Mind the 'age' gap: retirement planning

Cottage_Economy · 10 May 2018 at 8:31AM

Thought I'd start this thread to see if there is anyone else in the same boat and ask for help and ideas. I am currently retirement planning for DH and I based on a 12 year age gap. DH 57, me 45. Everything I read seems to be very US-based.

So far, I have identified a few things I need to take into account.

The plan has to be based on my predicted lifespan.

For couples of approximately the same age, retirement planning starting from NRA usually spans 30-ish years. Our has to span 40-50. My life expectancy is 84, nearly 40 years away. With advances in medical science I estimate that I will need to plan to live until I am at least 95.

I have to retire early

Couples usually make plans to retire around the same time so they can enjoy some time together. I will still be working when DH retires and if I retire at the normal 60/65 he will have spent the greater part of his retirement alone. He may not even be in the best of health by then. I have to retire early, 55 ideally, so we have to save and invest a lot more money and get better returns to build a bigger pot.

We have to take bigger risks

To build up our retirement accounts, we have to take greater risks with the money to get better returns. For a man of DH's age, it is almost common 'lore' to hold no more than 40% in equities and 60% in bonds, but I am only in my 40s and therefore have a longer timespan to invest in. Some financial articles I have read suggest it is important to invest based on the age of the younger individual, not the older so asset allocation should be based on my age and attitude to risk to avoid fianancial 'drag'.

We may have to delay taking the state pension

In the UK, for every five weeks you delay taking the state pension you get a 1% increase, which equates to 10.4% increase if you delay for a full year. Depending on how we are building up our retirement accounts, this may have to form part of the planning.

We have to consider long-term care costs

With DH 12 years older than me, we may need to find the money for care costs, however, I will still need living expenses. Our plan has to ensure we don't exhaust our accounts making sure he is cared for, leaving nothing for me.

I will inherit less of DH's pensions as I am a 'trophy wife'

Being 12 years younger means that DH's occupational pension provider considers me a 'trophy wife' and instead of getting 50% of DH's FS/DB pension when he dies, I get a reduced sum, about 2.5% for every year between us over 10 years, so 5% less.

We will have to use drawdown options

Drawdown pots can be inherited, annuities cannot. To maximise my income in retirement, it will have to be drawdown for both DH's SIPP and my personal pension.

We don't have children so are not bothered about leaving an inheritance to anyone.

We can run our retirement accounts and assets right down if necessary, but of course not knowing when we will die is the perennial problem. I'm a little irritated at the thought of all the sacrifices we have and will continue to make and then not get all of the financial benefits.

Other ideas being mulled over

We have a single storey long Victorian brick barn on the smallholding. We could convert that and move in, splitting the holding down the middle and selling off the main house, rather than sell up to a small place when we can't cope with a bigger house any more. That could release some cash.

Would front-loading my occupational pension contributions at the start of the financial year with an employer match help build a bigger pension pot?

Should I take on the mortgage alone and extend the term when my sole income can cover it (approximately 3-4 years time)? This would reduce the monthly payment, and the difference used to build a bigger pension pot ready for my retirement. Taking the tax-free lump sum at the start of drawing DH's pension would bring it down and then I can do the same when I start drawing my pension.

Phew. Anyone else struggling with retirement planning for an age gap?

Noobie2011 · 10 May 2018 at 9:01AM

Cottage_Economy wrote: »

Thought I'd start this thread to see if there is anyone else in the same boat and ask for help and ideas. I am currently retirement planning for DH and I based on a 12 year age gap. DH 57, me 45. Everything I read seems to be very US-based.

So far, I have identified a few things I need to take into account.

The plan has to be based on my predicted lifespan.

For couples of approximately the same age, retirement planning starting from NRA usually spans 30-ish years. Our has to span 40-50. My life expectancy is 84, nearly 40 years away. With advances in medical science I estimate that I will need to plan to live until I am at least 95.

