Retiring but still a few uncertainties

fuelcrusher

I went back to an old post I made here, back in January 25, in it I was considering retiring August 25 at 53 years old. Well, I didn't, but I'm about to hand in my notice to retire this August when I'll turn 54.

So back then I was in the process of reducing my hours to 26/week. I did, and worked this for a year and then reduced further this past February to 50% (18.5/week). This has helped massively, partly for the improved work/life balance and also financially to get away from the high wage income being the norm.

I moved my workplace pension to my Sipp over multiple transfers leaving a little to keep it open until retirement is complete. Current numbers have of course improved over the 14 months despite Trump. Only hold two types of investment, all world funds (68%) and MMF (32%). I realise this is a much larger 'cash' holding than usually advised but the decision of whether we will upsize a house move hasn't been made yet.

Achieved a major win when I discovered, by chance, that my wife could claim missing NI years for when, in our youth, we stupidly had child benefit paid to me even though I was working and she not. The claim only took around a month and gave her 9 years of credits taking her now to a fully paid up position. I was expecting to have to buy these credits over the next 9 years. Home responsibilities protection for anyone in a similar position.

We now meticulously track our spending, before we kept an eye, now I know to the pound what we spend per year. Last year was higher than normal £55k but that included £20k on a new car so the £35k remained closer, if not lower, than our normal yearly spend.

In October last year we stopped using my salary for spending. Although no real affect on our finances instead of my salary coming into our current account it gets squirreled away in a hidden pot, not to be touched. We started drawing our 'income' from our cash savings. Each month £3100 from savings to Monzo, once in the Monzo budget system it is considered 'spent'. This has been great. It's gotten us used to not seeing a salary income and used to seeing savings go down. It's felt like a big help in adjusting from accumulation to deccumulation phase. The hidden salary will be released into our portfolio on retirement as a leaving bonus.

I signed up for the meaningful money retirement course and gained access to the Voyant software. I used this software alot previously, using the free trial months, but now I get to keep my plans. Using the academy recommended pessimistic figures of 3% inflation, 5% investment growth, we should be very safe. This has made me lose a bit of interest in the retirement planning overall to be honest. I still haven't finished the course and I rarely play with the Voyant software. A shame because I enjoyed looking at all the variables and options. Now I think the plan is just withdraw from Sipp using the full lower rate tax allowance and that's it, carry on with life. Yes, I know there will be more plans to make IHT planning etc but I just don't feel I have the energy for that just now.

My wife is successfully twisting my arm to spend more. We bought a tumble dryer and I didn't buy the cheapest I could find! lol. Now, even with the new car last year we've just put down a deposit on a Kia PV5 passenger van which I'm planning on a light conversion to camper so that I can get away with my youngest son to show him some castles around the country.

So the biggest uncertainty left is whether we upsize our home. In August 2027 I can use the full PCLS of £268k to help with any move. This is why I hold so much 'cash'. Jury's still out on this one.

Overall I feel a strange contradiction of being delighted to have made life changing decisions that I can't wait to enjoy yet still nagging reservations about various aspects. My quick post again became a wall of text so if you've made it to the end, thank you, and I hope I've given some food for thought.

DRS1

Does that software allow you to play with other inflation and investment growth figures? What does it look like if you change 3% to 10% for inflation? Personally I would characterise 10% as pessimistic (at least I hope it is).

I don't know how long you have been tracking spending but are you able to work out your own personal inflation figure? It gets discussed on here a bit that rightly or wrongly people feel that RPI or CPI does not reflect their own personal inflation. Of course that could just be a feeling but if you are doing the figures as religiously as you are then you should be able to tell with more certainty than most of us.

fuelcrusher

https://forums.moneysavingexpert.com/discussion/comment/81993440#Comment_81993440

Yes, of course. Without too much messing I just opened up one of my plans, it has £1.6m total portfolio, a requirement of £43k NET income a year, adjusting for inflation, it also includes a £200k spend on the house move we may do. The plan shows net worth around £5m at 100 years old. One single change of inflation from 3% to 10% sees me running out of money at 70. This change implies that inflation will be 10% average throughout the whole of retirement. You'd need serious wealth to survive that. Anything can happen of course but I doubt many would ever retire using that level of pessimism.

Our own personal inflation is very level. £37k, £33k, £40k, £40k, £36k, £37k, £55k (inc £20k for car). We have always lived comfortable and get what we need but have always avoided lifestyle creep as salaries increased.

gawthorpe4

Sounds like you have a good plan. Well done. I think if inflation was high for a prolonged period you would expect investments to go up faster too. So assuming you continue to have a fair amount of investment in equities that should deal with high inflation to some degree. it looks like you have a decent size cash pot and if you continue to do that, I guess you can ride out any stock market falls that don't last "too long".

