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You would. Plenty I know get by on state pension alone and are happy enough
If you are planning on retiring at 55 but 55 comes after 2028 you are going to have to wait until you 57 get get your hands on your pension pot.
I'm 55 1 month after the pension date moves to 57......
From reading, it looks like the govt have not yet decided how they will implement the change, whether it will be a cliff edge or a gradual moving of the date depending on exactly when you were born.
Can't wait to retire, but not sure how much money I'll need, probably quite a lot I reckon, I do like my nice things. So I reckon that will be a problem and I'll have to cut back on stuff.
what you’d need a stash of money for at 95
Maybe:
Money for visiting carers
Extra heating
Cleaner
Stair lift
Ramp
Taxis
Care home
Coffin
Yes thanks everyone for these pension threads. They've definitely prompted me to take a closer look at how things could pan out.
I've always put in the maximum matched pension amoint into the company DC schemes but more recently I've been shovelling lots more cash in for the tax breaks.
Anyway, I reckon if I can keep saving at the rate I am, I'll have a tidy enough sum somewhere between age 50 and 55 (so in about 10 years time). Earlier the better obviously!
Have also therefore been wondering how to bridge the gap from potentially 50 to 55 or 57.
I came across this advice elsewhere on a money forum. Anyone done it?
If you have enough money in your pension to fund your retirement earlier than you’re allowed to access it and also own property then you could remortgage to cover the intervening years and pay it back once you can access your pension
I suppose the main thing is you need to borrow enough to fund the time you need, allowing for mortgage repayments and interest payments.
This must be cheaper than taking the tax hit to get money into an ISA to bridge the gap in advance?...but relies on actually being able to get a remortgage...
Is there guidance on what size of pot, accessed from what age, may give what type of annual return ?
Aged 55 here and would like to retire at 60 when kids are through Uni etc. Pension pot currently about £300k and am piling around 17% into it between employer and employee contributions and likely to, by age, 60 have another 300k of inheritance, plus maybe 100k of savings at most.
I have no real concept of what that would equate to as an annual ‘salary equivalent’.
Wife likely to retire at same time, with a meagre NHS pension. We could release a bit by house downsizing, but not much over £100k if even. No mortgage at present.
I remember when I first stared my first “real” job. One of the older guys said “early contributions make the dough rise.”
This really struck a chord with me and I was only 23 so pension contributions was low on my list of spending! I don’t have a huge pot but his advice has helped me 17 years later.
I’m trying not to allow “lifestyle creep” to occur too much and any pay rises I’m trying to syphon into the pension.
I’m also wrestling with paying off a low interest mortgage or paying more into pension. I know the maths says pension but hard to get the head around ignoring debt.
Is there guidance on what size of pot, accessed from what age, may give what type of annual return ?
Aged 55 here and would like to retire at 60 when kids are through Uni etc. Pension pot currently about £300k and am piling around 17% into it between employer and employee contributions and likely to, by age, 60 have another 300k of inheritance, plus maybe 100k of savings at most.
Invested well 5% drawdown should be easily achievable. So 35k per year on 700k pot.
^^^ thats useful, much appreciated indeed
Have also therefore been wondering how to bridge the gap from potentially 50 to 55 or 57.
We sold our house and having a new house built somewhere cheaper and using the proceeds from the sale to fund the gap. We have a business that generates some income and will probably look at some seasonal part-time work. We have no kids, so we can do a draw-down on the house if needed - I’m not leaving anything for the taxman 😆 There won’t be much money for expensive holidays, but we have a campervan and living on a Scottish island.
lump sum paid in account, 1st working day after I finished. Tax man thought this was new monthly pay which was fun for a while with HMRC.
I think this can be avoided by taking a small lump sum to start with and the a month or 2 later thanks the balance.
Reading this thread has very much focussed the mind... 40 here, just dropped my mortgage from 28yrs to 16, but the reality is that that will go up again to 25 or so with an impending house move in the next year or so.
That aside... I do need to sit down and formulate a plan that is going to help me to retire at an age where I can still enjoy my relative youth and mobility (money doesn't motivate me). I already have minimal outgoings beyond the usual mortgage and utility bills, I've got a standing order into a Vanguard ISA (albeit not for very much) and have been trading a little Crypto currency for the last few months (though am acutely aware of the volatility, and am ready to pull my investment out soon leaving just the profit in there to play with going forward), but I don't see how I'd ever get to retire even by my early 60's as it is, let alone any earlier...
