How to prepare for retirement

[Wishimaywishimight]

I'm not quite there yet (both DH and I mid-50s) but I do think of retirement from time to time. Neither of us are/were high-fliers, current salaries c. €50k each gross. Fairly good at saving and I'm just wondering is it time to be less cautious / more spendy i.e. enjoy what we have while we are not quite young but not old either and currently (thankfully) in good health or if we need to be saving harder.

It's all very vague I know! I did a virtual consultation a couple of years ago with a financial planner but as we are pretty risk averse there was little in the way of advice that he could offer.

Our situation is that we are mortgage free (just since last year), no children. Currently saving around €2,500 per month - some into a holidays account but the rest of it vaguely for a car upgrade sometime this year, getting stuff done to the house etc.

We both have pensions that, at present, would pay out c. €45k (between the 2 of us) and DH gets a lump sum on retirement of just under €100k. Savings in total of around €60k.

Any thoughts? I don't want to be frivolous but at the same time I wonder if we should be enjoying our money a little more than we are!

Does that £45k include state pensions?

No, that's just the private pensions. State pension is €266 pp (from age 66 currently) in Ireland so would have that also.

Do you want to work until you are 66? That would be my priority. We retired before SPA.

@Faketanisapain No, I would hope to retire before 66. My work pension scheme retirement age is 65 so I assume that is the earliest I can reasonably retire.

Work out whether you want to retire before you can draw your pension, and how much savings you would need to support that.

Once you hit 60 you might well wish to retire at 61 or 62. I would start putting as much as possible of your savings into a fund for retiring earlier than 65.

I'm not sure how it works out best tax wise in Ireland - here in the UK it would be best to put it in ISAs so that the interest is Tax Free - or put it into your private pension, if that's what you have, because the Gvt would top it up by 20%., and you can currently stat drawing your private pension 10 years before state pension - but that's England and Wales - you need to check.

@BoudiccaOfSuburbia I have read about ISAs but I don't think we have anything like that.

For the past few years I have been topping my pension up with AVCs and plan to do this again up to the max allowed.

The pension documentation states retirement age is 65 however I will check what happens if I chose to retire early. I am hoping to go down to a 4 day week from next year too so this will affect the pension also.

Spend 10% less every year.

This is always a very personal decision but my advice is to do the following:

• state pension - check you meet the eligibility criteria. I was 3 years short (England) so I factored in 3 years NI to get a full state pension at 67.
• expenses - do a fully costed monthly expenses, including annual bills, gifts etc. now and then look at where you are likely to spend more or less once retired. I spend far less on public transport as I no longer commute to work but far more on petrol as I have days out.
• Private/work pensions - you should have annual statements, if not get up to date figures. Get estimates if you take your pension early, I worked out the reduction meant I got slightly less for longer but by age 80 I broke even. I chose longer retirement e.g. 20 years rather than 15.
• Check if your work/private pension is index linked, this makes a huge difference.
• Work out big costs e.g. home improvements, cars and travel. I ring-fenced a pot for travel and for home improvements. The idea is to travel in the first decade + with a view to slowing down or travelling to Europe rather than global as I age/ mobility is impacted.
• Part time - I do recommend phasing into retirement 4 days then 3. I had Wednesday as my NWD so I could do classes or trips mid week to get used to it. Going to the Cinema in the afternoon mid week is a revelation - sometimes I’m the only one!
• The hardest part is actually spending my savings and I often tell myself I can’t take it with me!

HTH

@Harassedevictee Thank you so much, setting out the points like that is extremely helpful. I am actually going to print your response and work through it, it will definitely help clarify my thinking.

I particularly like your last point 😀

Im in Ireland. I’d say;
Max AVCs for the tax benefits.
I have 3 savings accounts. Discretionary, essential like boiler & long term.

Also look at your house, what will you have to do to future proof? Boiler, windows insulation?

https://www.amazon.co.uk/Enough-Much-Money-Need-Rest/dp/1530800552#:~:text=How%20much%20money%20do%20I,to%20live%20your%20life%20smarter.

I like the principles laid out in this book

Roughly:
Work out your expenditure, normal plus all the one offs / occasionals.
Work out your income streams.
Work out your assets and then how much of those you would need to draw each year to cover your outgoings.

I have a massive spreadsheet of each year forever after with expected incoming and outgoing, which I track against so I know if we have spent more / less or if our investments have earned more / less than expected.

I did a huge overhaul of pensions recently to work out where we are, partly as school fees are kicking in and I wanted to see the financial impact. Which, as it happens, looks like 2 years extra working for DH and I.
As a pp said you need to work out everything you're entitled to (state and private) and when you're entitled to withdraw. Private pensions are moving to age 57 from 2028.
Then use a spreadsheet to work out gaps. DH and I will likely take lump sums at 57 to repay the mortgage. Then continues to work to 62. We will then fund 2/3 years through ISA savings before drawing down on private pensions age 64/65. Then state pensions kick in age 68 at which time we could draw less from the private pots. You also need to work out how much you need to live on which will drive his much you need to fund those gaps and also how much you need to draw from pots (maybe more in younger years for example)

@VaddaABeetch That's largely what I'm doing - I'm not quite at the maximum AVCs but plan to increase again in January (we can only do this once a year).

