How to live off non final salary pension income?

[chrisjones3]

Pension question again. I am thinking of early retirement coming up 55.

No final salary pension but I do have a decent pension fund (defined contribution) plus savings and some rental property. Mathematically I think i can do it.

However psychologically I am concerned with the transition. Specifically I have been a bit of a saver and not very profligate over the years (watches notwithstanding). However I fear that with no regular income, just savings or drawdown from finite funds, then I might go into financial paranoia mode and try to save for a rainy day for fear of depleting the finite capital pool I have? And end up in self imposed penury.

If it was a final salary pension then the certainty of the income stream would be comforting. Even if the wealth perspective is little different

Has anyone faced the same problem and how do you manage a regular income to feel like a reliable pension income that should be enjoyed, without just feeling like you are spending hard fought savings that should be minimized and restricted to the least possible burn rate?

Probably not a question many folks have experience of but there are a few pension threads here?


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[Passenger]

Can you maybe find yourself a little part time job, something you enjoy so it's a half way house between work/retirement and the knowledge you have that additional bit of income will keep the mental concerns at bay...After a year or two you may well find moneywise you don't need the extra and can choose to continue if it's enjoyable or not...

The first couple of years I/we stopped working and lived off income from properties and a couple of other bits and pieces I was religious about tracking everything, with experience it proved we had a pleasant sufficiency so over time I grew more relaxed.

Best of luck.

[mondie]

Good advice from P. There is plenty of speculation that tax rules on pensions will be changing next month but I haven't seen any specifics on what the changes may be. Could be a reduction on contribution allowances or increasing tax on drawdowns, seems the Gov may be leaning towards the latter.

[Chewitt13]

sorry to highjack the thread, I've never had to worry about a IFA before as i always felt i had a pretty good handle on my finances, but feel like i'm reaching a point where I'm beyond my limited knowledge.

I'm currently 48, been in final salary pensions since my early 20's, changed companies in my early 30's and joined another final salary pension scheme then. This employer is currently re-inventing itself (there is a few of us on here) and are closing the final salary scheme in july and transferring all of us onto the DC scheme and giving us a 30% salary uplift for 2 years, which then drops to 20% there after, i've just broke both the lifetime allowance and the annual allowance with my current pension plan alone.

I was intending on just paying all the 30% into the DC plan, now I'm not so sure, I've ignored first FS pension for the last 16 years but I'm pretty sure it is inflating quite nicely - should I pay a IFA or just keep investing for now?

first world problems i know

[Peck]

sorry to highjack the thread, I've never had to worry about a IFA before as i always felt i had a pretty good handle on my finances, but feel like i'm reaching a point where I'm beyond my limited knowledge.

I'm currently 48, been in final salary pensions since my early 20's, changed companies in my early 30's and joined another final salary pension scheme then. This employer is currently re-inventing itself (there is a few of us on here) and are closing the final salary scheme in july and transferring all of us onto the DC scheme and giving us a 30% salary uplift for 2 years, which then drops to 20% there after, i've just broke both the lifetime allowance and the annual allowance with my current pension plan alone.

I was intending on just paying all the 30% into the DC plan, now I'm not so sure, I've ignored first FS pension for the last 16 years but I'm pretty sure it is inflating quite nicely - should I pay a IFA or just keep investing for now?

first world problems i know

Wowzers. Retire tomorrow, buy a yacht and sail off into the sunset?

All joking aside in your position I would ask around, find a trusted IFA and use them. Your situation is pretty complicated (obviously in a very good way) and sound advice now could save an enormous amount in the future I suspect.

Obviously it won’t be cheap... but it doesn’t look like you’re short of a few quid!

[Chewitt13]

Wowzers. Retire tomorrow, buy a yacht and sail off into the sunset?

All joking aside in your position I would ask around, find a trusted IFA and use them. Your situation is pretty complicated (obviously in a very good way) and sound advice now could save an enormous amount in the future I suspect.

Obviously it won’t be cheap... but it doesn’t look like you’re short of a few quid!

