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Edging towards retirement

Including Financial Independence and Retiring Early (FIRE)
Rituximan
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Edging towards retirement

#271830

Postby Rituximan » December 17th, 2019, 8:21 pm

Back in August, I posted that I was thinking about early retirement after work became stressful viewtopic.php?p=243413#p243413. I had sought advice from an IFA but was concerned at their charges and went off to read and research about doing myself. One thing I did was to approach Royal London who provide the Personal Pension that I and my employers contribute to currently. In August this was worth about £320k but had grown to nearly £330k by the time Royal London replied. Their suggestions included flexi-drawdown, which would give £11,600 p.a. until the age of 89, or a lifetime annuity of £11,300 p.a. - neither option came with a TFLS. It left me feeling that a SIPP would be better.
I also have a small deferred DB scheme with USS which I can take when I am 65 (just over 6 years’ from now). Last February, I obtained a quote from USS which said that taking my DB pension at that time would have paid out a maximum of £7060 p.a. Now, USS also have a members’ website with a tool for modelling the increases in deferred pension. That modeller indicates that if I wait until 65, then my estimated benefits would be around £9200 p.a. Since I have a slow-growing form of cancer that spurred me to request early payment with no actuarial reduction by completing some forms and providing them with reports from my G.P. and two consultants. Their politely worded refusal arrived last Thursday and said that my lymphoma appears stable and I do not meet the early repayment criteria. Luckily, the general election result arrived later on that day which cheered me up immensely and removed any trace of disappointment.

Since I have to give 3 months’ notice (I intend to resign in early January) I went back to USS and asked for a quote to show what my benefits would be if I were to start taking my pension next April. The answer arrived today and was more than I had expected: a maximum of almost £7700 p.a. with no TFLS, or nearly £6700 plus a £20k TFLS. So, the modelling tool on the website would appear to be rather conservative.
Anyway, in terms of my objectives, I had been thinking along the lines of what TUK20 suggested last August: aim to generate an income of £2k per month by taking £7k from the DB scheme, transferring the PP into a SIPP and using that to make up the difference to the £12.5k personal allowance and then either running down my cash pile, or investing it to generate income. One benefit of this is that the investments within the SIPP could aim to give some growth aw well as income as I would only need around £5k p.a. However, the fact that the DB scheme is increasing by about £600 p.a. is now making me wonder if I should perhaps hold off on this for a year or two. The Royal London PP is still ticking upwards and is now nearing £340k – could well head downwards once Boris's Bounce wears off. What I am thinking of, is transfer the PP to a SIPP and invest £300k, then take whatever is left over as part of the TFLS and add to my cash pile.
I have used up this year’s ISA allowance and have around £230k left in unprotected assets. Of these, £60K is invested in a nominee account, £50K is in premium bonds and the rest is in the bank. For now, I am inclined to keep the £50K in premium bonds, plus say £10k in cash and am thinking about using the remaining £110k to generate income – if I get another £30k to £40k from the PP then I could also invest that. Like this, I should be able to generate £12.5k from the SIPP plus what I need , or close to it, from the unprotected investments. It would be a gamble and leave me exposed to any market downturns. Or I could just leave a fair chunk of cash in the bank and run it down whilst topping up the ISA for the next few years. The DB pension would be there untouched, and I have a stocks and shares ISA into which I have now put this year's £20k plus all the cash that had built up and is now probably yielding around £18k p.a. maybe a bit more, so there is something to fall back on.

At the back of my mind is that is the nature of the cancer – which is slowing growing and treatable but incurable. You can treat it, but then it comes back and so you treat it again and so on. It is quite annoying, especially when trying to make long-term plans. If it comes back before I take the DB, then I could apply to USS again to take the DB without reduction – should be harder for them to say ‘condition is stable’ if I’m in the middle of chemo. It’s hard to say when that might happen. After being diagnosed in 2011 it took five and a half years for it to spread throughout my torso, get into the bone marrow and cause problems. Who knows how active it will be from now on. But one thing I have decided is that I don’t want to keep on working up until the next time it makes a nuisance of itself.
My current thinking about what I would put in the SIPP and the rough proportion of each is as follows:
1. Mercantile (UK All Companies) 10%
2. Henderson Far East Income (Asia Pacific Income) 10%
3. Bankers (Global) 7.5%
4. JPMorgan Global Growth & Income (Global Equity Income) 7.5%
5. HICL Infrastructure (Infrastructure) 10%
6. BlackRock World Mining (Commodities) 10%
7. Bluefield Solar Income Fund (Renewables) 5%
8. Greencoat UK Wind (Renewables) 5%
9. The Renewables Infrastructure Group (Renewables) 5%
10. JPMorgan Asian (Asia Pacific Income) 5%
11. AEW UK REIT Property (UK Commercial property) 10%
12. BlackRock Throgmorton Trust (UK Smaller Cos) 5%
13. New City High Yield (Debt) 10%
Putting so much into Renewables might not be the wisest. I like the area, but those ITs are on such high premia that I might have to think again there.

