Mind the 'age' gap: retirement planning
Comments
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Oh, I think I see what you mean now - do you mean paying 4 years Class 3 NI contributions from age 55-58?0
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Cottage_Economy wrote: »... have found a clause in the pension that says any FS benefits built up before 1/4/2012 cannot be transferred out so it would only be what he has accrued in the DB scheme after that up to the April this year, when RM switched to the new defined cash balance scheme. So he'll build up 19.6% per annum of his pensionable pay between now and when he retires in 5 years and that gets paid as a lump sum
It's worth keeping an eye on this. Does it mean that he'll have three different tranches of pension: (i) non-transferable DB, (ii) transferable DB built up from 1/4/2012 to approx 1/4/2018, and (iii) new "defined cash balance scheme"? I ask because it may mean that in the end that he could accept a DB pension from (i) and transfer (ii) & (iii). That might be a very decent compromise.
I found this useful because I had no idea what a "defined cash balance scheme" was.
https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/workplace-pension-schemes/cash-balance-plans
It left me doubting the generality of your statement "So he'll build up 19.6% per annum of his pensionable pay between now and when he retires in 5 years and that gets paid as a lump sum."Free the dunston one next time too.0 -
Cottage_Economy wrote: »MK62 - when I originally did the calculations at the end of last week it gave me great results. I was very skeptical of that so spent more time over the weekend checking the figures. I had missed a couple of important points and the real result was that we would, in fact, have a shortfall.
One of the perils of using software - the output is only as good as the input!
I really struggled with any spreadsheets I used - and it's easy to make mistakes when you don't really understand something. In the end I built my own.Noobie2011 wrote: »Is the software really good as I have been plugging away at the weekend with my figures on a simple spreadsheet. Basically I have created columns for each of our state pensions, projected equity lumpsum from house sale, our workplace pensions and then a spare column for extra income we will have which is not tied to an investment yet so could go to our pension, extra mortgage overpayment, sharesave scheme or just standard ISA etc.
I have then stuck our ages along the side and calculated each year how much of a wage we have and whether there is a shortfall as comparing this to our calculated ideal wage whwn retire. Then I can see any shortfall, where it arises as in year and what we woukd need to do to plug the gap.
Mine sounds very similar to yours. The biggest issue I had was not deciding what growth figures to use but how to model different scenarios such as a sudden, 1-3 year downturn, prolonged recession etc. In the end I found a website (sorry, can't remember which one!) which gave annual growth for the last 80 years and I used those figures to do about 20 different models, starting a few years apart, to see if I ran out of money. I didn't :T - well, only once or twice
. CFireSIM does a similar job for you but I needed to understand the workings so I could trust the figures.
I would strongly advise against coming out of the UK property market. I live in Spain and know a fair few people who sold up in the UK and now would like to move back but are priced out. No matter how definite you are about moving permanently you don't know what the future may hold. Can you retain your house and let it - that would reduce the income needed but obviously mean you had less spare capital. That's what we've done - I can't envisage me ever returning to live in our old house but at least we could sell it and buy something comparable but different elsewhere.Noobie2011 wrote: »Also we do not and will not have children so that is less of a worry in terms of inheritance so we have factored our house equity in(mortgage free by my retirment) and plan to split the equity between money for retirement and moving abroad.
I love this thread - very empowering :T.A positive attitude may not solve all your problems, but it will annoy enough people to make it worth the effort
Mortgage Balance = £0
"Do what others won't early in life so you can do what others can't later in life"0 -
Don't forget to plan for the effect of inflation too though!
Yep! I'm assuming the software has that base covered...?? (runs off to check)What I meant was him looking at transferring from this scheme to an alternative pension arrangement which doesn't have such a restriction - a SIPP for instance!
You can understand why they have such restrictions, but that doesn't help in your case if the worst happens and you find yourself on your own, with only 45% of your husband's pension to live on (unless that's enough of course)
That said, transferring out could be a bad idea for a number of reasons, and to do it you'd need to engage the services of an IFA anyway....(though it could be a good idea too - it all depends....;))
He can transfer only what he has built up after April 2012. Prior to that, the government stepped in and took over responsibility for it all and that is non-transferable.Oh, I think I see what you mean now - do you mean paying 4 years Class 3 NI contributions from age 55-58?
I was assuming I could just buy the extra years, kind of like an NI supermarket. I am now thinking that I can't. Does it fall into the 6 year rule so I can only buy unused years?It's worth keeping an eye on this. Does it mean that he'll have three different tranches of pension: (i) non-transferable DB, (ii) transferable DB built up from 1/4/2012 to approx 1/4/2018, and (iii) new "defined cash balance scheme"? I ask because it may mean that in the end that he could accept a DB pension from (i) and transfer (ii) & (iii). That might be a very decent compromise.