Still... I really enjoy my current job, so it could be a lot worse I guess! I certainly don't envy the lifers that are counting down the days to retirement...
It is very simple really:
1. Calculate what income you will need in retirement.
2. Calculate what income you'd get from your pension(s), ISA's and other investments were you to retire right now.
3. If there's a shortfall (and there likely will be) then you have identified the 'gap'.
4. Formulate your plan to close the gap:
- max out your ISA allowances each year (if you can)
- contribute more to you pensions and choose carefully where it's invested (the 'underlying')
- cut back on spending
- sell off any stuff you don't need
- stop buying sh*t you don't really need (or want) because you think it'll make you happier (it won't)
- reassess and adjust your lifestyle/level of outgoings
- investigate cheaper ways to get the exact same stuff you already get (mobile phone plans, monthly broadband subscriptions, car insurance, house insurance, electricity/gas, etc...). We've saved hundreds £££ p/a with zero impact on quality of services.
It's as simple as that really.
The hardest thing is actually implementing the changes necessary to get you there. But once you've started the ball rolling it's surprisingly easy to keep it going 🙂
This is a simple summary. For a more detailed explanation, see a more detailed version in the Retirement - what's it really like? thread.
I think there are a few other tradeoffs to consider. Such as how much time.and money do you want to spend on experiences taken NOW vs. deferring to retirement.
E.g. doing a long around the world trip, or going down to 4 days a week at work
The trade-off there being
Experience now = more time before retirement, probably less money in retirement.
Experience after retirement = risk I might die or get ill before I get there
I’ve always put in the maximum matched pension amount into the company DC schemes but more recently I’ve been shovelling lots more cash in for the tax breaks.
This is still the best tax break available, especially if you are fortunate to be in the 40% tax bracket. The other thing to be aware of is the pension carry over allowance which means any unused amount from your £40k maximum annual pension contributions can be carried forward for up to 3 years. I get my payoff in May so will be putting a fair chunk of it in my pension and will start drawing down next tax year.
I see the government has recently updated their guidance on the transition for accessing pesonal pensions from 55 - 57. As usual the appear to be several nuances associated and they have started a consultation process.
For those wishing to access their pension from 55 and born between 1971-1973 there are some vagueries which I'm struggling to understand. Is there anyone here who can translate the information below? Particularly timely as we've just been informed our DB scheme is closing to future accrual..
So - is it better to push savings / spare income into a pension rather than a savings account?
I am 54, healthy Defined Benefit pension pot (now closed) and a "new" Defined Contribution scheme, and want to stop working at 55 (12 months time). Could save £1000/month but at 0.5% interest in a savings account the savings are not really doing any work.
I’m also wrestling with paying off a low interest mortgage or paying more into pension. I know the maths says pension but hard to get the head around ignoring debt.
Can anyone advise on this question? I’m in the same quandary in that my mortgage doesn’t really end in 3 years, but it’ll be out of a fixed rate period and I have the balance currently sitting in Premium Bonds ready to settle it.
In my view, I’ll be saving the interest at 1.5%, and if I didn’t settle it it’d take another 5 years to conclude. So, my measure is saving 1.5% vs earning 1.5% or more. I don’t see savings accounts being at that rate for a while which for me narrows it down to low risk stocks, with no guarantee it’ll make that much over the period, I could even lose.
So my plan; settle the mortgage and save the interest and put what would have been monthly mortgage payments as a DD into a passive investor account e.g. Vanguard within SIPP wrapper for tax economy.
I’m also wrestling with paying off a low interest mortgage or paying more into pension. I know the maths says pension but hard to get the head around ignoring debt.
Can anyone advise on this question? I’m in the same quandary in that my mortgage doesn’t really end in 3 years, but it’ll be out of a fixed rate period and I have the balance currently sitting in Premium Bonds ready to settle it.
The answer depends on your appetite for risk. On the one hand you have the mortgage, with either a fixed or tracker rate, and which requires regular payments, on the other you have Premium Bonds which aren't guaranteed to provide any return, and certainly not a regular one, or other investments which can rise or fall in value. The safest option is to pay off the mortgage as quickly as possible. The riskiest but potentially highest reward is to pay off the minimum on the mortgage to put everything else it to stocks and shares (via pension, ISA, or a plain trading account).
