Earlier than expected retirement

[Maria46]

Hi all,

I’d really like some pointers and opinions from the very knowledgeable folk on this site. I was diagnosed with cancer last year. I’m still in treatment but we’re hopeful it can be cured, but even if I get the all clear there’s still a high chance of recurrence over the next 15 years. I’m therefore considering retiring earlier than planned, and trying to work out what that would mean. I’m 45, and my husband is 47

Current financial situation:
One child, graduated and financially independent
Both currently earn around £150k, I get a 30% bonus on a good year
House £1.2m. We don’t intend to downsize, but this would provide cash for care needs / late life contingency
Mortgage 250k, 9 years left, fixed at 1% for the next 4 years, 10% overpayment permitted each year.
Pensions: Me £450k DC plus £11k deferred DB payable at 65 (civil service Nuvos). Him £550k DC
ISAs: £570k, equally split
Unwrapped funds: £420k
Premium bonds: £60k (earmarked as emergency cash for house repairs or medical costs or child having trouble)
Total available funds therefore a shade over £2m, all invested in equities, almost all trackers (roughly 60% UK, 20% US, 10% AsiaPac, 10% small cap and developing world)

Currently we have around 150k a year to invest - thinking £80k into pensions, £40k into ISAs and £30k mortgage overpayment.

Required income: Well, that’s probably one of the big questions. Regular expenditure is around 40k (excluding mortgage and commuting, but including a cleaner and gardener which is now sadly essential given my health), and we would ideally like the same again for holidays, leisure and big ticket items.

My current plan is to work part time this year so that I can hold onto my health insurance until my scheduled reconstruction surgery in early 2023, with sick leave and then income insurance paying out for the days I drop (yes, they will do that). After that I will probably quit. I may persuade the insurance to keep paying out for a while, but i don’t want to rely on it past 2023. Husband is willing to keep working for a couple more years to cover the mortgage until the end of the fix.

So my questions I have in mind are:
- Assuming my income stops end of 2023 and husband quits two years later, what income could we draw? I’m thinking £80k should still be realistic as pots should grow to around £2.5m if we don’t start drawing until 2026?
- What would people do about the mortgage? Keep throwing the max repayment at it, or something else? Refinancing would be prohibitively expensive during the fix. I know there’s an argument that at 1% we shouldn’t overpay at all, but it needs to go before husband will feel ok to quit work as he’s very risk adverse.
- Should I be moving money out of equities? Into what, given the inflation risk at the moment?
- what should I do about the DB pension, can I do anything without a terminal diagnosis?
- Clearly once I quit we’ll start shifting money from unwrapped funds into ISAs and move the rest from his name into mine to reduce tax. Would you pay any more into my pensions? Any other restructuring?
-Are there any other big risks I’ve missed?

I know that in many ways we’re incredibly lucky, so please forgive the self indulgent post, but I’m trying to get my head around a rather abrupt change of plans and reassure myself we won’t regret leaving work. it would be incredibly difficult to get back in at this level once we quit, so it’s a one way move.

Many thanks in advance for any comments

[JohnB]

You have enough money to bridge the gap to when your pensions start, and if your husband continued working, it would be to pay for the gardener, cleaner and luxuries, rather than essential stuff, so I ask if he could stop when you do or at least cut down his hours, especially to be with you more if your health worsens.

I'd let the mortgage run, not even overpaying, and keep heavily in equities, as you might need the money for 50 years, its too early to cash out.

How much do your jobs define you? Would either of you be unhappy doing nothing, volunteering or would you want to keep your hand in?

I think you've won the financial game, I hope you win the health one.

[BullDog]

So sorry to hear this. The numbers are so far beyond my own experience, I can't really usefully comment.

The one thing I would seriously consider is moving out of a £1.2 million house that is mortgaged for £250k to a ~£0.95 million house without no mortgage. I would make it the number 1 priority to clear all debts in fact. One less thing to worry about.

I wish the OP all the best with the treatment going forward.

[Urbandreamer]

Both currently earn around £150k, I get a 30% bonus on a good year
...
Pensions: Me £450k DC plus £11k deferred DB payable at 65 (civil service Nuvos). Him £550k DC
ISAs: £570k, equally split
Unwrapped funds: £420k
Premium bonds: £60k (earmarked as emergency cash for house repairs or medical costs or child having trouble)

Currently we have around 150k a year to invest - thinking £80k into pensions, £40k into ISAs and £30k mortgage overpayment.

