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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' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
Page 4
    • Cottage Economy
    • By Cottage Economy 16th May 18, 11:22 AM
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    Cottage Economy
    Just throwing this out there as it sprang to mind - why can't we have the state pension operate in a similar way to a normal pension as to when you take it?

    So 67 is the current state pension age, but if you want it sooner it will be 'reduced' by a certain percentage for every year early you have it.

    Anyone?

    EDITED: just been ringing round tracing old pension schemes and discovered I was part of the M&S pension scheme when I worked there from 1989. My hopes have been dashed, however, as apparently I had less than two years in the scheme and therefore no pensionable benefits are available to me.

    Good exercise to do though.
    Last edited by Cottage Economy; 16-05-2018 at 11:57 AM.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • MK62
    • By MK62 16th May 18, 11:58 AM
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    MK62
    Good question and it has been touted around before.


    Given that we can "defer for more", it would seem only logical to be able to "advance for less".

    However I suspect it all comes down to cost and cash-flow - like a bank, if too many people want their money early then it all goes pear shaped, and it would be politically challenging (and a whole load more work) to introduce a system which limited the numbers able to do it.


    I does raise other questions and potential issues too though....


    What if someone takes the state pension early at a reduced rate, but then runs down their private pension, so that by, say 70, they only have the reduced state pension to live on....the govt may then be in a position of having to then pay them benefits to bring them back up to a level deemed enough to exist on.
    I suppose there are checks and balances you could put in, but it'd all add up to load more work, and probably a new govt department to administer it..... and so on.


    I'm sure there are a load of other practical issues too which I haven't thought of off the top of my head!
    • atush
    • By atush 16th May 18, 12:08 PM
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    atush
    In the USA you can choose to take your Soc Sec early but reduced. Around 5 years early i think.
    • Cottage Economy
    • By Cottage Economy 16th May 18, 1:17 PM
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    Cottage Economy
    I suppose there are checks and balances you could put in, but it'd all add up to load more work, and probably a new govt department to administer it..... and so on.
    Originally posted by MK62
    Say there were checks and balances in place, I wonder how many people would take it early?

    There must be people out there still working up to 67 because their occupational pensions aren't enough to live on.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • Cottage Economy
    • By Cottage Economy 16th May 18, 1:31 PM
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    Cottage Economy
    In the USA you can choose to take your Soc Sec early but reduced. Around 5 years early i think.
    Originally posted by atush
    The average payment at 67 is about $1300 a month. At 62 they're paid about $300 less.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • Anonymous101
    • By Anonymous101 16th May 18, 1:34 PM
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    Anonymous101
    Say there were checks and balances in place, I wonder how many people would take it early?

    There must be people out there still working up to 67 because their occupational pensions aren't enough to live on.
    Originally posted by Cottage Economy
    I know lots of people that feel they have to work until they're 67 because they don't have private or occupational pensions that could support them.

    If fact I know several people that don't have any pension savings other than the government one.
    • Cottage Economy
    • By Cottage Economy 16th May 18, 6:16 PM
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    Cottage Economy
    I know lots of people that feel they have to work until they're 67 because they don't have private or occupational pensions that could support them.

    If fact I know several people that don't have any pension savings other than the government one.
    Originally posted by Anonymous101
    Yes, my BIL has nothing saved, nothing at all. I don't know how he's going to get by in old age. Just the state pension will not be enough.
    Last edited by Cottage Economy; 16-05-2018 at 6:18 PM.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • kidmugsy
    • By kidmugsy 16th May 18, 6:24 PM
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    kidmugsy
    my BIL has nothing saved, nothing at all. I don't know how he's Just the state pension will not be enough.
    Originally posted by Cottage Economy
    I imagine he expects to sponge off other people.
    Free the dunston one next time too.
    • Cottage Economy
    • By Cottage Economy 16th May 18, 6:35 PM
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    Cottage Economy
    I imagine he expects to sponge off other people.
    Originally posted by kidmugsy
    I know we won't be able to support him. Every penny we have will need to be accounted for and working hard if I'm to go at 55 and stay gone.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • crv1963
    • By crv1963 16th May 18, 6:59 PM
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    crv1963
    I know lots of people that feel they have to work until they're 67 because they don't have private or occupational pensions that could support them.

    If fact I know several people that don't have any pension savings other than the government one.
    Originally posted by Anonymous101


    This is really common! I know/ have met many who could save as a supplement for their state pension but don't or often won't, I get told often "I won't live that long" or even worse "well I'll get benefits to top it up!".


    This forum is really a tiny fraction of people who've thought about it and decided to either learn more about options or to do something more about it.


