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    • Cottage Economy
    • By Cottage Economy 10th May 18, 8:31 AM
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    Cottage Economy
    Mind the 'age' gap: retirement planning
    • #1
    • 10th May 18, 8:31 AM
    Mind the 'age' gap: retirement planning 10th May 18 at 8:31 AM
    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?
    Last edited by Cottage Economy; 11-05-2018 at 8:41 AM.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
Page 3
    • Cottage Economy
    • By Cottage Economy 15th May 18, 10:02 AM
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    Cottage Economy
    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.
    Last edited by Cottage Economy; 15-05-2018 at 10:07 AM.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • MK62
    • By MK62 15th May 18, 10:05 AM
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    MK62
    Is 5% is realistic (after adjusting for inflation)?


    Hard to answer with any degree of certainty - personally I don't think so - but then I'm fairly conservative by nature in all this - so that's just my opinion. Others will likely disagree. I'd be using a much lower figure - probably around 1-2%, but I'd also be using a range of figures to view different potential outcomes.
    • Cottage Economy
    • By Cottage Economy 15th May 18, 10:05 AM
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    Cottage Economy
    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 %
    Originally posted by Noobie2011
    I've been looking at 3% for safety. I like being conservative as I may not have that much wiggle room to make up a shortfall if I plan for greater growth and it doesn't happen.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • Noobie2011
    • By Noobie2011 15th May 18, 10:53 AM
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    Noobie2011
    Is 5% is realistic (after adjusting for inflation)?


    Hard to answer with any degree of certainty - personally I don't think so - but then I'm fairly conservative by nature in all this - so that's just my opinion. Others will likely disagree. I'd be using a much lower figure - probably around 1-2%, but I'd also be using a range of figures to view different potential outcomes.
    Originally posted by MK62
    Yes it seems a lot calculate on 5% but I think I am going to be more inclined to use 3%. To be honest I could just easily create different scenarios ranging from 1-5% and then also apply varying different ages of retirement.
    • Noobie2011
    • By Noobie2011 15th May 18, 10:58 AM
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    Noobie2011
    I've been looking at 3% for safety. I like being conservative as I may not have that much wiggle room to make up a shortfall if I plan for greater growth and it doesn't happen.
    Originally posted by Cottage Economy
    I think I am on the same page as you with being conservative as I think those figures will still work very well so if ends up being lower I have good wiggle room or if ends up higher then all good.

    Also as we will have extra disposable soon to also invest on top of mortgage overpayments I am probably going to use that money to go a bit riskier or use as an emergency pile if interest rates do not go as I wanted.

    Also not sure if correct but I am also only applying a 1% increase per year on our house value which I am hoping is a very conservative view as more chance of being better in the 15 years we are looking to pay our mortgage off and potential downsize in order to buy abroad and have 2 bases
    • Cottage Economy
    • By Cottage Economy 15th May 18, 11:31 AM
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    Cottage Economy
    I think I am on the same page as you with being conservative as I think those figures will still work very well so if ends up being lower I have good wiggle room or if ends up higher then all good.

    Also as we will have extra disposable soon to also invest on top of mortgage overpayments I am probably going to use that money to go a bit riskier or use as an emergency pile if interest rates do not go as I wanted.

    Also not sure if correct but I am also only applying a 1% increase per year on our house value which I am hoping is a very conservative view as more chance of being better in the 15 years we are looking to pay our mortgage off and potential downsize in order to buy abroad and have 2 bases
    Originally posted by Noobie2011
    That's probably wise. Ours is about 3-4% during a 'normal' year but doesn't take account of bad years. When I do a worst case scenario calculation and include downsizing I'll probably drop that 3% down.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • Cottage Economy
    • By Cottage Economy 15th May 18, 12:20 PM
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    Cottage Economy
    How is everyone including the death of the older spouse in their planning?

    Do you plug in some 'ages' (70/75/80 etc) then take a look and see what would happen with the money or do you go on life expectancy tables? The former means I have to include several different plans for that one scenario.

    How are you doing it?
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • MK62
    • By MK62 15th May 18, 1:24 PM
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    MK62
    I think you have little option other than to do the former - life expectancy tables are of no help in individual cases - it's simply another unknown variable that you need to plan for.


    PS - don't want it sound like I'm reducing the importance of your DH to an unkown variable....but on a spreadsheet....well hopefully you know what I mean.
    Last edited by MK62; 15-05-2018 at 1:27 PM.
    • Noobie2011
    • By Noobie2011 15th May 18, 1:34 PM
    • 216 Posts
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    Noobie2011
    How is everyone including the death of the older spouse in their planning?

    Do you plug in some 'ages' (70/75/80 etc) then take a look and see what would happen with the money or do you go on life expectancy tables? The former means I have to include several different plans for that one scenario.

