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Can I retire at 55

Including Financial Independence and Retiring Early (FIRE)
BennGunn
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Can I retire at 55

#166648

Postby BennGunn » September 16th, 2018, 8:36 am

I’ve been reading these boards for about a month now and have accumulated significant knowledge, and think it’s time to step in and get some advice, here goes...

I’m aged 54 would like to retire next year at 55.

Just the wife and I and recon we require £24K per year to live on as a couple, we enjoy the simple things: dog walking, cycling etc ...no desire to own a yacht.

My wife, also 55, has an NHS pension paying £11K per annum

I have accumulated a DC pot of £470k and am undecided whether to take the full PCLS

No mortgage, savings of approx £50K and kids are both financially independent

I have 35 years of NI contributions so expect to be eligible for the full state pension

I reckon it is doable, but I’m looking for a confirmation of that view and any advice regarding SIPP’s, draw down schemes and tax efficient schemes

FredBloggs
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Re: Can I retire at 55

#166651

Postby FredBloggs » September 16th, 2018, 8:53 am

First thing to check would be your actual state pension provision. If you have been contracted out at all you may not yet have accrued enough NIC for the full new style state pension. Then go from there. Check it at your government gateway account.

swill453
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Re: Can I retire at 55

#166652

Postby swill453 » September 16th, 2018, 8:53 am

BennGunn wrote:I have 35 years of NI contributions so expect to be eligible for the full state pension

Don't expect - find out for sure.

Both you and your wife should get a pension statement right now, to see if either of you need to do anything to ensure you get the full pension at state pension age. Probably 67 for you both?

Assuming you can both get full pension, and with your wife's NHS pension, that gives you £27K+ p.a. in today's money in 13 years time. If your genuine needs are £24K then that's looking fairly good.

So your capital in the meantime has to support you till then.

I don't think you've got enough to do it without some element of risk, but it's possible.

Scott.

Quint
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Re: Can I retire at 55

#166655

Postby Quint » September 16th, 2018, 9:09 am

If full retirement looks too risky for you what about semi retirement.

That is what I have done at 50, this year I have taken on a 15 week trucking contract and earned nearly a full years money, rest of the year is retirement. A lot better than working all year full time.


Retirement does not have to be an all or nothing option. Best thing I have ever done.

BennGunn
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Re: Can I retire at 55

#166656

Postby BennGunn » September 16th, 2018, 9:15 am

Thanks for the prompt replies

I've checked with the government gateway and both of us are eligible for the max state pension

@swill453: I'm curious about your comment regarding risk, please could you describe the risks you refer to and any mitigating strategies

@quint: yes I've been thinking the same, cycling is my passion so thinking of a part time job in a bike shop: spannering, working on retail, doing the books etc (once upon a time I was a practicing accountant)

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Re: Can I retire at 55

#166658

Postby BennGunn » September 16th, 2018, 9:17 am

One clarifying piece of information, my wifes pension of £11K is payable from May next year (2019)

swill453
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Re: Can I retire at 55

#166659

Postby swill453 » September 16th, 2018, 9:19 am

BennGunn wrote:I have accumulated a DC pot of £470k and am undecided whether to take the full PCLS

...

I reckon it is doable, but I’m looking for a confirmation of that view and any advice regarding SIPP’s, draw down schemes and tax efficient schemes

Rather than take a full PCLS, you can use drawdown by UFPLS (Uncrystallised funds pension lump sum) where 25% of each payment is tax free and 75% taxable.

This year if you had no other income tax liabilities you could take a UFPLS of £15,800 and pay no tax (utilising the £11,850 personal allowance). With your wife's £11K it would be enough for your budget.

Scott.

swill453
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Re: Can I retire at 55

#166660

Postby swill453 » September 16th, 2018, 9:23 am

BennGunn wrote:I'm curious about your comment regarding risk, please could you describe the risks you refer to and any mitigating strategies

Assuming your DC pot is invested in the stockmarket, the obvious risk is a crash or some other event or process where the value of your pension and/or the income it generates is significantly reduced, potentially for a sustained period of time.

Keeping a number of years expenses in cash or some other similar form would be one strategy for mitigation, the cost being reducing the overall income or growth of the pension.

Scott.

kempiejon
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Re: Can I retire at 55

#166662

Postby kempiejon » September 16th, 2018, 9:56 am

Long answer - If I had your set up I'd have no hesitation. Mortgage free, safe DB from the SO, state pension hopefully on target, no dependants and a healthy pot plus a couple of years of cash for expenses in case of emergency. I'd up that cash to 3 years and take the lump sum, filling his and hers stocks and shares ISAs for the next couple of years perhaps premium bonds to take any cash interest out of tax risk.

