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Retiring very early- what do I need to consider?

113 replies

BippityBobbityBoo · 28/07/2022 10:04

I’m 42 and planning to retire early, probably next year, I earn £40k. My DH is already retired and mortgage is paid off. We will probably downsize and will live off the proceeds, some savings and his small pension. He will get state pension in 5 years and I may do some small jobs to bring income (cleaning/care) My pension pot isn’t very big. What can I do to make sure I have a good pension? Thanks

OP posts:
Mia85 · 28/07/2022 15:19

I’ve just checked my pension, it’s private sector. It’s called a sustainable multi asset pension fund if that means anything to you? Total plan value is £68k currently.

Ok so it sounds as if you have a defined contribution pot of £68k (probably with Standard Life but that doesn't really matter) and no other pensions? Can I check where the £5k p.a. number for your pension came from? Was it on your pension statement? You wouldn't be able to get £5k a year from a £68k pot so my guess is that this is the amount they predict you will be able to take at retirement if you keep contributing at the same rate until then Do you think that might be right?

I completely understand why you are thinking about this but I would definitely take the advice here and sit down with an IFA to make sure that you really understand your current position and what the future might look like. Poverty in old age is miserable and you're completely right to want to plan to avoid this rather than relying on vague assurances. Make sure that you understand everything before you get too carried away!

dolphinsarentcommon · 28/07/2022 15:19

We both retired mid 50s. We live quite happily on £25k in pensions.

If DH predeceases me before my state pension it'll be tight but I'll sell assets or get a job.

Do it OP. Too many people miss years of freedom saving for an old age they may not have.

Ergonomic · 28/07/2022 15:20

Do you have any experience working in care OP? It isn't all lovely old ladies and cups of tea. It's not always that 'fulfilling'. It's hard work, distressing at times and long or unsociable hours.

Wam90 · 28/07/2022 15:32

If you’re interested in caring then you could join a local hospitals nurse bank as a health care assistant. Look at how many shifts you’d need to do a month to earn enough to keep contributing to your pension pot and you’d also be in the nhs pension scheme which is beneficial. You could still enjoy time with your husband but also keep contributing for the future.

rhowton · 28/07/2022 15:39

I would sell your house, and buy two properties. One to live in, and one to rent out, and have that as additional money. Or due to your age, sell your house, live in one and buy a few houses and mortgage them.

FrownedUpon · 28/07/2022 15:43

Sounds like a great idea. There are so many better things to do than work! Just tighten up your financial plan & make sure you’ll be ok if your DH dies. Good luck.

ChokerWithaSeaView · 28/07/2022 15:50

I retired early

My God, the boredom

LiveintheNow · 28/07/2022 15:53

BippityBobbityBoo · 28/07/2022 13:28

Thanks so much for all of the advice!
I realise our plans are vague, DH is even more vague, you’ll be alright, won’t leave you destitute etc… but I want to know that I’ll be ok.

the sabbatical is a good idea and I hadn’t considered that so thanks. My employer allows 12 months sabbatical so I think I’ll start with that.

Thanks for the NI voluntary contributions advice and the state pension calculator advice too! I’ve had a look and I will get maximum state pension with 5 more years of contributions. My DHs pension would give me a widow pension of £5k and my own pension another £5k. We do live frugally so I think I’ll be ok and I do have a better idea now but will also see an IFA.

thanks for the Airbnb ideas, all good advice. We also have some savings and shares and about £350k in the house. Up north so housing is cheap. I’m also keeping my fingers crossed for a redundancy package with 22 years service.

I don’t want a career change, I don’t want to work! Was a teen mum and want to be free and selfish! 😊

Did you mean 15 more years of National Insurance contributions?

You need at least 35 years, some people need more due to being contracted out.

Also private pensions are changing to 57 as the age you can take your pension, 55 at the moment.

Stuffin · 28/07/2022 15:53

ChokerWithaSeaView · 28/07/2022 15:50

I retired early

My God, the boredom

Surely then you would go back to work or volunteer if you are that bored?

BippityBobbityBoo · 28/07/2022 15:55

@Mia85 yes it’s standard life and yes I guess that’s the worth if I continue to pay in. I can alter the retirement age to 55 that’s the lowest it allows and it says £6k a year from 55 and £15.6k pa from age £68. Would I be able to start paying privately into this up until age 55?

