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  • FIRST POST
    • Gizmo70
    • By Gizmo70 12th Aug 18, 1:51 AM
    • 61Posts
    • 33Thanks
    Gizmo70
    Planning for retirement
    • #1
    • 12th Aug 18, 1:51 AM
    Planning for retirement 12th Aug 18 at 1:51 AM
    Hi,

    Just starting to look at my financial position in respect of retirement. I'm 48 and currently earn around 50k p.a. (27k after taxes and pensions) but in the process of looking for a new job that has less travelling, less stress and gives me more time for non-work activities.

    I've already managed to pay off my mortgage, so been trying to put aside extra into pensions / investments. Every month I put about 1.2k into savings / investments, 1.1k into pensions and the rest (1k) is expenditure.

    At the end of 2017 I had:
    ISAs (mix of types): 167.6k
    Investments (stocks & shares, long term savings, etc): 113.4k
    Pensions (mix of types): 192.6k
    Liquid (cash, short term savings, etc): 55.2k
    Total: 528.8k

    Position at end of July 2018:
    ISAs (mix of types): 193.0k
    Investments (stocks & shares, long term savings, etc): 120.9k
    Pensions (mix of types): 199.1k
    Liquid (cash, short term savings, etc): 42.6k
    Total: 557.6k

    My Pension pot consists of:
    • 2 Final Salary Schemes
      • one about 79k of contributions (covering 17 years and 8 months) - 60ths scheme
      • the other less than 2k of contributions (covering 1 year and 10 months) - probably 60ths scheme
    • 1 Career Average Scheme
      • with about 26k of contributions (covering just over 3 years) - 49ths scheme
    • 3 AVCs
      • one capital guarantee with about 48k in
      • one defined contribution currently valued around 44k
      • one defined contribution currently valued around 3k (0.65% charges)
    The italicised pension entries are for my current job.

    If / when I get a new job, I probably should review at least some of my current pension portfolio.

    I am also looking at moving some money from Liquid to ISAs / Investments, as I think I have too much in short term savings. Is there anything else I should be doing to prepare my finances for retirement?

    Any other constructive thoughts?

    Thanks
Page 1
    • bostonerimus
    • By bostonerimus 12th Aug 18, 3:55 AM
    • 2,454 Posts
    • 1,761 Thanks
    bostonerimus
    • #2
    • 12th Aug 18, 3:55 AM
    • #2
    • 12th Aug 18, 3:55 AM
    Do a detailed budget (and I mean every single penny and item) for at least 6 months.....a year would be better to catch seasonal variations. Then compare your spending to your guaranteed income from SP and DB. Then make a plan for your retirement asset allocation. I cover my retirement spending with a DB pension and income from a rental apartment so I keep my DC and other investments mostly in equities.
    Last edited by bostonerimus; 12-08-2018 at 3:58 AM.
    Misanthrope in search of similar for mutual loathing
    • Linton
    • By Linton 12th Aug 18, 7:23 AM
    • 10,089 Posts
    • 10,427 Thanks
    Linton
    • #3
    • 12th Aug 18, 7:23 AM
    • #3
    • 12th Aug 18, 7:23 AM
    The most important preparation for retirement is financial planning and In principle this is straightforward..
    1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to.
    2) Determine where the income to support the expenditure will come from over time. Note that some income such as State Pension may only become available at a particukar age.
    3) Given your current savings and pensions and a desired retirement age create a plan to achieve the required wealth.
    4) Adjust the retirement age and other assumptions until you have a plan that seems realistic and provides for an acceptable retirement.

    Beyond finances you need to have thought through how you will spend your time in retirement. Dont ldelay this until the morning after your leaving do.
    • kidmugsy
    • By kidmugsy 12th Aug 18, 10:06 AM
    • 12,223 Posts
    • 8,650 Thanks
    kidmugsy
    • #4
    • 12th Aug 18, 10:06 AM
    • #4
    • 12th Aug 18, 10:06 AM
    I'm 48. ... My Pension pot consists of:
    Originally posted by Gizmo70
    Oh no it doesn't. The DB pensions don't have a pot. Instead they have promises of income when you start to draw them. So listing the past contributions is a worthless activity.

    What you should ideally do is list out for each:

    (i) Scheme retirement age.
    (ii) Annual pension at SRA.
    (iii) Tax-free lump sum, if any.
    (iv) Inflation-protection.
    (v) Actuarial reduction i.e. the annual deduction from annual pension for taking the pension early.

    There's no need to tell us but you need to be on top of those five issues.