    How are you doing it?
    Originally posted by Cottage Economy
    I have not even looked at this at all as it is one of those things where we are basing our figures on us having a healthy life and living well past 90. It is one thing we will look at though as any money putside the pensions is fine as can be accessed by either partner if the other one dies. However I still do not understand the rules around how much pension the other one gets if the partner dies as I stupidly thought it was 100% of what is left
    • Cottage Economy
    • By Cottage Economy 15th May 18, 4:19 PM
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    Cottage Economy
    PS - don't want it sound like I'm reducing the importance of your DH to an unkown variable....but on a spreadsheet....well hopefully you know what I mean.
    Originally posted by MK62
    I do know what you mean.

    I have not even looked at this at all as it is one of those things where we are basing our figures on us having a healthy life and living well past 90. It is one thing we will look at though as any money putside the pensions is fine as can be accessed by either partner if the other one dies. However I still do not understand the rules around how much pension the other one gets if the partner dies as I stupidly thought it was 100% of what is left
    Originally posted by Noobie2011
    No, it's horribly complicated and one of the next things I'll have to look into properly when doing the death calculations. You have to take in account whether
    • a DC or FS/DB pension
    • if deceased was an active or deferred member
    • the age on death above/below 75.
    • Also each scheme provider might have its own criteria.

    I've put below what I've figured out so far for ours but I'm pretty sure there are mistakes/misunderstandings here.

    For me:

    1. 100% of his SIPP
    2. 45% of his DB pension if he is receiving it at the time he dies (this might change if we decide to transfer part of his DB pension). If he is not, I get a lump sum four times his annual income plus some of his contributions. I do not know if that is the same for an active or deferred member. I suspect not, as the four times lump sum is a type of life assurance offered by firms when you work for them. I do not know what I would get if he died before drawing the pension and was a deferred member.

    For him:
    1. 100% of my (planned) SIPP
    2. 50% of my DB if I am receiving it at the time I die. If he is not, he gets a lump sum pretty much as laid out above
    3. 100% of my DC pension if I am under 75. I think he has to pay tax on it if I am over 75

    The deceased's state pension income will be gone.

    We also have two life insurance policies, one of which is decreasing term and ends in 2026, and the other increasing term and finishes the same year as the mortgage. So if one of us dies before 2036 there is the money to pay off most, if not all, of the mortgage.
    Last edited by Cottage Economy; 15-05-2018 at 4:34 PM.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • MK62
    • By MK62 15th May 18, 4:31 PM
    • 90 Posts
    • 68 Thanks
    MK62
    I have not even looked at this at all as it is one of those things where we are basing our figures on us having a healthy life and living well past 90. It is one thing we will look at though as any money putside the pensions is fine as can be accessed by either partner if the other one dies. However I still do not understand the rules around how much pension the other one gets if the partner dies as I stupidly thought it was 100% of what is left
    Originally posted by Noobie2011



    Not pleasant I know, and at times you almost feel like like you are planning when the most convenient time would be for them to pop their clogs .....but it is something you need to consider, especially if you rely on your partner's pension income and it would take a substantial haircut in the event of their "departure".
    • Cottage Economy
    • By Cottage Economy 15th May 18, 4:37 PM
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    Cottage Economy
    I'm thinking that in addition to doing this planning, I need to put together some kind of guide for DH and update it yearly.

    When I die, he won't have a clue about any of this or what to do. I can talk him through some of it but he glazes at anything substantial.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • MallyGirl
    • By MallyGirl 15th May 18, 8:51 PM
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    MallyGirl
    I'm thinking that in addition to doing this planning, I need to put together some kind of guide for DH and update it yearly.

    When I die, he won't have a clue about any of this or what to do. I can talk him through some of it but he glazes at anything substantial.
    Originally posted by Cottage Economy
    I have this issue- I have started to simplify things for that reason.
    • Thrugelmir
    • By Thrugelmir 15th May 18, 9:12 PM
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    Thrugelmir
    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 %
    Originally posted by Noobie2011
    If you start in 1870 the average compound growth rate is 6.1%. However that's with income reinvested. Without income reinvested it's nearer 0.5%.

    For what if scenarios. Since 1870 there have been 46 years when stock markets returned below inflation rates of return, in percentage terms 31%.

    In essence no one knows what the future holds. Though considering recent years equity returns. Seems only logical that the market needs to readjust to the real returns generated by companies.
    Financial disasters happen when the last person who can remember what went wrong last time has left the building.
    • atush
    • By atush 15th May 18, 9:20 PM
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    atush
    I've been looking at 3% for safety. I like being conservative as I may not have that much wiggle room to make up a shortfall if I plan for greater growth and it doesn't happen.
    Originally posted by Cottage Economy
    overall that is good. But I will front load mine, 6% to begin and 3% or so when SP ages occur.