It sounds much grander than it actually feels!!! It's all just paper money, I can't really spend it, also the LA and AA has come down to meet me not that I have huge savings compared to some

I also had children slightly later so accept that my retirement goal of 55 will be 60 based on the fact my kids will still be draining me then!!!

I have no idea of SIPPs etc my moto has always been to keep paying the maximum amount I could, and it will look after itself reading through all the retirement thread It looks much more complicated than I thought it would be.

I accept that I will need a IFA when I prepare to retire, but should I get one now, or do I just go with the flow for a few years until I get closer to retirement.

I know that IFA would not touch me whilst I was under 50 and in a active FS scheme





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[noTAGlove]

there is a few of us on here

Yep, myself and JuanKing to name two. Hopefully the ECF can get the contributions up to 35% for five years, as it was in 2016 when opting out was voluntary.

[Chewitt13]

Yep, myself and JuanKing to name two. Hopefully the ECF can get the contributions up to 35% for five years, as it was in 2016 when opting out was voluntary.

That's probably the best we can hope for.

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[Yeti]

What’s the reasoning behind early retirement? At the end of the day if you want the freedom of not working, that will more than likely come at a financial cost. So for me it would be a weigh up of time vs money. If you value your free time more than money, don’t sweat it and cut your cloth accordingly. If you like financial freedom, carry on working full or part time. I think you’d be very surprised if you put all your incomings/outgoings into a spreadsheet and potentially made small adjustments that could equate to big savings...
I personally would like to retire at 55 of which I would hope that a small portfolio of property would provide a decent income to see me through. Out of interest, what type of yearly “salary” do you or others think would be a good income to see you through retirement with no worries?

[chrisjones3]

What’s the reasoning behind early retirement? At the end of the day if you want the freedom of not working, that will more than likely come at a financial cost. So for me it would be a weigh up of time vs money. If you value your free time more than money, don’t sweat it and cut your cloth accordingly. If you like financial freedom, carry on working full or part time. I think you’d be very surprised if you put all your incomings/outgoings into a spreadsheet and potentially made small adjustments that could equate to big savings...
I personally would like to retire at 55 of which I would hope that a small portfolio of property would provide a decent income to see me through. Out of interest, what type of yearly “salary” do you or others think would be a good income to see you through retirement with no worries?

Thanks. The reason for retirement is the relentless intensity of work, all day every day. No vacation day is ever free of meetings/calls. Hugely financially rewarding but pre covid flying 100+ flights a year. So there is lots of money but zero amount of time to do anything other than work. Living away from home (family and wife) since 2014. Last kid has just gone to Uni so would have time to travel, get my motorbike on the road (Triumph Thunderbird 900 that I have not had time to register since bringing it back from an international assignment in 2014). Read a book, something I used to enjoy. Decompress and get a life before I run out of time!

Like the ideas of something to keep me occupied. Some volunteer work supporting business or local colleges. Or ideally a cheeky non exec role to keep the wolf from the door.

Have ordered a camper van to spend some time traveling Europe between Uni holidays. Possibly look relocating to Portugal - partly for pension tax reasons.


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[Yoda]

I've been through this thought process and there were a few stages to me getting comfortable. Firstly, as people have said, I put everything down on a spreadsheet so I had a clear picture of what is going on and what I need to manage vs live comfortably / how I would like. I am pretty organised but was still surprised by the outcome. I then spent quite a bit of time with my IFA planning how the numbers would look if/when I stopped work, major outgoings etc. He was confident my finances were in better shape than I thought (for the same insecurity reasons you highlighted) and helped make sure I was able to generate the income I thought I needed using a mix of investments and by being tax efficient. We included goals like children's education, helping them buy a place, things on my bucket list etc. I then went through it all in detail with my wife so she knew the plan and was bought in.

I didn't want to stop working but it is very liberating knowing that you can and feeling confident that you will manage well. My industry lends itself well to consultancy work so I am doing that which has taken a considerable amount of pressure off, liberated more free time and gives me flexibility. If I want to work 4 days a week, I can. If I want to do a 3 month road trip, I can. Take the summer off, no problem. That was my goal.

It took me several passes and about a year to plan it all and get comfortable but it feels good once you are there.

