[Closed] Retirement plans - who's actively working toward one...

In ferms of retirement income as I said above most “retired” people I know do something to earn money and keep the brain and body active. Many rent out some or all of their house or use home exchange to get “free” holiday accommodation. One friend closed down his GRP fabrication business and now does driving / boat moving / maintenance (specialist in certain type of racing boat) and in the last year has had jobs (all expenses inc flights) in Sweden, Italy, Japan, Brazil and the US as well as work in the UK and is paid to sail/race. When I saw him last week I suggested he start partially renting out his house in France as he is there so little. In UK you are allowed £7,500 pa tax free from that source

Regrading the pension cap of £1m - certainly something which p.sses me off - when it was introduced it was £1.8m and instead of growing with inflation its been slashed to £1m. As above Civil servants and MPs (eg Corbyn, Abbott etc etc) have pensions worth £1.8m but the rest of us who have to save for our retirement are capped at half that.

In fairness for your generation that amount that you got for free means you seriously owe the pot so don't get too pissed off. Perhaps a downsizing tax on housing is also needed.

Keep buying Bitcoins and hope I can afford a Lambo at retirement I guess.

In all seriousness, not working towards retirement, but financial independence, yes, most definitely. I love what I do and I don't think I'll retire from it fully.

So increased by labour and cut by the tories?

Labour were responsible for most of the recent policies to encourage people to save more for their retirement. All that ever gets talked about though is the "tax grab" on dividends.

I was paying anything above inflation on my pay rises into the pension

You can only strike a balance between spending what you have to fund a reasonable lifestyle now and 'investing/saving' the rest as wisely as you can. It's as simple as that to me. Retirement has always seemed something that was a long way off, as it gets closer I'm having to think about when that time will be vs reduced income once that step is taken. Assuming I'll just know when that time is right but it's not for a few years yet.

I do think the gap between the haves and have nots continues to widen and those in the South will increasingly look to retire further North to release capital, personally I'd not let them in!

This site seems to suggest you need 1/2 to 2/3 of your full time salary to maintain your lifestyle.

Thing is..........

After pension contributions and the mortgage I (30, living in the SE) was* left with about 50% at best. Once you factor in the cost of turning up to work (suit, dry cleaning, lunch, miles in the car etc) I probably didn't actually have 25% as disposable income.

50-66% would be dreamland. These pension calculators are definitely aimed at those who were old enough to get on the ladder before house price inflation.

*post shit hitting the fan I don't even make my half of the mortgage anymore let alone a pension.

Always worth adding you can check your ni record at :

Oops I appear to have 9 missing years!! 8 of those I was at Uni though...

After pension contributions and the mortgage I (30, living in the SE) was* left with about 50% at best. Once you factor in the cost of turning up to work (suit, dry cleaning, lunch, miles in the car etc) I probably didn't actually have 25% as disposable income.

Bizarrely that's a good thing isn't it? If you're seeking to maintain your current lifestyle which is funded by 25-50% of your salary but without having to budget for pension contributions, mortgage, travel and work expenses then like you say, having a pension that pays 50-66% of your income means you're quids in. However, I wouldn't start paying less into your pension pot though just on that basis though!

This site seems to suggest you need 1/2 to 2/3 of your full time salary to maintain your lifestyle.

The earlier I retire the more money I'd need as being fitter, I'd want to do more activities eg skiing etc

Bizarrely that's a good thing isn't it?

Well, that's kinda like saying I'm poor now, but hey, at least you won't have unrealistic expectations of quality of life when you retire!

Regrading the pension cap of £1m - certainly something which p.sses me off - when it was introduced it was £1.8m and instead of growing with inflation its been slashed to £1m. As above Civil servants and MPs (eg Corbyn, Abbott etc etc) have pensions worth £1.8m but the rest of us who have to save for our retirement are capped at half that.

It makes little odds, you either pay the tax on what's above the lifetime cap or pay income tax on it. Either way acures roughly the same tax bill. The cap system just gets the money back to HMRC sooner rather than waiting to get a little bit of it each year.

And you have a million pounds in the bank, when it comes to retirement planning the only problem you'll have is coke and one hooker or two!