The thing with a mortgage is that, for me anyway, just knowing it was gone and I owed no one anything was a very lovely feeling indeed and does free the mind to think of other options and things. The piece of mind alone was worth clearing it for me.
Anything you put into pension comes with 40% tax relief. That’s 40% for free. As long as you aren’t exceeding annual / lifetime allowances.
Anything you put into pension comes with 40% tax relief. That’s 40% for free
As long as that is your marginal rate
In my view, I’ll be saving the interest at 1.5%, and if I didn’t settle it it’d take another 5 years to conclude. So, my measure is saving 1.5% vs earning 1.5% or more
I will retire with a mortgage but the interest rate is so low I am happy to take the payments out of my SIPP/ISA rather than pay it off. I would expect to earn a lot more than 1.5% on it.
The thing with a mortgage is that, for me anyway, just knowing it was gone and I owed no one anything was a very lovely feeling indeed and does free the mind to think of other options and things. The piece of mind alone was worth clearing it for me.
If thats the way you feel then you should pay it off.
This came up on the other thread.
I think at first when your LTV is high then it's worth overpaying the mortgage to get yourself access to the better rates, but it gets to a point where there is no real benefit to continuing to do that. On the pension side, if you are paying 40% tax and you can opt for salary sacrifice then instead of paying off £580 of your mortgage with your wages net of tax and NI you can pay £1000 into your pension and probably get a top up too.
As long as your mortgage balance is low enough that a rate increase wont break your cashflow then that's the way to approach it
Anything you put into pension comes with 40% tax relief. That’s 40% for free.
You do gain, but it's more complicated than that. You're taxed when you take it out. If your marginal rate when working is 40%, your marginal rate drawing your pension is likely to be at least 20%. On the other hand, 25% can be tax free.
enough talk of money and all the boring shyte.
today i did what we all want to do when we retire. i rode my bike.
69 glorious miles on nearly empty roads. is it always this quiet midweek ??
69 glorious miles on nearly empty roads. is it always this quiet midweek ??
Currently, did 85 miles today on my day off mid week...
You do gain, but it’s more complicated than that. You’re taxed when you take it out. If your marginal rate when working is 40%, your marginal rate drawing your pension is likely to be at least 20%. On the other hand, 25% can be tax free.
its more complicated than that too. You are likely to hit the 20% threshold, but only with some of your pension - at the moment there's £3400 between the state pension and the tax free allowance, so on a total income of, say, 25k (including state pension), your marginal tax on the bit you're paying (15,900, so say a 400k pot) is £2480 or about 15.5%
then there's the fact you're no longer paying national insurance, and you might have been paying tax at a marginal rate of 60% in the first place, etc etc.
I'd caution using 5% as a drawdown calculation (as mentioned earlier). Most people suggest closer to 4% is safer.
Most people suggest closer to 4% is safer.
I'd say even that is optimistic. Dividends have taken a massive kicking in the last 5 years, getting 4% per annum (ex capital growth) would be challenging. Most companies paying over 4% don't continue to do so for long, they either cut the dividend or get bought out etc as they're only paying over 4% as their share price has fallen eg Greene King was paying 6% for a short period before being bought out.
I think the 4% is a long-term view of the rate of which (growth + divis combined) stocks & shares grow above the rate of inflation. I think the long term of that is less than 3% - so 4% assumes that the pot you'll end up with is smaller than the one you start with (but you'll be dead anyway!)
I think the 4% is a long-term view of the rate of which
20 years ago you could buy a spread of blue chip companies and easily get 4% dividend across them.
Interesting bit of history on the rule and its author
https://www.forbes.com/advisor/investing/is-4-four-percent-rule-still-valid/
The assumptions for calculating future funds that my pension provider uses recently changed, they reduced annuity rates from 4.1% to 3.6%, they also reduced returns from equity funds by 0.5%, bonds by 1.5% and cash to 0%, they also dropped future earnings by 1% so guess there’s not many pay rises expected 😔. I know these are only for calculating funds in the future but give an indication of what those in the know are expecting and maybe a more realistic or cautious estimate of a pension fund in the years ahead.
^^^^^ that’s a bit depressing... So if I have a 700k pot at 60 in 4 yrs time I should budget on maybe about 3%, so 20k per annum...hmmm.. 🤔
Only if you don't want to dent the capital amount.
