Thinking Early retirement , is it feesable

Triumph13

With no dependents you like like prime candidates to just buy an annuity.  Ignoring growth, you're on track for about £270k in the pension at retirement.  Take the tax free cash and use the remaining £200k to buy an indexed, joint life annuity- you'd be looking at £9k pa or so at current rates.  Once both state pensions and your DB are online you have >£32k pa post tax coming in.  Use the tax free cash and a small amount of the savings to bridge the gap until the SPs start.  The only potential issue is whether or not the survivor will have enough income after the first death.

MinkeyMan

bjorn_toby_wilde said:

MinkeyMan said:

Mark_d said:

There are a lot of pension estimator calculators out on the internet.  Not sure why you think your assumptions are any more accurate.

I think your 1.7% to pension bee is very high for the benefit you get. There are a good variety of SIPP providers whose fees are mush more reasonable.

I think 89 should be at the lower end of how long you expect to live.  100 is possibly more likely in my opinion.

I think your forecast outgoing are rather conservative.  Private medical costs, health & social care,  and 24/7/365 entertainment for you isn't necessarily going to be cheap.  For me to be confident I'd be comfortable in retirement, I'd want £200k per year.  That's several times more than what I live off at the moment!

well £200K per year for me , just isn't going to happen. without significant high risk investments... I have my wife to think about... we don't have a lavish lifestyle and right now our actual spend per year for essentails is around 17000 and our Holidays around 13000... not looking to change that.  ofc if my pension exceeds 4% say to 7% then I am will beyond the 100 mark...and i do still have 100% equity in my house as well

on the other emulators.. open to any you know of.. I can't find any that take into account my savings

Mmmm. £200k per annum is beyond most of us and the Retirement Living Standards survey suggests a comfortable retirement can be had on 1/5 of that. I don’t know where that figure was plucked from. Maybe the same place as the expectation that you would live to 100 when average UK life expectancy for a man is about 84.

SJP will undoubtedly be a drag on your pension growth with their high fees.  How long are you locked in for?

Yeah i agree... 200k ain't gonna happen.. i believe my spend ain't gonna change that much ( increasing ofc by inflation)  locked for 4 years on the bulk of my pension pot... I believe it would be around a 10K hit just now

tacpot12

I've modelled your pension and think that you have missed something significant, but I'm not sure quite what. 

If you consider the period when you are both claiming your State Pension (I have assumed you are both entitled to the full state pension amount), your state pensions plus your small final salary pension (which I will call your DB pension) nearly cover all your expenditure.

There are some assumptions, e.g. about tax rates and tax threahshold being increased in line with inflation, but assuming these assumptions are correct, then in 2032 your expenditure will be just over £34,500 (3.6% increase on £30,000 for 4 years). Your income then (without nothing from your DC pension) will be nearly £31,900, even after tax. You will be paying about 1% of this income as income tax because you have two personal allowances.

So you only need your DC pension to pay out about £3000 a year, and it will never need to pay more than that because your expections of income start to drop four years later. Eventually, your income from just your state penisions and your DB pension will exceed your expenditure, so you won't need to draw anything from your DC pension (my calculations suggest this should happen around age 82). 

So, my calcuations suggest that you only need about £16K in your DC pension after the age of 67!  

Prior to this, if you were to withdraw money from your DC pension each year, using 25% tax free, you would need to withdraw £32,500 to get £30,000 because £7,500 would be tax free and you would pay about £2,500 in tax on the remaining amount. You need to do this for four years to get to 67. So ignoring inflation, your DC pension needs to have about £130,000 in it (£32,500 x 4) - the growth on your DC pension will deal with extra you need to withdraw each year - and you will have more than double this amount in your DC pension by the time you have made your additional contributions.

You can certainly retire in 2028 and you can reasonably expect never to run out of money. You might even be able to retire a little earlier. 

As per Dazed and Confused comment. Given that you know how SJP have got your pension invested, you could replicate their portfolio with quite a high degree of accuracy, and rather than getting 4% growth you would be getting 5% because you wouldn't be paying their charges. I pay about 0.65% in charges on my SIPP with AJ Bell. This includes all the fund charges and the platform charges. I'm no investment guru, but I'm getting a 6% return after charges.

MinkeyMan

tacpot12 said:

I've modelled your pension and think that you have missed something significant, but I'm not sure quite what. 

If you consider the period when you are both claiming your State Pension (I have assumed you are both entitled to the full state pension amount), your state pensions plus your small final salary pension (which I will call your DB pension) nearly cover all your expenditure.

