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People who have retired early on small amounts: what do you do about potential big expenditures (ie your roof needs replacing - something that wouldn't be covered by the typical "have 6 months living expenses put by" plan)?
I could happily get by on a pittance tbh but the prospect of needing to either spunk all my funds on repairs or gamble that I'll make it through 30 years without needing to seems daunting.
hold off drawing your pension if it is FS and truly such terrible ‘value’ by taking it early.
The OP hasn't really given enough info to judge whether it's poor value or not. I've got a little bit of paid up final salary pension from an old job. If it take it at 55 vs 60 then it's discounted by 24%. 10k at 60 or 7600 at 55.
But by the time I'm 60 I'd have received 38k in this example - in cash terms it would take until I was 77 before I'd have received the same in cash terms. IN NPV terms it would be later than that.
Take that 38k and put it into an ISAs and it could be generating more than the lost pension (and would be tax free)
People who have retired early on small amounts: what do you do about potential big expenditures (ie your roof needs replacing – something that wouldn’t be covered by the typical “have 6 months living expenses put by” plan)?
I could happily get by on a pittance tbh but the prospect of needing to either spunk all my funds on repairs or gamble that I’ll make it through 30 years without needing to seems daunting.
I have my lump sum as a chunk of capital. If the expenditure is too much for that it would have been done by a loan on the flats. Circumstances changed tho and I ended up with more capital and less partner than expected 🙂 Even quite a large sum on an interest only loan is not much a month. I have no dependents to worry about passing anything on to
Do it. Downsize now, release some cash, take your 25% tax free and live a little. Two weeks into lockdown triggered me to do it. What's the worst that can happen? Take a part time job if you need/want. Beauty is, you're in control.
Easy for everyone to say do it, but they won’t be living with the consequences if it goes pear-shaped. Look very hard at your expenses, current and future, emergencies etc.
If you're close to considering it you're probably well over the threshold for it being a reasonable decision.
You can always get a part-time job in a supermarket checkout if you are truly strapped for cash. But in reality you'll value your spare time more than the wage you'd get. Easier to cut out a few more fripperies.
It all depends on your attitude to these things DrJ. If things had gone to plan for me and Julie we would have had a smallish pension and a decent lump sum. Thats your cushion / safety net. I did say I was assuming OP would have that same lump sum and without that then its risky indeed.
Julie and I had very different attitudes to money and it took some persuasion and compromise for her to accept this. Sounds like the OP and his missus have the same difference in attitude to money. Both sides may have to compromise and to find middle ground. For us that compromise was going at 60, I wanted 58, she wanted 65. I also had to agree to keep my registration and be prepared to go back to work.
compromise and communication is key but in the end both of us were completely burnt out by work and thus prepared to accept a lower standard of living
Getting your partner’s view is pretty important and at least trying to get on the same page. Mrs DB doesn’t have a pension - she spent too many years as carer for her disabled mother but we are topping up her NI contributions so she at least gets the full state pension. The best piece of financial advise we got was buy the smallest house you need, not what you can afford - so we now have a 2 bed rather than a 4-bed. There’s also a balance to be struck between those younger years whilst you’re still in good health and relatively active vs later years of retirement. I have a chunk of shares that are our contingency fund to cover any surprise expenditure. It really comes down to going through the numbers and determining what your ‘means’ are and whether you can live within them.
The best piece of financial advice we got was buy the smallest house you need, not what you can afford – so we now have a 2 bed rather than a 4-bed.
Do you mean when you retire?
If not then this sounds like some of the worst advice I've heard, not the best.
Best advice I can give you is, if you can afford to get out then do so. You will manage on your new income easier than you think because, well you have to. You could always top it up with a few hours easy stress free work if need be. Retirement is absolutely fantastic, having every day and night as your own is worth way more than the cash.
If not then this sounds like some of the worst advice I’ve heard, not the best.
