Retirement planning sense-check 2025

Yorkie1

Hi All

It's a year or two now since I sense-checked my thoughts around my retirement planning, particularly bridging the gap between ages 60 and state pension (67 on current rules), and would value any comments that others may have.

Background:

• Age 54, no dependants or partner
• Combination of Classic and Alpha CS pension
• Contributing to Alpha EPA -2 since April 2023
• Contributing to CS AVCs at £1500 per month, so total contributions to date are about £20K (actual value TBC)
• Will be eligible for full state pension
• Savings of about £100K in a S&S ISA (with MyWealth ...)
• £200K in fixed rate and easy access cash / premium bonds set aside for an extension in the next few years
• About another £100K in various cash / premium bonds 
• Mortgage will be paid off by retirement
• Salary just under £60K
• Aim to take Classic in about 6 years at about 60 (or just after)
• Aim to take Alpha at 65 (mixture of EPA -2 and actuarially reduced years)

Retirement needs:

Current expenditure on items which will continue into retirement is between £2K - £2500 per month, which equates to about £24K - £30K net annual income.

Let's say £35K gross income (but it could be trimmed if need be).

The maths (on today's figures, lots of rounding, ignoring any savings interest):

If the McCloud years are taken in Classic:

• Gross income from Classic apx £20K at ages 60 - 64. Annual gap = £15K
• Gross income from Classic and Alpha apx £24K at ages 65 and 66. Annual gap = £11K
• Gross income from ;pensions and State pension £35K from age 67. About £500 p.a. surplus

If the McCloud years are taken in Alpha:

• Gross income from Classic apx £14K at ages 60 - 64. Annual gap = £21K
• Gross income from Classic and Alpha apx £27K at ages 65 and 66. Annual gap = £8K
• Gross income from ;pensions and State pension £38K from age 67. Over £3K p.a. surplus

I'm tending towards taking the McCloud years in Alpha.

Bridging the gap:

What might be the best strategy to fill the income gap between age 60 and state pension? It totals just under £100K for McCloud taken in Classic, just over £121K if McCloud taken in Alpha.

There is the S&S ISA, cash savings, and AVCs (contributions would total just over £100K, actual  valuation hopefully higher, by age 60).

Sam_666

Tooooo cash heavy.
Are you sure you are fully utilizing pension allowance?

SarahB16

Yorkie1 said:

Hi All

It's a year or two now since I sense-checked my thoughts around my retirement planning, particularly bridging the gap between ages 60 and state pension (67 on current rules), and would value any comments that others may have.

Background:

• Age 54, no dependants or partner
• Combination of Classic and Alpha CS pension
• Contributing to Alpha EPA -2 since April 2023
• Contributing to CS AVCs at £1500 per month, so total contributions to date are about £20K (actual value TBC)
• Will be eligible for full state pension
• Savings of about £100K in a S&S ISA (with MyWealth ...)
• £200K in fixed rate and easy access cash / premium bonds set aside for an extension in the next few years
• About another £100K in various cash / premium bonds 
• Mortgage will be paid off by retirement
• Salary just under £60K
• Aim to take Classic in about 6 years at about 60 (or just after)
• Aim to take Alpha at 65 (mixture of EPA -2 and actuarially reduced years)

Retirement needs:

Current expenditure on items which will continue into retirement is between £2K - £2500 per month, which equates to about £24K - £30K net annual income.

Let's say £35K gross income (but it could be trimmed if need be).

The maths (on today's figures, lots of rounding, ignoring any savings interest):

If the McCloud years are taken in Classic:

• Gross income from Classic apx £20K at ages 60 - 64. Annual gap = £15K
• Gross income from Classic and Alpha apx £24K at ages 65 and 66. Annual gap = £11K
• Gross income from ;pensions and State pension £35K from age 67. About £500 p.a. surplus

If the McCloud years are taken in Alpha:

• Gross income from Classic apx £14K at ages 60 - 64. Annual gap = £21K
• Gross income from Classic and Alpha apx £27K at ages 65 and 66. Annual gap = £8K
• Gross income from ;pensions and State pension £38K from age 67. Over £3K p.a. surplus

I'm tending towards taking the McCloud years in Alpha.