Many thanks in advance for any comments

Sorry to hear of your medical problems.

How much did you both put into your pension during the last 3 years? No need to tell, but if it was less than £40kpa then you could contribute enough to top those years up. You could use existing savings to fund the contributions. Though your husband won't be able to access his pension until 57 and will need to fund living without income for 7 years. I am assuming that you may be able to access both your pensions because of your medical condition, but you need to check.
https://www.gov.uk/guidance/check-if-yo ... on-savings

Given possible interest rate rises I think overpaying the mortgage makes good sense.

I doubt that £80kpa would be wise given that your husband won't be able to access his pension for those 7 years. Seriously unwise if you expect both to only access the non-pension funds until 57.

However I suspect that when neither of you work that you will find that you can spend significantly less. When holiday times are not more or less dictated by work they can be significantly cheaper. You will certainly save on travel to work. As all this is so unexpected you won't know what you currently spend your money on. Get your husband to put the hours in to find out, unless it is something that you would enjoy doing. Work related expenses can by huge.
These people think that couples can have a very comfortable retirement with £50kpa.
https://www.retirementlivingstandards.org.uk/

[BullDog]

Just thought of something worth adding.......

The OP needs to check carefully the terms of the occupational pension scheme as they relate to sick retirement. One employer I had, the pension scheme trustees had the ability at their discretion to pay a worker retiring on ill health their pension from the day of ill health retirement at the rate they would have been entitled had they worked to the state retirement age. Obviously, that was a very generous part of the pension plan and not all schemes offer it.

Even if the OP's pension plan isn't that generous, there maybe pension enhancements available for early retirement due to ill health. Certainly, it's worth reading the pension plan handbook to look for any such enhancement that may or may not be available? Good luck.

[genou]

If you don't pay down the mortgage, presumably you will be putting the money into equities. But going into equities with a 3/4 year time horizon is quite tight to my mind. If there is a dip at the point where you have to re-mortgage, you may not want to take an equity loss, and then end up borrowing the outstanding mortgage at higher rates. I'd be tempted to throw money at the mortgage.

You are going to have a multiple stage calculation to do. As has been said, you need to get a more detailed handle on your outgoings. In terms of modelling what you might have to spend, there is a reasonable calculator here - https://www.tidewaywealth.co.uk/drawdown-calculator/

I haven't had any dealings with Tideway other than to use the calculator, and I've never given them my email.

I hope your health problems are resolved successfully.

[Maria46]

Thanks for all the thoughts so far and for the good wishes. While downsizing to pay off the mortgage might be financially smart, just at the moment I couldn’t face the stress of moving, plus this house really suits us and has many good memories. So I’d like to try to make a plan that involves staying put.

I’ll look at the pension scheme handbook, but it’s a DC scheme outsourced to Aegon so I don’t think it’s likely that there are very generous Ill health provisions. The DB pot is from many years ago, so no chance of enhancement there. Both of us are maxed out on carry forward contributions, our financial success is quite recent so have been playing catch up. I’m interested in your comment on me acccessing pension early Urbandreamer, what are the rules on that? Is it a pension scheme regulation or a government one? I’ve been assuming I can’t take those funds until 55 without penalty unless I get a terminal diagnosis (in which case all of this is rather moot).

You make a good point JohnB about how invested we are in work. Clearly it’s currently a huge part of our lives, and my job is really interesting and I have some great colleagues. But it is stressful and long hours, so for me I think it’s time to step back and enjoy other things. I am slightly worried about husband quitting, especially if I don’t make it for the long haul, so he may investigate if a more flexible contract is possible to give us time for travel and family.

Why do you say that taking 80k would be extremely unwise Urbandreamer? If we don’t draw anything for four years while husband keeps working and invest another £150k in that time, we should have a fund of roughly £2.5m. At a withdrawal rate of 3-4% that would seem to indicate £80k should be ok, especially if we flex down in bad return years. What rate would you consider sensible? I do agree we need to look at outgoings in more detail, we’ll do that over the next few months.