Remember also state pension kicks in
^^^agreed and something lots of people don’t seem to consider when doing their sums. I plan to use my full fund and just leave the house to the kids ( maybe via a trust to avoid inheritance tax if the sums down the line show it’s best). No point being the richest body in the graveyard.
Yeah, good point, could draw down capital for a few years till state pension. Have only really started looking at this seriously in past year and I am keen to set 60 as the plan. I have this week upped my contributions to my work plan by 6%, so there is 12% from me and 7% from employer going in now, which may boost it a little over the next few years while being tax efficient through salary sacrifice.
Quick question as it seems like a lot of you understand this more than me. I have a pension from work that is salary sacrifice, so all good. However this year was odd and I have earned significantly more than normal due to house rental and various share schemes paying out (treated as income not capital gain).
Can I make additional payments to my pension and then claim the tax relief back in my tax return? It seems so but is hard to follow and it seems it maybe capped at 20% rate? Any links to a simple explanation would be appreciated!
Yes you can. What tax relief you get will depend on your income tax band. I.e. if you are at the basic rate then you'll get 20%, higher rate you'll get 40%.
I've done this and most pension providers will apply the basic rate 20% when you pay the money in.
To get the extra higher rate relief I think you need to do a tax return (that's what I have to do anyway)
It is a bit better if you can make contributions via salary sacrifice though, as you save on the national insurance. Not an option for money you came into outside of work tho!
Ps, depending on if you are in the higher rate tax band, how much into the higher rate band you are, and how much money you are talking about contributing, you may be better offsplitting it over this tax year and next. (I.e. you can only make the higher rate 40% saving for the amount you are into the band).
Hope that made sense!
Be careful not to confuse dividend with return.
Getting a 5% dividend might be a stretch, getting a 5% return on a portfolio of investments is not, (it might even be considered poor)
I'd be disappointed only getting 5% in recent years but would be happier getting it over a number of years.
Last years return was closer to 20%
https://www.amazon.co.uk/Beyond-4-Rule-retirement-portfolios/dp/1985721643
I was recommended the above by an advisor and found it useful as it opened my mind to sequencing risk - what happens if there is a big fall in your investment pot in the early years - and helps you get a feel for how much of your pot you really do feel comfortable taking.
as a financial doofus, could i ask a question on drawdown please?
lets say i have a SIPP worth £100,000 now and decide to use this 4% figure for drawdown. does this mean i take the figure of 4% and take this set in stone £4000 annually regardless of anything else, inflation, peaks and troughs of investments, and it runs out when it runs out?
or do you just take 4% of whatever the pot is each year, so the figure gets smaller and smaller (as youll probably need it less the longer you live).
and do you pay tax on it, so the money you actually have in your pocket is nearer £3000?
thanks
^^^^^ that’s a bit depressing… So if I have a 700k pot at 60 in 4 yrs time I should budget on maybe about 3%, so 20k per annum…hmmm..
Based on numbers that have come with my various pensions, working on a 1/40th seems ballpark. So your £700k equates to £17,500 pa. Depressing ain't it.
@brads I agree that 5% may be considered a poor return on a pension fund in the ‘growing’ stage as these funds tend to be in higher risk funds to give your money the best chance to grow. However, lots of retirement funds at the ‘drawdown’ stage tend to of been moved into lower risk funds by this stage which give lower returns but less volatility. Many equity funds lost 30-50% last feb/March due to coronavirus (but have gained all this and more back), where as lower risk funds lost more like 10%. A lot depends on how risk averse you are and if you can afford to ride out a huge drop in your fund when you are relying on it for draw down.
Doh duplicate post. Or at least it will be.
Footflaps. Is there a typo in this bit
Capital Preservation Rule. Annual spending is cut by 10% if the current withdrawal rate exceeds 20% of the initial withdrawal rate.
Prosperity Rule. Annual spending is increased by 10% if the current withdrawal rate falls below 20% of the initial withdrawal rate.
On the article linked to from you article
https://www.forbes.com/advisor/retirement/dynamic-spending-rules/
Surely it should say
Capital Preservation Rule. Annual spending is cut by 10% if the current withdrawal rate exceeds 120% of the initial withdrawal rate.
Prosperity Rule. Annual spending is increased by 10% if the current withdrawal rate falls below 120% of the initial withdrawal rate.
Excellent link though. Loads of interesting reading there.
Thanks