Going to ride off the canyon drop at rampage on my e-bike!!!

But seriously 39 Recently separated 24 years left on a mortgage I’m paying £1035 pcm on solely. Another 15/20k needs to go into house before its done.

Cashed out because of above purchase and frantically putting all I can into fixing property up and now paying off credit cards .. owe mother 7.5k – will have this all done by next year.

Only pension I have is historic and good NEST one running now ..

Hoping for Shares and sale of the business I am in 10 Years

Will – over pay mortgage and downsize once older (3 Bed)

And you have a million pounds in the bank, when it comes to retirement planning the only problem you'll have is coke and one hooker or two!

£1m only gets a joint life annuity of £21k per annum....

£1m only gets a joint life annuity of £21k per annum....

what's the point in that?

you could stick it a savings account that gave you 1% interest, draw down £25K p/a and it would last 51 years!

Well the annuity would be index linked and guaranteed, so no matter what the markets did you'd get paid...

It makes little odds, you either pay the tax on what's above the lifetime cap or pay income tax on it.

The tax rate on anything above the limit is 55% so it makes quite a bit of difference. As pointed out it only gives you a annuity of 21k so assuming you'd be getting full state pension (circa 10k)that means that for a pensioner the 55% tax rate kicks in a 31k. Unless you have a final salary pension where it will kick in at about 60k. As you can see it really does make quite a difference.

My mortgage should be paid off by the time I'm in my early 50s at the current rate, although I'm hoping overpayments will put a dent in that. I'm also hoping for a move out of London at some point which should make that money go further.

As for saving, I'm a reasonably aggressive saver and putting a lot into my pension and ISA while I can. I'm also saving up for other nice to haves such as bikes and the like (I don't really enjoy buying things on credit).

I have no idea when I'll get to retire, and I enjoy my job at the moment but who knows where things will be in 5 years let alone 25. I'm just trying balance enjoying my life at the moment with saving for the medium and long term. Luckily for me I guess, enjoying life is more of a 'get outside on the bike' than 'go out and drop shedloads of money drinking in clubs' kinda thing.

So how do you go about planning this then? Is it best to use a (fee not commission) IFA type person on just read up n things and go DIY?

Mrs and I both have relatively decent public sector pensions but, truth be told, I don't really have any useful knowledge about them, other than we both pay into them and have done forever. We also have a couple of ISA's and LISA. Mortgage wil be paid off by the time I am 60 (at the latest) I don't want to work beyond 60 so I guess being able to retire early requires some planning. Just not sure how to go about planning it.

£1m only gets a joint life annuity of £21k per annum....
what's the point in that?

[i]you could stick it a savings account that gave you 1% interest, draw down £25K p/a and it would last 51 years![/i]

That in a nutshell was why I focused on putting money into the house, so when I traded down and released some capital, it would be capital that I was in control of......and if I popped my clogs early at least my kids would get some of it.

Obviously George Osbourne changed the rules and said you didn't have to buy an annuity, which was a massive bonus to people with pensions and a very surprising move!

Retirement, Hahhahahahhhhaaaaaaa.

Death camps will be in place by the time I retire to ensure I am not a burden on the limited resources of the world.

Think about it, you were one of X kids, you had Y kids, they will have Z kids, by the time you reach your later years you'll just be a burden anyway.

Well the annuity would be index linked and guaranteed, so no matter what the markets did you'd get paid...

sorry but I'm very much a novice here. When you say index linked, do you mean linked to inflation? And how do the markets relate?

£1m only gets a joint life annuity of £21k per annum....
what's the point in that?

you could stick it a savings account that gave you 1% interest, draw down £25K p/a and it would last 51 years!

don't look at me, I don't know about 'savings' 😆

I would have said 3 or 4%, but I thought someone would say "don't be ridiculous, you can't get 4% on a savings account" and I don't actually have a clue what's available so I erred on the side of caution

I would have said 3 or 4%, but I thought someone would say "don't be ridiculous, you can't get 4% on a savings account" and I don't actually have a clue what's available so I erred on the side of caution

4% is the figure usually quoted with SIPPs as the return needed to keep them as a viable option longer term when drawing down.

