Retirement – Evaluation of Your Plans

The opposite of the YOLO approach then.  To others living frugally just in case you live a long time is wasting the years until you get very old, assuming you do get very old and by that time most people seem to turn into complete tight arses anyway.

Not at all. It’s about assessing expenses and cutting out those which aren’t really adding any real value to your quality of life. Having several TV subscriptions for example; how much TV are you going to watch? A mate had over £200 a month in such until he decided to scrap them all. People can pay a fortune for Netflix, Sky, Amazon Prime, X-Box and Playstation subs. Then there’s things like gym memberships that don’t get used. Or owning a car when you live somewhere like London; a neighbour commented that we must be rich to be able to afford to go abroad 3-4 times a year or more. I pointed out that we still spend less on those trips per year than he does in running his car which sits outside his house for 95% of the time. This is the same guy that drives the 1.25 miles to the local leisure centre, a distance I choose to walk as it’s more exercise than riding a bike even .

By being more careful and mindful about what you spend, you can actually have a better lifestyle and more fun.

Pensions are tax deferred not avoided. Pay in with tax relief now and, depending on your pension, pay out and pay tax later.

There will be lots of people with small pensions that don’t take out more than the personal allowance. Easy to see a situation where you take less than 12k/year for a few years waiting for the state pension to kick in.

Annuity rates seem to have got better by a fair bit – used to be 1m bought 30k. If you retire at 68 you get the 44k as you say with 900k from the usual places. Given my family background, I suspect I’ll die early enough that it doesn’t make much sense to get an annuity (I def don’t want to wait to 68!) so i’m planning on doing draw down and then leaving the pot to kids / wife.

By being more careful and mindful about what you spend, you can actually have a better lifestyle and more fun.

Good, sounds great.

Thisd be why I posted above – increasing my salary sacrifice is reducing the amount I’ll pay 40% on through my wages, then I’ll pay 25% in retirement so a net saving of 15% tax.

^^^^^^ 20% is the basic tax rate so even better.

Assuming you take the 25% tax free lump sum in stages you can crystallise and draw down £67k per year and only pay a small amount of tax:

Gross £67,000

minus £16,750 25% tax free leaving £50,250

minus personal allowance of £12,570 leaving £37,680

20% of £37,680 = £7,536 which will be your tax bill for the year, in other words just over 11% tax and of course no NI.

Worth noting that if you’re at certain tax trap brackets (notably the 60% one + all the child care stuff that disappears at the same level) you’re going to save a lot if you put that money into a pension (i.e. you’d be taxed at 60+% if you took it as income, but even if you’re still a higher rate tax payer, you’re going to be taxed at 40% when you take it out).

Agreed, that’s what I said earlier.

you’re going to be taxed at 40% when you take it out

How so?

“How so?”

So if you’re in the 60% tax trap (actually more than that if you have kids due to tax free child care going, and free hours being halved) you’re going to be earning between 100-125k, so it’s pretty unlikely (impossible?) you’ll have put enough away to be drawing a pension that is large enough to hit the 45% tax rate, or even the 100k 60% rate again. So worse case you’ll be withdrawing at 40% tax, and probably at the 20% rate.

Ignoring the 25% tax free amount upto c£50k can be paid without getting into 40% tax … £13k personal allowance plus £37k at 20%.., an overall rate of 15%. Anything over £50k can be taken using tax free amount to extent any left. If you are high earner tax relief at 40%- 60% to fund that or 20% for a basic rate taxpayer

Agreed. The above clarifies it.

No one’s mentioned recycling.   I know,  it’s not allowed… but it is,  upto a small amount.  If you recycle less than 30% of tax free cash as additional pension contributions,  or take less than £7500 tax free over a 2 year period, it’s allowed. (There are some other rules but those are the amounts)

So once you hit 55, ( or 57) and can access the tax free lump of your pension, you can start to draw it and recycle a small amount quite legally it seems.   Do that for 3, 4, 5 years and you’ll see quite a difference, particularly if you’re a high rate tax payer.

.

Is that question for me kryton?

You don’t have to do anything no.  I’m pointing out the option to take some tax free from 55 and reinvest in a new pension.   Whether that is right for you depends on the amount of tax relief you’ll get on it, when you’ll draw the new pension and what incomes you’ll have then – ie will you end up just paying the tax later or even paying more,  or will you end up better off by recycling and getting that secund chunk of tax relief.  If it would work for you the crystalising isn’t an issue,  you take out and reinvest.

to the OP,   not read any of the replies… sorry.

But retired 3 years ago at 55 and the wife at the same time aged 56.

me on a very meagre pension and the wife on local government pension after 38 years service.

1 bit of advice i can give you.  take the amount you think you need to retire on, and half it.

less cash more time.

Wahheeey ton.

Been waiting for you to come along and say your bit.  Someone justly getting on with it and enjoying retirement. Happy smiley.