[sundial]

Thanks. The reason for retirement is the relentless intensity of work, all day every day. No vacation day is ever free of meetings/calls. Hugely financially rewarding but pre covid flying 100+ flights a year. So there is lots of money but zero amount of time to do anything other than work. Living away from home (family and wife) since 2014. Last kid has just gone to Uni so would have time to travel, get my motorbike on the road (Triumph Thunderbird 900 that I have not had time to register since bringing it back from an international assignment in 2014). Read a book, something I used to enjoy. Decompress and get a life before I run out of time!

Like the ideas of something to keep me occupied. Some volunteer work supporting business or local colleges. Or ideally a cheeky non exec role to keep the wolf from the door.

Have ordered a camper van to spend some time traveling Europe between Uni holidays. Possibly look relocating to Portugal - partly for pension tax reasons.


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Have you considered consulting an occupational psychologist? A friend is a retired occupational psychologist and he's helped many professionals steer their careers onto more even and rewarding (in every sense of the word) keels ... he specialised in successfully helping totally stressed out NHS consultants ... many of whom who were working far too long hours with their 'golden nugget' private work ... 55 years is 'no age' and you could have many 'much happier' working years ahead of you. You'd be surprised how many professionals / senior executives find themselves in similar situations to your own.

BW

dunk

[murkeywaters]

I'm a bit off what you would call retirement but did have a think about this the other day, stereotypical retirement is have a monthly income, potter around the garden, meet up with old friends for brunch and drink lots of tea.. not really me.

55 is not old and I'm sure you would have plenty of plans once retired but you cant beat being busy, keep the mind activated and body moving, maybe its a chance for you to make some money in a sector that really interests you and one that you would enjoy, it would free up your financial concerns and give the mind and body something to do?

[Bonzodog]

Factor in the replacement of items that wear out and need replacing.This trickle effect soon adds up.It’s surprising how life changes when retired,try to keep a bit busy ,don’t sit in a chair all day.

[chrisparker]

I'd be thinking about a part-time career doing something you love, sporting, creative, horology something along those lines. If you're in good health you could have 40+ years of retirement, which at 55 is longer than you'd have worked. That's a long time without work obligations, I think I'd be bored as chuff after a year, especially as you don't sound like the type to go mad on coke and hookers.

[nickk]

Hi Chris,

I retired late 40s a fair while ago in much the same circumstances - little by way of FS (and too early to access) but a decent bundle of cash. I subsequently sold up in London and moved north, which also helped.

It does help if you already manage your own investments, or learn to do so, though you have hit the nail on the head problem-wise - no point retiring only to spend the whole time tracking and planning finances and fretting.

I set an annual budget (with an allowance for hols, repairs, car replacement and obviously watches) and early on tracked assiduously against that. Any residue I didn't roll back into Capital, so I quickly built up a comforting buffer of 'money you ought to have already spent'. You do eventually get used to the idea you're not actually going to run out of money and ease off with the spreadsheets, but a finances/drawdown plan is essential.

Big market shocks lose you sleep and the temptation is to slash your spend, but saving a few K in one year won't affect a 30+ year retirement plan. Also, you will have lived through so many of these already - black Monday, tech crash, global financial crisis, Brexit, Covid - you are still here and solvent, things recover. Mostly.

I did think I might get a part-time job, and that is certainly good advice, both to give you a buffer and to occupy you. I found that I was coaching badminton groups, in a running club, going to gym, gardening etc etc, I had less free time than when I was working. Oh, hold on, it is ALL free time!

I think ultimately it is less about the money and more about how you use and enjoy the time. Good luck!

[Justin Case]

If it was a final salary pension then the certainty of the income stream would be comforting

Not that I would but you could always buy an annuity?

[pinpull]

I’d be looking at getting my house in order before making any decisions. Financially reduce as much as possible, if not completely, your monthly outgoings such as mortgage(s), loans, credit cards etc, so at least you can consolidate what money you have, or will have, to get you through without those costly regular millstones.

I realise that if you have more than one property, paying off all mortgages may not be a possibility but worth looking into.

Just the thing I did before I decided to retire, and I did have existing enjoyable weekend work to carry on with which helped me financially but more importantly, mentally.