My thoughts about what I would do with the unprotected cash pile are so far less well formed. In the nominee account, I had spent about £60k on WPP, Rio Tinto, Persimmon, Johnson Matthey and Montanaro UK Smaller Cos and was about to add Mercantile for mid-cap exposure when fears of a confiscatory Marxist government made me pause. If I decide to go ahead and invest the rest of the cash pile then I might also add:
• Standard Life Aberdeen
• Vesuvius
• Babcock
• VUKE (UK focused ITs with a decent yield like CTY and Merchants don’t really seem to do much better than a tracker)
• Probably some more Montanaro UK Smaller Cos
• Acorn Income
• Invesco Perpetual Enhanced Inc
• TwentyFour Select Monthly Income
• Tritax Big Box REIT

So – is it foolish to think of leaving the DB pension for a year or two and trying to survive on the SIPP and unprotected investments? Am I being too focussed on income? Unless or until I decide to take the DB pension then I think that I will have to target a level of return that is going to get me close to £2k per month – it’s either that or run the cash pile down, which doesn’t seem terribly appealing. I had the Pension Wise free phone call a couple of weeks ago and the chap I spoke to didn’t seem to think the overall approach that I outlined to him was that daft. He certainly didn’t try to put me off or point me towards using an IFA. I didn’t discuss the details of which equities and trusts I was considering with him.
I hope it all makes sense.

AsleepInYorkshire
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Re: Edging towards retirement

#271846

Postby AsleepInYorkshire » December 17th, 2019, 8:57 pm

I have no idea what advice to give you regarding your pension and other funds, albeit I do wish you sincere good luck with your plans to (eventually) retire.

I'm 57 (shh :shock: ). I just wanted to offer a word or two of empathy regarding your condition. My life has been in reverse to yours. I have suffered with mental health problems for decades, due to an undiagnosed sleep related breathing disorder.

And making plans was something I eventually gave up on. I couldn't plan an hour ahead. I was exhausted. I hope in some way you find coping mechanisms and enjoy as full a retirement as your health will allow as and when you do retire.

Good luck

AiYn'U

Alaric
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Re: Edging towards retirement

#271847

Postby Alaric » December 17th, 2019, 8:59 pm

Rituximan wrote:
So – is it foolish to think of leaving the DB pension for a year or two and trying to survive on the SIPP and unprotected investments?


As you have noted, the longer term defined benefit income increases as the early retirement discount factor winds off. Particularly if you have a cash pile, using that to partly finance yourself for the next five years or so could well make sense.

TUK020
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Re: Edging towards retirement

#271859

Postby TUK020 » December 17th, 2019, 9:54 pm

Rituximan wrote:So – is it foolish to think of leaving the DB pension for a year or two and trying to survive on the SIPP and unprotected investments? Am I being too focussed on income? Unless or until I decide to take the DB pension then I think that I will have to target a level of return that is going to get me close to £2k per month – it’s either that or run the cash pile down, which doesn’t seem terribly appealing.


Looks like you have a plan. Holding off on the DB seems like a polishing detail. I suspect you are best off hoovering the max out to your tax allowance.
My gut feeling is that you should be spending more time planning the stuff you are going to get up to starting April
The world is your lobster, go have some fun

jonesa1
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Re: Edging towards retirement

#271861

Postby jonesa1 » December 17th, 2019, 9:55 pm

Try modelling the total return of your DB pension and work out how many years you'd need to draw the pension at the higher rate to make up for the years you don't get any income. Lets say you delay 6 years and as a result the pension is £10000 (made up number!) instead of £7700. To get an extra £2300 pa for the rest of your life, you've missed out on 6 x £7700 = £46,200. It will take 46,200/2,300 = 20 years of drawing the pension, before your total DB pension income is greater than if you'd taken it now. Clearly that's a very simplistic analysis, doesn't take into account discount rates, inflation is assumed to be neutral, no accounting for income tax, etc. However, if you're planning to live on other resources while delaying access to your DB pension, taking it earlier will allow you to conserve the other resources, possibly allowing you to have a greater total income by the time you're 85.
Also, don't forget about the state pension.