It depends where you put the balance of the pension pot, I go the SIPP route and recon I could get a natural yield of 4ish% so around £14k a year from the pension and another £4k5 from the ISAs with the £11k NHS that's your goal. You said you'll work another year what about your partner? If the two of you have another year of work why not try to live off the £24k and save everything else. If you're both working stick all your income in a SIPP. Also keep a spending diary that'll be an excellent exercise to see where you spend your money. I itemised my outgoings when made redundant and it gave me an excellent breakdown of my expenses and a guide for my retirement income goal.

I'm planning my retirement and I have the income just about there but not enough NI for a full serving of the state cash, I'm looking at the safety net and some activities and goals. Just leaving work to read the paper in the garden, watch TV and go down the pub isn't enough. Again I had a redundancy so I learnt about filling time without work.

For me what I do with my pot is actually an entertaining distraction while I add to it but for many managing an investment isn't fun. This hobby investing means I have a clear plan of where that money goes and what I can expect from it as I have over a decade looking at it. You've not mentioned where your pension currently is, what it returns and what it costs you. Where your DC funds go I think would have an impact on your long term outcome. Others have said that the vagaries of the stock market can make a dent in ones income and pot and I'll reiterate the suggestions of a bigger pot to smooth out any bumps in the road.

or short answer - yes

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Re: Can I retire at 55

#166664

Postby Quint » September 16th, 2018, 9:58 am

swill453 wrote:
BennGunn wrote:I have accumulated a DC pot of £470k and am undecided whether to take the full PCLS

...

I reckon it is doable, but I’m looking for a confirmation of that view and any advice regarding SIPP’s, draw down schemes and tax efficient schemes

Rather than take a full PCLS, you can use drawdown by UFPLS (Uncrystallised funds pension lump sum) where 25% of each payment is tax free and 75% taxable.

This year if you had no other income tax liabilities you could take a UFPLS of £15,800 and pay no tax (utilising the £11,850 personal allowance). With your wife's £11K it would be enough for your budget.

Scott.


That is a very good point, if you were to take the 25% do you have any plans for how to use it? Without taking the 25% you pot should be enough to fund your needs without taking too much risk, you could leave some in cash or bonds as a safety buffer (how much is down to your comfort level, I have 5 years of full income in cash and bonds. I may be being over cautious but I can do this and still have a sufficiently large equity portfolio to fund my needs). I also can jump in and out of work if necessary to fund either a full year or part year income. Until I reach 55 in just over 4 years this is what I will be doing, I have my income cash pot now funded until Dec 2019.


At the moment I have made no decision on how to access my SIPP at 55, either to take the 25% and flexible drawdown or take UFPLS but this is something that will be best evaluated nearer the time.

I should add that we are mortgage free, no kids and wife is 56 so can access her pension when she needs to. I need a further 2 years NI for full state pension. We also have stocks and shares ISAs that exist purely to fund holidays and travelling, these plans are flexible depending on the performance of our investments. We also live on 12k each to pay bills, food spending money etc and are finding this sufficient with some safety margin.

richfool
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Re: Can I retire at 55

#166673

Postby richfool » September 16th, 2018, 10:55 am

I took the view, (when I early retired) take the 25% tax free lump sum out of the pension and invest it into an ISA. If one leaves it in the pension to enhance the pension income, that pension income will be taxable, whereas income taken from the ISA won't be.

kempiejon
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Re: Can I retire at 55

#166676

Postby kempiejon » September 16th, 2018, 11:14 am

richfool wrote:I took the view, (when I early retired) take the 25% tax free lump sum out of the pension and invest it into an ISA. If one leaves it in the pension to enhance the pension income, that pension income will be taxable, whereas income taken from the ISA won't be.


Yes, another good point and depending on the size of the pot and individual circumstances that might be a better plan to reduce a tax bill but in the OP example and Scott's follow up, using the UFPLS the candidate stays below the personal allowance this year and could modify that each year to stay below the allowance. As we see in many of these examples individual circumstance become relevant.

BennGunn
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Re: Can I retire at 55

#166684

Postby BennGunn » September 16th, 2018, 11:55 am

I appreciate this may be a novice question: I'm curious about taking the 25% tax free lump sum, is it possible to invest that into a single ISA or will multiple ISA's be required

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Re: Can I retire at 55

#166686

Postby FredBloggs » September 16th, 2018, 11:57 am

But you don't need to do a UPFLS or whatever it's called. Take the full lump sum while you still can. Draw down the 4 percent or whatever income you like from the lump sum within an ISA(s) and draw the remaining 4 percent or whatever from the drawdown pot. Results are exactly the same. But with the advantage of having the larger lump sum in your hand and relatively safe from government rule changes.