Bridging the gap:

What might be the best strategy to fill the income gap between age 60 and state pension? It totals just under £100K for McCloud taken in Classic, just over £121K if McCloud taken in Alpha.

There is the S&S ISA, cash savings, and AVCs (contributions would total just over £100K, actual  valuation hopefully higher, by age 60).

How much is the extension forecast to cost?  You seem to have set aside £200k for the extension? 

Yorkie1

Sam_666 said:

Tooooo cash heavy.
Are you sure you are fully utilizing pension allowance?

Monthly contributions are over £2K per month at present. I could probably up them a little bit even further (into AVCs), but would prefer not to leave myself with lower earnings than outgoings.

I'm conscious that I am 5 years from retirement, will need to fund income from that time, and that investment timescales are frequently far longer than that - hence cash levels (and cautious approach).

Yorkie1

SarahB16 said:

How much is the extension forecast to cost?  You seem to have set aside £200k for the extension? 

I haven't yet had plans drawn up, but I'm in a small semi-detached. The desire is to extend at the side to part of the depth of the house, and go out at the rear to probably 4m across the full current width, and into the loft. I suspect it will be £150K - £200K?

QrizB

Yorkie1 said:

.. woul.d prefer not to leave myself with lower earnings than outgoings.

I'm on my glide path to retirement. My earnings net of salsac workplace pension contributions are currently about £20k pa less than my outgoings. I'm making up the difference from my ISA.

It's a convenient way to (in effect) transfer money from my ISA into my pension and gain a useful uplift from the tax & NI I'm not paying.

Yorkie1

QrizB said:

Yorkie1 said:

.. woul.d prefer not to leave myself with lower earnings than outgoings.

I'm on my glide path to retirement. My earnings net of salsac workplace pension contributions are currently about £20k pa less than my outgoings. I'm making up the difference from my ISA.

It's a convenient way to (in effect) transfer money from my ISA into my pension and gain a useful uplift from the tax & NI I'm not paying.

I can understand the financial benefit of the tax / NI uplift as you mention. 

I had intended to leave the ISAs as an option for the bridging time, I suppose, because they would be available tax-free (so the net effect uplift over time would just be the NI saving). Whereas AVC withdrawals in the bridging period would be taxed. I am probably failiing in logic on this one.

sidev93

There's also the lump sum from Classic to take into account 

Yorkie1

sidev93 said:

There's also the lump sum from Classic to take into account 

That's true - apx £60K (McCloud in Classic) or £45K (McCloud in Alpha).

Assuming I take McCloud in Alpha, that would cover the first 2 years' expenditure of the bridging period.

So just need to make plans for the remaining years.

BikingBud

Unsure what your intent is, especially committing £200k to an extension when you have neither partner or dependents that demand more space.

Do you intend to sell the house at some point?

To move to where?

Will you get the £200k + back from the sale of the house?

Might it be better to set that £200k against the move?

You do not mention mortgage outstanding figure.

To me that is £20k for the next 10 years over half of your projected gross income need.

My focus would be different but we do not know all your drivers.

Yorkie1

BikingBud said:

Unsure what your intent is, especially committing £200k to an extension when you have neither partner or dependents that demand more space. It's a very small semi. I want to have a kitchen that is more than 4.5' x 6'. And to have a downstairs toilet. And to fit in my piano when my mum has to downsize her house. (For example)

Do you intend to sell the house at some point? No. It is an ideal location in a lovely part of town, very close to the centre, great nearby shops, and doctors, great neighbours etc.

To move to where? n/a

Will you get the £200k + back from the sale of the house? Yes, easily

Might it be better to set that £200k against the move? n/a

You do not mention mortgage outstanding figure. £13K

To me that is £20k for the next 10 years over half of your projected gross income need.

My focus would be different but we do not know all your drivers.

Thanks for your thoughts BikingBud. Obviously if the extension is less in total, or my circumstances change, then the cash would be freed up. But moving is not in the cards at the moment.