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

Albermarle

https://forums.moneysavingexpert.com/discussion/comment/81963631#Comment_81963631

Plus the fact that if you take it early with a reduction, the Spouse benefit remains at ( usually50%) of the pensions due at Normal Retirement Age. I think that is the case with most DB pensions anyway.

Linton

I dont like withdrawing ongoing income from selling equities. It requires continuous management and leads to unnecessary stress when a crash occurs.

Nor do I like the often proposed alternative of switching to a cash or low risk reserve in the difficult times, switching back again and replensihing the reserve when they are over. The problem there is the timing. You are likely to either switch too late or unnecessarily. Plus there is the stress of making a decision and wondering whether the pot will be replenished in tome..

My strategy, which I have used for many years, is to always take all expenditure from the cash/low risk reserve and to deposit all income there as well. The latter includes annuities, SP, and income funds. Provided one's long term expenditure is less than one's long term income the reserve will steadily increase over time and there is always significant money available for major one-offs.

A large portfolio of 00% equity funds are left to grow over the long term with occasional strategic withdrawals to increase the cash generation from income funds or possibly buy an annuity.

This approach means that world events can be accepted and ignored with a Buddha-like serenity. Short term economic shocks do not disturb one's ongoing enjoyment of life.

cloud_dog

The caveat we have is that once SPs kick in over 80% of our income requirements will be met by guaranteed sources. The OP's situation appears similar in that regard. With regard to that situation the (likely?) biggest risk factor is from an early passing of one partner.

Linton

If one is accumulating higher pension entitlement than one's spouse it could make sense to make SIPP or NI contributions on their behalf to keep retirement income balanced.

bjorn_toby_wilde

https://forums.moneysavingexpert.com/discussion/comment/81963711#Comment_81963711

Our pensions were out of balance due to differences in salary and we didn’t really take account of that properly in our planning.

Since we retired I’ve been taking UFPLS sums up to the HR tax threshold and moving these into ISAs so that SWMBO has more equity in her name in the event that something does happen to me first.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81963631#Comment_81963631

yes. Apart from being almost impossible to get an answer from the scheme, once I turned 55 I could use their online tool, and get 1 written estimate per year (how generous).

I plan to take it early. it does mean limited ability to take a tax free lump sum as that reduces it further, and it reduces the spouse pension but overall I think its worth it -it’d cost me a bigger chunk to hold out to 65

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81963699#Comment_81963699

very much so. if I die on day one of my state pension, we need around 100k presaved at retirement to cover the gap. The plan still works but it means less buffer and less immediate gifting to the kids unless returns are better.

There is a FIB (familiy income benefit) which I’m exploring now. Life insurance and term based, but provides an annual payout not a lump sum. so its less expensive for the insurance company the further into the term you get.

I have a quote this week of £44 a month for £11k a year rising with inflation each year (and the income rises with inflation too). Overall thats expensive for 20 years coverage (until we’re 75 then the gap is small enough to self-insure). About 14k we estimate. But the alternative is putting aside 70k that can’t be touched until 75 but then we get it back if its not needed. Might be a price worth paying

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81963688#Comment_81963688

mine is quoting as 50% of the reduced amount sadly. I think if I take tax free cash, then the income reduces but the spousal is not affected (its based on the pre reduction). but not if I take it early

FIREDreamer

https://forums.moneysavingexpert.com/discussion/comment/81963688#Comment_81963688

Both my DB pensions give the spouse 50% of the members pension at time of death, even if taken early before normal retirement age. If a PCLS was taken it is 50% of what the early retirement pension would have been if the PCLS was not taken.

mrklaw

https://forums.moneysavingexpert.com/discussion/comment/81963405#Comment_81963405

We have an ISA but that has a job which is taking over paying the 2.5% mortgage while earning more than 2.5%. and then paying it off when the fixed rate finishes in 3032.

We have some small cash ISAs but not considering them for retirement. We are both already at 55 so prefer the tax relief.

we are planning based on low growth but if there is higher (median and even 25th percentile suggests higher) then we’ll push excess into ISAs for flexibility (15% effective tax after 40% tax relief) and slowly build up a pot for gifting while avoiding 40% tax as much as possible (see my other thread)