[Finance] Early Retirement help

East Staffs Gull · Mar 25, 2019

dazzer6666 said:
FWIW if you’re cashing in a pension pot over £30k I think you HAVE to take independent advice.

No! There is only a requirement to obtain financial advice if you are considering transferring from a final salary scheme to a money purchase scheme and the transfer value is greater than £30,000. Even then, you are not obliged to follow the advice and can go against it.

In relation to giving up pension for a cash sum at retirement, it would certainly be advisable to obtain independent financial advice if the amounts involved are not de minimis, but it is not a legal requirement. For me, the starting point was to determine what level of guaranteed lifetime income I required as a minimum, through a combination of private pension and state pension. I did not want to run the risk of money drying up before I expire.

dazzer6666 · Mar 25, 2019

East Staffs Gull said:
No! There is only a requirement to obtain financial advice if you are considering transferring from a final salary scheme to a money purchase scheme and the transfer value is greater than £30,000. Even then, you are not obliged to follow the advice and can go against it.

In relation to giving up pension for a cash sum at retirement, it would certainly be advisable to obtain independent financial advice if the amounts involved are not de minimis, but it is not a legal requirement. For me, the starting point was to determine what level of guaranteed lifetime income I required as a minimum, through a combination of private pension and state pension. I did not want to run the risk of money drying up before I expire.

That’s what I meant by cashing in........not simply taking a lump sum from a DB/DC pot......my bad for not being clear

Not sure why there are a number of posts that are pointing to the need for pension income. Drawing down from a lump sum can provide ‘income’.

jabba · Mar 25, 2019

Very much depends on your circumstances. Let's say for every 25K lump sum they offer you 1K a year for the rest of your life. Do you need the cash to do something with? How long do you think you'll live?
Remember the 25K now will be tax-free and the 1K per year will be classed as a taxable income so not even a simple sum of if you live for 25 more years that you'll be ahead, especially if (say) you use the lump sum to pay off debts/mortgage so you are saving on the interest you would have paid.
A tricky sum.

Weststander · Mar 25, 2019

dazzer6666 said:
Not sure why there are a number of posts that are pointing to the need for pension income. Drawing down from a lump sum can provide ‘income’.

Exactly, that’s been the best advice for a number of years now.

Unless, someone doesn’t trust their own disipline in being able to space the drawdowns over a retirement.

dazzer6666 · Mar 25, 2019

jabba said:
Very much depends on your circumstances. Let's say for every 25K lump sum they offer you 1K a year for the rest of your life. Do you need the cash to do something with? How long do you think you'll live?
Remember the 25K now will be tax-free and the 1K per year will be classed as a taxable income so not even a simple sum of if you live for 25 more years that you'll be ahead, especially if (say) you use the lump sum to pay off debts/mortgage so you are saving on the interest you would have paid.
A tricky sum.

Exactly

1k would be 4% pa (a decent, but not unachievable, return that would leave your 25k intact and be available to your legatees if the worst should happen, unlike if left in a scheme)

You can obviously schedule your drawdowns to maximise tax efficiency too.

East Staffs Gull · Mar 25, 2019

jabba said:
Very much depends on your circumstances. Let's say for every 25K lump sum they offer you 1K a year for the rest of your life. Do you need the cash to do something with? How long do you think you'll live?
Remember the 25K now will be tax-free and the 1K per year will be classed as a taxable income so not even a simple sum of if you live for 25 more years that you'll be ahead, especially if (say) you use the lump sum to pay off debts/mortgage so you are saving on the interest you would have paid.
A tricky sum.

A tricky sum, with numerous variables such as life expectancy, future inflation, future pension increases, future investment returns, future tax rates, future inheritance tax laws, risk of insolvency of pension schemes and insurance companies, etc.

Weststander · Mar 25, 2019

jabba said:
Very much depends on your circumstances. Let's say for every 25K lump sum they offer you 1K a year for the rest of your life. Do you need the cash to do something with? How long do you think you'll live?
Remember the 25K now will be tax-free and the 1K per year will be classed as a taxable income so not even a simple sum of if you live for 25 more years that you'll be ahead, especially if (say) you use the lump sum to pay off debts/mortgage so you are saving on the interest you would have paid.
A tricky sum.

Isn’t only a maximum of 25% of the scheme value, available as a tax free sump sum? With some recent changes such as drawdown, other lump sums are taxable at your marginal income tax rates.

Agree about mortgage/debts - shirley always pay these off first, unless you luckily are paying a miniscule mortgage rate and will have the funds to redeem the mortgage at its due date.

dazzer6666 · Mar 25, 2019

East Staffs Gull said:
A tricky sum, with numerous variables such as life expectancy, future inflation, future pension increases, future investment returns, future tax rates, future inheritance tax laws, risk of insolvency of pension schemes and insurance companies, etc.

If you’ve got any kind of decent sum tied up, professional advice is critical.......think the report on my modest DB pot ran to about 40 pages and was prepared by an actuary and interpreted by an IFA.

East Staffs Gull · Mar 25, 2019

Weststander said:
Exactly, that’s been the best advice for a number of years now.

Unless, someone doesn’t trust their own disipline in being able to space the drawdowns over a retirement.