OP posts:
BippityBobbityBoo · 28/07/2022 15:56

LiveintheNow · 28/07/2022 15:53

Did you mean 15 more years of National Insurance contributions?

You need at least 35 years, some people need more due to being contracted out.

Also private pensions are changing to 57 as the age you can take your pension, 55 at the moment.

I thought it was odd too but it definitely said 5

OP posts:
BippityBobbityBoo · 28/07/2022 15:59

Here it is

Retiring very early- what do I need to consider?
OP posts:
BippityBobbityBoo · 28/07/2022 16:09

It just occurred to me that I had my first job at 12 as a glass collector 😆. So I actually have worked for 30 years. I can’t possibly have paid NI from then can I?

OP posts:
ChokerWithaSeaView · 28/07/2022 16:10

@Stuffin yup, sure did!

BippityBobbityBoo · 28/07/2022 16:19

rhowton · 28/07/2022 15:39

I would sell your house, and buy two properties. One to live in, and one to rent out, and have that as additional money. Or due to your age, sell your house, live in one and buy a few houses and mortgage them.

Good for thought, thanks!

OP posts:
polka6 · 28/07/2022 16:21

I don’t understand this thread at all. If it’s so easy why is everyone else working ? If people stop at 40, who’s paying for their existence for up to the next 60 years??

Mushroo · 28/07/2022 16:21

I could be missing something but I don’t see how a £68k pot will lead to £5k a year in retirement.

Even if you don’t touch it until you’re 68, and it goes up to £80k, on draw down for 17 years (so to 85) you would get £4.7k a year, and that would be all the money gone at 85.

To buy a guaranteed income of £5k a year (so an annuity) from the age of 68, would need a pot of well over £100k.

the above is all based on your retiring at 68, what will you live off in the meantime?

BippityBobbityBoo · 28/07/2022 16:25

polka6 · 28/07/2022 16:21

I don’t understand this thread at all. If it’s so easy why is everyone else working ? If people stop at 40, who’s paying for their existence for up to the next 60 years??

I suppose it depends on individual circumstances. In my case I bought my house young and paid off the mortgage early and it’s increased in value more than I could have imagined. Also married to an older man who now has a pension and we have some savings and investments.

OP posts:
Mia85 · 28/07/2022 16:32

Mushroo I think the pension calculator that she is using is based on the assumption that she and her employer keep on contributing at the same rate until she retires i.e. the pot will be significantly larger than it is now when she retires. If she is planning to stop working then obviously this won't be the case so she needs to make her plans on her current pot and not these predictions.

OP you can add to a pension if you are not working (I don't know whether you could add to this one, but you could open a sipp) but the maximum you can add each year is £2880. You still get tax relief on this even if you are not working so that takes it to £3600 maximum each year.

seekingasimplelife · 28/07/2022 16:50

I retired very early and would definitely recommend it.
Here's what I would suggest you think about:

Top up your NI contributions to max state pension entitlement.

Your current private pension provider - look at it's performance record and fees. Can you transfer to one with lower fees; better growth record; easier to manage funds yourself. I found Vanguard Life Strategy funds and Aviva are both very easy to manage online with low fees, but undertake your own research. Trustnet is an easy way to investigate fund performance.
This can make a big difference to your final pension pot and it's worth spending time doing well - you don't need a financial adviser for that. Look into it yourself and keep a close eye on it - review it at least every quarter. You may need to wait until you leave work, if your employer currently contributes, before moving it.

You can invest your entire year's salary in a pension, and receive a 20% tax relief top up.. If you are planning to leave work next year and manage without an income - why not invest your whole salary now, for the year ahead, into your pension to give it a big boost before you leave? It will also give you a trial run of how you will manage without that income.

If you have spare funds from your house sale, you could invest in another private pension to make use of the tax relief uplift. If you are not working you can invest £2880 per year which will be topped up to £3600 by the government. You could access this smaller pension first for the initial few years when you reach qualifying age (likely to be 57), leaving your main private pension to grow and minimise tax liability.

Take time to consider before leaving the property market or downsizing. Property values can and do rise very quickly - often more quickly than pension investments - though that is by no means guaranteed. In general terms a house is usually an appreciating asset, whereas a houseboat will lose value year by year. Also, in years to come you could consider an income from equity release. Schemes are very much better now, and often very flexible and well regulated.

