Pension savings on track?

[LemonTwix]

I’m 56 and just been made part-time at work (not my choice) which reduces my pension payments by about 80% as I had been paying in as much as I could. I’m trying to work out how much effort I should put into finding a full time job, as I like being part-time, apart from financially. I was on £50k when full time, I’m now on 60% of that.

I want to retire at 60, and to have about £30k a year to live on. I would possibly work past that age but I intend to move out of London then and not sure how easy it will be to find work (I do admin, which is disappearing) so am working on assumption I will stop work.

I am mortgage free. No DC and no partner.

I intend to free up £60k by downsizing (and have taken into account stamp duty etc)
I have £360k in DC pensions
I will get a £5k p.a. DB pension at 65
I have £90k in ISA savings
I’ve done enough years for full state pension

I keep swinging between “it’s all fine” and feeling like I’m deluding myself. I know about the 25% tax free, and have vaguely thought about inflation though that’s mitigated a bit by state pension and DB pension going up with inflation. I don’t think the above brings me quite to £30k (from ages of 60 to 90) but seems close.

Should I relax, or pull my finger out and find a full time job?

My honest thoughts is you have enough. I would stay part time, enjoy my life and just adjust the original plan. I hope you have lots of lovely things planned for yourself!

I too think you're fine. I'm nearly 57 and just retired from teaching. My pension is just under £19k, I have a self employed/freelance job that gives me about £7k and I'm fine. Got 3 holidays booked for next year. Mortgage is paid, no debts, kids all independent.

Thank you both, that’s reassuring.

I think you’re absolutely fine op.

absolutely enjoy the part time. Defo much better to take time off when you’ll enjoy it.
justify it in your head by doing more exercise aka your health pension

You need about 750000 in today’s money for £30k per year (before tax) - but you can take off your private and state pension when you get those

I was the same, going back and forth with the numbers, I am quite cautious so was nervous to go but stress and working long hours were causing BP issues so left in July this year.
What really helped me was using the Guiide website (two i's are correct!) and its free! You can play around with how much you want to drawdown, if plan works with different scenarios etc, so helpful, either to put your mind at rest or work on a new plan
Guiide

I think the Guiide site would be a good idea for you. However if you assume the following

• 90k savings and £60k equity (total £150k) could be used to fund your £30kpa for the 5 yr period from 60-65 when you have no state or DB pension. Ignore interest and inflation as they roughly balance out (you will need to keep that 90k in a high interest account to cover inflation)
• You continue to make contributions to DC scheme for the next 4 yrs whilst you are working - say £100 pm total between you and employer which is less than the standard 8%
• DC pension grows at 3% above inflation every year
• Use tax free cash from your DC to cover the £25k you need on top of your DB for 2 years from 65 to state pension age

You are then left with a DC pot of about £450k (today's value) at state pension age (67). You will need £13k pa (after tax) so can continue to withdraw £13k cash tax free for another 3-4 years (should be covered by investment gain in pension so assume no loss of capital) but will then need to withdraw more to cover the income tax, say about £16.5k which would be 3.6% of your DC pot.

The usual max withdrawal rate has been estimated at 4% so I think you will be OK as long as you carefully monitor the DC pension investments. You need to ensure that you are not at risk of your pot losing value if the markets start dropping. If the investment return drops to 2% over inflation your withdrawal % is over 4% so it could be a bit tight as you get older. If I were you I would stay part time and enjoy the slow down in pace but still pay as much as you can into your pension whilst working and monitor the investment performance to balance the risk and growth. (Not financial advice as I am not qualified in that but I do like spreadsheets) Good luck

Note re above - I have assumed you are looking for £30k pa after tax. If you meant £30k before tax then that would be even more doable as your ISA and equity will last a bit longer and you can withdraw less from your DC pension.

Are you sure you need £30k per year in retirement though?

Thank you - I’ll have a look at the website. And thank you @Mumski45for taking time to break down the numbers. I was originally thinking £30k after tax, but £30k before tax, taking into consideration the 25% tax free would give me £2k a month after tax I think. That’s definitely enough to live on and have a nice time with small holidays and hobbies, though bigger bills relating to the house would knock it down - boiler etc.

The £90k savings is currently in a stocks and shares ISA in some higher risk stocks (as pension is in a safe default one). I think in a couple of years time I will split the £90k into half for pension (for the tax relief) and into a cash ISA and normal savings account so that I’m not so at risk of markets crashing and having to take a hit.

I think if I have the option I will try and up my days from 3 days to 4 days a week at work, they might allow it in coming months. The loss of one day a week over about 3 years has very little impact on the next 30 years. I think it’s case of ‘I am where I am’ at the age of 56!

OP - YouTube is your friend! Rebel Finance School (free course) will talk you through bridging the gap between retirement at 60 and state pension at 67. As well as their videos, they have excellent spreadsheets to download.

Also look at James Shack and Pete Matthews (Meaningful Money).

And stay part time 🙂

@LemonTwix are you saying you want to pay half of your £90k ISA into a pension? If so that’s a great idea to get the tax relief but you will need to split it over a few tax years as you can’t pay in more than 100% of your earnings inc the tax relief in any one year. Eg if you earn £30k and already pay £100 a month from pre tax earnings into your pension the most you can pay in is £23,040

@Mumski45 thank you, yes I will split it over a couple of years (or whatever works with what I am earning in those years)

Just wondering about this. Legal and General’s annuity calculator says about GBP45k annuity for a GBP675k pensions fund… Where do you get your figures (which seem more realistic)? Thank you.

Divide by 25! Same as a 4% drawdown which is basically the generally accepted calculation if you drawdown and don’t buy an annuity.