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[JonRA]

My brother lost two good friends in their 50's around 20 years ago. He gave up his job and opened a market bookstall which gave him an income of around 12k a year (he has no mortgage). He now has the state pension, a private pension of around 3k pa and a small savings pot for emergencies. He lives a low income low outgoing life, doing what he wants and has never been happier.

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[downer]

I retired at 56. I have a decent SIPP pot and a good financial advisor but the main thing that helped me was to create a spreadsheet that calculated a rough and ready cash flow for the next 40 years or so.

Using our financial history I calculated how much we would need each month in order to maintain a similar lifestyle to when I was working. Of course, that number is a bit of a guess but 3 years later I have to say my assumptions have played out ok. I factored in some bigger purchases (replacing cars, helping kids etc) and worked out what sort of return on investment I'd need to achieve the monthly income without eroding the capital too quickly. My IFA then suggested some investment strategies to deliver those goals.

At first I was obsessive about looking at the state of the SIPP pot very frequently but I've now come to terms with the fact it's a long-term strategy and day-to-day bumps are not worth thinking about. I see a few guys on the other investment thread who seem to use their SIPP as a day-trading tool. That's not for me.

For me, a regular income is important (psychologically) so I arranged to get monthly payments from a combination of pension, TFC and cash savings - designed to minimise income tax etc.

I now realise that I sacrificed a lot of my personal time whilst at work. Won't make that mistake again!

[craig1912]

I transferred my FS scheme to a personal pension three years ago and retired at 58.
I engaged the services of an IFA (I had to for the transfer) and did various cash flow projections which I found very useful and gave me the confidence to retire.
It does take a bit of getting used to not saving though. Mortgage paid off and no debts but I did need to get my youngest son through University and then all the holidays my wife wants to go on!
Best thing I ever did though!

[snowman]

My Dad retired at 60 on a decent (possibly excellent, my Mum still gets a decent sum each month) final salary pension.

Next year I'll reach the same age and I don't see any way I could retire and maintain the lifestyle (modest though it is, compared to many on here) I have on my pension.

The problem I see is that you can probably live (assuming you're essentially debt free) on relatively little, but if you want to have nice holidays, buy things, go places, etc then you need more and being retired, surely you need MORE money than when working because you have so much more time to fill!

I expect to keep working for another 10 years or so, if I can, although for the last couple of years I've worked kind of part-time anyway.

M

[bambam]

What I found fascinating with the calculator linked to earlier is the difference that £10k a year makes in terms of drawdown.
I put in a few figures just to see and with one I would still have a decent chunk left after 40 years and with £10k more I would run out in 33 years.

Obviously by that point I probably wouldn’t care either way but just interesting how the maths works.

[Kingstepper]

This is quite useful - https://www.which.co.uk/money/pensio...t-awvp49g8uq6l. Don't be afraid to take out what the model suggests each year.

Don't waste money on ifas.

Get all your incomings/outgoings on a spreadsheet.

Do the maths, not difficult really!

[Tifa]

Don't waste money on ifas.

No don't...it's just not worth it.
You could end up like one of our clients who ended up paying 55% tax on £177k.
He didn't need an IFA either.

[Estoril-5]

No don't...it's just not worth it.
You could end up like one of our clients who ended up paying 55% tax on £177k.
He didn't need an IFA either.

How did that happen, what didn't he do?

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[Kingstepper]

No don't...it's just not worth it.
You could end up like one of our clients who ended up paying 55% tax on £177k.
He didn't need an IFA either.

Then he must be particularly stupid.

[Tifa]

Then he must be particularly stupid.

No, not really, he's a dentist, fairly well educated, just an ordinary guy.
He'd simply taken a one off draw down payment about £160? (can't remember) in excess tax free entitlement, before investment which busted his £4k MPAA.

[Lammylee]

I am aiming to go part time when 60 which is realistic for me. Mortgage on home will be paid off, income from a rental flat would be £7K and I have no debt.

Leaving my private pension until I’m 65 ( I currently put in £5K per annum )and then I won’t work another day in my life ( by then I would have done 49 years gardening and will also sell my share of the company) I’m not waiting for the state pension I’ will probably be dead by then.