    Also there is really poor understanding of both pensions and life expectancy, many who are auto-enrolled in the workplace really do think that their monthly 3% will make for a comfortable retirement, when in fact they'll get a pittance. I think a financial lesson or two aimed at those in secondary education should be compulsory on an annual basis!


    The trouble is financial planning, debt and a have it today culture pushed by star struck populations and media don't bode well together, and don't sell papers or gain viewing figures for the TV.


    The cynic in me thinks auto-enrolment is a means for future governments to reduce pensioner benefits, the pittance pushing future pensioners over the income level to get them, not addressing the issue of making people save a decent amount to make a real difference to their retirement.
    Last edited by crv1963; 16-05-2018 at 7:02 PM.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • Cottage Economy
    • By Cottage Economy 17th May 18, 7:46 AM
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    Cottage Economy
    Also there is really poor understanding of both pensions and life expectancy, many who are auto-enrolled in the workplace really do think that their monthly 3% will make for a comfortable retirement, when in fact they'll get a pittance. I think a financial lesson or two aimed at those in secondary education should be compulsory on an annual basis!
    Originally posted by crv1963
    I agree. My niece and nephew are in their 20s and received no financial education, either from their school or their parents. My nephew started work a few years ago and had access to one of the few remaining good DB schemes. He pulled a big face and didn't want to but I worked on him and he eventually did when I showed him what his contribution would provide after a set number of years. Not sure what will happen to my niece as she has gone into education and intends to live and work among the poorest communities in the Southern hemisphere. So she's already saddled with student debt and little chance of starting a pension for a long time to come.

    I am seriously considering starting small pension funds for both of them and putting some money aside. Nephew won't ever need it, but I can't just do it for her as that would be unfair on him.

    The trouble is financial planning, debt and a have it today culture pushed by star struck populations and media don't bode well together, and don't sell papers or gain viewing figures for the TV.
    Originally posted by crv1963
    DH and I are the only people we know who have plans to retire early and no interest in spunking money on stuff. To find like-minded people to chat to and exchange ideas we have to use the internet. We don't even talk about it with friends anymore.
    Last edited by Cottage Economy; 17-05-2018 at 7:59 AM.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • MK62
    • By MK62 17th May 18, 9:04 AM
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    MK62
    Say there were checks and balances in place, I wonder how many people would take it early?

    There must be people out there still working up to 67 because their occupational pensions aren't enough to live on.
    Originally posted by Cottage Economy
    I've no doubt there are lot, given what the pensions industry tells us is the "average" pension pot, and that's for those who actually have one!

    IIRC a recent FCA survey reckons 30% don't, though I don't think that was broken down into age bands - another survey suggested that 12% of people retiring this year have no private pension at all, and will rely solely on the state pension.
    • ex-pat scot
    • By ex-pat scot 17th May 18, 9:09 AM
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    ex-pat scot

    The cynic in me thinks auto-enrolment is a means for future governments to reduce pensioner benefits, the pittance pushing future pensioners over the income level to get them, not addressing the issue of making people save a decent amount to make a real difference to their retirement.
    Originally posted by crv1963


    I think it's perfectly sensible to get people to make actual provision throughout their working lives to pay for their own retirement.


    The alternative, that i see depressingly often even amongst otherwise sensible people, is that of classic moral hazard. "I don't want to save for retirement and then get reduced benefits: I'd rather spend it now because the government won't let me starve when I retire".


    Any legitimate means of encouraging the former and discouraging the latter is fair game to me, not a cynical approach.
    • Anonymous101
    • By Anonymous101 17th May 18, 9:42 AM
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    Anonymous101
    I think it's perfectly sensible to get people to make actual provision throughout their working lives to pay for their own retirement.


    The alternative, that i see depressingly often even amongst otherwise sensible people, is that of classic moral hazard. "I don't want to save for retirement and then get reduced benefits: I'd rather spend it now because the government won't let me starve when I retire".


    Any legitimate means of encouraging the former and discouraging the latter is fair game to me, not a cynical approach.
    Originally posted by ex-pat scot

    I agree.

    I have family members that have said to me that they have struggled all their lives to put a small amount of money away with which they top up their state pension to provide a barely (their words) acceptable standard of living and yet they have friends that either didn't bother or couldn't do that and are now topped up by benefits to the levels of someone who has.
    They have actually said to me that they wish they hadn't bothered and to a point I can understand that outlook.

    I've discussed my approach to retirement saving with them and their thoughts on that were that if you can afford to save heavily into a pension then that's great. You ought to, and those that do will be rewarded with a fruitful retirement. However if you're not able to save heavily, there's no point saving at all.