Selling a 4 bedroom house in Hampshire and buying a 2 bedroom house in Scotland meant that the proceedings from the sale has given us enough to live off (+part-time work) until I can draw my pension at 65 and still have a bit left over.
If not then this sounds like some of the worst advice I’ve heard, not the best.
Why would you buy, and keep working extra hard or extra long to pay for, a house that's too big for your needs?
Selling a 4 bedroom house in Hampshire and buying a 2 bedroom house in Scotland meant that the proceedings from the sale has given us enough to live off (+part-time work) until I can draw my pension at 65 and still have a bit left over.
Did exactly the same, sold my house in Berkshire and bought a cheaper house in Scotland. Actually slightly larger, but I liked the view. Paid off mortgage and gave me a chunk of capital to fall back on if needed. Best thing I have done in years.
depends on what your end game is morecash. The bigger house will cost more both to buy and to pay for but it will give you more returns if and only if you sell it and downsize. Or you can use that same money to either live a better lifestyle or retire earlier
Keeping my 2bed flat for 30 years is a big part of why I was able to retire at 60. I could have traded up to a 4 bed house but I would have had to work more hours and probably longer
We also decided not to upsize our house, pay off the mortgage sooner and therefore retire earlier. I've seen too many folk held back by their mortgage and then "unwilling" to let go of a larger property.
Looks like neither Dovebiker nor MCTD actually read what I wrote. Ho hum.
Do you mean when you retire?
If not .....
the older i get, the less i want, which equates to spending less. which obviously means needing less cash.
we have a small 3 bed semi. we are looking for a 2 bed flat or terrace house. there will be a bit of capitol from the move, to top up the kitty.
i read these threads and they make me smile. the worries people have when it is a simple thing.
you dont like work. so dont work. if you find down the road you need more cash, get a partime job, or sell your big house for a smaller one.
live a more simple life. travel cheaply. use cheaper accommodation. use a cheaper supermarket. buy a cheaper car. change is good.
I'd retire early.
I have, though I have health issues too, which have meant I haven't been able to work for 3 years. I was asking about getting my local government pensions at 55, this April, but it was mentioned I may be able to get them early without deductions due to ill health/disability and I did, so that's ace.
We don't have great financial needs, as Ton, we live pretty cheaply with no fancy holidays, cars etc . Also means I have less stress as I don't need to worry about ESA and the trauma of that.
The only thing I'd say is that at some point, you will get caught out by bigger, unexpected expenses (house repairs, car repairs etc).
That is why you don't put all your eggs I. One pension but run an ISA as well which you can also drop feed into.
Keep say 10% of you overall stash invested in a tax
efficient wrapper.
The only thing I’d say is that at some point, you will get caught out by bigger, unexpected expenses (house repairs, car repairs etc).
Or entirely expected expenses like medical bills and care costs. Apparently a part time job at Tesco is the answer.
Medical bills? No NHS for you? Care costs? The state will pay for the basics if you have no money and thats something I am willing to risk. Few folk have enough to pay for much LTC anyway without selling a house
NHS ? Is that still a thing? And care costs come in many forms.
You will be more than familiar with hospital wards such as the one where my daughter works full of old people in declining health waiting to be discharged into a care home. As soon as a space becomes available. And before you get to that stage there may be times you need some extra help that nobody else will pay for. My mium looks after my dad who has Alzheimer’s. She can afford to get someone to help clean the house, do shopping etc. She’s not in a position to stack shelves or do a paper round so it’s good that her pension and savings are beyond the minimum.
As you say, everyone has a different level of risk aversion and maybe everything will turn out fine for the OP. I hope so. But I hope he makes an informed decision.
Nothing much to add, but just wanted to say I find these threads so useful. It's hard to have conversations about finance with friends and family. And I've been burnt by IFAs too many times now. A bit of anonymity online is handy occasionally.