[valleywatch]

Money is all well and good, of course!

One thing you cant buy, no matter how rich you are................ is time!

You will therefore, be hardly surprised, when I recommend anybody, to retire as soon as they can!.

[walkerwek1958]

Money is all well and good, of course!

One thing you cant buy, no matter how rich you........... are is time!

You will therefore, be hardly surprised, when I recommend anybody, to retire as soon as they can!.

+1, that’s my advice too, although it pays to be sure you’ll have enough income to support the lifestyle you expect to lead in retirement. It helps if you have relatively modest tastes, but many people find their values change after retirement and having a new car on the driveway etc doesn’t seem important anymore.

Early retirement could be classed as a luxury in itself, that’s the way it felt to me. As Daney’s comment alludes to, you can’t buy time.

[ryanb741]

Correct me if I'm wrong but final salary pensions give a fixed amount each month but you don't have a pot of cash. So if you die your kids get nothing? If so I think a SIPP is better for me as if you had a million quid in it you could take £40k out a year and pretty much keep that £1m stable. Add in state pension etc and job done. And most people on this forum would.be able to get to £1m in a SIPP. If you had £100k in a Sipp at age 30 you could just go index trackers and you'd have a million quid in it by age 64 even if you didn't contribute another penny after the age of 30

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[David_D]

Correct me if I'm wrong but final salary pensions give a fixed amount each month but you don't have a pot of cash. So if you die your kids get nothing?

Basically correct (payments may be indexed too - CPI or RPI). There will almost certainly be a widow/widower's pension and provision for children up to a certain age/full time education but no pot that reverts to your estate, etc..

If so I think a SIPP is better for me as if you had a million quid in it you could take £40k out a year and pretty much never run out.

Also some IHT benefits for pension savings.

[Taxboy]

Basically correct (payments may be indexed too - CPI or RPI). There will almost certainly be a widow/widower's pension and provision for children up to a certain age/full time education but no pot that reverts to your estate, etc..



Also some IHT benefits for pension savings.

It depends on the scheme I have 2 final salary schemes one offers 3x pension as a lump sum on retirement which can be increased by surrendering monthly pension amount. The other has no lump sum but you can exchange monthly pension for one

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[Justin Case]

And most people on this forum would.be able to get to £1m in a SIPP. If you had £100k in a Sipp at age 30 you could just go index trackers and you'd have a million quid in it by age 64 even if you didn't contribute another penny after the age of 30

Most people don’t learn the power of compound growth until it is too late, or they’ve spaffed all their money in their 20’s and don’t even have £100k invested by 30 because they’ve either opted out of pension schemes or chose to make only minimum contributions.

£1m in 34 years isn’t going to be quite the same, so best keep contributing.

[Hood]

Correct me if I'm wrong but final salary pensions give a fixed amount each month but you don't have a pot of cash. So if you die your kids get nothing? If so I think a SIPP is better for me as if you had a million quid in it you could take £40k out a year and pretty much keep that £1m stable. Add in state pension etc and job done. And most people on this forum would.be able to get to £1m in a SIPP. If you had £100k in a Sipp at age 30 you could just go index trackers and you'd have a million quid in it by age 64 even if you didn't contribute another penny after the age of 30

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Lol
£100K by 30
Way too busy squandering it till long after that.
Cars,holidays,nite clubs and ridiculously priced clothes.
Normal activities for the young.


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[Ivan Drago]

Lol
£100K by 30
Way too busy squandering it till long after that.
Cars,holidays,nite clubs and ridiculously priced clothes.
Normal activities for the young.


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Same, I don’t know a single person who had 100k in their pension at 30 !

[Omegamanic]

Same, I don’t know a single person who had 100k in their pension at 30 !

Unfortunately, in the 80's I saw that only too often (usually around that or more each year), as we were looking at huge pension contributions for professional sportsman - the government had to take some action and introduced pension caps, as things were getting silly, and they were able to access their pensions at a younger age once they retired from their chosen sport!