    Lesser issues: commutation rate and reverse commutation rate.
    Free the dunston one next time too.
    • NoMore
    • By NoMore 12th Aug 18, 10:45 AM
    • 254 Posts
    • 227 Thanks
    NoMore
    • #5
    • 12th Aug 18, 10:45 AM
    • #5
    • 12th Aug 18, 10:45 AM
    As kidmugsy says for your DB pensions listing the contributions is meaningless and has no bearing on your retirement planning. You need to know the income expected from them.

    I can't think of any time that keeping track of the contributions to a DB pension is useful, even the AA is not tested against them but rather a 'increased value' calculation of the DB pension.
    • atush
    • By atush 12th Aug 18, 11:17 AM
    • 17,326 Posts
    • 10,878 Thanks
    atush
    • #6
    • 12th Aug 18, 11:17 AM
    • #6
    • 12th Aug 18, 11:17 AM
    You have a lot of cash and investments outside of pensions.

    Consider moving some of that to DC pensions.
    • JoeEngland
    • By JoeEngland 12th Aug 18, 11:47 AM
    • 188 Posts
    • 290 Thanks
    JoeEngland
    • #7
    • 12th Aug 18, 11:47 AM
    • #7
    • 12th Aug 18, 11:47 AM
    The most important preparation for retirement is financial planning and In principle this is straightforward..
    1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to.
    2) Determine where the income to support the expenditure will come from over time. Note that some income such as State Pension may only become available at a particukar age.
    3) Given your current savings and pensions and a desired retirement age create a plan to achieve the required wealth.
    4) Adjust the retirement age and other assumptions until you have a plan that seems realistic and provides for an acceptable retirement.

    Beyond finances you need to have thought through how you will spend your time in retirement. Dont ldelay this until the morning after your leaving do.
    Originally posted by Linton
    "1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to."

    I think that depends on the person. Some people will be happy to trade money for more free time in being retired.
    • Linton
    • By Linton 12th Aug 18, 12:18 PM
    • 10,089 Posts
    • 10,427 Thanks
    Linton
    • #8
    • 12th Aug 18, 12:18 PM
    • #8
    • 12th Aug 18, 12:18 PM
    "1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to."

    I think that depends on the person. Some people will be happy to trade money for more free time in being retired.
    Originally posted by JoeEngland
    I agree someone could make the decision to completely change their lifestyle when they retire, but it may be a very big step to take. After all they may well have had decades of living in relative luxury. Perhaps they should try living on the reduced expenditure for a year or two prior to retirement before making a possibly irreversable commitment.

    Many people seem not to know how much they are spending and create a budget bottom-up. They could then be very disappointed when they discover they can no longer afford the things that they used to enjoy.

    This is why I propose ones current expenditure as the starting point for planning but it doesnt have to be the end point.
    • crv1963
    • By crv1963 12th Aug 18, 1:05 PM
    • 576 Posts
    • 1,274 Thanks
    crv1963
    • #9
    • 12th Aug 18, 1:05 PM
    • #9
    • 12th Aug 18, 1:05 PM
    The most important preparation for retirement is financial planning and In principle this is straightforward..
    1) Determine your required expenditure. A good start is what you are spending now as you should plan to at least continue with the same standard of living as you have been used to.
    2) Determine where the income to support the expenditure will come from over time. Note that some income such as State Pension may only become available at a particukar age.
    3) Given your current savings and pensions and a desired retirement age create a plan to achieve the required wealth.
    4) Adjust the retirement age and other assumptions until you have a plan that seems realistic and provides for an acceptable retirement.

    Beyond finances you need to have thought through how you will spend your time in retirement. Dont ldelay this until the morning after your leaving do.
    Originally posted by Linton

    I couldn't agree more with the above, time spent planning is important, something we've been doing over the past year or so in earnest. We worked out our number (needed income), when what would come in (DB, DC and SP), then have made a rough plan and adjustments.


    Hence I am now planning working past my scheme NRA, to build the coffers to finance the years before SP starts.


    Deciding what you'll do/ want to do in retirement is (according to a pre-retirement course work sent me on) as important as the financial side of things. Being creatures of habit it is difficult to change mind set, from one third sleep, one third work, the commute/ travel eats into the one third leisure per day, to all day without a plan or meaning.


    A lot of people are either defined by their job (a particular hazard of my area of work), their income- usually being over budget, so expenditure doesn't match pension income or over frugal so when the pension starts they can't get used to spending, so as they don't know the end date they leave large sums to others rather than spend a bit more on leisure while they still have health/ time/ interest.