Me personally I'm 57 this year. Hoping to call it a day around 62. Best early retirement move I made was getting hit by a car, which says an awful lot about my financial education! Compensation paid off the mortgage and added a good sum to the retirement pot, but thankfully the physical aspect hasn't been as bad as predicted and I've been able to continue working. But that's on a 3 day week shift pattern so I get a lot of time off. Really hate the job, but my attitude to it has changed and I remind myself that I'm on a few quid more than mine wage, I can do it with my eyes shut, and there is zero stress. Should my back injury start to deteriorate I might have the decision to call it a day made for me, but fingers crossed.
I am pumping nearly 50% of my salary into a S&S ISA dripping in monthly. That should give me enough to get me from 62-67 when I'll draw on small pension + state. That's the theory anyway.
” I am pumping nearly 50% of my salary into a S&S ISA dripping in monthly. That should give me enough to get me from 62-67 when I’ll draw on small pension + state. That’s the theory anyway.”
Why not put the ISA money in to the same (or similar) S&S pension; a low cost Vanguard SIPP for example? Then it will also benefit from the Tax relief and be almost immediately worth 25% more.
Answered this once already, but having another go.
I'm a little younger at 52 1/2. I'm in the lucky position that I can draw a final salary pension in full at 60 for 24 years of service. I left the scheme in 2020 at what will be a career high salary and due to the rpi that the final salary is linked to it has been way way outperforming my current income that is now worth significantly less in real terms than it was in 2020. I've really lucked in on the pension side and switching schemes when I did. I'm now in an average salary scheme that only fully matures at 67 but I could take it early from 55 I think...or maybe it's 56. I'm in a job that is mediocre in pay but very very long hours term time with long holidays. It's just about tolerable - I work with a lot of nice people which helps. Morally I have an issue with what I'm doing at times but hope I atone in other ways!
I've looked at new jobs and applied for a handful. Unfortunately (or maybe fortunately) I've not managed to persuade other industries my skillset is transferable in your 50s. I was looking for a new challenge and hopefully more consistent hours even if more weeks worked. I could be persuaded to rip up everything below if something comes up.
I've come to the conclusion that sitting tight to 60 makes the most sense. I've done the sums, written the pros and cons and every other option has too many cons. I've come to the conclusion it's finish line syndrome.....or like when you really really need a piss and once you can see to bog you can hardly hold it in. In generations to come 60 will seem ridiculously young to give up work. In reality even if I give up my current job at 60 I'll still probably need to do something to span the gap to 67 when the state pension kicks in (and maybe to hold off drawing my current pension early) mainly because Mrs C's pension is nothing like as generous as mine and as a team we might be tight for cash. And there's no way I'd let her keep on working and me stop because of that.
The trick I reckon is to find a purpose in your 50s and make life still enjoyable whilst still working. I'm reminded of Kryton's post a few weeks back that I was Incredibly rude to him on where he was basically saying as he'd collected together all the material wealth he needed, what was the point in life ( not seen him on here since then - hope he is OK). I'm lucky (or I engineered my luck) by moving to a part of the world I hugely enjoy living in and realising my dream of moving back here before I retired. Fun is literally on the doorstep. I'm at one now with leaving work worries at work and consider it as a source of income, but to keep on working in the same for now and be at peace with that. And maximising the good times whilst preparing for a healthy (mentally, physically) and financially worry free retirement. But not to jack it in and move to the next phase any time soon.
I'm also excruciatingly aware that there are many many people that will be reading this thinking "what a tosser" because working to 67 as a very minimum is not a choice but an absolute necessity. We 'could' be in danger of becoming peak 'STW' in the subject.
Why not put the ISA money in to the same (or similar) S&S pension; a low cost Vanguard SIPP for example? Then it will also benefit from the Tax relief and be almost immediately worth 25% more.
@bentandbroken it's something I constantly mull over. Current thinking is the tax free aspect of the ISA will benefit more than being taxed on the way out of the pension. Probably not a bad thing to build up the ISA pot, but I may revisit this in time.
