Swindon On Tour
Striker
Without doubt not seeing that large chunk of money going out each month works wonders. Then make any car loans disappear and all of a sudden your outgoings start to look far more attractive.
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Retirement
- Thread starter Shieldsman
- Start date
Without doubt not seeing that large chunk of money going out each month works wonders. Then make any car loans disappear and all of a sudden your outgoings start to look far more attractive.
a1970man
Striker
I was talking about people using their lump sum to pay of a remaining mortgage balance, something which many people do in order to lower their monthly outgoing to facilitate a smaller retirement income.
You have a tax free allowance as 1257L, which means you can earn £12570 a year before paying tax, which works out as £1047.50 a month.
I doubt most people can live on that, so you want to take more money a month from your pension than that, but anything more is taxable at 20%
Your lump sum is tax free, so if you have £200,000 in a pension pot, you can take £50,000 tax free in any way you like.
The problem is that this represents all of your tax free money you can take from your pension.
You could take your £50k and walk off into the sunset and spend it on what you wish, or you could take small amounts.
So, in my example you could either
Take £50k lump sum, pay off the mortgage and withdraw a pension or £2000 a month and be paying £200 a month in tax OR
Leave the 50k, carry on paying the mortgage monthly, take a pension of £2000 but pay no tax for 4 1/2 years as you would take £1040 a month tax free from your allowance and £960 from your £50k, which would last for 4 1/2 years.
It depends whether or not you can live on your retirement income and continue to pay your mortgage.
Thanks
I get that . I didn't see any comments about using your lumper for flatten the mortgage but I'm sure people might . As you said it's nice to not owe on the house if you use the saving wisely . I think £1047 a month ( £2094 per couple) is doable mind you . No mortgage ,just bills etc
Select coaches
Striker
That becomes £2,792, if you defer your lump sum and take it on a monthly basis. If you have some cash you can get £5k p. a. tax free each on top of that.
DaveH
Striker
I was going to post the same.
We have been paying around double mortgage payments for a while now, and could have invested that money elsewhere. Part of it for us was that the over payments crept up gradually, where as if we had suddenly decided we had that much money to invest, we would have probably stopped and ran a few figures.
There is also the protection side of things. Knowing the mortgage is paid off (or close to for us), means we are immune to events out of our control or if something happened (the place I was working made a lot of people redundant), then we had that bracket. I could take 7 years off mortgage payments if I wanted!
But a lot of it is the emotional satisfaction. Goal reached, ticked off the list, now onto the next financial chapter.
Again you've lost me
I'm just saying getting by earning the tf allowance is doable for a couple . Me and my 2 mates are managing . As we age and oap kicks in then we'll have no choice . I get you're explaining using monies from pots etc and best options. My plan is working canny for me
Select coaches
Striker
You don’t have to take your 25% tax free as a lump sum. You can take 25% of your monthly withdrawal tax free instead of having it as a lump sum. So £1,047 as your personal allowance and £349 as your tax free lump sum
Yes ,I know
Select coaches
Striker
So where did I lose you?
BILLY BUS PASS
Winger
Biggest let down ever, paying ya house off is a massive thing then but when you get the letter of the buildo to confirm it it’s a few words saying there are no charges on this property. You’ve spent years paying the fukker off no thank you for ya custom congratulations kiss me hoop or nowt.
a1970man
Striker
Yes, no thank you for the thousands paid regularly in interest.
You've paid a fortune for them to basically do nothing and you would have thought some level of appreciation would be in order.
If I ran those departments I'd want to thank the customer and try to offer them enhanced investment opportunities etc for their spare cash.
Sort of a thanks for the money over the years, if you are unsure what to spend you extra cash on, why not carry on giving it to us and we'll offer you a cash ISA of an enhanced 4.9% to make money of your cash until you decide what to do with it, or how about a loan with reduced rates for you new kitchen or holiday of a lifetime.
I was coming from a different direction and as I said made two quick general points about stuff ( mortgage and getting by on tax free allowance ) and you were taking about the broader thing of drawing from a pension and the options .
pension providers explains lump or no lump scenario on their sites and tax options
I was talking paying a mortgage off and we jumped to pension drawdown etc .
No drama
They took a calculated risk on you for a lot of money . Fairly low return rates over a long period . No deposit back in the 80s when people made a fortune just getting on the ladder Many swap providers 2 or 3 times in the term etc . I didn't expect a big thank you . I did get bumf about ideas for investments from mine .