With regard to the house, we've had some 'big' work done in the last few years - bathroom refurb, new kitchen, new boiler, new windows & front door and new burglar alarm system!

@Chewbecca Thank you for that recommendation, it looks really useful so I am going to get that! I baulk a little at the idea of a "massive spreadsheet" but I do agree with you that it is a great idea so I will start on setting that up.

@Heatherbell1978 I definitely need to look further into my private pension. DH's is more clear cut, he is a civil servant on a defined benefit scheme, he has been there almost his entire working life and will have a decent enough pension with a lump sum on retirement (at 60!) so I am definitely lagging behind (although we largely pool our money now and will continue to do so).

Thank you all for your advice and suggestions, I really do appreciate it.

I am thinking that we are probably not in a bad position and I might loosen the purse strings a little and treat ourselves more in terms of eating out, weekends away etc while we are 'young' enough to enjoy them!

I am going to go opposite everyone else and say enjoy yourself now, you never know what’s around the corner. My then 62 year old DH was fit and we thought healthy, working 40 hours a week, dog walking 2 hours a day, he then had a heart attack, although mild, needing a triple heart bypass. Whilst he has fully recovered now, he had to stop working as a bathroom installer. We are ok financially, thanks to inheritance, but have to be a bit careful with our spending now.

@Mindymomo I think this is exactly where my true concerns lie!! We are being so sensible with regard to savings, pensions etc that really what I was asking (but not expressing very well) is "is it ok to let loose while we still can" and spend more money on enjoyment instead of watching it build up in the bank.

DH and are are in our 50s, only too aware that health issues, serious ones sometimes, can start to kick in. We both love to travel and I think what I am doing is (ridiculously) asking permission to relax a little more. I thought I would instantly become more relaxed around money once the mortgage was paid off but, in truth, all I did was divert those funds into various savings accounts.

I somethings think too much about the bad things that can happen - will we have enough saved in case we need additional help at home (in our later years) or if one (or both) of us end up needing residential care but I don't want to focus on this so much to the detriment of the present.

We have only recently made Wills and I think this has made me think of the future a little (or a lot) more than I had been doing!

I'd ask all your pension providers for a transfer value, which is the amount that you would get if you took it early.

Then once you have those from them all, plug them into a spreadsheet and start looking at the maths.

I retired at 53 3 years ago. Well I took redundancy with the aim of transferring my pension to a provider that could give me a monthly income. My OH had done the same 2 year earlier and we then bought a house in france, me using savings and him using some of the drawdown money, moved here and rented our house out in the UK. I then transferred mine to an offshore provider and get a decent amount each month. This then pays for all our needs and is used to provide proof of income to for our visa and carte sejour.

You seem financially fairly well set up.

You are right that health issues can kick in - and take it from me(I'm disabled) it's not as fun travelling etc afterwards.

Enjoy yourself a bit.

@AlisonDonut I plan to contact my pension provider and check out what the situation would be if I retired at 60 (same as DH) and see if it would be possible. I suspect not to be honest, and would be quite wary of relying on a reduced pension for a full 6 years (likely to be more by that stage) until I can get the state pension however no decisions can be made until I am fully armed with the facts!

Your situation sounds wonderful, I hope you are loving life in France!

@Octavia64 Thank you - ridiculous as it sounds and while validation from strangers should not be needed, it is good to hear that it would not be wildly irresponsible to enjoy our money/lives while we still can.

How about having a pot of money, for example £500 per month for fun stuff and possibly a holiday one too or whatever you think would work best for you both? Then you could enjoy like a bit more now and know the money you are spending is budgeted for.
It sounds like you are in a good financial position.

Question. I understand that if I pay additional AVCs into my work pension that these go in before tax,and I am taxed on the remainder of my income? I am in Scotland and as I earn just over 43K that puts me in a higher tax bracket. So it seems sensible to pay enough AVCs to drop medown a bracket on taxable income.
However,when I come to draw down my pension, I will be taxed on it anyway so am I gaining anything?

Hedjwitch Will you be a higher rate tax payer when you get your pension?

Sorry,I dont understand.
Oh, wait. You mean will my annual income from pension take me into higher bracket?

No chance. I want to retire before 67( I'm 60) so it wont be enough to make ends meet without being supplemented by savings.

Actually my massive spreadsheet is what allows me to spend and potentially doing the planning might allow you to cut down / stop earlier than you think.
I now feel confident drawing £x from our savings / investments each year because I know it will last.