Redundancy at 52, retire now?

Ceme3000 · 12 June 2018 at 10:04PM

Hi All, So here is my story….
I am a 52 year old single bloke, no kids, basic rate tax payer, and for a number of years have been saving hard aiming to retire at 55. A couple of weeks ago I found out that I am going to be made redundant in September.

I am now trying to work out if I can retire now, or at least be in a position to choose to work part-time if I want to, and what is the best way of taking an income. I don’t live an extravagant lifestyle, my monthly expenditure for council tax, utilities, insurance, food and running my 12 year old car is £600 per month. I currently spend an additional 1K per annum on short UK breaks and estimate I would like 15K per annum to live comfortably (but 18K would be nice!).

In retirement I would like to take more short breaks, and am interested in buying a motorhome at some point in the future.

My home is mortgage free and I own a second property also mortgage free that I have been letting out. The BTL has just been put on the market. After CGT and sales expenses I expect to have about 260K from the sale.

I have 170K in a Hargreaves Lansdown ISA all invested in equity funds. My redundancy will be 40K after tax and I have 10K savings in the bank.

After the redundancy and house sale I will have 480K at my disposal.

Now for pensions…
SIPP – 70K invested with HL.
Defined Benefit 1 – With former employer. Have been advised this would pay £1600pa. I was entitled to take this from age 50 without penalty but chose not to.

Defined Benefit 2 – Deferred with current employer. Recent quotes obtained say the pension payable at age 65 would be 22K, at 60 it would be 17K, and at 55 it would be 13K. This assumes no tax free lump taken which would otherwise reduce the DB pension.

Defined Contribution – With current employer and is “linked” to the final salary fund so that I can use all of this for a tax free lump sum subject to 25% limit. Currently contains 31K.

Here is what I am proposing to do;
1. Use my unused pension carry-forward allowance, plus this years allowance which should mean I can contribute 90K net into pensions, this would be £112500 gross. I would put 20K net into DC employer pot and the rest into the SIPP. This should take the DC to 56K and the SIPP to £157500.
2. The remaining 170K from the house sale will be invested with HL. 20K will go into the ISA account each year and the rest invested in a fund account.
3. Keep 50K (the redundancy and cash savings) in the bank and use this to live off until I reach 55.
4. This leaves me with £157K in the SIPP, £340K Invested with HL and £50K in cash.
5. At 55 I would then take an annual pension (DB estimated to 2018 values not age 55) DB1 £1600 + DB2 £11700 + SIPP Drawdown £5000 (increasing with inflation) = Total £18300. I calculate the SIPP would run out in my late70’s assuming a 3% return and a 2.5% annual increase.
6. At 55 I would also take tax free the DC pot of £56K + £39K from the SIPP = £95000. This would pay for the motorhome, and a newer car, and leave me with the 340K invested with HL.
7. At 67 state penion would start, taking my pension to 25K until the drawdown runs out.

So here are my questions;

1. Does my plan seem to make sense? The numbers appear OK to me, but it feels like I am taking a leap into the unknown.
2. Would I be better using the SIPP as a “bridging pension” and delay taking the DB pension.
3. Is it better to take more tax free from the DB fund and accept a lower pension.
4. Is keeping all 50K in cash to cover me until age 55 excessive? Am I missing an investment opportunity? My logic for keeping it in cash is because if there is a stock market correction then I don’t have to take money from the fund while the markets are depressed. But I could put it into a lower risk bond fund instead.
5. If I am not earning for 3 years then my personal allowance won’t be used. If I take an income from the HL non ISA fund then can I receive £5000 plus my personal allowance without paying tax.

Any advice and suggestions appreciated. Sorry for the long post!
Thanks all.

Brynsam · 12 June 2018 at 10:11PM

Really would be worth taking proper financial advice so you can be advised based on a full picture. As you say, yours is a long post, but there is so much more info needed to be really helpful.

silverwhistle · 12 June 2018 at 10:29PM

From looking at my own figures and then at yours I'd say of course you could retire, so you don't need to bother about employment if you don't want to. At least that's a worry out the way.
I couldn't afford (or want) a motorhome but my net income of £1200 a month and low outgoings keeps me reasonably comfortable (2 week skiing holiday, footie season ticket etc.). At some stage I'll dip into my savings which are rolling up in a PEP/ISA and in a few years I'll get a state pension.

The problem is that we all have different views of what is needed - the "I couldn't possibly retire on less than £3K a month" and "I've got the state pension and 120 quid". I'd say take that leap, but get more advice first!

Ceme3000 · 12 June 2018 at 10:37PM

Thanks Brynsam. What type of advice would I need to ask for? I don't feel I need help choosing which specific investment and income funds to select as I actually enjoy studying Trustnet etc and looking at the risk ratings, sectors, fund manager performance and so on and am quite comfortable doing this. I think what I need is a sort of strategic overview on where I go from here and which source I use for income and in what order etc. Presumably an IFA would do this? I guess the fact is I am also reluctant to hand over money to an IFA if I can research something myself.

jamesd · 12 June 2018 at 10:44PM

Ceme3000 wrote: »

1. Use my unused pension carry-forward allowance, plus this years allowance which should mean I can contribute 90K net into pensions, this would be £112500 gross. I would put 20K net into DC employer pot and the rest into the SIPP. This should take the DC to 56K and the SIPP to £157500.

Will you have enough gross pay for the tax year? £112,500 minus any direct gross employer contributions.