The Government has just finished taking evidence about the ability to encash your pension at 55 (i.e. take all the money and pay tax on it)

This commenter makes a valid point re MPs and the benefits of the "cash out" scheme but the rant is quite amusing

Why wouldn't you put it into something that pays 4% interest and take £40k a year?

You wouldn't get a savings account paying that, you'd struggle to get 1% on £1m.

To better 1% you'd need to invest in stocks, which has inherent risk.

When you say index linked, do you mean linked to inflation?

Depends what type of annuity you buy, but you normally they are index linked at CPI/RPI with a cap (say 3% per annum). So it grows each year with inflation.

The draw down / annuity argument boils down to risk:
- annuity is guaranteed for life, index linked and would cover your partner as well)
- draw down has the risk that the markets crash and you either take the same % each year (less money) or the same money (higher %) and risk draining the fund earlier.

There is no 'right' answer, just options with different pros and cons.

Does anyone really understand pensions? I'm clueless.

As I said above, I'v got an old RBS staff pension, I left there in 2009 after 9 years, but I get very high quality letters from them couple of times a year saying how great they are etc, anyway, they go to my Mums address, so after 8 years of not living there I've just updated it, added the Wife and kids as beneficiaries in case I die etc, there was a box for "quote" so I filled it in.

Put my retirement date in as my 67th Birthday, (I was supposed to down tools at 60 with a clause to do so at 58 if I want to! - that would have been nice).

Anyway, 2 options - take £40k and £6k a year after till I die, or take £10k a year*.

Now, I once had an IFA look at it for me and they said "don't touch it, don't play with it, leave it the hell alone" it was that good, but on the face of it, that seems very generous, I probably paid about £25k into it over 9 years, admittedly there's inflation to consider and interest and all that, but £10k a year is £833 a month, add that to the state pension of £640 (I know, I know, don't all laugh at once) but that's £1500 a month give or take, which seems an awful lot consider the tales of woe around at the moment - another 25-30 years of pension contributions and I could be sitting very comfortably. No mortgage, no kids to pay for.

I'm almost tempted to opt out of auto enrolment,

*I don't know what effect inflation has on the payments, if any.

What am I missing here? I would expect to have to make a lifetime of payment to get that sort of amount.

My Current life expectancy is 81.5 based on a few factors, if I retire at 67 that means 14.5 years of retirement - £145k of pension payments, for a £25k investment and 50 years compound interest.

As I said above, I'v got an old RBS staff pension,

Q1: Is it a Defined Benefit / Final Salary type pension or a Defined Contribution Pension?

I'm guessing the former...

footflaps - Member
As I said above, I'v got an old RBS staff pension,
Q1: Is it a Defined Benefit / Final Salary type pension or a Defined Contribution Pension?

I'm guessing the former...

Thanks, closet match I can find to those terms are "Persevered Benefits" although I think it might be called that because in 2008 they stopped new entries into our pension scheme (and begged us to switch to the new one, the Union told us in no uncertain terms not to do so).

[quote=P-Jay ]Does anyone really understand pensions? I'm clueless.
As I said above, I'v got an old RBS staff pension, I left there in 2009 after 9 years, but I get very high quality letters from them couple of times a year saying how great they are etc, anyway, they go to my Mums address, so after 8 years of not living there I've just updated it, added the Wife and kids as beneficiaries in case I die etc, there was a box for "quote" so I filled it in.
Put my retirement date in as my 67th Birthday, (I was supposed to down tools at 60 with a clause to do so at 58 if I want to! - that would have been nice).
Anyway, 2 options - take £40k and £6k a year after till I die, or take £10k a year*.
Now, I once had an IFA look at it for me and they said "don't touch it, don't play with it, leave it the hell alone" it was that good, but on the face of it, that seems very generous, I probably paid about £25k into it over 9 years, admittedly there's inflation to consider and interest and all that, but £10k a year is £833 a month, add that to the state pension of £640 (I know, I know, don't all laugh at once) but that's £1500 a month give or take, which seems an awful lot consider the tales of woe around at the moment - another 25-30 years of pension contributions and I could be sitting very comfortably. No mortgage, no kids to pay for.
I'm almost tempted to opt out of auto enrolment,
*I don't know what effect inflation has on the payments, if any.
What am I missing here? I would expect to have to make a lifetime of payment to get that sort of amount.
My Current life expectancy is 81.5 based on a few factors, if I retire at 67 that means 14.5 years of retirement - £145k of pension payments, for a £25k investment and 50 years compound interest.

and that, in a nutshell, is why none of these schemes are open to new entrants.