I have to retire early

Couples usually make plans to retire around the same time so they can enjoy some time together. I will still be working when DH retires and if I retire at the normal 60/65 he will have spent the greater part of his retirement alone. He may not even be in the best of health by then. I have to retire early, 55 ideally, so we have to save and invest a lot more money and get better returns to build a bigger pot.

We have to take bigger risks

To build up our retirement accounts, we have to take greater risks with the money to get better returns. For a man of DH's age, it is almost common 'lore' to hold no more than 40% in equities and 60% in bonds, but I am only in my 40s and therefore have a longer timespan to invest in. Some financial articles I have read suggest it is important to invest based on the age of the younger individual, not the older so asset allocation should be based on my age and attitude to risk to avoid fianancial 'drag'.

We may have to delay taking the state pension

In the UK, for every five weeks you delay taking the state pension you get a 1% increase, which equates to 10.4% increase if you delay for a full year. Depending on how we are building up our retirement accounts, this may have to form part of the planning.

We have to consider long-term care costs

With DH 12 years older than me, we may need to find the money for care costs, however, I will still need living expenses. Our plan has to ensure we don't exhaust our accounts making sure he is cared for, leaving nothing for me.

I will inherit less of DH's pensions as I am a 'trophy wife'

Being 12 years younger means that DH's occupational pension provider considers me a 'trophy wife' and instead of getting 50% of DH's FS/DB pension when he dies, I get a reduced sum, about 2.5% for every year between us over 10 years, so 5% less.

We will have to use drawdown options

Drawdown pots can be inherited, annuities cannot. To maximise my income in retirement, it will have to be drawdown for both DH's SIPP and my personal pension.

We don't have children so are not bothered about leaving an inheritance to anyone.

We can run our retirement accounts and assets right down if necessary, but of course not knowing when we will die is the perennial problem. I'm a little irritated at the thought of all the sacrifices we have and will continue to make and then not get all of the financial benefits.

Other ideas being mulled over

We have a single storey long Victorian brick barn on the smallholding. We could convert that and move in, splitting the holding down the middle and selling off the main house, rather than sell up to a small place when we can't cope with a bigger house any more. That could release some cash.

Would front-loading my occupational pension contributions at the start of the financial year with an employer match help build a bigger pension pot?

Should I take on the mortgage alone and extend the term when my sole income can cover it (approximately 3-4 years time)? This would reduce the monthly payment, and the difference used to build a bigger pension pot ready for my retirement. Taking the tax-free lump sum at the start of drawing DH's pension would bring it down and then I can do the same when I start drawing my pension.

Phew. Anyone else struggling with retirement planning for an age gap?

Myself and my wife are in a similar position with a 9 year gap as I am 40 and she is 31. To be honest we are just getting our heads around the pensions we are in for work and the benefits we would get depending on what we paid into each (based on my wife being a higher tax band with her wage and on salary sacrifice so also NI saving).

To date all we have done really is said we both want to retire at 55 and are currently working on that but it does mean when my wife retires I will be 64 which is not old for retirement but does mean 9 years of me not working while my wife does. 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.

Our biggest headache at the moment is working out how much extra we would need when I retire to potentially allow my wife to retire earlier than 55 as she will not be able to drawdown her work pension until 55 so would have to survive off my pension and any house equity which we could do but need to make sure we are not depleting it too fast and come up short later in life.

For me there are so many unknowns so we have factored our budget around when we both hit 90 as you have to pick an age that suits you otherwise you would end up planning far beyond that and spend your whole working life building a massive pot. Plus the figures quoted that you need in retirement are all over the place and not consistent and do not tend to lend well to couples sonwe have just simply estimtaed our basic expenses when retire and then added on things like holidays, clothes, eating out etc to get a figure we are happy with and are working to that.

LHW99 · 10 May 2018 at 9:04AM

Not particularly sure on many of your issues as we don't have your problem. However, I think that with the new SP, deferment only get you about a 5.8% increase. 10.4% was with the pre-2016 version. So you both get your own pensions, based on your own records. Best to check what you have now on the gov.uk site.
Also, does what you get as a spouse's pension from your OH's scheme depend on whether he dies before / after the pension is in payment?

I can't comment on the bonds - equity split. I think 40 / 60 is the traditional suggestion, but IMO the longer you are planning for, the higher equity proportion is likely to be relevant - provided your risk appetite is suitable. We are older than you both, but are still 90% in equity as we don't expect to take major drawdowns on our DC funds for some time.

Cottage_Economy · 10 May 2018 at 9:56AM

Noobie2011 wrote: »

Our biggest headache at the moment is working out how much extra we would need when I retire to potentially allow my wife to retire earlier than 55 as she will not be able to drawdown her work pension until 55 so would have to survive off my pension and any house equity which we could do but need to make sure we are not depleting it too fast and come up short later in life.

This is a big headache for me also. We have five years before DH wants to retire at 62 and 10 years before I want to go at 55. I just don't think we can build a pot big enough in that time without substantial lumps sums or a lottery win! I've discounted any potential inheritances as they are not my money to factor in to my planning and I'd rather my parents and MIL spent it on themselves/nursing care. I'm pretty sure DH will spend the first five years of his retirement alone, but don't know how many years that will continue after that.

Noobie2011 wrote: »

...so we have just simply estimated our basic expenses when retire and then added on things like holidays, clothes, eating out etc to get a figure we are happy with and are working to that.

That's what I'm doing at the moment. I've been tracking the figures since we moved to this place almost two years ago and am at the point where I'm going to start making some plans based on it.

LHW99 wrote: »

Not particularly sure on many of your issues as we don't have your problem. However, I think that with the new SP, deferment only get you about a 5.8% increase. 10.4% was with the pre-2016 version. So you both get your own pensions, based on your own records. Best to check what you have now on the gov.uk site.

Thanks for spotting that. I hadn't realised that happened.

LHW99 wrote: »

Also, does what you get as a spouse's pension from your OH's scheme depend on whether he dies before / after the pension is in payment?

Yes. I'm working on the assumption he will live to a good age. If he doesn't, if he dies before he starts taking his pension (which could be between 5 and 10 years time) then I get a lump sum equivalent to 4x his pensionable pay plus a further lump sum from the pension. And we have two term life assurance policies, although one was based on our last mortgage and doesn't have long to run.

LHW99 wrote: »

We are older than you both, but are still 90% in equity as we don't expect to take major drawdowns on our DC funds for some time.

Wow! That's high! At the moment we have a 60/40 split in DH's SIPP. I can't do anything with it until we come up with a basic retirement strategy and know whether the SIPP will fund the gap between DH retiring at 62 and taking his work pension at 67, or whether he should take his FS/DB pension early and take the actuarial reduction, leaving the SIPP. Or use both and save any excess into my pension.

Cottage_Economy · 10 May 2018 at 10:02AM

I actually joined RetireEasy yesterday to try and get some help working it out. As I can download the lifeplan as an Excel spreadsheet I figured it would give me a head start and I can adjust the cell formulas as I need to.

I'm only on the middle plan, but considering the premium one as it does scenario modelling and I would like to work out a few basic scenarios to see how things change.

p00hsticks · 10 May 2018 at 10:28AM

Noobie2011 wrote: »

Our biggest headache at the moment is working out how much extra we would need when I retire to potentially allow my wife to retire earlier than 55 as she will not be able to drawdown her work pension until 55 so would have to survive off my pension and any house equity which we could do but need to make sure we are not depleting it too fast and come up short later in life.

We've an 8 year age difference - OH is 8 years older than me. We had originally agreed that he would retire at 65 and me at 60, when one of my DB pensions kicked in, but redundancy and company take over meant that it was slightlier earlier than planned in both cases.

We have low outgoings (no mortage or expensive tastes) and are currently plugging the gap using savings (cash ISA and various saving accounts) and his state pension until my DB pension kicks in

Noobie2011 · 10 May 2018 at 10:47AM

p00hsticks wrote: »

We've an 8 year age difference - OH is 8 years older than me. We had originally agreed that he would retire at 65 and me at 60, when one of my DB pensions kicked in, but redundancy and company take over meant that it was slightlier earlier than planned in both cases.

