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  • FIRST POST
    • LEP
    • By LEP 13th Jan 20, 8:03 AM
    • 120Posts
    • 15Thanks
    LEP
    Retiring at 57
    • #1
    • 13th Jan 20, 8:03 AM
    Retiring at 57 13th Jan 20 at 8:03 AM
    I am 45 and looking into the possibility of retiring at 57. This is certainly possible but I am looking for some advice on how best to use my pot before I can draw the state pension at 67.

    Current situation (pension values are in todays value)

    DB pension (closed) £6765
    DC pension projected pot to be £156000 in 2031
    Rental Income 2 properties £10200 (this is after mortgage/insurance etc are paid). I allow about £1000 per year for repairs so call it £9000
    Cash - should have around £30000 saved up by 2031

    Questions

    1. On the DC pension I plan to take 25% tax free and then use the rest either or an annuity or drawdown. Annuity seems safer but when hit 67 I'll have another £8k+ coming in so the flexibility of draw down seems more sensible as I won't need as much from this post once I hit 67. Are there any calculators out there that allow you to flex the amount you draw down as you age?

    2. What should I project my rental income to be? I am not asking for predictions on increases in rent but more around interest rates as we all know they could well rise. I was thinking about working out the income on a 5% interests rate to be safe. Good idea or not?

    Any other comments welcome.

    Thanks
Page 1
    • Sea Shell
    • By Sea Shell 13th Jan 20, 8:10 AM
    • 3,165 Posts
    • 6,350 Thanks
    Sea Shell
    • #2
    • 13th Jan 20, 8:10 AM
    • #2
    • 13th Jan 20, 8:10 AM
    The first question you need to ask yourself is what INCOME do I need/want to live on for those 10 years between DC and State pension?

    Do you currently live a £30,000 lifestyle or a £15,000 one, and do you expect that to change?

    Are you single / children?
    " That pound I saved yesterday, is a pound I don't have to earn tomorrow " JOB DONE!!
    This should now read "It's time to start digging up those Squirrelled Nuts"!!!
    • LEP
    • By LEP 13th Jan 20, 8:32 AM
    • 120 Posts
    • 15 Thanks
    LEP
    • #3
    • 13th Jan 20, 8:32 AM
    • #3
    • 13th Jan 20, 8:32 AM
    My two kids will have flown the nest by then.....hopefully.

    To clarify what I really want to do it maximise my income until I hit my early 70s at which time I expect life to 'slow down' so I'd be looking to get an annual income of £30k+ before then at which point it could drop to around £20k.
    • lisyloo
    • By lisyloo 13th Jan 20, 10:05 AM
    • 25,758 Posts
    • 13,942 Thanks
    lisyloo
    • #4
    • 13th Jan 20, 10:05 AM
    • #4
    • 13th Jan 20, 10:05 AM
    My two kids will have flown the nest by then.....hopefully.

    To clarify what I really want to do it maximise my income until I hit my early 70s at which time I expect life to 'slow down' so I'd be looking to get an annual income of £30k+ before then at which point it could drop to around £20k.
    Originally posted by LEP
    Thatís a big drop and not one Iíd want to take if I was a healthy 70 year old still wanting to travel and have hobbies.

    Itís personal of course, but some expenses may rise.

    The biggest example I can think of is being widowed and no longer sharing household expenses, but household adaptations (stair lift, scooter) and domestic help are other examples.
    • michaels
    • By michaels 13th Jan 20, 10:14 AM
    • 23,236 Posts
    • 105,578 Thanks
    michaels
    • #5
    • 13th Jan 20, 10:14 AM
    • #5
    • 13th Jan 20, 10:14 AM
    How much equity do you have in the BTL? Is concentrating this proportion of your of your retirement pot in this single asset class (with uncertain political and financial implications) a suitable level of diversification? As you already mention it is very unclear what returns you could expect going forward from this asset class.

    It might be tax efficient for you to move assets from property to pension but selling one BTL and living of the capital whilst stuffing your DC pension pot as much as allowed based on your income. You might be able to benefit from tax relief, avoiding NI and even employers NI if your employer is generous with sal sac. There is even a possibility that you could reduce your assessed income enough to benefit from tax credits in some years.
    Cool heads and compromise
    • Dox
    • By Dox 13th Jan 20, 12:22 PM
    • 1,863 Posts
    • 1,397 Thanks
    Dox
    • #6
    • 13th Jan 20, 12:22 PM
    • #6
    • 13th Jan 20, 12:22 PM
    It may be possible but from the figures you've given, it certainly doesn't look as if you are in for a very opulent retirement. Maybe get some proper financial advice from an IFA, who will have all the relevant facts? With your various assets there should be ways to help you ensure a higher standard of living in retirement than might otherwise be the case.
    • crv1963
    • By crv1963 13th Jan 20, 12:42 PM
    • 1,099 Posts
    • 2,430 Thanks
    crv1963
    • #7
    • 13th Jan 20, 12:42 PM
    • #7
    • 13th Jan 20, 12:42 PM
    My two kids will have flown the nest by then.....hopefully.