I have a similar set of figures for an 8yr stint in the civil service. What I paid in bears no relation to what I will get out.

and that, in a nutshell, is why none of these schemes are open to new entrants.

I have a similar set of figures for an 8yr stint in the civil service. What I paid in bears no relation to what I will get out.

Sweet, for once this Gen X'er managed to grab some Boomer benefits.

Annuities seem to be an enormous con.

I’m sure someone in FS must have pissed off Osborne and he removed the obligation to buy one as retribution.

Plan A: Pay off mortgage next 5 years. Pay kids through Uni (youngest is 10), get made redundant or pack in work. Downsize. If all goes to plan I'll be done when I'm 54. Maybe earlier if Jeremy Corbyn pulls his finger out and abolishes tuition fees.

Plan B: (maybe A if something tragic occurs): Wait for Mrs Daz's elderly relatives to die, pack in work if any there's any inheritance left after care costs.

Plan C: Retire at 65 as 'officially' scheduled. Needless to say this isn't going to happen! I'd rather be a poor mid-50 year old than a miserable and rich 50 year old employee.

Got no real plans to move away. I like it where I am.

Hmm. This triggered me to look at my SIPP, originally opened by my employer. But I'm confused about drawdown and annuity on retirement.

a) Drawdown

Assuming I had investments worth £100k when I retired, I can opt to sell some and be paid an immediate £25k (25%), and then have the remaining £75K paid monthly/annually until its gone, albeit it until I take it, its still invested?

b) Annuity - I buy an insurance product for £100k. That insurance product pays me an agreed monthly sum - lets call it £1000 - until I die. In theory the money runs out in 100 months, and the insurance company makes money if I die before then, but if I'm still alive after that time they kept paying, and thats their risk.

Is that right?

One other thing: There's no point having cash in a SIPP, its doing nothing, right? It may as well be invested in a "fund"?

I’m sure someone in FS must have pissed off Osborne and he removed the obligation to buy one as retribution.

George Osborne's greatest legacy IMO.

P-Jay it sounds like you are benefitting from getting a lump some built up early and intrest is doing the leg work for you.

25k over 35 yrs at 10% is 800k!
25k over 35 yrs at 7% is 300k

I too have an old RBS fund and its returned 13% over the last two years.

How the rich get richer IMO, wish I had known when younger!

Annuity - I buy an insurance product for £100k. That insurance product pays me an agreed monthly sum - lets call it £1000 - until I die

I think you’ll get about £300 pm for 100k so will need to live for 25yrs plus to get your money back(30 yrs with interest).

Presuming retirement at 67 are you going to live to 97?

a) Drawdown

Assuming I had investments worth £100k when I retired, I can opt to sell some and be paid an immediate £25k (25%), and then have the remaining £75K paid monthly/annually until its gone, albeit it until I take it, its still invested?

Up to you, you can hold the balance as cash, invest it in shares / guilts. The general thinking is you invest in high yielding shares and take the dividends as yearly salary and keep the capital invested. 4% is about the max you could get away with doing that at the moment. Obviously if we get a big recession we may well have another "bonfire of the dividends" and things would be sticky for a while..

b) Annuity - I buy an insurance product for £100k. That insurance product pays me an agreed monthly sum - lets call it £1000 - until I die. In theory the money runs out in 100 months, and the insurance company makes money if I die before then, but if I'm still alive after that time they kept paying, and thats their risk.