There are some assumptions, e.g. about tax rates and tax threahshold being increased in line with inflation, but assuming these assumptions are correct, then in 2032 your expenditure will be just over £34,500 (3.6% increase on £30,000 for 4 years). Your income then (without nothing from your DC pension) will be nearly £31,900, even after tax. You will be paying about 1% of this income as income tax because you have two personal allowances.

So you only need your DC pension to pay out about £3000 a year, and it will never need to pay more than that because your expections of income start to drop four years later. Eventually, your income from just your state penisions and your DB pension will exceed your expenditure, so you won't need to draw anything from your DC pension (my calculations suggest this should happen around age 82). 

So, my calcuations suggest that you only need about £16K in your DC pension after the age of 67!  

Prior to this, if you were to withdraw money from your DC pension each year, using 25% tax free, you would need to withdraw £32,500 to get £30,000 because £7,500 would be tax free and you would pay about £2,500 in tax on the remaining amount. You need to do this for four years to get to 67. So ignoring inflation, your DC pension needs to have about £130,000 in it (£32,500 x 4) - the growth on your DC pension will deal with extra you need to withdraw each year - and you will have more than double this amount in your DC pension by the time you have made your additional contributions.

You can certainly retire in 2028 and you can reasonably expect never to run out of money. You might even be able to retire a little earlier. 

As per Dazed and Confused comment. Given that you know how SJP have got your pension invested, you could replicate their portfolio with quite a high degree of accuracy, and rather than getting 4% growth you would be getting 5% because you wouldn't be paying their charges. I pay about 0.65% in charges on my SIPP with AJ Bell. This includes all the fund charges and the platform charges. I'm no investment guru, but I'm getting a 6% return after charges.

Thanks tacpot12 I get my spend at age 67 to be £37,092 based on 3.6% inflation rate,  am I calculating incorrectly?. I am taking it to increase cumulative year on year.  .. I have assumed at 67 we will both be getting £11,502 each , so £23,004.  I take out £17,000 from pensions (combined)  we would have at total income of £40,004, however as the tax threshhold is £12,250 I have taken my state pension + DC pensions = £28,502 , i would get taxed on £15,932 at 21% so tax would be £3,346 .. giving Net Income = £36,659 . I would have a shortfall of £433 which would come out of my savings.

Below are my calculations , pretty much as above. The yellow £70K is my tax free lump sum , which would be added to our savings , but netted off againts my spend of £32K in 2028 , so giving a £36K increase in savings

 

ON the SJP.. I know now i do need to do something to reduce these Fee's , but am locked into a early exit fee.. for at least the next 4 years.... That's my fault.. should have done proper homework and got an IFA (which I did think there partner was, but quite clearly they are just a rep for SJP)

MinkeyMan

tacpot12  aslo  i am under estimating our state pension amount in 2032 ?

tacpot12

"I get my spend at age 67 to be £37,092 based on 3.6% inflation rate,  am I calculating incorrectly?. I am taking it to increase cumulative year on year."

Increasing cumulatively each year is correct. I get £34.500 because I've counted 4 years of increases from 2028 (Age 63) to 2032 (Age 67). 

2028 (Age 63) = £30,000
2029  (Age 64) = £31,080 (1.36 * £30,000)
2030  (Age 65) = £32,198 (1.36 * £31,080)
2031  (Age 66) = £33,358 (1.36 * £32,198)
2032  (Age 67) = £34,558 (1.36 * £33,358)

You know the date of your birthday, so there might be a year's difference but not two years. (I get your expenditure to £37,092 in 2034 at Age 69) 
Sorry, I've just seen that you have the start of your £30,000 expenditure in 2026. I think your approach is safest as you know best what you are likely to need. 

The current state pension is £11,973 per year, and I adjusted this to grow at your inflation figure of 2.5% on average. This gives a figure for one state pensions of £13,313 and £26,626 for two state pensions. 

I think the tax allowance will be increased between now and 2032. It is 7 years, after all. But it might not increase at the same rate as inflation, but say it increases at half your 2.5% rate, this means your personal allowances in 2032 will be  £13,711 (£12,570 * 1.0125^7). This is still just above the level of the state pension, so you will only be paying 21% tax on your DB and DC pensions if you have already had all the tax free cash available, 

Another peice of good news is that you haven't factored in the growth you can reasonably expect from your SJP pension. SJP don't get much appreciation on MSE because of their high fees, but even investing with SJP you will get some growth, and can probably assume 4% per year as a figure for planning.

tacpot12

I think the biggest difference between our models is that you are seriously underestimating the likely growth of the state pension. For example, in 2043, I would be pretty sure that that state pension you will be receiving will be much closer to £24,000 than the £15,092 you have in your model. The triple lock ensures that the state pension will rise at at least 2.5%. The Conservatives can't reduce this as most of their voters are elderly, and many of Labour's voters have no other pension provision other than the state pension, so the worst that Labour would introduce would be some means testing, but with pensions it is accepted you have to give people lots of notice about changes that affect their pension planning, so there should plenty of notice and plenty of backlash if the impact is too severe. 