[Omegamanic]

Correct me if I'm wrong but final salary pensions give a fixed amount each month but you don't have a pot of cash. So if you die your kids get nothing? If so I think a SIPP is better for me as if you had a million quid in it you could take £40k out a year and pretty much keep that £1m stable. Add in state pension etc and job done. And most people on this forum would.be able to get to £1m in a SIPP. If you had £100k in a Sipp at age 30 you could just go index trackers and you'd have a million quid in it by age 64 even if you didn't contribute another penny after the age of 30

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My only final salary pension, from a few years working for one employer, provides a fixed pension and will pay a fixed lump sum upon my death for any named dependents.

[Yorkshiremadmick]

My only final salary pension, from a few years working for one employer, provides a fixed pension and will pay a fixed lump sum upon my death for any named dependents.

Mine is index linked, rises by the previous years inflation ?
Capped at 5%
Likewise paying out on death plus 1/2 pension for Mrs.


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[Eddiex]

Mine is index linked, rises by the previous years inflation ?
Capped at 5%
Likewise paying out on death plus 1/2 pension for Mrs.


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I'm in a similar position - my wife and I retired at 50 with final salary pensions on the same deal.

We were concerned about the reduction in income initially but we believe, as others have said, that as you get older one starts to appreciate that 'experiences' are more important than 'possessions'. I know many worry about the loss of money but we found that it is quiet easy to cut your cloth a little and still have a great, but uncomplicated life.

The biggest benefit was the freedom that we enjoy to do pretty much what 'we' like. We did do our 'sums' beforehand to be sure and once the figures worked for us and our situation we made the decision not to work. The hardest bit was actually doing it and leaving work but once done we absolutely no regrets.

Let us know what you decide!

[plw]

The OP mentions that he has rental properties. One of the advantages of them (though not many these days, I grant you) is that rents tend to keep up with inflation and rarely if ever go down. I retired at 55, twelve years ago now, and am in the fortunate position to have invested monies in equities when I sold my share of the company, but had already built a portfolio of rentals which I've now had for 20years+

Looking back over the years, rents have kept up despite very low tenant churn, so in my view has proved over time to be a good, reliable source of income, and the capital growth and value is always there.

Would I do it now? Probably not.

[thegreatdogwood]

Correct me if I'm wrong but final salary pensions give a fixed amount each month but you don't have a pot of cash. So if you die your kids get nothing? If so I think a SIPP is better for me as if you had a million quid in it you could take £40k out a year and pretty much keep that £1m stable. Add in state pension etc and job done. And most people on this forum would.be able to get to £1m in a SIPP. If you had £100k in a Sipp at age 30 you could just go index trackers and you'd have a million quid in it by age 64 even if you didn't contribute another penny after the age of 30

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But £40k a year probably won't get you very far in 34 years time

[ryanb741]

But £40k a year probably won't get you very far in 34 years time

£40k a year in today's money. Based on pot growing 10% a year, less 3% inflation/fees. Net return 7% a year

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[thegreatdogwood]

£40k a year in today's money. Based on pot growing 10% a year, less 3% inflation/fees. Net return 7% a year

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I certainly wouldn't be assuming 10% p.a average compound growth over the next 34 years...

[Vanguard]

I certainly wouldn't be assuming 10% p.a average compound growth over the next 34 years...

Agreed, my pension pot went up by 4% last year, utter waste of time

[craig1912]

I certainly wouldn't be assuming 10% p.a average compound growth over the next 34 years...

Agree- in retirement mine assumes 4% but being a bit more adventurous 6/7%

[qaz4169]

I certainly wouldn't be assuming 10% p.a average compound growth over the next 34 years...

I think you need to assess market volatility in determining your average growth rate and fund management costs. 3-4% net growth on a risk rating of 4 is probably reasonable. This means with a reasonable drawdown and a full state pension a £1.25mn pot at 55 years old would mean you run out in your early 90”s.


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[Passenger]

There´s no benefit to being the richest man in the graveyard. Though I concede the ancient Egyptians thought differently.

[Taxboy]

There´s no benefit to being the richest man in the graveyard. Though I concede the ancient Egyptians thought differently.

Yup. I've never seen I wish I spent more time at the office on anyone's headstone

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