Yes. The yearly rate depends on what type of annuity and your risk profile. Basic options are:
1. Fixed sum / index linked at CPI/RPI (normally with a max % cap)
2. Single or Joint. Single stops when you die, joint covers your spouse with a reduced rate, normally 50%
3. Standard / enhanced - if you have lung cancer when you retire etc, you can normally get an enhanced rate based on the fact you won't live long....

The rates are very low right now... http://www.sharingpensions.co.uk/annuity_rates.htm

A £1m lump sump gets a £21k per annum joint index linked annuity!

If interest rates ever rise back up to a higher norm, things should get better.

P-Jay it sounds like you are benefitting from getting a lump some built up early and intrest is doing the leg work for you.

25k over 35 yrs at 10% is 800k!
25k over 35 yrs at 7% is 300k

I too have an old RBS fund and its returned 13% over the last two years.

How the rich get richer IMO, wish I had known when younger!

Sounds that way, I was lucky I suppose, I was pig shit thick at 23 when I joined the Bank (not much better now) but the Pension scheme wasn't optional, you couldn't opt out but you didn't pay for it either.

Most of my mates are only now getting pensions, kicking and screaming into Auto-Enrolment at 40. 20 years of interest missed and a post-crash scheme at that.

I too have an old RBS fund and its returned 13% over the last two years.

That's not actually very good.

The £ devaluation (brexit) would have got you 15% and markets have been booming over the last few years, so 20% per annum over the last two years is pretty easy to achieve (basic tracker).

Krypton the law allows you to take a max tax free lump sum of 25% - most people do this. They then either buy an annuity with the 75% or try and defer that so they can take another tax free lump sum in (say) 5yrs - that flex depends on what sort of pension you have

As per Dazh (Osbourne's most useful achievement I would agree with) you can these days cash it all in at 55 (and pay tax as if it where income on the 75%). I will be 55 in February and am actively looking at this option playing off tax paid versus flexibility in how I reinvest and most important not having to buy an annuity at today's (and IMO the future's) appalling rates.

Thanks footflaps

The rates are very low right now

I'm only 45, so I've another few years to think about this. FWIW I have 2 funds in my SIPP, one made 20% pa and the other 11%.

My maths are poor but assuming I had that £100k today and invested no more, with an average 15% interest growth from above it'd be worth £1.6m in 20 years time?

Crikey...

Edit:

A £1m lump sump gets a £21k per annum joint index linked annuity!

Ok, so thats cool. In my example above if we retired today me and Mrs K could be looking at a £300k payout and a £21k income on top of the state pension for life. Gives me a useful understanding of where I'm at.

a) Drawdown

Assuming I had investments worth £100k when I retired, I can opt to sell some and be paid an immediate £25k (25%), and then have the remaining £75K paid monthly/annually until its gone, albeit it until I take it, its still invested?

Yes, that's my understanding although I'm not sure if you need a min amount in the pot to be allowed to do that, I know there were caps but I think you can now take the lot at 55, or take 25% and leave the rest invested, That's my plan.

My maths are poor but assuming I had that £100k today and invested no more, with an average 15% interest growth from above it'd be worth £1.6m in 20 years time?

The wonder of compound interest but you're not going to get 15% growth every single year. I'd be basing your plans on 7%. Although my fund has grown 31% this year that does include contributions though.

BTW £100k invested over 20 years at 15% growth year on year would give you £1,423,177.16 at the end of the period.

That's highly unlikely to be the case though.

My maths are poor but assuming I had that £100k today and invested no more, with an average 15% interest growth from above it'd be worth £1.6m in 20 years time?

You won't get anything like 15% per annum over 20 years!

Even 7% long term is pretty optimistic.

Maybe 5% pa over 20 years.

You also have to account for inflation, so say that's 2% per year and your fund grows at 5% per year, you're only making 3% in real growth.

Agreed realistically I look to achieve 4%, but 7% is probably closer to what it'll achieve.

That would get your £100k to £210,684.92 or £361,652.75 respectively, some way off the £1.6m you were hoping for 🙂

I had a private pension with RBKC for 11 years I think. Not sure I can move it out of the UK.

Trying to transfer UK state pension to France. Not easy.

Luckily I have a UK property with lots of equity, the rent is covering the mortgage.

And living mortgage free in France.