[AsleepInYorkshire]

Hi all,

I’d really like some pointers and opinions from the very knowledgeable folk on this site. I was diagnosed with cancer last year. I’m still in treatment but we’re hopeful it can be cured, but even if I get the all clear there’s still a high chance of recurrence over the next 15 years. I’m therefore considering retiring earlier than planned, and trying to work out what that would mean. I’m 45, and my husband is 47

Current financial situation:
One child, graduated and financially independent
Both currently earn around £150k, I get a 30% bonus on a good year
House £1.2m. We don’t intend to downsize, but this would provide cash for care needs / late life contingency
Mortgage 250k, 9 years left, fixed at 1% for the next 4 years, 10% overpayment permitted each year.
Pensions: Me £450k DC plus £11k deferred DB payable at 65 (civil service Nuvos). Him £550k DC
ISAs: £570k, equally split
Unwrapped funds: £420k
Premium bonds: £60k (earmarked as emergency cash for house repairs or medical costs or child having trouble)
Total available funds therefore a shade over £2m, all invested in equities, almost all trackers (roughly 60% UK, 20% US, 10% AsiaPac, 10% small cap and developing world)

Currently we have around 150k a year to invest - thinking £80k into pensions, £40k into ISAs and £30k mortgage overpayment.

Required income: Well, that’s probably one of the big questions. Regular expenditure is around 40k (excluding mortgage and commuting, but including a cleaner and gardener which is now sadly essential given my health), and we would ideally like the same again for holidays, leisure and big ticket items.

My current plan is to work part time this year so that I can hold onto my health insurance until my scheduled reconstruction surgery in early 2023, with sick leave and then income insurance paying out for the days I drop (yes, they will do that). After that I will probably quit. I may persuade the insurance to keep paying out for a while, but i don’t want to rely on it past 2023. Husband is willing to keep working for a couple more years to cover the mortgage until the end of the fix.

So my questions I have in mind are:
- Assuming my income stops end of 2023 and husband quits two years later, what income could we draw? I’m thinking £80k should still be realistic as pots should grow to around £2.5m if we don’t start drawing until 2026?
- What would people do about the mortgage? Keep throwing the max repayment at it, or something else? Refinancing would be prohibitively expensive during the fix. I know there’s an argument that at 1% we shouldn’t overpay at all, but it needs to go before husband will feel ok to quit work as he’s very risk adverse.
- Should I be moving money out of equities? Into what, given the inflation risk at the moment?
- what should I do about the DB pension, can I do anything without a terminal diagnosis?
- Clearly once I quit we’ll start shifting money from unwrapped funds into ISAs and move the rest from his name into mine to reduce tax. Would you pay any more into my pensions? Any other restructuring?
-Are there any other big risks I’ve missed?

I know that in many ways we’re incredibly lucky, so please forgive the self indulgent post, but I’m trying to get my head around a rather abrupt change of plans and reassure myself we won’t regret leaving work. it would be incredibly difficult to get back in at this level once we quit, so it’s a one way move.

Many thanks in advance for any comments

Can I just note that you have assumed you can use £80K of your £150K you want to save in pensions. But I think (and am happy to be corrected) you can only put £64K per annum into your pensions - the balance being made up of tax rebates. It might be worth checking this a little closer.

There's nothing preventing you purchasing stocks in your own name outside of an ISA or Pension envelope?

And I'd lose your mortgage debt - downsize or pay it off.

Yes you have been very privileged to be in such a healthy financial place. But ... you need to live before you die. I know that's crass. Someone on these boards told me recently health before wealth. I've had some serious health problems. In East Yorkshire where I live £1.2M on a house will buy you well over 3,600 FT2.

Whatever you do it will be right ... don't worry ... get on with living.

Oh before I forget ... it may be worth checking if you can take your pension early due to your diagnosis.

Look after yourself

AiY

[tjh290633]

- Should I be moving money out of equities? Into what, given the inflation risk at the moment?

I would not. They are the best hedge that you can have against inflation, other than your existing property.

Over the last 50 years I have found it best to stay fully invested , regardless of what the market is doing. I say that regardless of where you invest.

TJH

[Urbandreamer]

I’m interested in your comment on me acccessing pension early Urbandreamer, what are the rules on that? Is it a pension scheme regulation or a government one?

It's a pension scheme regulation. The government "encouraged" pension schemes to adopt the 10 year before state penasion rule. Almost all decided to. However each scheme will have different retirement due to ill health rules.

Why do you say that taking 80k would be extremely unwise Urbandreamer? If we don’t draw anything for four years while husband keeps working and invest another £150k in that time, we should have a fund of roughly £2.5m.

