Early retirement in 5 years time?

dippenhall1
dippenhall1 Posts: 16 Forumite
in Pensions, annuities & retirement planning
Hi,
I'm 50 years old and have a fairly decent final salary pension, but I'm thinking about whether I could work up a plan to give me the potential to retire early. If I leave at aged 55 it reduces my pension by 35%, so I'm looking to see the best way within the next 5 years of trying to make some of that back up.

I already save as much as I can into various regular savers & accounts, and will pay off my mortgage in a couple of months time giving me around £900 extra a month that I could save potentially for the next 5 years.

My company has the option of AVCs into Fidelity, however I am a massive scaredy-cat when it come to anything stock market! The idea of saving up £50000 and only ending up with £45000 makes me feel ill! Things I've read advise not investing in the stock market for this kind of 5 year time scale, on the other hand because I'd be investing via a pension the tax relief benefits (I'm a higher rate tax payer) could offset this should the worst happen.

I just thought I'd post to see if anyone had any thoughts, looking at a 5 year timescale or if there were any other options I could consider?

Thanks in advance :)

Dippenhall
«1

Comments

  • NoMore
    NoMore Posts: 1,078 Forumite
    First Post First Anniversary Name Dropper
    I have opened a SIPP to take advantage of the tax relief (I'm a higher rate tax payer) with the intention of withdrawing it out over 5 years tax free. I.e. 25% TFLS and then 12500 tax free allowance each year. If you require more than 16.5k a year then you could supplement with other savings. The tax relief alone is worth it doing it this way without any investment risk.


    https://simplelivingsomerset.wordpress.com/2015/05/18/front-running-a-db-or-state-pension-with-a-new-osborne-style-sipp/


    Good explanation here.
  • atush
    atush Posts: 18,726 Forumite
    Name Dropper First Anniversary First Post
    put money into a separate pension/sipp or use the AVC.

    Dont stress too much about being in the market. Sure it goes up and down, but you arent putting 50K in all in one go. You are putting money in monthly. look up "Pound Cost averaging". When prices go down, you get more units for your money. Also you'd be investing in funds holding perhaps hundreds of different shares, not single shares. Or a multi asset fund that also holds other less volatile investments.

    Then tax relief. 100 into your pension is going to cost you just 80 if you pay BRT (60 if you pay HRT). Your pension would have to fall a lot before you lost more than you put in.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    First Anniversary Name Dropper First Post Photogenic
    edited 15 May 2019 at 2:07PM
    dippenhall1 wrote: »
    Hi,
    I'm 50 years old and have a fairly decent final salary pension, but I'm thinking about whether I could work up a plan to give me the potential to retire early. If I leave at aged 55 it reduces my pension by 35%, so I'm looking to see the best way within the next 5 years of trying to make some of that back up.

    I already save as much as I can into various regular savers & accounts, and will pay off my mortgage in a couple of months time giving me around £900 extra a month that I could save potentially for the next 5 years.

    My company has the option of AVCs into Fidelity, however I am a massive scaredy-cat when it come to anything stock market! The idea of saving up £50000 and only ending up with £45000 makes me feel ill! Things I've read advise not investing in the stock market for this kind of 5 year time scale, on the other hand because I'd be investing via a pension the tax relief benefits (I'm a higher rate tax payer) could offset this should the worst happen.

    I just thought I'd post to see if anyone had any thoughts, looking at a 5 year timescale or if there were any other options I could consider?

    Thanks in advance :)

    Dippenhall


    The tax benefits of being a high rate tax payer when contributing and at worst a 20% tax payer when withdrawing overwhelm the odds of all but the most extreme stock market crash.