I ‘banged out’ of the corporate world in 2018 and 4 years ago downsized to a modern, energy efficient house on the Isle of Mull. I work part time in a shop, plus have another small business that I run from home plus have the proceeds from the house sale to subsidise our income for another 5 years until I’m 65. Despite the huge increases in food prices, we’re managing to live relatively frugally and if we avoid another Liz Truss moment, my pensions should be double my present income, to the degree I’ll probably want to avoid paying higher rate tax as I’ll probably stick with the part-time job to give me something to do.

We get quite a few cruise ships stopping here during the summer – I can’t imagine anything more insufferable than being stuck on a ship with such a bunch of people so that’s definitely off, as well as driving around in a large motorhome, but I may be tempted by a small yacht to cruise up and down the west coast – I’ve got a chunk of shares from my old employer that have done well since I left!

Is that question for me kryton?

Nope. I was asking a subtly about crystallisation but realised I’d misunderstood the meaning of it hence removed my post.

Im with Ton.  I went at 60 with a small income – and a chunk of capital ( which of course is a great safety net).  I’ll be better off when I hit 67 and get my state pension but its no problem to live withing my means.

Adventures do not have to be expensive

tjagainFull Member
Im with Ton.  I went at 60 with a small income – and a chunk of capital ( which of course is a great safety net).  I’ll be better off when I hit 67 and get my state pension but its no problem to live withing my means.

Adventures do not have to be expensive

100% mate.

also on FB today, you popped up on my memories page……… when i met you on your tour.  some good pictures mate

Two old farts enjoying retirement

The Waldorf & Statler of STW 😉 😀

🙂

That theory while great, breaks down if you’ve had kids late in life.  I’d be going a few years earlier if I hadn’t.

Those of you that have retired. Is there anything you’d do differently? Or any advice to those of us still working?

but I may be tempted by a small yacht to cruise up and down the west coast

Were you a worker for the council for twenty years, did you pack your lunch in a Sunblessed bag, did the children call you Bogey?

No one ever thought on their deathbed that they wished they had spent more time at work

You can live quite happily on less than you think.  You hav e two basic choices.  Decide how much money you need and work until then or decide when you want to retire and as much money as you have – thats what you are going to live on.

go back 30 years and get a DB pension and cheap property

To TJ’s point, from the advice I linked to

A minimum’ lifestyle covers all your needs, with some left over for fun and social occasions. You could holiday in the UK, eat out about once a month and do some affordable leisure activities about twice a week.

The minimum is £14k for single and £22k for a couple. The state pension is £11502.92. Hence a single person can live with an additional pension of £3k (approx £60k pension lump sum without taking any tax free), and a couple who have both contributed 35 years, can live on the state pension. Early retirement would not be possible.

To retire early, you’d need the pension from, say 55 where annuity rates are lower (as you’ll be paid for longer). If you want no growth in income, but 10 year guarantee (to last until state pension), and to retire on minimum income, you’ll need approx 14k x (100,000/6081) = £230k in your pension fund. At 67 you’ll see an extra 11k of income to look forward to!

And how much to save? If you work for 35 years and savings grow at, say 3%, then 1000 paid in on your first year will grow to 2813 = 1000*(1.03)^35, The next year’s contribution will grow to the power of 34 and so on. You may recall from maths GCSE, that the sum of a geometric progression is a*(r^n-1)/(r-1), where r is 1.03 and n is 35, a is your annual contribution rate. For 3% growth the accumulation is 60.4x, so ignoring the salary increases, you’d need to save about 230k/60 = £3800 per year  adjusting for salary growth makes a big difference, as does changing 3% growth to 5%!

Easier to sum these up in a spreadsheet and make some assumptions about salary growth (2%) along the columns, the add some tax relief and that annual contribution will likely halve at the beginning. You can even test why half your age is a good rule of thumb.

There is NO scenario, where early pension saving is bad. And now you know why you were taught the sum of a geometric progression at school. Too bad they don’t explain it that way 🙁

IANAFA, but I am a mathematician.

For those still working….do start saving as soon as you can (compounding and all that), don’t have a fixed retirement date in mind (if you get to (say) your target of 55th birthday and can’t do it it will depress you) but equally retirement is more affordable than you think.  For those retiring …… have a few plans and projects to provide some structure to life, and enjoy it!

No one ever thought on their deathbed that they wished they had spent more time at work

This is often said but it’s true. I was surprised by how quickly I lost any interest whatsoever in the topics that had seemed of such vital importance while I was working. I sometimes think about colleagues and I kept in touch with a few, but actual work – I never think about it.

Those of you that have retired. Is there anything you’d do differently?

I dithered far too long between realising I was in a position to retire and actually doing it. I hung on at work to do a proper handover to my successor and to support a critical project that wanted my expertise – basically being the nice guy and not burning bridges.  With hindsight I could’ve gone at least 18 months earlier and nothing would really have changed.