Absolutely agree that drawdown was introduced as a means of providing income, but it’s not guaranteed lifetime income. The drawdown pot will either be inadequate and run out, or will be more than adequate and be inherited (under current legislation).

dazzer6666 · Mar 25, 2019

Weststander said:
Isn’t only a maximum of 25% of the scheme value, available as a tax free sump sum? With some recent changes such as drawdown, other lump sums are taxable at your marginal income tax rates.

Agree about mortgage/debts - shirley always pay these off first, unless you luckily are paying a miniscule mortgage rate and will have the funds to redeem the mortgage at its due date.

Yes........but bear in mind the usual drill would be to take 25% when you can (if you need to) and then schedule additional drawdowns after that to minimise tax (if necessary using the 25% to help fund your lifestyle). Unless you have a particularly extravagant lifestyle you should be able to stay below higher rate brackets on this basis ?

dazzer6666 · Mar 25, 2019

East Staffs Gull said:
Absolutely agree that drawdown was introduced as a means of providing income, but it’s not guaranteed lifetime income. The drawdown pot will either be inadequate and run out, or will be more than adequate and be inherited (under current legislation).

....or the individual may have other income, other pensions, other savings........etc etc.

East Staffs Gull · Mar 25, 2019

dazzer6666 said:
....or the individual may have other income, other pensions, other savings........etc etc.

Absolutely. Any other pension, particularly the state pension, provides that important guaranteed lifetime income (assuming the government does not renege on these). In later old age they might be adequate in themselves to support someone.

Weststander · Mar 25, 2019

East Staffs Gull said:
Absolutely, any other pension, particularly the state pension, provides that guaranteed lifetime income (assuming the government does not renege on these). In later old age they might be adequate in themselves to support someone.

People often worry about that, but I think state pensions will always be safe and not eroded. Nine million people in a very active voting age group will ensure that no government would harm their finances.

I know several people who do already, or are set to receive, £190 plus a week (depending on NIC history). For a couple, that’s almost £20,000 from the state per annum (with mortgage paid off), on top of DB or DC pensions. Notice how politicians haven’t generally talked about poverty and state pensions for a few years.

But inevitably as we live far longer, the age of attaining the state pension will keep rising.

dazzer6666 · Mar 25, 2019

East Staffs Gull said:
Absolutely. Any other pension, particularly the state pension, provides that important guaranteed lifetime income (assuming the government does not renege on these). In later old age they might be adequate in themselves to support someone.

Had a chat with my adviser a couple of weeks ago......something I hadn’t really thought about was the likely reduction in spending as you get older. Currently I reckon I’d burn through my pension at an alarming rate as we’re reasonably fit and active, travel a lot etc, but as time goes by this will diminish significantly (I look at my parents - in their 70s - and they can live on a shoestring basically)

So.......I’m back to porsches and cheap hookers I reckon, at least for a few years [emoji23][emoji23][emoji23]

timbha · Mar 25, 2019

Don’t forget the cost of care, for your parents (hence diminishing inheritance) and for you/your partner.

BLOCK F · Mar 26, 2019

dazzer6666 said:
Had a chat with my adviser a couple of weeks ago......something I hadn’t really thought about was the likely reduction in spending as you get older. Currently I reckon I’d burn through my pension at an alarming rate as we’re reasonably fit and active, travel a lot etc, but as time goes by this will diminish significantly (I look at my parents - in their 70s - and they can live on a shoestring basically)

So.......I’m back to porsches and cheap hookers I reckon, at least for a few years [emoji23][emoji23][emoji23]

I am retired and my wife works part time self -employed. Expenditure on ourselves isn't the problem, but we are still subsidising the two youngest offspring somewhat and have been the bank of Mum and Dad to our daughter enabling her to buy a house with her other half. Grandson arrived 7 months ago and, of course, there is a cost there for 'doting ' grandparents.

dazzer6666 · Mar 26, 2019

BLOCK F said:
I am retired and my wife works part time self -employed. Expenditure on ourselves isn't the problem, but we are still subsidising the two youngest offspring, somewhat!

Good point........although my youngest is about to graduate, I don’t think that’ll be the end of the Bank of Mum and Dad [emoji23][emoji23]

BLOCK F · Mar 26, 2019

dazzer6666 said:
Good point........although my youngest is about to graduate, I don’t think that’ll be the end of the Bank of Mum and Dad [emoji23][emoji23]

You are right there, Dazzer! Our boys graduated some time ago, but it is certainly no road to instant riches!

happypig · Mar 26, 2019

The way I see it I want more money in the years between Mrs H retiring in 2021 and me turning 70 in 2033. These are the years we will do, and therefore spend, more. After the age of 70 I can see us slowing things down, despite our income going up.
I have several "milestones":
now/soon: My pension
2025: Wife's pension #1
2030 : My state pension, Wife's pension #2
2032 : Wife's state pension
So I am looking at taking more out of the work pension and dipping in to the lump sum in the intervening years then reducing it as I get older.

Tim Over Whelmed · Mar 26, 2019

dazzer6666 said:
Good point........although my youngest is about to graduate, I don’t think that’ll be the end of the Bank of Mum and Dad [emoji23][emoji23]

Trust me, it's only the start!

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