I found this useful because I had no idea what a "defined cash balance scheme" was.
https://www.pensionsadvisoryservice.org.uk/about-pensions/pensions-basics/workplace-pension-schemes/cash-balance-plansIt left me doubting the generality of your statement "So he'll build up 19.6% per annum of his pensionable pay between now and when he retires in 5 years and that gets paid as a lump sum."
Thanks Kidmugsy. I haven't explained myself well at all. Yes, he will have three tranches of money. I had it in mind that he would probably transfer out the lump sum when the time comes if feasible. It's designed to be used as the 25% tax free lump sum instead of using part of his FS/DB benefits; they remain untouched.
All the literature I've read so far from RM on the cash balance scheme says that he will contribute 6% and RM 13.6% of his pensionable pay (so 19.6%) to it every year while working, which will will be used to fund part/all of the 25% tax-free lump sum when he retires. What he can do with it if he doesn't want to take the lump sum, I don't know. I am assuming if he retires at 62-ish and doesn't take the pension straight away, as a deferred member he probably transfer out. I know pension rules can sometimes be different if you actually retire and claim the pension benefits straight away - not sure if this is the case with RM.
Last year a fellow forum member and employee of RM, Dasherman, told me the following:
Cash Balance
1. Use to fund the tax free lump sum at retirement and with anything left over he could transfer out to buy an annuity or drawdown.
2. Transfer out independently of his main scheme benefits to buy an annuity or drawdown.
3. His pot will be worth a minimum amount based on total contributions with the addition of investment growth of which CPI+2% is the aim. But currently no info on where money will be invested.
4. Normal retirement age of 65, so possible reductions if taken early.
5. The ability to transfer to the DC option if desired.
That was back in October. Still no idea whether the Government will give approval for the CDC to go ahead either.0 -
I would strongly advise against coming out of the UK property market. I live in Spain and know a fair few people who sold up in the UK and now would like to move back but are priced out. No matter how definite you are about moving permanently you don't know what the future may hold. Can you retain your house and let it - that would reduce the income needed but obviously mean you had less spare capital. That's what we've done - I can't envisage me ever returning to live in our old house but at least we could sell it and buy something comparable but different elsewhere.
I love this thread - very empowering :T.
A few years ago we considered buying a place in Italy with a view to retiring there one day but at that time some of the inheritance laws were draconian so I refused to do it in the end - forced heir-ship I think its called. For quite a while I had recurrent dreams about DH dying and some Italian lawyer finding fault with our will and handing 50% of our assets to a male 'wastrel' of a relative, who whooped with joy at his fortune as he had never bothered to pay into a pension knowing that something good would happen to save him.
Woke up many a time with my heart pounding!:rotfl:0 -
I really struggled with any spreadsheets I used - and it's easy to make mistakes when you don't really understand something. In the end I built my own.
Mine sounds very similar to yours. The biggest issue I had was not deciding what growth figures to use but how to model different scenarios such as a sudden, 1-3 year downturn, prolonged recession etc. In the end I found a website (sorry, can't remember which one!) which gave annual growth for the last 80 years and I used those figures to do about 20 different models, starting a few years apart, to see if I ran out of money. I didn't :T - well, only once or twice. CFireSIM does a similar job for you but I needed to understand the workings so I could trust the figures.
I would strongly advise against coming out of the UK property market. I live in Spain and know a fair few people who sold up in the UK and now would like to move back but are priced out. No matter how definite you are about moving permanently you don't know what the future may hold. Can you retain your house and let it - that would reduce the income needed but obviously mean you had less spare capital. That's what we've done - I can't envisage me ever returning to live in our old house but at least we could sell it and buy something comparable but different elsewhere.
I love this thread - very empowering :T.
Yeah I am just trying to get a starting point and then form there start applying growth figures but it makes me nervous in that I am applying extra income that is based on forecasted growth which yes unless very unlucky any pensions, property and savings we have should grow. To get around it I may just apply a modest growth and then can keep monitoring to get a better view as we go.
It is a good point you raise and we may get to retirement age and not want to leave but we did talk about keeping a small base here in the UK and then buying abroad with the intention to live abroad but an option to visit here whenever and come back or good if needed. Plus the option of renting it out would supply an income actually which could come in handy even if increases any fall back money we may need. One of our options was to look to invest in a property abroad as soon as we could and rent it out while maybe using it as a holiday home and that would give us another form of income but also a change to decided if we wanted to live there.
The idea of maybe having a base in the UK and abroad and earning income from one does get me excited so I must be getting old now haha0 -
I was assuming I could just buy the extra years, kind of like an NI supermarket. I am now thinking that I can't. Does it fall into the 6 year rule so I can only buy unused years?
I'm no expert on this subject, but as I understand it the 6 year "rule" has been temporarily extended for the introduction of the new state pension.
Now it seems you might be able to buy as far back as the 06/07 tax year.
AIUI, you can't just buy extra years - so for instance you can't just phone up and say you'd like to buy 4.
I think your options are either to pay class 3 NICs for any gap years between 06/07 and now (assuming any of these are gap years), or wait until you are 55 and retired, and continue to pay class3 NICs for a further 4 years then (at whatever rate is set at the time, and assuming it's still an option then).
However you may need to be careful about pre2016 years....in some cases you could end up shelling out for nothing.....and from a few stories I've read, people are not being informed at the time that they could be paying for nothing (that could have changed by now though)
I think your state pension would increase by more than £218pa from buying those extra 4 years though.....I reckon it could increase by up to £18.80 a week (c£978pa) in today's figures.0 -
AIUI, you can't just buy extra years - so for instance you can't just phone up and say you'd like to buy 4.
I think your options are either to pay class 3 NICs for any gap years between 06/07 and now (assuming any of these are gap years), or wait until you are 55 and retired, and continue to pay class3 NICs for a further 4 years then (at whatever rate is set at the time, and assuming it's still an option then).
However you may need to be careful about pre2016 years....in some cases you could end up shelling out for nothing.....and from a few stories I've read, people are not being informed at the time that they could be paying for nothing (that could have changed by now though)
I am fully funded back to 2001/02 so if I want to buy extra years I will have to look into it after I finish work.I think your state pension would increase by more than £218pa from buying those extra 4 years though.....I reckon it could increase by up to £18.80 a week (c£978pa) in today's figures.
I'm probably looking at old data again!
Thanks MK62.0 -
Cottage_Economy wrote: »Noobie2011 - I started off doing something similar a couple of years ago but by the time I took into account everything I needed to it became a beheemoth and got away from me. I've been looking for something a bit simpler ever since.
I want to include compound interest and growth estimates for all of our sources, even if they are conservative estimates, because they will form an important part of our retirement income.
£60k does seem excessive. I've been working on £25k joint AFTER mortgage payment, with other assets in the background earmarked to sell should we need it. That's currently in excess of what we spend but I'm putting in the extra to cover holidays and car resto's. DH has also mooted the possibility of doing the odd shift as a casual after retirement. He knows some of the more complicated rural deliveries that can take a long time for a new postman to learn so he may be able to make something of that to cover sickness and holidays.
So I checked our state pension forecasts and he is fine - full entitlement in 4 years time. I am not. As I was in education/out of the country for 10 years of my record I have another 14 years until I make full pension - which doesn't tally with my plans to stop working in 10 years.
Now wondering whether paying for an additional four years will be worthwhile to get the full state pension. So, that's a cost of £761 of Class 3 contributions for each additional year, or £3044 to get another £218 a year in state pension (assuming I complete the next 10 years break free). That will give me back £4,360 of extra state pension over 20 years or £6,540 over 30 years. The 20 year estimate takes me to 87 years old, which is probably more likely than the 97 years.
Based on that, I'm wondering whether my money is better placed elsewhere and not in extra state pension years. Mind you, it is about 40% increase isn't it to 87, which is not to be sniffed at...unless I'm being far too simplistic in my maths?
So I am not sure how conservative you should be with compound interest but it seems everyone goes off 5%. However when I apply that to our pension pots they increase quite a bit and give us quite a few more options. Is 5% realistic to calculate off or is the rule to apply a less risky %0 -
Well, I have come around to the spreadsheet idea. I couldn't make the RetireEasy thing work in the end. I need months and I was having a problem with the software insisting on taking the 25% tax free lump sum on my personal pension, even though I didn't want it and it screwed with my subsequent income.
I physically put the numbers into a spreadsheet, playing around with the drawdown figures for savings and pensions trying to maintain a steady total income close to what we have now. We will still be paying off the mortgage until I'm 62, which takes a chunk of our money, and we have to maintain a certain income to show affordability to the mortgage provider (at the moment I have left off remortgaging to extend the term and bring the monthly payment down. I want to see how far we can get with everything we currently have).
Going through the figures, it first looked as if we would have a shortfall of about 1000 a month when I am 58, which is when DH's SIPP runs out, having provided him with eight years drawdown income. But then I realised:
a) his state pension would kick in before this, and that would be a surplus for a while so it could be saved.
b) we currently save £500-£800 a month, so if we're maintaining our current level of income to 'show' affordability to the mortgage provider we could continue to do this.
c) I forgot we had planned to open a SIPP for me at 50. Once those savings go into there and get a 20% uplift, that helps bridge some of the gap. Then at 58 I can start to draw that down.
I still have to play with the balance between savings and drawdown figures to optimise the tax we pay.
I should add we currently have 52% equity in the smallholding so that is in reserve if things get sticky. We also still have the cars, which will be sold at some point.
I've included our cost of living pay-rises for our salaries (we get 1-2% every year) but no bonuses for the pensions (as they are discretionary) or growth on the new SIPP yet. Likewise I haven't taken into account increased personal tax allowances or state pension increases. Also need to think about inflation.
This is, of course, best case scenario. I now have to tinker with the figures and play with different scenarios.
I'm quite chuffed though I have to say.0
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