I highly recommend retiring early if you think you will be able to fill your time with things you want to do.

Hi, yes I've already decided to reduce my pension contributions going forward. I've been using my full allowance for quite a few years now, pleased with the tax benefits of doing so. However realising that at this point any new money going in will save higher rate tax but pay it coming out and also won't increase my tax free lump sum I'm dropping to the minimum to keep the employer contributions as I think these are now the only benefit.
I'm never bored while off work but don't seem to get up to that much. Like you I'll hopefully finally get around to a few jobs around the house I've been putting off.

Dazed_and_C0nfused

fuelcrusher said:

tacpot12 said:

I retired at 53, following a very similar strategy to yourself, but with a much lower pot. (£360,000 in SIPP, £120,000 in S&S ISA, Rental Flat bringing £170 pcm). My partner has her own pension that is a bit better than mine, and my children were independent when I retired. I have a couple of small DB pensions (£4K total) that have yet to start paying and a full state pension.

I use monthly UFLPS to withdraw cash from my SIPP and also have a regular withdrawal from my S&S ISA. The cash in the SIPP comes from dividends. SIPP is invested in dividend paying funds (Mainly income-focused Investment Trusts, but also 3 Unit Trusts and 2 EFTs). The natural yield across both the SIPP and S&S ISA is about 4.2% after fund charges. Platform charges from AJ Bell are very low. (> £300 a year). I only pay tax on the rental income as the UFPLS payments are within just within my personal allowance. I keep a cash buffer of about six months of withdrawals in the SIPP. Investment Trusts are supposed to be able to keep paying dividends even if their own income is falling somewhat, and this was borne out during the pandemic. The yield only dropped to 3.8% (so I lost about £1500 of income) which was only about 1 month of withdrawals so my cash buffer allowed me to ride through that event. Capital growth has been poor, about 1.5% pa, but this means my total return is about 5.9% pa which is good enough.

I'm also thinking about passing on more to my children via regular contributions from excess income to somewhat avoid the IHT changes proposed in the last budget, but I'm not in a rush as I want to make sure I can pay for any care I need in later life. Your children would seem to be at least 10 years away from wanting to buy properties, so you have time for your earmark some money and invest it for them, to give you a clearer view as to what money you will have access to until your DB & state pensions kick in.

Don't worry too much about not being able to get all your pension savings out with paying higher rate tax. You'll only be paying 40% on a bit of income. You are well off and have lots of flexibility to avoid paying tax, but at some point you run out of options and there is no point worrying about this. You might stop any further pension contributions until you retire and put these into the ISA to stop making your tax worse, but you are missing out on the tax relief and any employer contributions if you do, so it's unlikely to be a beneficial move.

It does require quite a shift in mental attitude to move from accumulation to decumulation. I'm now 60 and still struggling to not be really frugal. I live on about £20Kpa and my partner does the same. We only run one car now that we are retired as we have lots of flexibility about use. Until your children have their own cars, you might find you still need two in the household.

I spent the first year of retirement doing all the jobs around the house that had been waiting for me to have time. After that, I started volunteering and have greatly enjoyed the opportunity to do something useful without having to take lots of responsibility. The best bit about being retire is that my time is my own. I highly recommend retiring early if you think you will be able to fill your time with things you want to do.

Hi, yes I've already decided to reduce my pension contributions going forward. I've been using my full allowance for quite a few years now, pleased with the tax benefits of doing so. However realising that at this point any new money going in will save higher rate tax but pay it coming out and also won't increase my tax free lump sum I'm dropping to the minimum to keep the employer contributions as I think these are now the only benefit.
I'm never bored while off work but don't seem to get up to that much. Like you I'll hopefully finally get around to a few jobs around the house I've been putting off.

That can be quite a job/skill in itself 😜 

fuelcrusher

crv1963 said:

I think financially you have enough to retire, but what are you retiring to? I think you need to give this some thought. I went to an employer organised retirement course and of course we looked at finances but I would guess 80% of the time was spent looking at what we were going to do to fill the time that we currently used not only for work but the commute to work, the social side of it (varied between people there, some socialised monthly, some not at all with their colleagues) and the impact of being retired will have on others- spouse/ children/ friends.

My wife retired at 55 and lasted about 3 month before she returned on reduced hours as she found the hobbies and crafts she does for pleasure were a chore doing them fulltime! She is now broadening her hobbies and interests so when she stops she has more variety of things to do. 

Could you reduce hours, say by one shift so only work 4 shifts in a row at a time? Don't do what a friend of mine did- he watched his wife doing housework and then told her that he thought she could do it his way because it was less time consuming. Net result he now does the housework and wife points out bits he's missed!

I'm currently negotiating reduced hours. My manager is still hopeful this can start in February. Going down from 37 hour week to 26 hours (0.7 contract). This won't change my shifts as such, we've agreed I can not work the excess hours flexibly so basically I'll get hundreds of extra holiday hours to take as and when. This is preferred so that I can schedule them around my sons exam prep.
I always have plenty to do on my days off just now, exercise, saunas and cold plunging, shooting when it's nice weather, following the wife around aldi and asda, walking the dog etc. I love my life away from work. If anything I think the boys leaving when they are older and finally having a kid free house will be a bigger deal than retiring ever would be.