Various retirement pots, WWYD?

[Crispypen]

I'm 55 and planning early retirement. I've taken advice and I think I know what I plan to do, but interested to see how others view things. My situation is:

S&S ISA £120k
Private Pension pot £140k
Other savings, including some ISAs c. £280k.
An old final salary scheme which will pay £18k pa once I'm 60 (or less than that if I take it now).
Another final salary scheme which will pay £11k pa when I'm 67 (or a lot less than that if I take it now).

Plus a little "retirement job" a few hours a month which pays £4k pa for now.
And the State pension when im 67.

My current income on savings and investments is c. £20k pa

My salary is currently £70k, but I reckon I need £40k pa to live well.

How would you draw that from the assets I have? I'm thinking leave the pensions as they are until the normal retirement ages for the schemes and use a FIRE type plan for the years between now and then.

MSE has a pensions forum with several experts on.

With all of those different pots, it might be worth taking some independent financial advice as you’ll need to check the tax implications.

Yes, I've taken professional advice and based on that I think I know what I plan to do, but there are still choices to be made.

I would do the following:

• continue your £4kpa job to age 60
• Use all of your £120k S&S ISA to give you a tax free income of circa £12750pa from now to age 66
• Use your pension to give you a taxable income of £25k from now to age 59 then take circa £5k pa until its gone. This is for tax efficiency as at age 67 you will have taxable income of circa £41k without this pension, if you use all the ISA's first and pension later you risk a 40% tax rate (under current rules)
• Draw down on your other £280k to give you what you need pa, eg take approx £11.5k pa up to age 59 and then £16.3k pa to age 66 and £14.7k pa from then on

I think this would give you an income of circa £50k pa depending on your exact tax circumstances up to age 92ish assuming a post inflation return of 4%pa on all your investments. From then on you would still have your 2 DB schemes and SP. The above also assumes you retire now at 55.

There are obviously lots of different combinations you could do but the main principle would be to minimise tax by using up your taxable income from your private pension when your marginal tax rate is low between age 55 and 59.
By the way I am not a financial adviser so you would need to sense check this with someone more knowledgeable.

Agree with pp about spreading the pension withdrawal, to use your full tax-free allowance, and taking it early to avoid higher rate tax.

Be wary to only take tax free lump sums from your pension until you leave your £70k job for good, in order not to trigger the money purchase annual alliwance. Until you do leave that job, I'd put most of your salary into your pension, taking only £13k per year which is tax free. Then you get the tax benefit of deferring your income, especially since you're a higher rate tax payer and your pension lump sum will be within the amount Reeves is likely to leave in place after the budget. Use your savings to make up the money you need for those couple of years.

I say a couple of years.... because I'm not sure I'd feel comfortable retiring immediately - see below. I'd do a couple more years at the £70k job, putting everything in pension. If Reeves removes the pension tax relief, I'd go down to part time in that job, perhaps for slightly longer.

Reasons I'm cautious:
1.Inflation is high just now, over 4%. What £40k buys you now, you'll need £60k for in 10 years time. Inflation could get even higher: we have turbulent economic times ahead. At least some of the income you mention on your savings/investment is actually that inflation. (presumably the £20k you mention is your return on your £280 pot, and your isa and pension are increasing similarly btw)

2 I assume your final salary pensions are index linked. Up to what % and is that enough in times of high inflation? (I'm assuming the amounts you gave are the values as of now, and will be higher in 5/12 years time?)

3.From 67, your final salary pensions + state pension are £40k. But that's only £32k after tax, especially if Reeves adds NI to pensioners which seems likely. That's only going to get worse with thresholds frozen until at least 2028 and counting and high inflation. Is it £40k gross you need or £40k net? If net, then you need about another £10k of income per year for the tax, which you need about £250k to generate for 30 years (using the 4% rule)

4.You probably do want to have a small nest egg of extra savings, in case of unexpected expenses.

It does depend on your personal circumstances though. If you're married and your DH has a similar/higher pension, you can take more risk. If you have a house you could do equity release on, or a possible inheritance, that also changes things. Likewise, if you have health worries I'd consider what's important to you. And it all comes down to your attitude to risk/your world view.

Finally, think about your strategy for moving into lower risk investments. I'd be getting all the savings into an ISA wrapper - some cash ISA if you like, but I'd probably go for money market funds and gilt ladder in a S&S wrapper.

You'll have to think about whether to take an annuity with the £250k you've set aside for your post-67 income to supplement the DB pensions, or whether to leave that invested (in which case your investment timeframe for that portion is longer). I'd be leaving it invested for the extra flexibility given that you also have final salary pensions. (If you did want to buy an annuity, then keep the pension for that)

Once you've had a few answers, do tell us what your Financial Advisor recommended! I'd love to hear their take - it's an ongoing education!

Oh, and definitely leave your final salary pensions as they are.