Retirement Advice

armanigolf

Dear Money Experts!

My husband has just turned 60 and has a 16K p.a index linked pension with circa 80K lumpsum. He can draw this now but I'm only 52 with a pension only at 60 - he's a smoke, good health - I'm non smoker good health.

We both have worked since 16 ( no child or "dole" breaks) and savings of circa 100K in Isa's and savings accounts

We are both desperate to stop work and plan on renting our flat hopefully getting £800 p/m... we plan on traveling with this £800.00 paying our rent wherever we decide to "travel to and live albeit temporarily". We are airline / hotel workers and get relatively free travel perks however it guts me losing a wage if I give up work early and a pension I've worked so hard for ( been paying in approx 15 years and final salary)

Yes, we are taking financial advice next week but before seeing anyone - can anyone advise on what we do to make our money work for us, tax implications and any other useful info I need to take on board or look at...

Am I asking too much advice from you?

Best wishes

CLAPTON

so you have
16,000 pa
plus 9,600 pa in rental income ..is this net of costs or not and what about tax etc.

and you have about 180,000 in cash

if you're desperate to stop working then that seems entirely possible depending upon your expected spending... how much do you expect to need?
where do you want to travel to and how expensive will that be?

as you expect to stop working, I'm a little unsure how being in the hotel/airline industry will help.. do you retain any benefits after retirement?


so what is the question... is it how to invest 180k? or what

jamesd

armanigolf, for prudent planning you can reasonably use 6% of the 180,000 of lump sum and ISAs as income, after providing for inflation, and assuming that most of the money is invested rather than in savings accounts (which could only deliver 1-3% income after inflation). That's another 10,800 in income.

You can expect an Independent Financial Adviser (make certain it's not just an FA) to advise putting all of the ISA money into stocks and shares ISAs to generate tax free income and investing for capital growth outside the ISAs, continuing to move the maximum possible amount of 14,400 a year into the S&S ISA until it's all tax sheltered.

If you have no mortgage on the property you're renting out, be aware that interest on borrowing of up to 100% of the value of the property at the time it's first used for letting can be deducted from rental income as an expense. This means that it'll probably be profitable to take out an interest only mortgage of 75% of the property value then invest that 75% to generate investment growth and/or income. Effectively this moves the income from taxable property rental income to capital gains tax and then over time into ISA. And since CGT has a 9600 per person allowance this year and only an 18% rate after that, this is likely to be a significant tax advantage. You should also have little trouble long term gaining more from investment growth and income than you pay in mortgage interest.

What happens to your pension if you stop work? Do you actually lose it or just have to wait before you can get it? Any way to salvage it? This bears very careful investigation.

For him, he should ask about immediate vesting personal pensions, which can be of significant value particularly for higher rate tax payers. It's a contribution of a lump sum to a pension, getting the 20% tax relief on the way in, claiming the 20% higher rate relief as cash, then taking an income from the pension. Since 100% only cost 80% initially, the net cost is around 65% of the money that ends up in the pension. It's a nice way to increase income. It'll be less effective for him after 65 because he'll start to get a higher tax personal allowance then and income above around 21k starts to reduce that extra allowance. If you are paying higher rate tax it may be better to do this for you. An IFA can work out the options and you may prefer to keep the lump sum outside the pension limitations anyway.

Do you expect to live mostly outside the UK? Enough to end up not domiciled here for tax purposes? Are you interested in options like lower pension income tax (Cyprus) or being able to take 100% of the pension capital as a lump sum (various places) after five years? I'm not sure that this will apply to your workplace pensions, the IFA should be able to tell you if it would under the QROPS rules. You'd probably have to break your ties with the UK by selling the property to exploit this possibility.

EdInvestor

How much money will you need to live on while travelling/staying abroad?Any ifdea of which country yet?

For later, check out your state pensions.Forecasts may not be available until October, but the SERPS/S2P component on top of the basic may give an extra boost (especially for you) enabling less frugality over the gap period.

Hubby will already be nearing age allowance clawback (punitive tax level) with his company pension +basic state pension at 65 and will fully use his basic 6k personal allowance now with his pension.

You will have unused allowances, so if property can be put in your name, at least 6k of income will be tax free while travelling and the rest can probably be covered by expenses/mortgage interest.

All quite doable, I'd have thought unless you have a very expensive lifestyle.