    But I will have 2/3 years cash so dont have to draw 6% if a correction occurs.
    • atush
    • By atush 15th May 18, 9:22 PM
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    atush
    Not pleasant I know, and at times you almost feel like like you are planning when the most convenient time would be for them to pop their clogs .....but it is something you need to consider, especially if you rely on your partner's pension income and it would take a substantial haircut in the event of their "departure".
    Originally posted by MK62
    the most convenient time was years ago when he was worth more dead than alive lol.
    • Cottage Economy
    • By Cottage Economy 16th May 18, 9:13 AM
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    Cottage Economy
    overall that is good. But I will front load mine, 6% to begin and 3% or so when SP ages occur.

    But I will have 2/3 years cash so dont have to draw 6% if a correction occurs.
    Originally posted by atush
    Sorry, I'm being thick - why drop it at SP age? Is it because you are moving your investments into less risky ones?

    the most convenient time was years ago when he was worth more dead than alive lol.
    Originally posted by atush




    After a bit more playing around last night two other little niggles emerged:

    1. We have too much money in later life and not enough earlier. I've been reading Beyond The 4% Rule and the U-shaped curve makes sense. I'm not achieving anything like a U-shape at the moment.

    2. If I try and bring in the pensions at the earliest opportunity, DH and I pay a load of tax and NI so overall not much further forward.

    I'm starting to see the important part ISAs have to play in mitigating the tax bill when running up to retirement, except that the 20% uplift from putting our ISA money into the SIPP is important to us, as it would be at least 2-3 years of extra income when drawn down.

    So, now looking at scenarios taking all/some of the 25% tax free lump sums from our various pensions and putting them into ISAs to draw on when needed. Won't be enough though, so the next plan will probably involve pumping shed-loads through our pensions to increase the possible lump sums we could take.
    Last edited by Cottage Economy; 16-05-2018 at 9:18 AM.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • Noobie2011
    • By Noobie2011 16th May 18, 9:49 AM
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    Noobie2011
    If you start in 1870 the average compound growth rate is 6.1%. However that's with income reinvested. Without income reinvested it's nearer 0.5%.

    For what if scenarios. Since 1870 there have been 46 years when stock markets returned below inflation rates of return, in percentage terms 31%.

    In essence no one knows what the future holds. Though considering recent years equity returns. Seems only logical that the market needs to readjust to the real returns generated by companies.
    Originally posted by Thrugelmir
    Thanks for the info and do understand this is all unknown as your are basically trying to forecast.

    From what you said Am I right in thinking 3% is quite conservative to start with if you go off past history ignoring the fact the future is unknown?
    • MallyGirl
    • By MallyGirl 16th May 18, 10:55 AM
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    MallyGirl
    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.
    Originally posted by Cottage Economy
    It is interestingn to hear your comments on RetireEasy. I only have the basic version which is free but it seems far too optimistic on how comfortable we will be in retirement. I know that this in part is down to the assumptions but their default values must be quite high in areas that I haven't tweaked yet.

    I have a tiny final salary scheme (1400 pa) and the rest is all DC/SIPP/S&S ISAs. DH (2 weeks younger than me) only has DC/S&S ISAs. It does make it simpler to model when one of us goes.
    He is definitely worth more dead than alive but I think I will keep him anyway! His employer gives 8x salary for death in service but it cost almost nothing to increase to 10x in the flexi package so we did.
    • Cottage Economy
    • By Cottage Economy 16th May 18, 11:18 AM
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    Cottage Economy
    It is interestingn to hear your comments on RetireEasy. I only have the basic version which is free but it seems far too optimistic on how comfortable we will be in retirement. I know that this in part is down to the assumptions but their default values must be quite high in areas that I haven't tweaked yet.
    Originally posted by MallyGirl
    I thought that too. I went through every single area I could and downgraded everything to as conservative as I could.

    I got an email back from a member of staff to tell me that if I did not want the 25% lump sum to move the data from Personal Pensions to SIPPs, which has the facility to do that. Why not just have that facility in Personal Pensions?

    I have a tiny final salary scheme (1400 pa) and the rest is all DC/SIPP/S&S ISAs. DH (2 weeks younger than me) only has DC/S&S ISAs. It does make it simpler to model when one of us goes.
    He is definitely worth more dead than alive but I think I will keep him anyway! His employer gives 8x salary for death in service but it cost almost nothing to increase to 10x in the flexi package so we did.
    Originally posted by MallyGirl
    8-10x is pretty decent! Mine's a bog standard 4x and no facility to change that.
    'Save 12k in 2018' 2,500/6,000 (42%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
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