Will you? I mean will you outside of pensions in four years (which was three at the time of my post because you stated that your husband would stop work a "couple" ie 2 years after you).
You are going to turn just over £1mill (outside the pensions) into £2.5mill through contributions and growth you say while your combined income drops in that time?

Very rough figures.
Current value outside of pensions
£1050,000
For simplicity I am simply going to assume that you actually have £1.25mill and make no contributions.
The rule of 72 means that to double it in 4 years you would need growth of 18%.
Using 3 years from your original post we need a growth rate of 24%.
These required growth rates remain similar if you assume doubling your current pot in the time, all that is required if you are to draw £80kpa using your chosen 4% rule. Can you expect that level of growth?

I could have used the FV function in a spreadsheet with a realistic growth and contribution rate to estimate your non-pension pot in 3 or 4 years, then use your chosen 4% rule to work out a wiser amount to draw, but given you will have a better idea of predicted and actual contributions I leave the task up to you.

For what it's worth I have been doing similar calculations for 3 years, though using 3% as my intended income rate, for the last three years. I shall retire next year. My income will be a fraction of what you intend until DB and state pension. However the key point is it will be significantly more than what I currently spend, or predict to spend including such lumpy items as an infrequently bought car.

To be fair, you could be planning on burning through the funds outside of your pension. Assuiming no growth you will burn through your current pot in just over 13 years. (1050/80) You could then start drawing on your pension, assuming nothing goes wrong. For example assuming that inflation at 5% is matched by growth.

I don't think that these are either wise assumptions, or indeed necessary. As I said, I think that if you look at what you actually want and need to spend you will find the figure significantly smaller once you no longer work.

[TUK020]

Sorry to hear of your ill health.
One thing you may want to consider/explore is whether you can agree with your employer to move to part time working.
If it is feasible for you to work, say, 2 days a week, this gives a huge increase in time you can devote to the things you want to.
The tax system on your level means that you keep much more than 2/5 of the net earnings.
This also means that while you are stopping contributing to various savings pots, you are also allowing time to work to your advantage on existing investments without drawing down on them - a really easy way of giving yourself more margin.
It may also help with managing the shift in lifestyle (not going cold turkey on the career), but this could be a downside or an upside depending on yor perspective.

[Steveam]

First things first: I wish you well and hope for long term remission and/or full recovery.

In my late 40s/early 50s I was having lots of undiagnosed health issues and as the investigations proceeded I decided that I’d already won the wealth game and I’d take a very early retirement from a very stressful and well paid job. After further health investigations and treatment I’ve made a good recovery and now, twenty years later, I’m enjoying retirement and don’t regret for a moment that I went when I did.

Your health crisis is an opportunity to reassess and look at values - you’re in a fortunate position in that you have options (I was similarly fortunate).

Very best wishes,

Steve

[BigB]

Best wishes with your health!

2 things struck me:

1. As mentioned elsewhere above, a conversation with the pension scheme providers may unlock some benefits earlier than planned. Coincidentally I am a member of a DC scheme run by Aegon, for a large UK corporate, and it explicitly contains a small section in the member guide to explain that long term health or disability issues, supported by medical evidence, may persuade the Trustees to release benefits. Worth exploring.
2. Your equities balance - UK 60% - given you're all equities, and may stay that way hedging against inflation, and also that you have high net worth already, with a long time frame to plan for - I think I'd be looking at shifting some of that 60% away from UK and spread more Global/US/Asia to mitigate against UK shocks

best wishes
BigB

[Mike88]

I'm very sorry to hear of your health issues. I've been there and was a virtual vegetable for nearly two years after neuro surgery. Obviously I had been medically retired from work and luckily was able to draw on my work pension based on the years I had worked plus a small enhancement. I was 43 years old at the time but fortunately I managed to get a very part time job which helped. Fortunately my wife worked on for another 11 years and retired at the age of 53.

As others have said, your first and main step, if you haven't already done so, is to establish if there are any ill health retirement benefits arising from your pension schemes.

Having said that you seem to be in a great position financially and most people wouldn't let money worry them. Health is far more important. I am a firm believer in health before wealth so on the day my wife retired we bought a camper van and toured Europe for 6 months a year for nearly 15 years interspersed with renting a house in the USA.

Personally I wouldn't fret too much about money. Of course it's easy for me to say that as I live in a nice house and my shares have done well. But it seems you are well off financially.; judging by what you have said you are in a recovery phase so my firm view is that you should concentrate primarily on your health which is far more important.