Retire at 56 ?

TheQuaker

Newbie here! 

At the turn of the year, I've just started thinking about pensions. I am slightly late to the party but hoping to rescue the situation and retire as early as feasible. I'm currently 51, hoping to retire / work part-time from 57 or earlier! The earliest I can take my pensions is 57. My partner is nearly 52 and can take her pension at 55.

My pensions:

• Current work DC Pension pot: 21K (existing contributions of 365 per month).
• Final Salary pension 1 (from 60) : 21.6K pa + 4.3K AVC (not sure what the deal is with the AVC and whether I can transfer into my current work pension or if even worth it).
• Final salary pension 2 (from 60) : 2.6K pa

I was thinking of taking 25% of pension 1 above at 60 of 110k and then a pension of 16.5k pa and using the cash to top up our pensions until government pensions at 67. It implies the lump sum includes the AVC.

Partner pensions:

• Current work DC Pension pot: 26K
• Deferred DC pension pot: 61K (will investigate transferring into the above)
• Final Salary pensions (from 60) : 9K pa

Cash:

• Cash ISAs: 60K
• Inheritance due this year: 200K

Mortgage:

Mortgage free on main house (value circa 500k)

We have a flat our son uses at university, and we have 133K left on a low rate mortgage (2.14%) ending mid this year. We'll keep the flat at least another year until he graduates. Possibly, 20k equity after sale is likely on overall loss, so there is no CGT. I'm not sure whether we'll keep and rent out. Could probably rent for around 900/1000 per month before tax. May not be worth the hassle, though.

Plan:

We've done a simple spreadsheet and modelled retiring when my partner reaches 57 in 5 years. Therefore,  we are considering paying everything we earn above the minimum wage into our pensions through salary sacrifice from April. This would take my contributions to around 12K a year going forward and her contributions to around 25K a year. We have a fairly modest lifestyle now, quite risk averse and believe NMW would be enough to cover bills, etc, and it will be a great exercise to prove that.

As my final salary pension is fairly decent and her pensions are mainly DC and fairly low, we're considering paying into her pension to top it up a bit also. Maybe 30k of the Cash ISAs above. This will be to recover the tax from the sale of company EBT shares, where she was heavily taxed 40% earlier this year.

With the inheritance, we are  considering paying off the mortgage on the flat before our mortgage deal ends and then maybe putting 70K into pension(s) and / or cash ISAs .

The other curve ball we are considering, which doesn't make much financial sense is to buy holiday/future down size home with the Inheritance/savings to get away from the adult kids half the week and then within 3 years sell the main house to get some of the 2nd home tax back as this would now be our main dwelling. Hopefully, the kids would have moved on by then! I feel we're in a fortunate position compared to most people, but it is all so confusing and all-encompassing !

Any thoughts on our initial fairly uncemented and uninformed plans ? I've done an initial planner based on the pensions shown using 2.5% increase in state pension a year and 2% increase on DB pensions a year - goal of retiring in 5 years.

TheQuaker

Ah, looks like I can't post an image of my spreadsheet as I'm a newbie!

Bostonerimus1

What is your budget? You don't have much DC/ISA/GIA money which would worry me. What happens if one of you dies, how does that affect the DB payments?

TheQuaker

Shame I can't upload a picture of my spreadsheet. At the end of 5 years her DC pension would have had £125K extra contributed and mine 58K. I'll need to investigate the DB pensions at death. That was the reason for considering taking 110k in cash at 60. Not sure what you mean by budget. If you mean what we're planning as a yearly budget, we we're thinking minimum wage each, hence putting the rest in pensions for the next 5 years. Maybe we need to forget the temporary holiday home. I think we'll pay off the flat with the inheritance and then sell in a year and invest some of that and put in ISAs. This might put us in a better position.

Marcon

When is your partner's 55th birthday (or does she have a protected pension age if after 5 April 2028)?

TheQuaker

It's before April 2028.

Bostonerimus1

TheQuaker said:

Shame I can't upload a picture of my spreadsheet. At the end of 5 years her DC pension would have had £125K extra contributed and mine 58K. I'll need to investigate the DB pensions at death. That was the reason for considering taking 110k in cash at 60. Not sure what you mean by budget. If you mean what we're planning as a yearly budget, we we're thinking minimum wage each, hence putting the rest in pensions for the next 5 years. Maybe we need to forget the temporary holiday home. I think we'll pay off the flat with the inheritance and then sell in a year and invest some of that and put in ISAs. This might put us in a better position.

By budget I mean yearly spending. That should be the starting point for this discussion - with that we can see if your projected income streams make sense.

TheQuaker

We think about 50K between us. That's what we've used in our initial planner, which I think I have now been able to attach an image of.

Bostonerimus1

It looks like you are thinking about all the right things. Areas you might want to think about are what happens to your pension income when one of you dies and there is a time before the pensions kick in when your DC money gets quite low. What happens if that coincides with a market crash? Have you included large one time expenditures like a new car or replacing a roof etc. 

TheQuaker

Bostonerimus1 said:

It looks like you are thinking about all the right things. Areas you might want to think about are what happens to your pension income when one of you dies and there is a time before the pensions kick in when your DC money gets quite low. What happens if that coincides with a market crash? Have you included large one time expenditures like a new car or replacing a roof etc. 

Thanks for this. I'm going to investigate the policies. I seem to recall, half the larger DB goes to beneficiary but I'll check for sure. I was going to model some periodic drops. I've not accounted for large one offs. I think we were thinking the 200k inheritance would be our backstop if we keep a large portion available in low risk investments like cash ISAs and savings accounts.

Bostonerimus1

TheQuaker said:

Bostonerimus1 said:

It looks like you are thinking about all the right things. Areas you might want to think about are what happens to your pension income when one of you dies and there is a time before the pensions kick in when your DC money gets quite low. What happens if that coincides with a market crash? Have you included large one time expenditures like a new car or replacing a roof etc. 

Thanks for this. I'm going to investigate the policies. I seem to recall, half the larger DB goes to beneficiary but I'll check for sure. I was going to model some periodic drops. I've not accounted for large one offs. I think we were thinking the 200k inheritance would be our backstop if we keep a large portion available in low risk investments like cash ISAs and savings accounts.

Sounds good. It's vital to stress test your plan and have options, but you seem to be in pretty good shape.