There are two different limits and you have to stay within them both:
1. Annual allowance of 40k gross into pensions in your name, whoever pays in. Carry-forward of unused allowance from the past three years is available to increase this. The annual allowance is reduced for those who earn more than 150k.
2. Pay in the tax year of contributions, no carry-forward from past years permitted. On top of this, salary sacrifice and other gross payments by an employer are allowed, using redundancy money is common.

atush · 12 June 2018 at 10:49PM

At only 52 will you be bored bring retired esp as you dont have such a quiet lifestyle?

Def can afford to go part time, and maybe full time if you keep your outgoings low. I might initlly try and go part time somewhere to test the waters.

Ceme3000 · 12 June 2018 at 11:03PM

@JamesD - My taxable earnings have fluctuated because of the BTL but approx £33K per annum. Sorry I don't understand point 2? Assuming 33K for 2018/2019 as well, is it not 33K X 4 less all the employee and employer contributions made since 6th April 2015? Clearly I do need an IFA for this one!

@atush - I am sure you are right! When boredom sets in, I will almost certainly be looking for part-time work. But it will be nice to be in a position where I can be selective.

jamesd · 12 June 2018 at 11:18PM

It appears that you'll have £550000 at 55, with plenty available immediately. The UK safe withdrawal rate using the Guyton-Klinger rules for 40 year plan and 65% equities is initially 5.5% of capital minus 30% of costs, say 5% after 1.5% for convenience.

This means starting at £27500 a year even completely ignoring DB and state pensions.

But you have DB1 £1600 + DB2 £11700 plus I assume £8500 state pension. That's £21800 a year in guaranteed, inflation-linked income.

You probably don't prefer £27500 now increasing to 27500 + 21800 = 49300 from 67. Instead you can draw more in the years before those guaranteed pensions start to get a more level income throughout retirement.

Say you cut the for life part from 49300 to 39300. That frees up 10000 / 0.05 = 200000 of capital to draw on faster in the early years. Crudely, 200000 / 15 years = 13333 a year on top of the 27500, taking you to 40833 now.

I don't see any reason to delay buying the motorhome if you could use it sooner.

Usually best not to take optional lump sums from DB pensions and to take them at the scheme's normal pension age.

jamesd · 12 June 2018 at 11:32PM

Ceme3000 wrote: »

@JamesD - My taxable earnings have fluctuated because of the BTL but approx £33K per annum. Sorry I don't understand point 2? Assuming 33K for 2018/2019 as well, is it not 33K X 4 less all the employee and employer contributions made since 6th April 2015? Clearly I do need an IFA for this one!

It's not.

The annual allowance (I'll use 40k/ year for simplicity) calculation for 1 is 40k + 3x40k - gross of pension contributions by you and employer in the last three tax years and this one.

But your limit is pay, not allowance. If you get gross pay of 33k between 6 April 2018 and September your pay limit is 33k plus any direct contributions made by your employer.

You check both limits and the most restrictive of them is the one that matters.

To get gross of 112500 in with gross pay of 33k in the year to September, 112500 - 33000 = 79500 would need to be contributions on top of pay - like redundancy money - from your employer.

There's really more than 40k annual allowance in 2015 but it's not worth getting into it because this allowance doesn't seem to be your limit.

I've written pay instead of earnings while I look for the document that specifies which earnings count.

dharm999 · 12 June 2018 at 11:32PM

Ceme3000 wrote: »

@JamesD - My taxable earnings have fluctuated because of the BTL but approx £33K per annum. Sorry I don't understand point 2? Assuming 33K for 2018/2019 as well, is it not 33K X 4 less all the employee and employer contributions made since 6th April 2015? Clearly I do need an IFA for this one!

@atush - I am sure you are right! When boredom sets in, I will almost certainly be looking for part-time work. But it will be nice to be in a position where I can be selective.

No, it's not, unfortunately. You need to have enough income to cover the contribution, and I don't think BTL counts as pensionable earnings, so it would be less than 33k

kidmugsy · 12 June 2018 at 11:36PM

You're planning to keep a SIPP, and ISAs, and a dealing account all at HL. In your shoes I'd be very keen to diversify providers. If HL get in the soup - even just the IT soup - you'd be very vulnerable. I see no sensible case for taking that risk, especially when you could probably save money by spreading your capital across several providers.

As for all equities: is that wise? Once you are "deccumulating" rather than accumulating surely there's a strong argument for diversifying investments? Your current plans to replace a BTL by equities goes in the opposite direction. In your shoes I'd think of DB pensions as being like very superior bonds and ask myself whether I was happy with my equity:bond ratio. (There was an old US rule of thumb %bonds = your age. If so you should have about 50% in bonds.) Other diversification assets: gold, commodities, property, cash inc FX.

As for your general planning - your scheme to make a big near-final pension contribution seems a good one. But I'm puzzled that you are not intending to draw DB1 immediately. Why not? Is it growing in deferral?

And DB2: if you drew it at 55 wouldn't you then have virtually all the annual income you want? Or do you argue that deferring that to age 65 is the best bond-like investment you can make? But if so you would be deferring income to a period when you will presumably have plenty anyway because your SRP will soon be about to start. (By the way, are you planning to make contributions so that you qualify for maximum State Retirement Pension?)

If you do defer DB2 you could use drawdown from age 55. Depending on which future political evils you'd like to insure yourself against you might even aim to remove (i) all tax-free lump sum, and (ii) as much taxable income as you can take without paying higher rate tax.

As you have a taste for research why not read and reflect on what these US guys have to say about uncritical equity investing?

https://realinvestmentadvice.com/stocks-vs-bonds-what-to-own-over-the-next-decade/

http://realinvestmentadvice.com/the-myths-of-stocks-for-the-long-run-part-i/

https://www.zerohedge.com/news/2018-06-11/myths-stocks-long-run-part-ii

Redundancy at 52, retire now?

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