You are also planning to pay too much tax. You can have your tax free lump sum as soon as you stop contributing to your pension. So there are two years (2028 & 2028) when you should pay no tax, but planning to draw no taxable income from your DC pension when you have a personal allowance available is not sensble. You should be planning to withdraw the same (taxable) amount as the personal allowance (less any DB/MOT pension) each year to maximise the tax efficincy. This will make your tax free element go alot further.

Is there some reason why you are defering taking the tax free lump sum? Are SJP saying you can't take it, because if so, you might find they are wrong and you can complain to someone about it. 

Yorkie1

tacpot12 said:

"I get my spend at age 67 to be £37,092 based on 3.6% inflation rate,  am I calculating incorrectly?. I am taking it to increase cumulative year on year."

Increasing cumulatively each year is correct. I get £34.500 because I've counted 4 years of increases from 2028 (Age 63) to 2032 (Age 67). 

2028 (Age 63) = £30,000
2029  (Age 64) = £31,080 (1.36 * £30,000)
2030  (Age 65) = £32,198 (1.36 * £31,080)
2031  (Age 66) = £33,358 (1.36 * £32,198)
2032  (Age 67) = £34,558 (1.36 * £33,358)

You know the date of your birthday, so there might be a year's difference but not two years. (I get your expenditure to £37,092 in 2034 at Age 69) 
Sorry, I've just seen that you have the start of your £30,000 expenditure in 2026. I think your approach is safest as you know best what you are likely to need. 

The current state pension is £11,973 per year, and I adjusted this to grow at your inflation figure of 2.5% on average. This gives a figure for one state pensions of £13,313 and £26,626 for two state pensions. 

I think the tax allowance will be increased between now and 2032. It is 7 years, after all. But it might not increase at the same rate as inflation, but say it increases at half your 2.5% rate, this means your personal allowances in 2032 will be  £13,711 (£12,570 * 1.0125^7). This is still just above the level of the state pension, so you will only be paying 21% tax on your DB and DC pensions if you have already had all the tax free cash available, 

Another peice of good news is that you haven't factored in the growth you can reasonably expect from your SJP pension. SJP don't get much appreciation on MSE because of their high fees, but even investing with SJP you will get some growth, and can probably assume 4% per year as a figure for planning.

I think your maths is right, but shoutd it be written as "1.036 ... " for each row, rather than "1.36"?

tacpot12

Yes, you're right I should have written 1.036! Doh!

Bostonerimus1

tacpot12 said:

I think the biggest difference between our models is that you are seriously underestimating the likely growth of the state pension. For example, in 2043, I would be pretty sure that that state pension you will be receiving will be much closer to £24,000 than the £15,092 you have in your model. The triple lock ensures that the state pension will rise at at least 2.5%. The Conservatives can't reduce this as most of their voters are elderly, and many of Labour's voters have no other pension provision other than the state pension, so the worst that Labour would introduce would be some means testing, but with pensions it is accepted you have to give people lots of notice about changes that affect their pension planning, so there should plenty of notice and plenty of backlash if the impact is too severe. 

You are also planning to pay too much tax. You can have your tax free lump sum as soon as you stop contributing to your pension. So there are two years (2028 & 2028) when you should pay no tax, but planning to draw no taxable income from your DC pension when you have a personal allowance available is not sensble. You should be planning to withdraw the same (taxable) amount as the personal allowance (less any DB/MOT pension) each year to maximise the tax efficincy. This will make your tax free element go alot further.

Is there some reason why you are defering taking the tax free lump sum? Are SJP saying you can't take it, because if so, you might find they are wrong and you can complain to someone about it. 

The OP is in a better situation than many people and has taken the time to think about their drawdown phase which gives them some measure of control. Unfortunately the 1.7% fees SJP is extracting will likely be one of their largest single retirement expenses. So I would probably get out asap, even if the fee to leave seems high it might be far worse to stay with SJP paying them thousands each year.