New from the UK

Say hello!
penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

New from the UK

Postby penny » Mon Oct 12, 2015 7:48 am

Hello everyone,

It's good to be here! I'm keen on 'retiring' as soon as possible but am unsure about how to definitively work out when that might be and would welcome any advice! A bit about me: I'm 53. I can draw an occupational pension either from 60 (currently it's worth £11,200 pa + 32,400 tax free lump sum) or from 55 but would this would incur a reduction of approximately 25%. My OH and I are almost mortgage free. I have savings of about £260,000 (approx 130,000 in a SIP; £82,000 in ISAs and the rest as 40% equity in a house I'm about to let). My monthly outgoings are about £1000 and my monthly income £2300.

Looking forward to joining in the threads on here.

User avatar
GandK
Posts: 1852
Joined: Mon Sep 19, 2011 1:00 pm

Re: New from the UK

Postby GandK » Mon Oct 12, 2015 8:40 am

penny wrote:I'm keen on 'retiring' as soon as possible but am unsure about how to definitively work out when that might be and would welcome any advice!

Theoretically you need about 25x your annual expenditures to retire, but that formula won't work in your case because you have a pension and home equity in the calculation. I can tell you're well on your way, but I can't tell much more. So, some questions...

1. What's the balance on the mortgage, and at what percent interest?
2. What are SIPs and ISAs? Sorry, I'm American. :D I assume this is a British thing that we don't have here. I don't want to make the wrong assumptions and give you bad advice. How liquid is this money, and what could it potentially be invested in, and is it taxed differently than ordinary savings/investments?

penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

Re: New from the UK

Postby penny » Mon Oct 12, 2015 9:06 am

Hi GandK - thanks for the reply.

1. The balance on the mortgage is about £30k and the interest is at 1%. The house is worth around £500k
2. SIPs are self invested pensions and ISAs are tax free savings which can be invested as cash or in shares/funds. Nearly all of my SIP and ISAs are invested in funds. I can begin drawing on the SIP from the age of 55 (25% of my SIP is tax free). I can draw out funds from my ISAs at any time and these are tax free.

heyhey
Posts: 104
Joined: Sat Jul 19, 2014 7:17 pm
Location: Herts UK

Re: New from the UK

Postby heyhey » Mon Oct 12, 2015 12:08 pm

Hello Penny and welcome :) I am new here too but for what it's worth (which may not be much) ...

Theoretically, it sounds to me as if you could retire now, if you were prepared to spend the savings you have. Even if you don't take your occupational pension at 55, your ISAs alone would almost cover your annual expenditure from now until you are 60, and you also have the SIP kicking in at 55 to take care of any shortfall. (But if you do take the occupational pension at 55, you'd only need to take two years' worth of capital out of the ISA.) Either the SIP or the lump sum at 60 will easily cover the small shortfall between your pension and your expenditure for the years from 60 to state retirement age when you start getting the state pension too. The state pension is about £6,000 a year at current rates so from there you should have no trouble living on your pensions.

If you took your occupational pension at 55 you would need a lot less of your ISAs ... see below.

I'm guessing you don't want to spend your ISAs...? And perhaps the advice here would be to keep them intact. But it seems to me you have the choice to go whenever you want and it's only a question of how much of your ISA you want to keep intact, and how much you want to delay benefits for later, versus how much you want to stop working. :D

If you get a 4% return on the ISAs this would be £3280. If you then took your occupational pension at 55 reduced by 25% that's £8400. This again is almost enough to cover your current expenses of £12000 a year plus you will have the SIP to help out until you reach state retirement age and start getting the extra £6000 pa. So keeping your ISAs intact but spending the income/growth from them, or alternatively using the SIP for that, it seems to me that you could retire as soon as you have enough to tide you over until your 55th birthday. Which if you are earning £2300, spending £1000 and saving the rest, should be less than a year from now, depending when your birthday is.

There would be a little tax. The current personal allowance is £10,500 per year and you're likely to have a bit more than that coming in.

This assumes that the rent on the rented house will cover the mortgage on the 60% of it that you don't own outright. If that's not the case, you might have to cover something there too.

heyhey
Posts: 104
Joined: Sat Jul 19, 2014 7:17 pm
Location: Herts UK

Re: New from the UK

Postby heyhey » Mon Oct 12, 2015 1:37 pm

Another assumption I made - and shouldn't have - is that you have already been working long enough to get the full state pension - and actually this probably won't be the case if you had some years of not working for childrearing or other reasons. Not an expert on this but I think you can pay for extra years to bring you up to speed.