    To clarify what I really want to do it maximise my income until I hit my early 70s at which time I expect life to 'slow down' so I'd be looking to get an annual income of £30k+ before then at which point it could drop to around £20k.
    Originally posted by LEP
    I think estimating that your lifestyle will drop because of your age is possibly a mistake. I know from observation of my mother and her friends- most are 75+ Mum is 81 next month. They certainly have not slowed down, expenditure may change but not drop, not as many holidays but lots more days out/ theatre trips/ paying for help with heavier tasks.

    I'd suggest try a smooth steady level of income throughout retirement with a plan to save some money throughout for the big cost items such as cars/ boilers/ house repairs.
    CRV1963- Light bulb moment Sept 15- Planning the great escape- aka retirement!
    • Andrew31
    • By Andrew31 13th Jan 20, 2:14 PM
    • 58 Posts
    • 32 Thanks
    Andrew31
    • #8
    • 13th Jan 20, 2:14 PM
    • #8
    • 13th Jan 20, 2:14 PM
    Does your DB kick in a 65 or 60, what are the early retirement factors. I have made a couple of assumptions, but i think its unlikely you will make it. More likely 60 is a realistic age for you, but would depend on many factors.

    As suggested, speak to an IFA who should be able to give you a cash flow forecast.
    • LEP
    • By LEP 13th Jan 20, 2:14 PM
    • 120 Posts
    • 15 Thanks
    LEP
    • #9
    • 13th Jan 20, 2:14 PM
    • #9
    • 13th Jan 20, 2:14 PM
    How much equity do you have in the BTL? Is concentrating this proportion of your of your retirement pot in this single asset class (with uncertain political and financial implications) a suitable level of diversification? As you already mention it is very unclear what returns you could expect going forward from this asset class.

    It might be tax efficient for you to move assets from property to pension but selling one BTL and living of the capital whilst stuffing your DC pension pot as much as allowed based on your income. You might be able to benefit from tax relief, avoiding NI and even employers NI if your employer is generous with sal sac. There is even a possibility that you could reduce your assessed income enough to benefit from tax credits in some years.
    Originally posted by michaels
    About 70k across the 2 BTLs. Selling them would not be wise move considering the income they generate for me now.
    • LEP
    • By LEP 13th Jan 20, 2:21 PM
    • 120 Posts
    • 15 Thanks
    LEP
    I think estimating that your lifestyle will drop because of your age is possibly a mistake. I know from observation of my mother and her friends- most are 75+ Mum is 81 next month. They certainly have not slowed down, expenditure may change but not drop, not as many holidays but lots more days out/ theatre trips/ paying for help with heavier tasks.

    I'd suggest try a smooth steady level of income throughout retirement with a plan to save some money throughout for the big cost items such as cars/ boilers/ house repairs.
    Originally posted by crv1963

    Maybe and I was being overcautious when I said 20k. Even if my rental income dropped to 5k then this along with my DB pension and State pension would mean I'd be getting circa 20k even if I'd used up all by DC pension post and cash.

    Plus I can always downsize from a 4 bed to 3 bed which in my area would net me another 100k at todays prices.
    • LEP
    • By LEP 13th Jan 20, 2:24 PM
    • 120 Posts
    • 15 Thanks
    LEP
    Does your DB kick in a 65 or 60, what are the early retirement factors. I have made a couple of assumptions, but i think its unlikely you will make it. More likely 60 is a realistic age for you, but would depend on many factors.

    As suggested, speak to an IFA who should be able to give you a cash flow forecast.
    Originally posted by Andrew31

    The £6765 is what I can draw from age 57. At age 60 it is £7562.
    • LEP
    • By LEP 13th Jan 20, 4:03 PM
    • 120 Posts
    • 15 Thanks
    LEP
    So I did some calculations.....

    If I put £117k in a mid range drawdown product factoring in 4% inflation it would give me 13 years income at £10k.