Like everything in life, I see it all as a balance.

I'm no professional, but I think you're fine !

Albermarle

Financially you seem fine. The fact that you have got bored with the spreadsheets, because it is probably clear that you will not run out of money/have a very comfortable buffer is a good sign.

Probably now is the time to be thinking more about your plans for retirement, especially this one.

So the biggest uncertainty left is whether we upsize our home. In August 2027 I can use the full PCLS of £268k to help with any move. This is why I hold so much 'cash'. Jury's still out on this one.

It might seem a bit depressing in your mid 50's, but thinking about where you want to live when you get older, could be more important than just upsizing. Moving home can be a bit of a nightmare, so you should keep in mind the possibility of having to move again when you are older.

DT2001

Two x SP in about 13 years when you will have 70% +/- of your requirement inflation linked?

If we have (or are worried about) high inflation you could protect yourself with index linked gilts.

You could tweak your portfolio to be part income focused in the short term for peace of mind.

DRS1

https://forums.moneysavingexpert.com/discussion/comment/81993455#Comment_81993455

Yes that change to the inflation rate was meant to be scary. If actuaries do valuations of pension schemes they will always assume that investment return will outstrip inflation and salary increases. So you wouldn't see them saying inflation 10% and investment return 5%. But those are just assumptions and who knows what reality will hold.

And as you say the chances of an average of 10% for many years to come must be very remote (what is the BoE target - 2%?). But we have seen a year of 10% inflation recently (and 8%) so we can't rule out the odd bad year. If you look at gilts they seem to price in an inflation rate of just over 3%. So maybe that is a realistic rate to assume. I was reacting to the "pessimistic" characterisation. 3% inflation and a positive real yield of 2% doesn't seem pessimistic to me.

Your personal figures look very controlled. And I guess they will have to stay that way if you are basing your taxable pension draw on the basic rate tax threshold - that doesn't look like it is going up any time soon.

I am not sure how much you have in a pension but if you have hit the maximum tax free cash level of £268k then I would personally be thinking about extracting that (maybe in bite sized chunks - £20k?) to an S&S ISA (or maybe premium bonds or gilts) as soon as you can (or as you say spend it on your new house). The thing is it is not going to grow in the pension (unless they increase the LSA which seems doubtful) whereas it should in an ISA.

kermchem

OP talks about his pension situation. I can see partial answers from older threads, but how is wife's pension?

How does net worth look at age 100 for OH if OP is deceased?

Sounds like OP will be a higher rate taxpayer in retirement, so should take steps to maiximise wife's use of personal allowance or basic rate.

fuelcrusher

https://forums.moneysavingexpert.com/discussion/comment/81993504#Comment_81993504

Absolutely. Without this potential move it'd be clear sailing I think. We're looking to find somewhere with a few acres, get a few goats, more chickens etc. Apart from the financial implications I need to make sure that whatever we take on isn't too much that looking after it becomes a full time job. Fortunately house moves up in Scotland are much easier than down south so yeah, potentialy there could be another move in later years.

fuelcrusher

https://forums.moneysavingexpert.com/discussion/comment/81993524#Comment_81993524

Around £1.3m in my pension/sipp. I've modelled this for what it's worth in Voyant and withdrawing up to the HR tax threshhold will not empty the pot. So yes there is no more value in keeping the PCLS in the wrapper as all growth will be HR taxed. It's all made worse being in Scotland due to the lower threshhold for HR tax anyway. So far I've only come up with one reason to keep that money in the pension and use UFPLS. That is that the higher UFPLS withdrawal would give me a higher 'income' for normal gifts out of income, which I may try utilise (seems a minefield though). From what I can make out once the PCLS is taken out then it can no longer be used as 'income' for this purpose.

All that being said though I do hope, and understand that I have to, develop the ability to withdraw and pay higher rate without it feeling like such a negative.

fuelcrusher

https://forums.moneysavingexpert.com/discussion/comment/81993588#Comment_81993588

Yes I dropped the ball regarding my wifes pension. Once I realised, I started adding the £3600 to a Sipp for her each year and will continue to do so. She has around £40k just now, plus the full SP.

If I take the full PCLS but we don't move house then that will be invested/saved in my wifes name to use her savings allowance etc but I don't know how I could really use her allowances other than that.