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DaveH
Striker
I have been playing with a spreadsheet a bit more, and it is crazy how significantly things can change in the few years around my planed early retirement age.
I'm on a defined benefit with 3-4% per year penalty for taking it early, and then a very small amount in a defined contribution. I worked out that I have two phases to balance. The first is the time I work and save between paying off the mortgage and retiring, the second is the time between retiring and the state pension kicking in. For that second phase, I need to be able to top up my pension from my lump sum, the small amount of DC and anything I have saved after paying off the mortgage.
The longer I leave retiring, the more I save, the penalty is lower, there is another year boosting the DB part, and the second phase is shorter meaning I need to build less.
On my spreadsheet (if correct) 57 is not an option, 58 will be tight and rules out enjoying a bit more disposable income when the mortgage goes, 59 I only need to save half of what I pay on the mortgage now, 60 I don't need to save much at all and anything over 61 puts me way over my target amount. That is 4 years between not being able to afford it to having more than I planned on having, which is quite a shift when you consider I have been paying into the pension for 30-40 years.
I look like I might miss my target by 1 year, but I'm unlikely to stay in this job for 10-11 years, so one with a pay rise half way through should see me go at 58.
I'm on a defined benefit with 3-4% per year penalty for taking it early, and then a very small amount in a defined contribution. I worked out that I have two phases to balance. The first is the time I work and save between paying off the mortgage and retiring, the second is the time between retiring and the state pension kicking in. For that second phase, I need to be able to top up my pension from my lump sum, the small amount of DC and anything I have saved after paying off the mortgage.
The longer I leave retiring, the more I save, the penalty is lower, there is another year boosting the DB part, and the second phase is shorter meaning I need to build less.
On my spreadsheet (if correct) 57 is not an option, 58 will be tight and rules out enjoying a bit more disposable income when the mortgage goes, 59 I only need to save half of what I pay on the mortgage now, 60 I don't need to save much at all and anything over 61 puts me way over my target amount. That is 4 years between not being able to afford it to having more than I planned on having, which is quite a shift when you consider I have been paying into the pension for 30-40 years.
I look like I might miss my target by 1 year, but I'm unlikely to stay in this job for 10-11 years, so one with a pay rise half way through should see me go at 58.
Every year I work adds over £20k to my savings and lump sum and increases my monthly pension. Also reduces the time i need it to to last before my state pension kicks in. It's not all about money though,otherwise I'd do another year or two, minimum
Ned Land
Winger
Which DB pension scheme is it? I’m a member of a university LGPS and we have early retirement deductions, but there’s also a very esoteric 85 year rule which reduces the reductions (!) when you are over 60 and have 25+ years service.
My plan is to retire at 57 using a SIPP and ISAs but to defer the DB until I’m over 60.
Crook
Central Defender
I'm similar. If I was to retire now (58) things would be a bit tight. Leave it to 62 and I'm (relatively) minted. I'm going to go at 60, a happy in-between (hopefully)
Ned Land
Winger
Judging from my spreadsheet, I’d have too much money to spend if I retired at 67. I have always been quite frugal and apart from some nice holidays and food then I don’t really want much.
I’m aiming for my current income minus mortgage payments. I am hoping to continue paying into cash and S&S ISAs.
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Hard going this week for us Leisure loafers
Half term . The latest fashion in big shops is the toddlers head off shouting and bouncing off things while the parent shouts at them 2 aisles away without taking their gaze off the products . Meanwhile on the road the person behind wants their car where yours is all the time
Half term . The latest fashion in big shops is the toddlers head off shouting and bouncing off things while the parent shouts at them 2 aisles away without taking their gaze off the products . Meanwhile on the road the person behind wants their car where yours is all the time
Barista
Midfield
This is what I and the Mrs have been doing since retiring 18 months ago. Flexi SIPP drawdown of £1047.50 per month each which covers day to day stuff, and then use a portion of the tax free lump sum to pay for holidays etc. So no income tax to pay until start receiving the State Pension, which is still a canny few years away.
Haven’t even needed to dip into the ISAs yet either.
Yes, paid ours off before we retired. We would have made more money if it had been invested, but psychologically for us it was definitely the correct thing to do, and we would certainly do the same thing again if we went back in time.
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