    It's all about balancing the variables, money saved on commute may end up being spent on heating, money saved on lunches may need to be spent on increased weekly food shop.


    The main thing we've planned around is spending staying as it is but no mortgage.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • bostonerimus
    • By bostonerimus 12th Aug 18, 1:29 PM
    • 2,454 Posts
    • 1,761 Thanks
    bostonerimus
    I agree someone could make the decision to completely change their lifestyle when they retire, but it may be a very big step to take. After all they may well have had decades of living in relative luxury. Perhaps they should try living on the reduced expenditure for a year or two prior to retirement before making a possibly irreversable commitment.
    Originally posted by Linton
    There's lots to deal with when you retire and adding a drastic change to income could be disastrous. Without work many people suffer depression and boredom.....of course some are very glad to have left work, but most people will go through a grieving process and have to find a new equilibrium so I would not add the challenge of living on a greatly lower income or compromising lifestyle.
    Misanthrope in search of similar for mutual loathing
    • Gizmo70
    • By Gizmo70 12th Aug 18, 1:30 PM
    • 61 Posts
    • 33 Thanks
    Gizmo70
    Annual Expenses:
    Car (inc Fuel, Insurance & Maintenance) : 1,700
    Council Tax: 850
    Electricity, Gas & Water: 1,090
    Food & Clothing (inc Dining Out / Drinks) : 2,160
    Household Repairs & Replacements (inc Insurance): 1,200
    Healthcare (Optical, Dental, Insurance, Pills & Potions): 870
    Leisure (inc Books, Magazines, Music, DVDs, Holidays & Sporting Events): 3,480
    Presents (Birthdays, Christmas, etc): 300
    Savings & Investment Charges: 150
    TV, Phone & Internet: 1,260
    Total: 13,060

    Estimated Income from Savings & Investments: 9,600

    I reckon to address the shortfall, I need to continue saving / investing at the same rate for another 6-7 years to add another about another 100k to them.

    Does that make sense?

    Thanks
    • Bimbly
    • By Bimbly 12th Aug 18, 1:44 PM
    • 148 Posts
    • 132 Thanks
    Bimbly
    Does that make sense?
    Originally posted by Gizmo70
    No, because you haven't told us about your DB pensions.

    When is the standard retirement age and what will they pay out per year? It maybe that they will pay 13k+ per year from 60, 65 or 67. So will only need to fund the inbetween gap.

    Having said that, you have a million pounds in savings outside of pensions, so looks like you're sorted. I'd be using some money to live a little.
    • bostonerimus
    • By bostonerimus 12th Aug 18, 1:56 PM
    • 2,454 Posts
    • 1,761 Thanks
    bostonerimus
    Annual Expenses:
    Car (inc Fuel, Insurance & Maintenance) : 1,700
    Council Tax: 850
    Electricity, Gas & Water: 1,090
    Food & Clothing (inc Dining Out / Drinks) : 2,160
    Household Repairs & Replacements (inc Insurance): 1,200
    Healthcare (Optical, Dental, Insurance, Pills & Potions): 870
    Leisure (inc Books, Magazines, Music, DVDs, Holidays & Sporting Events): 3,480
    Presents (Birthdays, Christmas, etc): 300
    Savings & Investment Charges: 150
    TV, Phone & Internet: 1,260
    Total: 13,060

    Estimated Income from Savings & Investments: 9,600

    I reckon to address the shortfall, I need to continue saving / investing at the same rate for another 6-7 years to add another about another 100k to them.

    Does that make sense?

    Thanks
    Originally posted by Gizmo70
    Where did this budget come from? How old is your car? Do you need to do any major fixes to your house? Are you sure about the food number?

    List your DB pensions amounts, when they start, any survivor benefits and whether they are inflation linked. Then list you DC, ISA and regular account amounts and maybe someone can help you with comments.
    Misanthrope in search of similar for mutual loathing
    • stoozie1
    • By stoozie1 12th Aug 18, 1:59 PM
    • 613 Posts
    • 571 Thanks
    stoozie1
    How does the OP have a million pounds outside pensions? I think I missed something.
    Save 12 k in 2018 challenge member #79
    Target 2018: 24k Jan 2018- 560 April 2670
    • Gizmo70
    • By Gizmo70 12th Aug 18, 3:44 PM
    • 61 Posts
    • 33 Thanks
    Gizmo70
    Oh no it doesn't. The DB pensions don't have a pot. Instead they have promises of income when you start to draw them. So listing the past contributions is a worthless activity.