You're not mad at all, and like many earlier posters I did the same 3 years ago at 55. Fortunately I am in a good financial position.
What I would strongly encourage is to see a financial advisor. They'll ask about your outgoings, your income and your plans. Also your attitude to risk.
Are there any pre retirement courses at your work? One at mine gave me some ideas and encouraged me to make a plan.
I ended up transferring my (good final salary) pension out and investing it into a SIPPE ((I used True Potential for this, but other companies are probably better).. This suited my goal of leaving my other half with my full pension and the kids with anything left. A company pension may not benefit your kids much (if that matters).
But get advice - one takeaway is that you don't need to replace your current income with pension - once you remove NI, and regular savings, and tax etc you can have a much reduced income and still have enough...
Good luck with a plan!
Wait4me - putting money into a pension is still more tax efficient than an ISA - you get tax relief at source and then 25% of it is tax free when you draw down. Plus obviously if you’re higher rate taxpayer you then get additional higher rate tax relief.
ISA you’re putting in after tax but obviously any gains are tax free. So maximum gain is just tax relief on gains, whereas in a Pensiin you’re getting relief at source then 25% tax free again later on. Plus you could argue getting the relief at source gives you more to invest early on and therefore bigger long term gains.
Is there something in the water/air! I turn 53 this year and may have the chance to go this year via voluntary redundancy which would equate to 2 years pay. Only have a small amount of mortgage left so would clear that and cover me to 55ish when I can first start accessing my DB scheme. Yes, the penalty for early access is 4% per year below 65 however with it being linked to RPI the actual 'loss' is closer to 1%. Plan is to use that and share scheme dividends to cover until 58ish then access the other pot drawing down roughly following the 4-5% rule.
I have no idea what kind of contingency pots people are thinking of held in cash/isa etc but think 3 years of living expenses to be about right..
I have long had an aspiration to do something more rewarding with my time rather than argue with people over spreadsheets or trying to convince 'leadership' not to do stupid things.
I look forward to 2025 with equal amounts of fear and excitement.
@bentandbroken it’s something I constantly mull over. Current thinking is the tax free aspect of the ISA will benefit more than being taxed on the way out of the pension.
It's an interesting one this. If you're a higher rate tax payer then putting money into your pension now is almost certainly the best choice. Can then take a lump sum out of our pension (tax free) and feed that into ISAs over a few years when you retire to give you a tax free income
if you're NOT a higher rate tax payer then it's much less clear - ISA gives you flexibility in case you need the money before retirement and (in theory) locks that is as tax free growth/income.
Pension income is taxed when it comes out and tax rates have effectively increased (with tax bands not increasing with inflation). Could increase more in future - theres a good argument for national insurance applying to everyone (or it being wrapped into a single, higher, income tax rate). The care bill needs to be paid for somehow and it shouldn't be young people paying for the elderly.
In theory ISA income is safely tax free. the amount you can put in annually might not increase, or might be removed completely, but would be a big step to take away the benefit you supposedly gained when you put the money into it
At £24k pa you're only just above Minimum Wage so any job you get will be barely less pay - just go find a less-stressful job.
And your pension, are you really going to be clearing £15k pension from a £24k job?
He said he takes home 24k.
So I'd guess a gross of about 35k, and a decent public sector pension that he joined some time ago, before they started hacking away at them.
On the ISA v pension question. It depends. When I get my old age pension I expect to be verging on (Scottish) higher rate tax when combined with my occupational pension.
So aside from the tax free lump sum I will pay 42% on anything I take out the pension. Anything I take out an ISA is tax free.
My current thinking is that barring unforseen emergency I will leave my relatively small pension fund untouched so that in the event I snuff it first Mrs IRC will inherit it.
It isn't enough, even combined with house value for inheritance tax to be a factor.
Any spare cash will therefore be in ISAs with no tax to pay should a lump sum need withdrawn for new roof or new car etc.