    And note the bit in bold, because you can get a double whammy.
    You contribute now getting a 40% bump. Both company pension and what were mortgage payments and savings. Maximise your 40% tax allowance. Look at the last year or two before you retire, even if you dont invest it and leave it as cash you get £1,000 for every £600. (I would invest some now)

    Then when you retire DO NOT start taking your company pension.
    Instead you burn down the new pension (be it a SIPP or the AVCs) , take the tax free lump sums, maybe spend some of your savings.
    At best that means you are a non tax payer fro a few years. In those years you take the max out of pension without paying tax, so you've got 40% literally for free.
    The double whammy comes now, because you put off taking your company pension for a few years, so there's less of a decrease when you do take it.
    Win Win.
  • FatherAbraham
    FatherAbraham Posts: 1,024 Forumite
    First Post First Anniversary Combo Breaker
    dippenhall1 wrote: »
    Hi,
    I'm 50 years old and have a fairly decent final salary pension, but I'm thinking about whether I could work up a plan to give me the potential to retire early. If I leave at aged 55 it reduces my pension by 35%, so I'm looking to see the best way within the next 5 years of trying to make some of that back up.

    I suspect that is not leaving at 55 which reduces the pension level by 35%, but leaving and starting the pension at 55.

    If you can refer taking the DB pension until you are 60, things may look much better. You don't have to take your pension when you leave the employment, do you?

    Then all you have to do is save a big enough pot to tide you over from 55 until the DB pension starts at 60.

    That may not be easy to do, but at least it's easy to calculate.
    Thus the old Gentleman ended his Harangue. The People heard it, and approved the Doctrine, and immediately practised the Contrary, just as if it had been a common Sermon; for the Vendue opened ...
    THE WAY TO WEALTH, Benjamin Franklin, 1758 AD
  • Albermarle
    Albermarle Posts: 22,022 Forumite
    First Anniversary First Post Name Dropper
    The idea of saving up £50000 and only ending up with £45000 makes me feel ill!

    Well if instead you keep the £50,000 in cash inside the pension , it will earn virtually nothing .
    So after 5 years will be worth maybe £51,000 but in fact due to inflation it will be worth a lot less in real terms . Probably somewhat less than £45,000. So I guess that will make you feel ill as well !
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    First Anniversary Name Dropper First Post Photogenic
    dippenhall1 wrote: »
    My company has the option of AVCs into Fidelity, however I am a massive scaredy-cat when it come to anything stock market! The idea of saving up £50000 and only ending up with £45000 makes me feel ill!

    Would it make you feel ill if £the £500k fell back to 450k but that only cost you £300 k due to tax relief and growth?
  • dippenhall1
    dippenhall1 Posts: 16 Forumite
    AnotherJoe wrote: »

    Then when you retire DO NOT start taking your company pension.
    Instead you burn down the new pension (be it a SIPP or the AVCs) , take the tax free lump sums, maybe spend some of your savings.
    At best that means you are a non tax payer fro a few years. In those years you take the max out of pension without paying tax, so you've got 40% literally for free.
    The double whammy comes now, because you put off taking your company pension for a few years, so there's less of a decrease when you do take it.
    Win Win.

    Thanks for this, some really good info in there. I hadn't thought about deferring my company pension, but this makes a lot of sense
  • dippenhall1
    dippenhall1 Posts: 16 Forumite
    FatherAbraham wrote: »
    I suspect that is not leaving at 55 which reduces the pension level by 35%, but leaving and starting the pension at 55.

    If you can refer taking the DB pension until you are 60, things may look much better. You don't have to take your pension when you leave the employment, do you?

    Then all you have to do is save a big enough pot to tide you over from 55 until the DB pension starts at 60.

    That may not be easy to do, but at least it's easy to calculate.

    Yes you're right if I defer taking the DB pension until 60 then it only decreases it by around 13%. Thanks for your reply, it's certainly got me thinking of options.
  • AnotherJoe
    AnotherJoe Posts: 19,622 Forumite
    First Anniversary Name Dropper First Post Photogenic
    dippenhall1 wrote: »
    Yes you're right if I defer taking the DB pension until 60 then it only decreases it by around 13%. Thanks for your reply, it's certainly got me thinking of options.


    A little bit of spreadsheeting and you are sorted :D
  • k6chris
    k6chris Posts: 738 Forumite
    First Anniversary Name Dropper First Post Photogenic
    dippenhall1 wrote: »
    Yes you're right if I defer taking the DB pension until 60 then it only decreases it by around 13%. Thanks for your reply, it's certainly got me thinking of options.


    But you get it for five fewer years..... #spreadsheettime
    "For every complicated problem, there is always a simple, wrong answer"
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