.

armanigolf

People

Thank you for your responses, a minefield... I'm only getting myself more confusd so wil ensure IFA is taken on to advise me.

Thank you everyone...

Cacran

I Have just been reading this post as we are in a 'stiuation' at the moment where we need advice. I think we will have to get an IFA. We have had advice in the past from FA's that we have been mislead with and we are very suspicious now.
My husband had just been granted voluntary redundancy. He is 55. He had come out with a redundancy payment, pension of about £90 a week and a lumpsum amount.
We have a number of investments and ordinary savings and feel that we could live on his income, my wage of £50 a week and the interest our savings generate. I am 53. He will have to wait 10 years until he gets his state pension andI will not be eligible for old age pension until I am 65, according to the calculator. We think we will be able to manage wthout him getting a job.All his family have died young and he has it in his head that he will also, that is why he wanted to finish work so young.
Are there any benefits we could claim from the government like free prescriptions or reduced Council Tax or anything else that we have not thought of or are these all means tested (with the capital we have, would we have made ourselves over the limit??).
Please try to explain to me in simple terms as I do not understand any thing other than simple!!!

EdInvestor

Try looking here for benefits entitlement and also suggest you consult the CAB if it's not clear.

http://www.entitledto.com/

State pension forecasts (after October) here:

https://www.thepensionservice.gov.uk

Many people are not aware there are two state pensions, and the second one can sometimes be as big as the basic.

jamesd

"the interest our savings generate" is very worrying because savings halve in value due to inflation every ten to fifteen years. You must use investments for a large part of the money if you hope to be able to take 5-6% as income and also keep the savings value growing with inflation.

You're right to be looking for an independent financial adviser rather than just a financial adviser. Be sure that word independent is there. Then start a new topic to discuss the advice you receive so that the people here can comment on it and ensure that it looks sensible.

You should expect an IFA to advise you to put the maximum possible amount into the stocks and shares ISA every year until all of the money is inside this and producing tax free income. If that is not done you should ask for a detailed description of why. It's possible that it's not the best course but it usually is if the money can all be moved inside the ISA within a few years.

A stocks and shares ISA does not mean only investing in stocks and shares, there are many other things that can be invested in within it, including options safer than bank savings accounts. Though those - British government bonds, called gilts - shouldn't be a high percentage of the investments for people of your ages.

It's possible that the IFA will also recommend using pension contributions for one or both of you, because those are more efficient for tax purposes for the first 6,000 or so of income per person.

If you do have sufficient income to live on from savings and investments then it's likely that you won't be eligible for means tested benefits, but do check. The IFA should also be considering this, though it may be too late to change the benefit effects.

For investments you can generally expect to be able to take 5-6% as income after inflation. So each 10,000 could produce 500-600 a year or 41.67 to 50 a week.

CLAPTON

I'm curious... what investments have consistantly made 5-6% above inflation over the last 10-15 years?

armanigolf

Thank you to everone who is posting advice. I really am beginning to understand things more. When it comes to my final salary pension, I've [aid in for only 15 years and have 7 years to go before I reach 60, the latest statement advises only 3,500.00 p.a. If I can get early retirement which I don;t think they wil be eager to give me bearing in mind the hours I do at no paid overtime. What other options do I have

Thank you ladies and gents for your generous advice.

EdInvestor

armanigolf wrote: »

Thank you to everone who is posting advice. I really am beginning to understand things more. When it comes to my final salary pension, I've [aid in for only 15 years and have 7 years to go before I reach 60, the latest statement advises only 3,500.00 p.a. If I can get early retirement which I don;t think they wil be eager to give me bearing in mind the hours I do at no paid overtime.

You could just resign and leave the pension behind.It will increase by inflation or 5% automatically from where it is now until your retirement date.

Alternatively you could resign and ask for a transfer value, to move the pension elsewhere, and then take benefits ( 25% tax free cash and annuity or drawdown).

You'd then need to compare what you could get with that transfer value compared with what you could get later if you left the pension in deferral.

A lot of the 'value' in f/s pensions is in the index-linking for inflation after retirement and the spouse's/death benefits. While the first is not to be sneezed at, it would probably be better for you to get a higher pension now, than a lower pension later with money compulsorily earmarked for a spouse when your husband is significantly older and already well provided for.

Transferring may be beneficial for some people even if the comparative cost/benefits don't stack up on the surface..