Definitely worth checking this, if you haven't already. It could make a big difference to your later years.

You can go here, print the form and send it off. They will send you back a statement of how many qualifying years you have and whether you can add to them if you need to. https://www.gov.uk/government/publicati ... -statement

penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

Re: New from the UK

Postby penny » Mon Oct 12, 2015 1:50 pm

Hi heyhey,

That's really useful - thank you! My state pension should be okay as I've kept it topped up. Much food for thought there - it feels good to know that I could go soon if necessary. :)

heyhey
Posts: 104
Joined: Sat Jul 19, 2014 7:17 pm
Location: Herts UK

Re: New from the UK

Postby heyhey » Mon Oct 12, 2015 1:58 pm

Might be worth talking to an independent financial adviser before you make any big decisions...? They would charge but might save an expensive mistake.

penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

Re: New from the UK

Postby penny » Mon Oct 12, 2015 2:18 pm

No worries heyhey, I'm ultra cautious!

User avatar
GandK
Posts: 1852
Joined: Mon Sep 19, 2011 1:00 pm

Re: New from the UK

Postby GandK » Mon Oct 12, 2015 2:24 pm

heyhey wrote:Might be worth talking to an independent financial adviser before you make any big decisions...?

+1. Definitely ask around. You have some complicated factors. And you may be able to get a free evaluation. A lot of professional advisors over here will evaluate your portfolio for free, and they only charge you fees if you then hire them to manage your investments for you. (Which you would probably not need.)

penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

Re: New from the UK

Postby penny » Mon Oct 12, 2015 2:47 pm

Thanks GandK. Out of interest, what do you think are the complicating factors?

User avatar
GandK
Posts: 1852
Joined: Mon Sep 19, 2011 1:00 pm

Re: New from the UK

Postby GandK » Mon Oct 12, 2015 3:31 pm

Anything to do with tax-advantaged accounts and pensions (at least over here) needs special math. Example: because a pension can be taken within a range of ages, you'll want to figure your life expectancy into the timing of your benefits. Sicker people with parents who died young are generally advised to draw sooner; healthier people with parents who lived to be 100 are advised to wait as long as possible. Where are you along that spectrum? Also, the amount of taxable money you withdraw in any given year may affect or negate other benefits (it does here). There are tax breaks for low-income people in the US that one could accidentally disqualify oneself from by withdrawing too much tax-deferred money at once. I have no idea what that looks like in Britain, but I'd hate for you to miss out on financial benefits that you're otherwise entitled to.

penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

Re: New from the UK

Postby penny » Mon Oct 12, 2015 3:41 pm

Good advice - thank you!

penny
Posts: 12
Joined: Mon Oct 12, 2015 4:53 am

Re: New from the UK

Postby penny » Sun Jan 15, 2017 8:37 am

I thought I would post an update. I retired in August 2016. I will be mortgage free from next month. Currently I have £352k in savings/holdings. A substantial part of this increase from my last posting is due to the stock market's performance since the Brexit vote. We still have the rental property and began letting that in December 2015. So far going smoothly enough. I'm not planning to draw on my occupational pension until I'm 60 (I'm 54 now) because the actuarial reduction is too big a hit. When I reach 60 this should be about £11,500 per annum in today's value (plus around £35k cash lump sum). State pension won't kick in until 67 but I'm paying in on a voluntary basis because I want to qualify for the maximum at that time (about £8200 in today's value).

In the meantime I'm going to rely on savings for my day to day expenditure until the occupational pension kicks in. If I draw down at the rate of just over 3%, then, my savings would last just over 32 years (without above inflation growth). If I draw down at the rate of just under 2.5% then I calculate my savings would last just over 40 years (without above inflation growth). The latter is proving very doable currently.

I can crystalise my Self Invested Personal Pension (SIPP) from 55, freeing up 25% tax free. Provided I don't begin drawdown, I can continue to contribute by opening a new 'uncrystalised' SIPP and then draw down a further 25% tax free as and when.

Sometimes I pinch myself - can't quite believe I'm home and free! :)


Return to “Introduce Yourself”