If your DH's pension income is below the threshold for income tax, it might be worth looking into putting some savings into an immediate vesting pension for him (pays out straight away in a lump sum but still attracts tax relief of 20%). There is an annual limit on this as he is already retired.

As interest rates are rising, keep an eye on pension annuity rates for your DH, (and yourself as you approach retirement age). They have been very much out of favour for years as payouts have been very low, but they are creeping up as linked to interest rates. They may become an attractive option if rates increase further. They provide a guaranteed rate, which can be index linked, and provide for a spouse. They can also be time limited to bridge the gap years between claiming a private and state pension.

If you will be asset rich but income poor, don't forget to check if you or your DH are entitled to any benefits - pension credit, winter fuel discount, council tax discount. Your savings may not allow it but worth checking.

Pensionwise is the free impartial advice service provided by the government to advise on those with a defined contribution pension pot, so worth using if you need to for pension advice - you don't have to be retired to do so.

Sorry it's long - hope it helps, and good luck!

seekingasimplelife · 28/07/2022 16:52

@Mia85 - oops sorry, cross post about adding to a pension if not working!

leatherboundbooks · 28/07/2022 17:01

Living on a narrowboat isn't always the cheap option many think it is. Licences and insurances need to be kept up to date, boats need regular maintenance, engines have problems, they need bottoming every so often, if you're touring rather than at a marina you have to keep moving and you can't go back to a mooring for a certain length of time, not all touring mooring places are accessble for a car if you still need one, and many canals are pretty remote if there is a problem, even if you just run out of fuel. If you're at a marina you have those fees,but getting fuel, water, pump outs etc will be easier, I imagine that you will need to keep paying for a berth if you want to come back to it after touring, never done marina living
You have problems getting your post, and things like doctors if you are touring, you need an address on shore really that can take things in
It's great for a few years but most people I know who've done it haven't done it for ever. It can have it's challenges on top of everything else, if you have a broken limb perhaps, or end up even temporarly needing mobility aids [as you approach a hundred lol]
If you do want to do it find out ALL the costs involved first.

BippityBobbityBoo · 28/07/2022 17:02

Ergonomic · 28/07/2022 15:20

Do you have any experience working in care OP? It isn't all lovely old ladies and cups of tea. It's not always that 'fulfilling'. It's hard work, distressing at times and long or unsociable hours.

Only the seven years I’ve cared for PILs. They live with me and have continence issues etc so I’m under no illusions. But no, no official experience. It was just an example and if I hate it I’ll do something else.

OP posts:
Mia85 · 28/07/2022 17:05

Here is a calculator you can use to play around with what you could get from your current pot at different ages www.standardlife.co.uk/retirement/tools/retirement-calculator It's definitely not a substitute for seeing an IFA but it will give you an idea that is more accurate than using the predictions based on the assumption you carry on working. Note that if you look at drawdown then the pension is not guaranteed so you may well run out of money.

Not to be too pessimistic but I would think carefully about the risks here. It looks as if we're in for a period of high inflation, poor (falling?) stock markets and quite possibly recession. The public finances are in a mess and it wouldn't be surprising to see the state pension get less generous or further away for people who are currently of working age. It also wouldn't be surprising to see benefits get cut further and become harder to access. I would be vary wary about planning for a retirement largely on the basis of what the state pension might be in 25 years. I would do what I could to increase your pension as much as possible whilst working.

I'd also think very carefully about what life might be like when you are of older working age in this plan. It sounds as if your DH will be in his late 80s by the time you reach retirement age and with the best will in the world there has to be a significant risk that you are widowed before then (sorry). Even if the £5k widow's pension has fantastic inflation protection it is going to be a long way short of meeting basic living costs. It could be very tough trying to get into the job markets after a very long break and when you are of an age where physically demanding work would be difficult.

Personally I would work to getting myself in a stronger financial position before opting out of work completely but I'd make changes to work/location etc to get a good life balance whilst doing that.

BippityBobbityBoo · 28/07/2022 17:07

@seekingasimplelife Thanks for the long post! Great idea to add a years salary to the pension and see how we manage without it
also good advice about property, I think maybe a narrow boat isn’t the best option. Thanks @leatherboundbooks for the details.

thanks again @Mia85 I will
speak to
pe soon wise and look into seeing an IFA

OP posts: