Mind the 'age' gap: retirement planning

Cottage_Economy · 14 May 2018 at 8:24AM

Ok, I had another play with the software over the weekend and discovered a bit more that would be helpful. The issues I was finding with it were all down to me not understanding a couple of key points. A bad workman always blames their tools

Saying that, I still can't get a monthly breakdown. There are peaks and troughs that could be smoothed out by timing when during a year income is taken, but can't find out how to do this yet so have emailed the company to ask.

Basically, at the moment there is a big drop in income that pensions/investments won't cover if I retire at 55.

I'm now working out how much extra we need to put in for the next 10 years to plug the gap, and what we have to do to obtain that.

MK62 · 14 May 2018 at 9:46AM

Planning for the unknown and unforseeable is never easy......and retirement planning can certainly fall into that category.
As you have no children then being the richest people in the graveyard is little comfort, so planning to spend most of it within your unknown lifetimes is a difficult task, at least without using a lot of guesswork and assumptions.

It may be prudent to seek the assistance of an IFA in your DH's case, to consider a transfer out to a scheme which doesn't have such a "trophy wife" condition.
While it's not pleasant to be planning for the death of your partner, it's something you do have to consider when planning both your future finances - it's surprising how many people don't.
It's impossible to tell whether such a transfer would be good or bad without a lot more information though!

You probably need to work a few "what if" type scenarios to get a handle on your future income needs/desires and whether your current arrangements are suitable to meet them.

Also, I'm not sure I understand

without tweaking any of the figures we can both retire at 62 and 55 respectively and never run out of money

and

at the moment there is a big drop in income that pensions/investments won't cover if I retire at 55

Cottage_Economy · 14 May 2018 at 10:19AM

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!

In terms of the 'trophy wife' I understood that a lot of the FS/DB pension providers have these and it is quite a standard clause...?

Cottage_Economy · 14 May 2018 at 10:38AM

And I've just realised that having an FS/DB pension may mean DH doesn't get a full state pension as he would be contracted out.

I was assuming he would get a full state pension in my calculations. I'll have to go and get a forecast.

Noobie2011 · 14 May 2018 at 10:41AM

Cottage_Economy wrote: »

Ok, I had another play with the software over the weekend and discovered a bit more that would be helpful. The issues I was finding with it were all down to me not understanding a couple of key points. A bad workman always blames their tools

Saying that, I still can't get a monthly breakdown. There are peaks and troughs that could be smoothed out by timing when during a year income is taken, but can't find out how to do this yet so have emailed the company to ask.

Basically, at the moment there is a big drop in income that pensions/investments won't cover if I retire at 55.

I'm now working out how much extra we need to put in for the next 10 years to plug the gap, and what we have to do to obtain that.

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.

Some issues I have are:
- my pension figures are not including any interest, pay increases etc so quite a bit lower than onlines figures and what my pension modeller is forecasting but surely this is a risk to include the forecasted gains??
- house equity - plan now to have it paid off at worst when I hit 55 so 15 years but am working out our profit from sale on todays price. Again should I be forecasting and increase in value or stay safe and go with the current worth
- biggest profits come from more money invested in my wifes pension but that will cause more tax implications and extra money is no good in my wifes pension if need it before then to allow her to retire earlier
- planning to move abroad but god knows how you calculate the cost of living in 20 or so years time
- if you go off the pension guides where it says you need around 3/4 of your wage yearly in retirement then ours would be 60k but that seems way excessive and our calculations on what we need a year are looking at half that figure so an I missing something

Cottage_Economy · 14 May 2018 at 11:47AM

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?

Cottage_Economy · 14 May 2018 at 12:04PM

MK62 wrote: »

It may be prudent to seek the assistance of an IFA in your DH's case, to consider a transfer out to a scheme which doesn't have such a "trophy wife" condition.
While it's not pleasant to be planning for the death of your partner, it's something you do have to consider when planning both your future finances - it's surprising how many people don't.
It's impossible to tell whether such a transfer would be good or bad without a lot more information though!

Just had a few more thoughts about this and 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.

Actually, I can't work out what pensions DH is due because the pension arrangements are so up in the air. I can only make very broad estimates as RM hasn't sent out his new illustration and we usually see that in September.

MK62 · 14 May 2018 at 3:59PM

Cottage_Economy wrote: »

In terms of the 'trophy wife' I understood that a lot of the FS/DB pension providers have these and it is quite a standard clause...?

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....;))

MK62 · 14 May 2018 at 4:10PM

Cottage_Economy wrote: »

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.

Don't forget to plan for the effect of inflation too though!

MK62 · 14 May 2018 at 4:27PM

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.

Are your sure about those figures?

I think your gap years could be cheaper than your estimate, and four extra NI years should give you more state pension pa than that....

Mind the 'age' gap: retirement planning

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