There was more of an argument for pensions when I was getting higher rate tax relief going in but my plan is to reduce part time working hours enough to get below the higher rate tax threshold
this podcast runs through that thought process.
meaningful money pension V ISA
EDIT - this is the video which is easier to follow as you can see the numbers side by side
Others have posted more detail above, but this is (from memory) a direct side by side comparison of the two with the hard numbers at the bottom plus other comments such as what happens to your money when you die which may or may not be relevant for you.
TLDR - Almost always best financial returns are to put it in to a pension instead is an ISA
We both retired early. Lucky enough to get substantial redundancy payments and some careful budgeting when we were younger. It's brilliant. Honestly the best thing we've ever done. Haven't been bored for a minute.
Once your mortgage us paid off it's surprising how little you need to live on. One big caveat though. It's a great peace of mind to have a bit of money tucked away that you don't need to live on but is there in the event of an unexpected large expense. Say a new boiler, big car repair or that new bike you simply can't live without (-:
If you have that great, if not it might be worth working another 12 or 18 months. If you hate your job just adopt the attitude of "well it's only a year to go and then I'm free". You might find the stuff that stresses you out doesn't seem so important. And all the time you are thinking "this is the money in the bank that means I don't have to worry about big bills for many years to come".
But overall, if you can afford to go then don't hesitate.
He said he takes home 24k.
So I’d guess a gross of about 35k, and a decent public sector pension that he joined some time ago, before they started hacking away at them.
I'm currently part time/4 days a week due to caring responsibilities for parents, but those figures are about right.
21 years in the CS, 12 years prior to that in private sector pension schemes.
Been trying to keep my head down at work till 60, but it's now at the point of increasing medication to keep me there, and that is just ****ing stupid.
I think you’ve answered your own question.
Thanks for that @bentandbroken I'll study that closely. My logic is much like one of the previous posters; being a lower rate tax payer the case for adding into the pension is less obvious. But I'm definitely keen to explore the options.
Again thanks to everyone for all the opinions and info on this, it's really useful stuff.
I think you’ve answered your own question
You are probably right. And sorry to hear you are at that stage OP. But surely the question you have answered is you can't do this job anymore. Your plan was to retire and draw your CS pension now....and take the pretty substantial pension hit....and still carry on working in a minimum wage role somewhere. Is there a middle way where you leave the CS, work somewhere more manageable but earning just enough that with some serious belt tightening you could get by to 60 before touching the pension? It'll still be less than if you hung on to 60 because of 4 years less contributions, but not by as much.
People who have retired early on small amounts: what do you do about potential big expenditures (ie your roof needs replacing – something that wouldn’t be covered by the typical “have 6 months living expenses put by” plan)?
TBH what would you do if you weren’t retired 🙂
it’s now at the point of increasing medication to keep me there
Being very cynical, could you get signed off long term sick?
People who have retired early on small amounts: what do you do about potential big expenditures (ie your roof needs replacing – something that wouldn’t be covered by the typical “have 6 months living expenses put by” plan)?
TBH what would you do if you weren’t retired
reading this and other retirement threads, it appears to me that myself, and TJ and others who have retired early without a load of cash, may have a different mindset possibly.
i for one have never wanted to live my life, thinking what if.
what if my car breaks, what if my house breaks, what if i get ill, what if i get knocked off my bike............... far too many what if's.
my mindset has always been, if i dont like something, i change it, or dont do it....... simple.
i hated work. i wanted to spend time with my grandkids whilst i was still healthy......... so i stopped working to do so.
it made me happy to do so. having a load of cash and possessions doesnt make me happy.
others may differ.
Or TBH, and without getting into politics which i promised myself i won't do any more;
- all Depts are going to have to make cutbacks and the R word may not be far away; any chance of at least hanging on for that as an option which could provide a payment and/or enable pension to be taken without being as heavily penalised for lost years of service?