Retirement lump sum

[damekindness]

I’m in the lucky position to be retiring (age 65) at the end of this year. I’ve no debts and mortgage paid off. I’ve got a moderate DB pension of 26K a year. I have a lump sum and redundancy payment of circa £150K. I want to be able to draw down 1K a month to top up my pension till I get the state pension in 2 years. I’d vaguely like to eventually use some of the lump sum to renovate/tidy up the house/put in a downstairs loo etc

I have no clue about managing finances - I’ve only ever used a current account and a small savings account. I’ve no idea what to do or where the best place is to put the money.

what would you do in this situation? What do I do?

Probably inappropriate but can I move in with you?

Speak to a financial advisor. Ours charges a small annual fee and is independent of investment companies etc. Well worth the cost.

I want to be able to draw down 1K a month to top up my pension till I get the state pension in 2 years

You can't do drawdown from a DB scheme. Do you mean you want to take enough tax-free cash at retirement to give you £1k per month until state pension age?

Eta, if by drawdown you are talking about the separate redundancy payment ignore me!

Do you mean you want to take the £1k per month from your lump sum?

What I mean is that I’ve done the calculations for the amount of money I need to live moderately comfortably - the amount I’m happy with is my monthly DB pension plus £1K - for two years it’ll come from my lump sum

Do you have a choice on how much of the lump sum you take? Possibly you could reduce the lump sum and have a bigger pension - it’s called inverse commutation.

How much do you intend to spend on your house renovations/big holidays/etc?
How much of that 150k is the pension lump sum and how much is redundancy?
Have you considered taking a smaller pension lump sum?

I think OP wants to take the tax free lump sum and use some of it to supplement their pension by 1k each month.

I would just look at the best rates on savings accounts and put what you can into a cash ISA each year. Personally I wouldn't invest it in the stock market in this crazy world at the moment. I'd spread your money over at least 2 banks in different banking groups to protect you in the unlikely event of a bank collapse (although the government also protects up to a certain amount too )

https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/

https://www.moneysavingexpert.com/savings/best-cash-isa/

Oh and don't tell people about your lump sum if you don't want people suggesting ways to spend it in their interests!

Your lump sum isn’t a pension pot so there’s no complexity around how you use it. You need to find the best saving options and to maximise your ISA allowance as you’ll be paying tax. You probably could do with some advice to get started and then you can learn to manage it yourself on a platform like Hargreaves Lansdown.

Surely that depends on where the lump sum is invested and the terms and conditions attached. Look at the Ts and Cs and see what it says about drawing down a lump sum. If you can do it with any, or any great, penalities, draw down £25K (small extra!) and put it in an instant access savings account so you can spend the money as you need it.

Hargreaves Lansdown would suggest investing in stocks?

Remember stocks can go down and consider if you want to invest (potentially higher returns but the risk of losing money) or put your money in savings accounts where it is pretty much safe and you get the specified rate of interest.

As you want to spend a lot of your money in the next ten years and the world is extremely volatile I'd go for savings accounts/cash isas and play it safe.

Have you used your ISA allowance for this tax year, if not pay the allowance in next week if you have the money.

The split is around 50K redundancy and 100K pension lump sum. I could take less and increase my pension by a few thousand a year but I want to have some significant savings for house/health/car sort of things. I’d like to put the money somewhere that’s safe in the meantime

You can do a cash ISA not just a stocks and shares ISA, but yes a combination of tax efficient savings and a balance of risk and accessibility.

Definitely get some professional advice OP.

If I’m reading it right the £150k isn’t in/from a pension? As I understand it you wouldn’t be able to put it all in a pension to access drawdown. Annual allowance limit is currently £60K if you’re working(reducing significantly of you’re not).

They’re might be options open to you you however.

It’s worthwhile getting advice to make sure you use allowances open to you and avoid any tax pot holes.

@bob1985 where would I get professional advice and how much would it cost?

It’s not a pension pot it’s a redundancy payout so she has already paid tax on all but 30k of it presumably

I’m leaving this year 53 and pull my pension at 55.

I can take a tax free lump sum of £150 K and then my pension at 55 is £25 K a year. I can take more as a lump sum and you can play with these figures but if I take more my pension per year drops.

we have already maxed out ISAS so we aim to use my tax free lump sum to get 16 solar panels. Invest most of it. Gift each child some money etc into a LISA about 50 K each. My husband has a pension to0 and it’s similar we are going to buy a decent camper van and travel.

If you are in a trade union, some have links to financial advisors familiar with final salary pension schemes. Of course, there are lots of financial / tax advisors around and many will offer a free initial meeting.

@PinkTonic Yes - it’s not a pension pot - it’s a mixture of lump sum and redundancy

If you seek advice find out whether it is completely impartial advice that you pay for or whether they get a commission for investing your money in certain products.

I believe they are supposed to tell you if they get commission. I'm sure others know far more than me about this and hope they can offer advice. I'm just wary of you being advised to invest in what makes the advisor the most money.

See if you can find some local independent financial advisors and get some quotes. Typically they take a %. There will be better ways to look after 150k than a savings account in a bank but you need advice.

Agree with this. You need £24k to cover the £1k a month over the next couple of years. I would treat the rest of your lump sum/redundancy cash as money you need to cover one offs until the end of your life from house repairs, adaptations, moving costs to buying in services. I would put this into savings accounts and safe government bonds at the moment and then drip it into ISAs. I wouldn't want to put it into the stock market at the moment. If the world becomes more stable, then I might drip some of this into shares over a period.

However, you really want this money to be kept at the low risk end of the scale given that you won't be earning again in future.

I wouldn't sacrifice a lump sum for extra pension income as you just end up paying tax on that as you receive it whereas the lump sum is tax free.

I don’t think a financial advisor is justified in these circumstances as it sounds like you will want to use this money in the next few years. My suggestion would be to put £20k in the highest interest cash ISA you can find before 5th April then another 20k later in April. The rest will need to go in a standard savings account with a good interest rate. Withdraw your £1000 a month from the standard account not the ISA and add to the ISA at the beginning of every tax year. The interest from the non ISA account will be taxable but if you are a basic rate tax payer the first £1k is tax free. The bank will report your interest directly to HMRC so its not too complicated to manage yourself.

if you intend to hold the money for at least 5years then it might be worth talking to a FA as you should be looking at S&S ISA’s to maintain/increase the value of your cash.

How is this of relevance to the OP?