xxd09
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Re: Edging towards retirement

#271879

Postby xxd09 » December 17th, 2019, 11:27 pm

One thing that might help is to simplify your investments -they seem overly complicated
Perhaps going to one fund only like a Vanguard Life Strategy 80/20 might be an aim plus a cash fund with a years living expenses
Simple cheap easy to understand and beats over 80% of equivalent active funds
This make planning easier and frees you up to enjoy your life-a lot less stressful too which must be a benefit health wise
xxd09

farwide
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Re: Edging towards retirement

#271991

Postby farwide » December 18th, 2019, 1:41 pm

<post deleted>

MrDoppleGanger
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Re: Edging towards retirement

#272226

Postby MrDoppleGanger » December 19th, 2019, 9:34 am

Rituximan wrote: I went back to USS and asked for a quote to show what my benefits would be if I were to start taking my pension next April. The answer arrived today and was more than I had expected: a maximum of almost £7700 p.a. with no TFLS, or nearly £6700 plus a £20k TFLS. So, the modelling tool on the website would appear to be rather conservative.


I'm contributing to a USS pension, and how long ago you accumulated the benefits may explain some of this. IIRC (something even I don't rely on), for years worked prior to 2011 you had the ability to draw pension unreduced from age 60. For years post 2011 your unreduced pension is aligned with the state retirement age. If that's right, and you were with USS ages ago, it may be worth asking them what your benefits would be if you retired aged 60. If you can access some/all unreduced at 60, there's little point deferring.

DG

Armorduck
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Re: Edging towards retirement

#272335

Postby Armorduck » December 19th, 2019, 2:40 pm

I have been in the USS scheme for about twenty years. The modeller, conservative though it seems to be, can be used to see the effect of taking retirement at different ages. For myself, and another colleague who has also played with the modeller, the potential pension received dramatically increases on reaching the age of 60, as illustrated below. This is presumably due to the pre 2011 pension. So its certainly worth asking the questions about pre and post 60 and perhaps how this might be affected by retiring early but not drawing the pension till 60.

age pension (£)
59 12,900
60 15,565
61 16,065
62 16,570

Rituximan
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Re: Edging towards retirement

#272494

Postby Rituximan » December 20th, 2019, 8:52 am

MrDoppleGanger wrote:I'm contributing to a USS pension, and how long ago you accumulated the benefits may explain some of this. IIRC (something even I don't rely on), for years worked prior to 2011 you had the ability to draw pension unreduced from age 60. For years post 2011 your unreduced pension is aligned with the state retirement age. If that's right, and you were with USS ages ago, it may be worth asking them what your benefits would be if you retired aged 60. If you can access some/all unreduced at 60, there's little point deferring.


I was with USS years ago (from ’84 to ‘96), but the ability to draw pension unreduced from age 60 would appear to apply to only part of my pension. I had a letter from USS in 2006 which says:
• Benefits in respect of service before 17 May 1990 will be subject to a reduction if taken before age 65
• Benefits in respect of service between 17 May 1990 and 31 March 1995 will be payable without reduction if the whole pension becomes payable on or after age 60
• Benefits in respect of service from 1 April 1995 will will be payable without reduction if the whole pension becomes payable on or after age 63 and a half
Unfortunately, my term of pensionable service spans these three periods and makes things rather complicated.

DG[/quote]
Armorduck wrote:I have been in the USS scheme for about twenty years. The modeller, conservative though it seems to be, can be used to see the effect of taking retirement at different ages. For myself, and another colleague who has also played with the modeller, the potential pension received dramatically increases on reaching the age of 60, as illustrated below. This is presumably due to the pre 2011 pension. So its certainly worth asking the questions about pre and post 60 and perhaps how this might be affected by retiring early but not drawing the pension till 60.


I will definitely ask USS about this. My desire to take early retirement is fairly recent and I had not been in the habit of regularly checking up on the value of the USS pension. I did get quotations from them in 2000 and 2006, and on those dates, it would have yielded £4834 and £ 5589 p.a. respectively. That means it increased by 2.6% p.a. between 2000 and 2006 and by 0.8% p.a. between 2006 and 2019. This is why I was so surprised when the letter arrived this week which indicated that relative to the quotation I received in February this year, drawing my pension in April 2020 would represent an increase of 8.6% for the max pension without TFLS or an increase of 8.2% for the standard pension option which comes with the £20k TFLS. Maybe it does start to ramp up as one approaches 60, in which case hanging on for a few more years definitely becomes more attractive.


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