    What you should ideally do is list out for each:

    (i) Scheme retirement age.
    (ii) Annual pension at SRA.
    (iii) Tax-free lump sum, if any.
    (iv) Inflation-protection.
    (v) Actuarial reduction i.e. the annual deduction from annual pension for taking the pension early.

    There's no need to tell us but you need to be on top of those five issues.

    Lesser issues: commutation rate and reverse commutation rate.
    Originally posted by kidmugsy
    The two DB schemes and two of the AVCs are all set to 65 and will give me around 22.4k p.a. plus a tax free lump sum of 1830.
    The Career Average and the other AVC are set to 67 and will give me around 3.2k p.a.
    All above in today's pricing, all have some level of inflation protection at RPI (but some limit to 5% maximum).
    I've not dug out the early retirement information for each scheme yet, but will do at some point.
    • Gizmo70
    • By Gizmo70 12th Aug 18, 3:50 PM
    • 61 Posts
    • 33 Thanks
    Gizmo70
    How does the OP have a million pounds outside pensions? I think I missed something.
    Originally posted by stoozie1
    Yes, not sure how that was identified either. I have about 356k outside of pensions.
    • Gizmo70
    • By Gizmo70 12th Aug 18, 3:58 PM
    • 61 Posts
    • 33 Thanks
    Gizmo70
    Where did this budget come from? How old is your car? Do you need to do any major fixes to your house? Are you sure about the food number?

    List your DB pensions amounts, when they start, any survivor benefits and whether they are inflation linked. Then list you DC, ISA and regular account amounts and maybe someone can help you with comments.
    Originally posted by bostonerimus
    Budget comes from analysing the last 12 months of actual spend (yes, I do account for every penny) so food number should be correct.
    Car is 5 years old and regularly serviced, might look at replacing it in another 5 years. House is in a good state too.
    • kidmugsy
    • By kidmugsy 13th Aug 18, 12:36 AM
    • 12,223 Posts
    • 8,650 Thanks
    kidmugsy
    The two DB schemes and two of the AVCs are all set to 65 and will give me around 22.4k p.a. plus a tax free lump sum of 1830.
    The Career Average and the other AVC are set to 67 and will give me around 3.2k p.a.
    All above in today's pricing, all have some level of inflation protection at RPI (but some limit to 5% maximum).
    Originally posted by Gizmo70
    So by age 67 or so, with a full SRP added, you should be on a retirement income of about 38k gross p.a. Many people would find that pretty comfortable. Therefore you could contemplate using your other wealth to allow you to retire early if you so desired.
    Free the dunston one next time too.
    • Triumph13
    • By Triumph13 13th Aug 18, 9:01 AM
    • 1,386 Posts
    • 1,843 Thanks
    Triumph13
    I reckon to address the shortfall, I need to continue saving / investing at the same rate for another 6-7 years to add another about another 100k to them.

    Does that make sense?

    Thanks
    Originally posted by Gizmo70
    No, it makes no sense whatsoever. Your annual spending requirement is 13k pa. You already have 27 years' worth of that saved outside pensions. Your DBs and SP will give you well over 30k pa once they are all online - say age 68, and about 100k of further capital from AVCs etc.

    You seem to be trying to create a plan that avoids you ever having to spend any of your capital by working longer than you need / spending less than you could. If you continue with this plan you will probably end up with you having an income 4x what you have been spending by the time you are 68.
    • Anonymous101
    • By Anonymous101 13th Aug 18, 9:57 AM
    • 1,162 Posts
    • 591 Thanks
    Anonymous101
    No, it makes no sense whatsoever. Your annual spending requirement is 13k pa. You already have 27 years' worth of that saved outside pensions. Your DBs and SP will give you well over 30k pa once they are all online - say age 68, and about 100k of further capital from AVCs etc.

    You seem to be trying to create a plan that avoids you ever having to spend any of your capital by working longer than you need / spending less than you could. If you continue with this plan you will probably end up with you having an income 4x what you have been spending by the time you are 68.
    Originally posted by Triumph13
    I agree, it makes no sense at all.

    In the Financial Independence community they talk about needing to save 25x your annual expenditure and then at that point you can live off your investments indefinitely. Many of them have retired in their 30's and 40's using this principle.

    OP has more than this outside of his pensions. Add the pensions and you're hugely clear of what you need to retire NOW.

    If I was in your position I'd be looking at an exit strategy. You no longer need to work for the money, you've got plenty.
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