I think i can retire early?

[Mike88]

A 90yo might spend less on fun, but the value in having the cash to get someone to turn up at your house and cut your toenails, as Mum does, is huge. So many things we take for granted earlier become big issues later, and having a buffer to pay for taxis to hospital, rather than catching a bus is very important, as its all too easy to let yourself go.

I think of retirement spending as a U, high at first with the bucket list ticking, dropping down as you become a homebody, and then rising fast with care fees.

The above is a point well made even though I don't necessarily agree that planning for care fees is necessary; some need to spend money on care in later life and and others don't as in your 50's you are totally unaware of how things will pan out. Having money to pay for occasional toe nail cutting and taxi fares do not amount to anything like spending money in your 50's and 60's on exotic holidays and a comfortable retirement.

I agree with this comment by Lootman as unfortunately I am in this position due to my wife's health which seriously affects the things we would like to do: That said I don't worry too much about living too long. Rather I worry about not living long enough to enjoy the money.

[gbjbaanb]

Dr BH. Thank you. I thought that 26 years did not seem long enough for someone of 55 but on the other hand one or two life companies have actually released some provisions because life expectancy had not increased as much as expected so maybe there is an actuarial slowdown.

Don't forget they are averages, and the average will be subdued by those from deprived areas who've lived off alcohol and chips for most of their lives (story: a friend of mine worked in a deprived area of Scotland and said that for some people their only intake of vitamin C came from crisps).

[AsleepInYorkshire]

On my fathers side I have nine cousins and one sister.

Of which

• 3 have taken their own life
• 3 have serious mental health issues
• 1 (me) has suffered with serious mental health issues until being correctly diagnosed in 2016 with severe obstructive sleep apnea
• 2 "could" have mental health issues but I am not sure
• 1 has no mental health issues

I am, therefore, particularly focused upon my health. Indeed for the last 8 months I have been struggling with another quite serious health issue. I am hopeful that I'm recovering from that too. You may recall as a youngster walking by the farm gate each morning as you walked to school. There was always an old Labrador sat outside. And it never aged did it . It never got any older .

I've been contemplating much of what has been discussed on this thread in relation to health and retirement. For obvious reasons it strikes a chord.

I've also taken note of some other wise words relating to IHT planning. I'm acutely aware that I need to plan for just this kind of event and I have made a few notes accordingly.

I have been tinkering with my spreadsheet this week. My final "columns" will need to be thought through again. I'll get there.

I have the bones of a plan. I need to check some detail to ensure the plan is a well made bucket which will not leak. The second part of the plan is to dip my toe into the raging torrents of the river of stocks and not be swept away in the underlying currents of over inflated ego, enthusiasm and excitement.

AiY

[ffacoffipawb64]

One for SalvorHardin to check my figures

I wasnt going to take my main DB until NRA of 62, but the figures I have been quoted for early retirement look tempting.

Option 1
Pension of £9,200

Option 2
Pension of £7,000 plus PCLS of £48,000

Option 3
Transfer Value of £395,000

Despite the high multiple I am not considering the transfer value. Mainly because I only have £320,000 LTA left.

The pensions are 7 years early. Taking at 55 instead of 62 results in an early retirement factor of 0.79

The escalation in payment is almost the same as in deferment. Only a small post 88 GMP revaluing at 4.5%.

My calculations indicate thT if I took the early retirement pension now, I would only be worse off compared to normal retirement if I were to live to more than 88 (unlikely in my family)

So is taking the pension now a non brainer?

The PCLS multiplier of about 24 seems reasonable too. Equivalent to 30 allowing for tax.

In both cases the widows pension is approx £7,000.

In both cases there is basic rate tax on the pension. The personal allowance is used elsewhere and higher rate is not an issue.

[SalvorHardin]

One for SalvorHardin to check my figures

I’ll have to be brief as it’s Wednesday pub night (the average age of our group is late-70s and I’m the youngest at 55, so we start early and finish early). Bear in mind that I retired 16 years ago and some of my actuarial skills are quite rusty through not being used much (last year I had to lookup the basic annuity formula, when I was working I had all of them memorised!).

Option 2 is effectively swapping £2,200 of pension for a cash lump sum of £48,000. That’s an annuity factor of 21.8 which represents an initial income of 4.6% of the capital. Not too generous as you'll see below. {EDIT - I've just seen that this is net of tax, you've mentioned a factor of 30 for pre-tax, so it's a more generous factor than I said in this paragraph}

A quick look at Hargreaves Lansdown’s most recent rates for retirement annuities shows that £100,000 gets you £2,044 for a pension increasing at 3% p.a. (a good model for RPI) with a 50% widow’s pension. That’s an annuity factor of 48.9, so the scheme isn’t being too generous with the cash commutation (see the next paragraph for what the transfer value implies).

https://www.hl.co.uk/retirement/annuiti ... -buy-rates

The transfer value of £395,000 is their valuation of a pension of £9,200 per annum (with spouse’s pension and increases). That’s an annuity factor of 42.9. This annuity factor is much more in line with the rates in Hargreaves Lansdown’s table above, rather than the cash commutation. If the entire pension could be commuted for cash at the rate quoted in option 2 you’d get about £9,200 / (9,200 – 7,000) x 48,000 = £200,727 which is a lot less than the transfer value.

