Bridge to state pension - ringfence funds in lower risk or just draw from overall pot?

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81959607#Comment_81959607

this is my current thinking. 3 years in MMF, if markets are up ignore that and pull from funds. if markets are up at year 6, burn the MMFs anyway (so the discrete bridge fund is used up)

Right now I’m looking at segmenting my DC pot more generally.

• bridge fund - 9 years bridge as mentioned in OP. 3 years cash/MMF; 6 years in 60/40 (based on 2% real return to hopefully be conservative)
• state pension - 75 - relatively small amount needed in this phase, but again estimated on 2% real, then discounted back to 58 to calculate what is needed before we can pull the trigger for that phase
• 75 onwards - no need to pull from DC after reduction in income.
• “survivorship fund” - one thing I’ve been working on this weekend and I’d ignored at my peril. What happens when one of us dies? the above plan is based on two incomes. If I die first, my wife loses one state pension and half my DB. So the thinking is to put aside a pot to insure against this:
  • bridge period - have life insurance until 65 so calling that covered
  • state pension-75 : around 130k needed if in worst case I die first day of my state pension. That would be enough to cover loss of income from my DB and SP
  • 75 onwards - if we get through the previous phase without touching it, we don’t need as much - approximately 135k less in real terms, so plan to earmark that money for discretionary/gifting, leaving enough to cover a smaller gap behind

any excess above that (not a lot at 2%) is marked as discretionary and potential for gifting to kids. bridge period no gifting as its SORR critical. during state pension we can start to gift a portion as discrete funds are already set aside for income and in case of death.

mrklaw

current numbers look on track at 2% real. will be monitoring actual returns to make sure thats on track so the actual balance will be the go/no go point - it has to cover whats needed. Hope to be there prior to 58 but lets see.

fallback options - work an extra year to boost savings and one fewer year drawing; minimum wage or part time job to cover costs (27k a year estimated so two part time may cover) to not grow savings but delay drawing to let things grow.

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81960294#Comment_81960294

It is often mentioned by posters that if needed they could go and do a minimum wage/part time job.

I think it is not necessarily as simple as that. If you had a decent job before, then working in some low level job with no freedom and being bossed around by some some spotty 25 year old might not suit. Obviously some employment places would be better than others, but personally I would be staying in my secure normal job for another year or two, if I was not sure I had enough to retire.

ali_bear

That burger-flipping job may be difficult to find if the economic situation is poor.

I have a friend who just turned 60 and despite being in receipt of a modest DP pension income, she is now looking for basic administrative work and having a hard time finding anything that suits.

JoeCrystal

https://forums.moneysavingexpert.com/discussion/comment/81962075#Comment_81962075

Well, if push come to shove, there are always causal jobs at Royal Mail and firms that rely heavily on temp staffs. Even so, the vast majority of the temps tend to be hired through agencies (Angard Staffing is an infamous one for Royal Mail for example) nowadays so they don't have to worry about making them perms. In fact, at my workplace, the numbers of perms are much smaller due to natural leaving or retirement to the point that temps are normal rather than perms. (and these are the ones hired before start using the agency workers are hired solely for Xmas runs. Very depressing, unfortunately.

Albermarle, I personally think that one can casually go and find a minimum wage/part time job is not that easy anymore. 20 years ago, sure, 10 years ago, maybe but now?? I am not entirely sure, especially with unemployment rate among the young people are creeping up. It is so dire that even I as someone in his forties are very concerned should the worst happened to the employer,

SVaz

I’m torn regarding renewing my professional qualifications next year, without them I’m not allowed to work and I would like to retain the ability to earn some easy money, just my customer base and working 5 hours a week for 45 weeks would easily net £15k gross but then fees, fuel, liability insurance etc. etc. would cut into that.
Renewing means a 3 day course and 2 very hard exams plus £2k course fees and I’m not sure I can actually be arsed. OTOH, I know I could never work for an employer again.

Veloflyer

https://forums.moneysavingexpert.com/discussion/comment/81961507#Comment_81961507

I'd agree, but my problem is understanding if I have enough to retire on and therefore I worry about needing another job. Theoretically, and doing all the calculations with a pessimistic outlook, I should have more than enough, but I hate the conditional assumptions so beloved of the financial world, and crystal balls are hard to come by. Years ago I may have been mollified, but in these increasingly uncertain times?

cfw1994

https://forums.moneysavingexpert.com/discussion/comment/81959510#Comment_81959510

Makes sense to me 👍

One thing I don’t see are any ISA funds or premium bonds 🧐

I ‘stepped away’ 5 years ago aged 56. Our PBs are the “emergency fund” - if markets fall more than 20%, we would (& indeed did early in my retirement 🫣) pause the DC pension drawdown, & lived on PBs for over a year. A bit of a faff - manually drawing down each month - but that was our plan and it worked for us 🍻
Could be longer, and they are useful for other capital purchases (replaced a car using them a year ago). You do then need to be ready to top them up again, perhaps from DC pot (more TFLS draw, perhaps), or maybe there could be future inheritance sums ‘likely’.

You could consider taking some of your TFLS to get into ISA, which would give you more flexibility as you move through your retirement 🤷‍♂️

Oh, I keep my DC pot & S&S ISAs in 100% equity - I do have a good tolerance of risk: it gets interesting - recent shambolic actions over the pond saw my pot fall around 6% very rapidly, yet climbed back when TACO Tuesday arrived 😉

Overall, I track our “wealth” on a monthly basis (it’s obviously something of a hobby for me 🤓), & ignoring house & modest DB pensions, we are around 50% DC pot (100% equity, broadly global, some tilt to tech which was my career), 30% S&S ISA, 10% stocks (taxable) & 10% cash (PBs, interest accounts).

Good luck - as you say, there are no perfect answers, only what makes sense for you 👍

NormalNorman

https://forums.moneysavingexpert.com/discussion/comment/81961507#Comment_81961507

I have a pt job with the local council a short walk along the road. Pays more than min wage and accrues a DB pension. None of the issues you mention but do enjoy no screens, no huddles, no teams/zoom, no town halls, no all hands, no fireside chats, no regular 121s etc. Bliss.

cloud_dog

@mrklaw have you ran the numbers for taking your DB(s) early, with an actuarial reduction?

We retired just over a year ago and prior to this (after running numbers) I planned on not taking my DB early and utilising a couple of SIPPs designated to cover the 8 to 9 years between early retirement and SP ages.

I had simply planned to utilise STMMF for a large(ish) chunk with the remainder in global equities. Applying top slicing as appropriate.

During the year I have continually been re-running the numbers to take DB early or not (well I needed something to do 😁) and eventually came down to the conclusion to take the DB early. The overall numbers are similar (slightly in favour of taking it early). The big element I needed to feel comfortable with was a scenario where I passed earlier and what the numbers would look like with 50% of the DB for my partner.