Average uk salary for 18-21 year olds is currently 23k. Save half your age as a % of salary for 35 years and assume 2% salary growth and investment growth, and you’ll have a pot of £440k. If investments grow at 5%, you will have £655k. That will be when you are 55 years old. You’ll be able to retire, even allowing for inflation (which your salary is keeping track of). Hence the advice is reasonable.

When they closed our final salary scheme in 2022, the two things I noticed most when talking to colleagues were 1) that people had no idea how lucrative these schemes were, and 2) most people did not understand pensions at all! And these colleagues were all graduates, many with PhD’s. Having a good rule of thumb is an excellent guide  it wasn’t around when I started working.

1) that people had no idea how lucrative these schemes were, and 2) most people did not understand pensions at all!

SBGSK?  These people had one of the most comprehensive annual statements I’ve seen and they were a huge undertaking every year.  Maybe information overload so they just didn’t read it?

When they closed our final salary scheme in 2022, the two things I noticed most when talking to colleagues were 1) that people had no idea how lucrative these schemes were, and 2) most people did not understand pensions at all! And these colleagues were all graduates, many with PhD’s.

They closed a DB/final salary scheme here and moved people to a DC one – it was an old scheme and hadn’t been open to new joiners for a while, so didn’t apply to me. As part of the closure, and in recognition of the ‘loss’ from moving from a DB to a DC scheme, they were all given a fairly generous compensatory payment. All the people I know spent that payment on holidays/cars/patios, and didn’t stick it in the new scheme – madness. And this is at a financial services firm…

The minimum is £14k for single and £22k for a couple. The state pension is £11502.92. Hence a single person can live with an additional pension of £3k (approx £60k pension lump sum without taking any tax free), and a couple who have both contributed 35 years, can live on the state pension.

The key word here is “minimum”…

Also in much of the UK rent could easily take the entire State Pension, so folk will be claiming other benefits too – so in reality their income is far more than this

Yes, GW/GSK. When GSK was formed the final salary scheme was closed to new members. I joined just before. And was able to join the final salary scheme at 33. I think people just don’t read/understand the calculations provided. I know I did not take them too seriously whilst bringing up children.

As a rough guide, the DB scheme I was in was effectively costing the company 3x the DC scheme. It would not have been possible for me to have made the levels of contribution to a DC scheme to afford the same final pension (1/60th final salary at 20x annuity multiplier is1/3 of annual salary saved – real rates are more like 33x). And I also contributed 10% to a DC scheme in parallel! We were given a small starter contribution to the new DC pot. Not available for holidays and cars!!!!

Any scheme based on final, or more likely now, average salary will be generous compared with DC schemes. Companies have moved to DC and funded at 5-10% of salary, because they are cheaper, not better for the employees.

The guidance on minimum needed from pensions info

“The minimum is £14k for single and £22k for a couple”

Is that before, or after, tax ?

(Something that ice not seen clearly stated ! Same on the ‘higher’ standards.of living figures  too.   As obviously that.makes a big difference !

I’m following this thread with interest – I’m sort of half way there, and have some knowledge but haven’t yet really retired.

I’m near 56.

A couple of years ago I did what I call a ‘fake’ retirement – I’d got so fecked off after a reverse takeover of my employer that I left. But, I declared ‘retirement’ not just a FO2U (I had a protected pension age of 50 so could do).  And took the pension then (the penalties for early take / rules of the scheme were a bit perverse, meant for me I was better off taking the money immediately (final salary scheme) than deferring (if I deferred by a day, then penalties were harsher and = a far lower pension –  and not return to the same  ‘day zero’ level until 7-8 years later.

My thinking is that I need the money in my 50s and 60s, more than 70s or 80s. Pay.off mortgage, support daughter at uni + early years of her career etc.

I saw that 1st hand with parents- barely 2 pennies when we were growingupp (non smokers, disnt drink much) .. but more money than they knew how to spend by the time they were 70.

At my new employer I’m bundling in 40% of my wage to a new pension, so as to not pay as much @40% tax (+2% NI).  When I do take that as a ‘draw down’ it’ll effectively be at 15% tax… a quarter is tax-free, and the remainder at 20% (I’ll not hit the £50k limit to pay 40%).  Net 42-15 = 27% tax saving.   (+ my employer will give me half their employer NI saving into the pension too- good folks! – so I get an extra 6.9% of my 40% into the pension)

but actual work – I never think about it.

The same. I was a technical director and had many years working on IT tech projects, networks, infrastructure and comms then later managing teams/depts. I stopped working but could not think of myself as retired for a while and applied for a job after several months. They asked he how I kept up to date with the things I had done since I stopped working (about 6 months earlier) I had no clue and wasn’t interested! If I had got the job I would have quickly got up to speed but the thought that I would continue to be engaged with all of the changes seemed odd to me..

It includes tax, which won’t be much on 14k per year. It also assumes that there will be limited housing costs as any mortgage will have been repaid.