Advice on my retirement plan please !

Grashnak

To introduce myself, I am turning 30 in a couple of months, married and alas as yet without children. I really want to retire early, as early as I can afford - which is going to be tough as I don't take home a great wage and the wife dosn't often work (long story).

Currently, we should finish the mortgage just shy of my 40th birthday and other than the wifes student loan of (£5,500) which we are currently not paying and a small amount stoozed, we are debt free. Once the mortgage is paid I intended to put away in cash savings approximatly £6,000 in todays money per year or more if I can. Once I have a sizable pot of £ 120,000 or so will retire from work & draw £1,000 per month from this to live on. When that is exhusted draw my private pension and live on the lump sum/annuinity (estimated £84,000/£12,100 if I draw at 65) until state pension age - my forecast states I will get about £168 per week.

The wife has no pension plan, but we are paying class 3 contributions to allow her to claim full state pension on retirement.

That's my plan - does it sound feasable ? Obviously who knows what the future holds in terms of pensions, but wanted to check to see if this loose framework seems sensable or if I am missing something important. Any advice/comments very welcome.

dunstonh

Your state retirement age is not 65. It will be 68.

I think you are seriously underestimating the effects of inflation. You are using cash savings for this so we can rule out any growth on your money.

If you do 20 years of £3000 then you are only going to have £60,000 not £120k. That would also make you agee 60 which is 8 years before your state retirement. So, would £60k really be enough in todays money to last you 8 years. I have assumed 60 here but were you looking for earlier?

That's my plan - does it sound feasable ?

No. You are using cash which is daft. You are leaving retirement provision late and you are underestimating inflation. Plus a pension fund of £84k will not pay £12k pension a year. Try closer to £4500 a year.

EdInvestor

You can check pension annuity rates here:

https://www.fsa.gov.uk/tables


I'm afraid there is no escaping the stockmarket if you want to have a comfortable retirement, especially an early one. You might be able to top up income from your property to some extent.

tanith

Just an observation but I think if children come along (seems a possiblity from your post) that would blow your current plans out the window...

Grashnak

Apologies, let me clarify a few of the items:

dunstonh wrote: »

Your state retirement age is not 65. It will be 68.

Understood - I was intending to use the 25% lump sum from my pension to live on until I hit state retirement age after the savings pot is exhusted, that will be worth 84K (at least by my private pensions forecast).

I think you are seriously underestimating the effects of inflation. You are using cash savings for this so we can rule out any growth on your money.

If you do 20 years of £3000 then you are only going to have £60,000 not £120k. That would also make you agee 60 which is 8 years before your state retirement. So, would £60k really be enough in todays money to last you 8 years. I have assumed 60 here but were you looking for earlier?

I was intending to save £6,000 for 17 years (retiring at 57) and hoping to gain 2% over inflation on cash savings - is that unreasonable ?

No. You are using cash which is daft. You are leaving retirement provision late and you are underestimating inflation. Plus a pension fund of £84k will not pay £12k pension a year. Try closer to £4500 a year.

The 84K is the 25% lump sum, I would get 12.1K annually, the total fund will be ~360K if I recall correctly. However, your last sentence was what I was afraid of - can you tell me more why saving cash in this way is daft ? What would be the better choice for me ?

Tanith - yes, understand children would change all this, however sadly it looks like we will never have any luck there.

Very much appriciate your time & efforts on this.

EdInvestor

How much are you saving into the private pension and how big is the pot now and what is it invested in?

You can start taking benefits from a pension at age 55, including the tax free cash.

If you are already happy saving in a pension you'd be better to use the stocks and shares ISA to accumulate the additional fund.

Grashnak

I currently put £246 (gross) & my employer puts £186 per month. The fund is at £40K currently invested in two funds, the main is a 'managed' fund which is apparently corporate bonds, mortagages and some other bits & pieces, the second fund is a with profits fund, I no longer put any money into this.

Perhaps should mention my gross salary is £24.7K and unlikely to change in the near future. We currently hold £10K in ISA's (plus some stoozed but have discounted that for this thread as it is obviously temporary).

The reason I had intended to take the route I outlined was to delay drawing the private pension to get the most of the annual payments to cover our lifestyle since the state pension is so small.

Never keen on stocks & shares, always been an absurdly cautious chap when it comes to saving. Perhaps I need to rethink that. Would I be better off not saving a pile of cash, invest solely in my private pension and draw that at 55 instead ?

plonkee

Do you mean, would you be better off staying entirely in cash?

Over the long term (>10 years) almost certainly no. Cash returns tends to average at inflation or below, and stock market investments 2%-4%+ over inflation (depending on what sort of risk your are willing to take on).

If you do want to rely on cash, then you need to save *a lot* of money, and be very, very careful with your sums (and assumptions - about inflation for example). It's not impossible, it's just not very practicable.