    Its a sorry state of affairs and I suspect most people think like this. As other have said we on here are very much in the minority.
    • Malthusian
    • By Malthusian 17th May 18, 10:29 AM
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    Malthusian
    Not sure what will happen to my niece as she has gone into education and intends to live and work among the poorest communities in the Southern hemisphere. So she's already saddled with student debt and little chance of starting a pension for a long time to come.
    Originally posted by Cottage Economy
    As you describe it it's unlikely she'll pay a penny of the debt back, partly because her income will be too low and partly because she's leaving the country. So she's not saddled with anything.

    I am seriously considering starting small pension funds for both of them and putting some money aside. Nephew won't ever need it, but I can't just do it for her as that would be unfair on him.
    If she leaves the country she won't be eligible for tax relief, so putting money into a pension for her is likely to be an unnecessarily complicated and tax-inefficient exercise. Personally I would keep the money and mentally earmark it for her (them). Provided it won't affect your retirement plans. A bare trust is not appropriate as you don't want her to have the money now, and other types of trust are expensive and tax inefficient.

    Just throwing this out there as it sprang to mind - why can't we have the state pension operate in a similar way to a normal pension as to when you take it?
    This was discussed extensively during the WASPI nonsense. Everyone would draw it as soon as they would get it. Then they would complain that it wasn't enough to live on. And they would be right, as the State Pension is designed to be just enough to live on, so State Pension minus an early retirement penalty is not enough to live on. Then the Government would have to top them up with Pension Credit or other means-tested State Benefits.

    So effectively, introducing the option to take it early is to reduce the State Pension Age, which we can't afford and is the opposite of what the Government has been trying to achieve for the last two and a half decades.
    • Malthusian
    • By Malthusian 17th May 18, 10:41 AM
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    Malthusian
    IIRC a recent FCA survey reckons 30% don't, though I don't think that was broken down into age bands - another survey suggested that 12% of people retiring this year have no private pension at all, and will rely solely on the state pension.
    Originally posted by MK62

    12% is close to the proportion of the workforce that are on the minimum wage. Someone who lives on the minimum wage is unlikely to need private pension provision as their State Pension(s) and other benefits (e.g. Housing Benefit) are likely to be adequate.
    • Cottage Economy
    • By Cottage Economy 17th May 18, 5:07 PM
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    Cottage Economy
    As you describe it it's unlikely she'll pay a penny of the debt back, partly because her income will be too low and partly because she's leaving the country. So she's not saddled with anything.
    Originally posted by Malthusian
    I don't think it will be a permanent move, maybe a couple of years. I can't see her getting on in South America, given her liking for immaculate hair and make-up. Mind you, it might be the making of her if it helps her understand how privileged she is and the difference between wants and needs. She's qualified to teach english and spanish so I suspect she will come back here and perhaps go down the teaching route, so she may end up with a half-decent pension one day.

    If she leaves the country she won't be eligible for tax relief, so putting money into a pension for her is likely to be an unnecessarily complicated and tax-inefficient exercise. Personally I would keep the money and mentally earmark it for her (them). Provided it won't affect your retirement plans. A bare trust is not appropriate as you don't want her to have the money now, and other types of trust are expensive and tax inefficient.
    Originally posted by Malthusian
    You're quite right. I can always step in at a later date and help out if we can afford to, or maybe leave her something in our wills.
    'Save 12k in 2018' 5500/6,000 (92%)


    "...success in personal finance isn't about mastering the technicalities. It is about mastering yourself."
    • atush
    • By atush 17th May 18, 5:39 PM
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    atush
    I know we won't be able to support him. Every penny we have will need to be accounted for and working hard if I'm to go at 55 and stay gone.
    Originally posted by Cottage Economy
    He will see you retire at 55 and say 'oh he must be rich then'.
    • kidmugsy
    • By kidmugsy 18th May 18, 12:57 AM
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    kidmugsy
    We don't even talk about it with friends anymore.
    Originally posted by Cottage Economy
    Years ago I said to friends "I can't imagine anyone intelligent not clearing their credit card balance every month." I got The Look. From which I got the message.
    Last edited by kidmugsy; 18-05-2018 at 1:08 AM.
    Free the dunston one next time too.
    • kidmugsy
    • By kidmugsy 18th May 18, 1:15 AM
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    kidmugsy
    However if you're not able to save heavily, there's no point saving at all.
    Originally posted by Anonymous101
    That's an inevitable consequence of the reforms to the welfare state introduced by the postwar government. The great reformer William Beveridge had warned against introducing pernicious incentives but I suppose the Labour government of the day knew how to arrange things to buy votes.
    Free the dunston one next time too.
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