Since you have two full state pensions in thirteen years time, you may wish to drawdown a bit more in the interim and a bit less in thirteen years once the state pension kicks in.

If you keep three years income in cash, this will allow you to ride through the 30 to 40 percent crash that will happen at least once in your retirement. Though will in turn reduce the potential yield from your drawdown pot.

FredBloggs
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Re: Can I retire at 55

#166687

Postby FredBloggs » September 16th, 2018, 11:59 am

BennGunn wrote:I appreciate this may be a novice question: I'm curious about taking the 25% tax free lump sum, is it possible to invest that into a single ISA or will multiple ISA's be required

You may need multiple ISAs if the lump sum exceeds 20k. But split the ISAs between you and the spouse anyway to get 40k a year joint ISAs allowances.

Alaric
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Re: Can I retire at 55

#166692

Postby Alaric » September 16th, 2018, 12:14 pm

FredBloggs wrote:You may need multiple ISAs if the lump sum exceeds 20k.


You take out one ISA each. You cannot each put in more than £ 20,000 in a single tax year. If you have more than that, you have to wait until the following year and then add more to the existing ISA. (That assumes you use Stocks & Shares ISAs rather than cash ones)

FredBloggs
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Re: Can I retire at 55

#166696

Postby FredBloggs » September 16th, 2018, 12:25 pm

Alaric wrote:
FredBloggs wrote:You may need multiple ISAs if the lump sum exceeds 20k.


You take out one ISA each. You cannot each put in more than £ 20,000 in a single tax year. If you have more than that, you have to wait until the following year and then add more to the existing ISA. (That assumes you use Stocks & Shares ISAs rather than cash ones)

Yes, I kind of thought that is what I said. But for example, if you are a couple and you invest on 5th and 6th of April in any tax year the couple can shelter 80k between them in ISA accounts.

monabri
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Re: Can I retire at 55

#166698

Postby monabri » September 16th, 2018, 12:28 pm

FredBloggs wrote:
BennGunn wrote:I appreciate this may be a novice question: I'm curious about taking the 25% tax free lump sum, is it possible to invest that into a single ISA or will multiple ISA's be required

You may need multiple ISAs if the lump sum exceeds 20k. But split the ISAs between you and the spouse anyway to get 40k a year joint ISAs allowances.


Hence the max you can "shelter" is £20k+£20k in any one tax year ( assumes you utilise both your and your wife's annual allowances". So, if you took out £120k as a tax free lump sum ( 120k used as an example) then you'd need 3 years to squirrel it into ISAs.

Where and how you invest the £20k & £20k each year is a separate question...

FredBloggs
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Re: Can I retire at 55

#166700

Postby FredBloggs » September 16th, 2018, 12:32 pm

monabri wrote:
FredBloggs wrote:
BennGunn wrote:I appreciate this may be a novice question: I'm curious about taking the 25% tax free lump sum, is it possible to invest that into a single ISA or will multiple ISA's be required

You may need multiple ISAs if the lump sum exceeds 20k. But split the ISAs between you and the spouse anyway to get 40k a year joint ISAs allowances.


Hence the max you can "shelter" is £20k+£20k in any one tax year ( assumes you utilise both your and your wife's annual allowances". So, if you took out £120k as a tax free lump sum ( 120k used as an example) then you'd need 3 years to squirrel it into ISAs.

Where and how you invest the £20k & £20k each year is a separate question...

Indeed you would, so if you are fortunate enough to have a 200k lump sum it would take a couple five tax years of joint ISA allowance to shelter it. I kind of think the typical LFer would work that out for themselves. But, you never know, I suppose.

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Re: Can I retire at 55

#166703

Postby tjh290633 » September 16th, 2018, 12:40 pm

FredBloggs wrote:
Alaric wrote:
FredBloggs wrote:You may need multiple ISAs if the lump sum exceeds 20k.


You take out one ISA each. You cannot each put in more than £ 20,000 in a single tax year. If you have more than that, you have to wait until the following year and then add more to the existing ISA. (That assumes you use Stocks & Shares ISAs rather than cash ones)

Yes, I kind of thought that is what I said. But for example, if you are a couple and you invest on 5th and 6th of April in any tax year the couple can shelter 80k between them in ISA accounts.

You can only do that the first time. After that it is the full allowance on or after 6th April each year.

TJH


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