We have low outgoings (no mortage or expensive tastes) and are currently plugging the gap using savings (cash ISA and various saving accounts) and his state pension until my DB pension kicks in

Yes our current plan was for me to retire at 55 when my work pension becomes available and then use some of that plus my wifes wage to get us through until she retires at 55 so 9 years later. Then it would be both our work pensions plus maybe some funds from our house sale(as moving abroad but not using all our house sale money for new property) to carry us through another 3/4 years when my state pension kicks in. Then 9 years later my wifes state pension kicks in.

So at the moment we are starting with the state pension as knkw those dates and amounts, then factoring in an estimated house proce sale, then adding in the 9 years where my wife is working. Then based on what we have forecast we want to live on between me being 55 and my wife 90 shows us what we are short. Then we know what we need to pay into our work pensions to plug that gap and also gives us a good idea of how much extra we would need if my wife retired earlier.

It is the only way it makes sense to me but I may be way off. Plus for things like house sale price and work pensions we have not factored in any interest or house value increases so less of a risk in my eyes but you would hope that our pension pots and house value would have gone up as they are a mixture of between 15-25 years away.

We are also lucky enough to have a sharesave scheme through my wifes work which we will pay into and looking back at recent years the profit on this investment is quite large but not factored any of this money in yet

Mojisola · 10 May 2018 at 11:32AM

Noobie2011 wrote: »

Yes our current plan was for me to retire at 55 when my work pension becomes available and then use some of that plus my wifes wage to get us through until she retires at 55 so 9 years later.

Just curious - why do you want to stop working so early if your wife is still going to be out all day?

Wouldn't it be better to stay employed - even if it's only part-time - rather than spending nine long years short of money and at home alone (unless your pension and her wages are going to fund lots of activities to keep you busy).

Noobie2011 · 10 May 2018 at 11:43AM

Mojisola wrote: »

Just curious - why do you want to stop working so early if your wife is still going to be out all day?

Wouldn't it be better to stay employed - even if it's only part-time - rather than spending nine long years short of money and at home alone (unless your pension and her wages are going to fund lots of activities to keep you busy).

I think like most when I say retirement I mean a chance to do certain things that were hobbies up until now as actual potential earners. I already do a couple of things now which earn me a few pennies but if had more time doing them they could earn decent money and I enjoy them.

On our projections we would not be short of money so that would not be the issue and I am not a career person so am quite happy where I am at the moment so once money is not a factor anymore at 55 when predicted I would no longer want to work for someone else even if it meant keeping the higher wage.

You raise a good point in the potential 9 years at home thing and that is why rather than me working longer we are looking at my wife retiring earlier and if have the means to start providing for that now then that would be our favoured option.

Mojisola · 10 May 2018 at 11:45AM

Noobie2011 wrote: »

I
On our projections we would not be short of money so that would not be the issue and I am not a career person so am quite happy where I am at the moment so once money is not a factor anymore at 55 when predicted I would no longer want to work for someone else even if it meant keeping the higher wage.

You raise a good point in the potential 9 years at home thing and that is why rather than me working longer we are looking at my wife retiring earlier and if have the means to start providing for that now then that would be our favoured option.

I agree with that - we spent years self-employed and being your own boss is great!

atush · 10 May 2018 at 11:59AM

Our biggest headache at the moment is working out how much extra we would need when I retire to potentially allow my wife to retire earlier than 55 as she will not be able to drawdown her work pension until 55 so would have to survive off my pension and any house equity which we could do but need to make sure we are not depleting it too fast and come up short later in life.

You dont have to live on house equity at this tage, you could fill your S&S isa allowances. And use that in any retirement before pensions pay out.

If there is a really big age gap, I would say the older one (health permitting) should work a few years longer, and the younger one to whack as much into pensions and S&S isas as possible. That way they might be able to retire at 53/54 perhaps.

Mind the 'age' gap: retirement planning

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