An early retirement factor of 0.79 (i.e. -21%) to reduce the pension for taking it 7 years early at age 55 is reasonable. This is 3.4% per year (schemes typically used to use something in the range of 3% to 6% per year (the figure is heavily influenced by interest rates and age).

Lifetime allowance (LTA) is something which was brought in after I retired and I never needed to worry about it myself so I’ve never really looked into it!

The widow’s pension of £7,000 under both options seems rather generous (100% for option 2).

If you can manage with the income I would seriously consider early retirement. You may find at 62 that you can’t do things which you could at 55 (at 55 I no longer have anything like the energy that I had at 50). As you’ve said if taking the pension now, rather than at normal retirement, makes you worse off only when you reach 88, taking the pension now seems a pretty good idea.

Hope this helps

[ffacoffipawb64]

One for SalvorHardin to check my figures

I’ll have to be brief as it’s Wednesday pub night (the average age of our group is late-70s and I’m the youngest at 55, so we start early and finish early). Bear in mind that I retired 16 years ago and some of my actuarial skills are quite rusty through not being used much (last year I had to lookup the basic annuity formula, when I was working I had all of them memorised!).

Option 2 is effectively swapping £2,200 of pension for a cash lump sum of £48,000. That’s an annuity factor of 21.8 which represents an initial income of 4.6% of the capital. Not too generous as you'll see below. {EDIT - I've just seen that this is net of tax, you've mentioned a factor of 30 for pre-tax, so it's a more generous factor than I said in this paragraph}

A quick look at Hargreaves Lansdown’s most recent rates for retirement annuities shows that £100,000 gets you £2,044 for a pension increasing at 3% p.a. (a good model for RPI) with a 50% widow’s pension. That’s an annuity factor of 48.9, so the scheme isn’t being too generous with the cash commutation (see the next paragraph for what the transfer value implies).

https://www.hl.co.uk/retirement/annuiti ... -buy-rates

The transfer value of £395,000 is their valuation of a pension of £9,200 per annum (with spouse’s pension and increases). That’s an annuity factor of 42.9. This annuity factor is much more in line with the rates in Hargreaves Lansdown’s table above, rather than the cash commutation. If the entire pension could be commuted for cash at the rate quoted in option 2 you’d get about £9,200 / (9,200 – 7,000) x 48,000 = £200,727 which is a lot less than the transfer value.

An early retirement factor of 0.79 (i.e. -21%) to reduce the pension for taking it 7 years early at age 55 is reasonable. This is 3.4% per year (schemes typically used to use something in the range of 3% to 6% per year (the figure is heavily influenced by interest rates and age).

Lifetime allowance (LTA) is something which was brought in after I retired and I never needed to worry about it myself so I’ve never really looked into it!

The widow’s pension of £7,000 under both options seems rather generous (100% for option 2).

If you can manage with the income I would seriously consider early retirement. You may find at 62 that you can’t do things which you could at 55 (at 55 I no longer have anything like the energy that I had at 50). As you’ve said if taking the pension now, rather than at normal retirement, makes you worse off only when you reach 88, taking the pension now seems a pretty good idea.

Hope this helps

Thanks

The tax adjustment is because the pension given up will be taxed at 20% whereas no tax on the PCLS. Hence divide the factor by 0.8 to get a proper comparison.

Figures are rounded, exact figures as follows:

Option 1 pension is £9,228 spouse £6,152
Option 2 pension is £7,247 plus PCLS of £48,317 spouse still £6,152
Option 3 transfer value £394,905 incl GMP cost of £9,999 and other rights whatever they are of £69,447

Under options 1 and 2 a state pension deduction of £228 currently is included which stops at SPA of 67.

Dont think any of this changes the recommendations.

Early retirement seems a better deal than normal retirement but it does make me more dependant each year on defined contributions.

[SalvorHardin]

Thanks

The tax adjustment is because the pension given up will be taxed at 20% whereas no tax on the PCLS. Hence divide the factor by 0.8 to get a proper comparison.

Figures are rounded, exact figures as follows:

Option 1 pension is £9,228 spouse £6,152
Option 2 pension is £7,247 plus PCLS of £48,317 spouse still £6,152
Option 3 transfer value £394,905 incl GMP cost of £9,999 and other rights whatever they are of £69,447

Under options 1 and 2 a state pension deduction of £228 currently is included which stops at SPA of 67.

Dont think any of this changes the recommendations.

Early retirement seems a better deal than normal retirement but it does make me more dependant each year on defined contributions.

A very quick look (am waiting for my lift to the pub in a few minutes).

Can't see that the precise figures changes anything in the big picture. As always it's better to be roughly right than precisely wrong!

[ffacoffipawb64]

Really struggling between options 1 and 2.

The commutation factor is just over 24 at age 55, or 30 allowing for the fact the pension will be taxed at 20%.

Of course it is half the value of the pension given up, based on the transfer value quoted.

Ignoring inflation (the pension is RPI linked, capped at 55) I would have to live to 85 for the full annuity to be the better option.

If I were going to annuitise my SIPP later it might be better take the full defined benefit pension and drain the SIPP as dwn instead.

So I am swinging towards full annuity and no PCLS.

Thoughts?