    So this would give me:

    Age 57 - 67: £6.7k DB + £9k rent + £10k drawdown = £25.7k

    I then have around £69k cash spare. I need 3.4k/year from the cash (factored in I am not paying tax on this) per year to hit my 30k income target. Will assume I have roughly £40k cash left at 67

    67-70: I add in my state pension and am now at £34.6k without touching my £40k cash

    70+: lose the £10k drawdown so am now at £24.6k with the £40k cash to use up.....so could see me being able to keep a £30k income until I am 80.....at which point it would drop to around £20k.


    Anyway going back to my first post does anyone know of any advanced drawdown calculators where you can mess around with changing the amount you want to draw down year by year?
    • Audaxer
    • By Audaxer 13th Jan 20, 4:33 PM
    • 1,991 Posts
    • 1,237 Thanks
    Audaxer
    Anyway going back to my first post does anyone know of any advanced drawdown calculators where you can mess around with changing the amount you want to draw down year by year?
    Originally posted by LEP
    How long your DC pot will last depends on the Sequence of Returns. If for example you have an equity crash or two early on in retirement and you withdraw too much, you could run out of money. That is why it is good if you can hold a couple of years income as a cash buffer.

    See Sequence of Returns tool below. Although it is in dollars it is interesting to see the differences in capital left depending on the sequence of returns and percentage annual drawdown.
    http://www.winchfinancial.com/financial-planning/risk-management-insurance/sequence-returns-calculator/
    • DairyQueen
    • By DairyQueen 14th Jan 20, 11:46 PM
    • 1,080 Posts
    • 1,961 Thanks
    DairyQueen
    Your figures look very unrealistic:
    - sequence of returns, already mentioned, is the biggie on the DC pot. An average return (after costs) of net 4% would require a reasonable allocation to equities. What happens if, for example, your returns begin with two negative years of, say -20% and - 5%? How much cash are you reserving to suspend drawdown when necessary?

    - You have given a projected DB value of £6.7k in 13 years time. The real value will have significantly reduced by then

    - Your income requirement will increase annually with inflation.

    - Do you have a spouse? If so, what happens to the survivor when the first of you dies.

    - Young adult children are very expensive. Have you factored in any big ticket costs for them? Cars? House deposit? Support through uni? Weddings?

    In 2031, and assuming an average inflation rate of 3%, your 30k current income requirement will be in the region of £44,000 (and increasing by 3% each year). Assuming that the rental income also increases at 3%p.a.then £13,200 of that will be covered. Add the DB income and around £20k of your income (hopefully inflation-proofed) will be covered from age 57-67. You will need other assets by the age of 57 to generate £24,000p.a. (increasing with inflation) for 10 years and continuing by a lesser amount after SP kicks-in.

    At age 67, SP would provide guaranteed income of roughly 30% of your requirement and the DB would add another 22%. You would be reliant on non-guaranteed income (BTL) for another 30%. You would either have to drop your income by 18% or have sufficient other assets to generate the balance. In 22 years time, the real value of £30k would be £57,000. You would therefore need a pot capable of supporting around £10kp.a. drawdown, increasing with inflation, from age 67 and for the rest of your life.

    If you are still healthy by age 67, you could expect to live at least into your late 80s. You could, of course, live much longer. Health issues will kick-in in your 80s - domestic support? care home fees? in-home carers? Old age is expensive.

    Rough figures suggest that you will need around £50k in cash to suspend drawdown for two years if necessary between ages 57-67. Assuming you will exhaust the assets reserved for that decades's drawdown it will require a pot of £250k-£300k, in addition to your other income, by age 57 to sustain that decade.

    At a safe withdrawal rate of, say, 3%, you will need additional assets of £330k-ish to sustain a reduced drawdown of £10kp.a. (plus inflation) at age 67 and for the rest of your life. Plus around £20k in cash to suspend drawdown for two years.

    These figures are very ballpark but I think your target, by age 57, is a pot of at least £450k-£500k, plus cash of around £70k, to provide the balance of the income you need in addition to your DB, rental income and, eventually, SP.

    These drawdown figures are gross. If your income requirement is £30k net in today's value then you need a bigger pot as you will be paying tax.

    This assumes taking zero TFC and you will need a cash reserve to cover all big-ticket items for 30/40 years. At some point you will probably need to sell the BTLs (age and BTL maintenance/management are not great bedfellows). You will pay CGT but given a few decades of house price inflation they may net sufficient capital to fill the income gap created by the lack of rental income.
    • ffacoffipawb
    • By ffacoffipawb 15th Jan 20, 5:14 AM
    • 3,027 Posts
    • 2,169 Thanks
    ffacoffipawb
    If you are 45 now, I think your state pension age is 68 and not 67.

    May make a big difference when your margins are so tight.
    Retired: Financial Independence achieved in June 2019.

    Cofiwch Dryweryn
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