[Misc] Retirement

Weststander · Nov 2, 2024

HalfaSeatOn said:
Challenge is keeping debt off the table by keeping a contingency for big non discretionary spends eg boiler, windows, soffits, car etc. Failure to do so eats in to ‘moderate’ lifestyle.

Easier said that done, build up some separate savings/cash ISA as a contingency.

Shropshire Seagull · Nov 2, 2024

A mex eyecan said:
beg to differ. When looking around for parents and relatives the cheapest we found was £1900 pw. Some way north of £2250.
Perhaps it may be a regional difference?.

My mum is in a care home in Rottingdean paying £4k pcm ( about £925 per week).
She is totally dependent.

Care fees are means tested. Above £22,250 its 100%. Below £13,250? the state pays 100% and in between is tapered.

Shropshire Seagull · Nov 2, 2024

dazzer6666 said:
Change house ownership to tenants in common. Each parent then separately deals with their share in their own will - upon death of the first, their share is then in trust, with the survivor staying in the proprietor as a beneficiary of the trust until their death or sale of the property. Only the survivor’s share can be used for care home fees as the first deceased share will have been left to others so will get distributed.

Me and Mrs SS are in the process of changing our wills right now to do just this. I've seen my mums savings and premium bonds (~£30k) handed over to the care home over the last 18 months and want to protect some of my legacy to my kids.

The way to do this is to change propery title from joint owners to tenants in common. Then, when first dies, their 50% share of the property goes into a trust, the beneficiaries can be anyone (in our case 2 daughters, will be 50:50). Care home can't touch this (aka ringfenced).

Beneficiaries of the trust can't force the remaining spouse to sell or move. Downsizing is possible with trustees agreement, which can free up cash and potentially reduce IHT.

The new wills and costing us £1k but I'm viewing this as a gift to my kids to ensure they benefit something from my lifetime of toil and graft and not gifting my property to the state.

If you don't have your will set up like this and care that your kids will get something from your passing, go talk to a solicitor, ASAP. We plan most of our life but the one thing we can't predict is when and how we will die (suicide excepted).

A mex eyecan · Nov 2, 2024

Shropshire Seagull said:
Me and Mrs SS are in the process of changing our wills right now to do just this. I've seen my mums savings and premium bonds (~£30k) handed over to the care home over the last 18 months and want to protect some of my legacy to my kids.

The way to do this is to change propery title from joint owners to tenants in common. Then, when first dies, their 50% share of the property goes into a trust, the beneficiaries can be anyone (in our case 2 daughters, will be 50:50). Care home can't touch this (aka ringfenced).

Beneficiaries of the trust can't force the remaining spouse to sell or move. Downsizing is possible with trustees agreement, which can free up cash and potentially reduce IHT.

The new wills and costing us £1k but I'm viewing this as a gift to my kids to ensure they benefit something from my lifetime of toil and graft and not gifting my property to the state.

If you don't have your will set up like this and care that your kids will get something from your passing, go talk to a solicitor, ASAP. We plan most of our life but the one thing we can't predict is when and how we will die (suicide excepted).

I think you need to set up a lifetime interest trust.

Wes Tupper · Nov 2, 2024

Struggling with the concept of relatively well-off people protecting their assets so that others pick up the bill for their care home costs. Not everyone ends up in a care home.

happypig · Nov 2, 2024

Triggaaar said:
Sounds lovely. I'm trying to work out how much I need in a pension pot. They're moving the age from 67 to 68, but ain't no way I'm waiting that long.

General consensus is to halve your age and put that much as a % into your "pot" (so if you're 40, then 20% of your salary into it).
Personally I'd say put as much as you can into it if you want to go before state pension age.
Also, pension advisors may set up your pension income as "£x for life" but in reality there will be phases to your retired life and you will need more money at the start (if going before SPA).
As a rough guide (and there are many other schools of thought) say you retire at 60 and you need/want £30k a year, you will need your pension to fund all of this until you're 67/68, after that the state pension means you only need to take £23k. After a certain age (I'm thinking 75) you won't want to do big holidays, you may give up your car (free bus pass, remember), probably go out less etc so your needs reduce to around £25k, which will be £16k from private pension and £9k from SP. After about 85 you wan't need nearly as much, say £20k
Adding it all up:
8 years @ 30k = 240k
8 years @ 23k = 184k
10 years @ 16k = 160k
10 years at 11k = 110k

So you're looking at a "pot" of around 700k.
Obviously everyone's different and if you're married then your spouse's pension(s) count too

Mrs H (59) and I(61) have a combined income of £26k from our pensions and we live comfortably on that (no mortgage/rent) but we have to dip in to our savings from time to time to pay for holidays etc. We take about £3-4k a year out which is pretty much what we planned for.
We have enough put by to cover things like replacing the car and house repairs.

Shropshire Seagull · Nov 2, 2024

Wes Tupper said:
Struggling with the concept of relatively well-off people protecting their assets so that others pick up the bill for their care home costs. Not everyone ends up in a care home.

Indeed, but my mum, was a healthy, relatively financially sound, 89 year old, then had a severe stroke and has ended up in a care home. It can happen to anyone.

She worked and paid her taxes all her life.

Its called protecting against uncertainty. Not everyone will choose to do this, but make an informed choice, rather than leave to fate.

Not everyone ends up in a care home has parallels with not everyone has a car accident or not everyone has a house insurance claim. You NEVER know what might happen tomorrow ....

dazzer6666 · Nov 2, 2024

A mex eyecan said:
I think you need to set up a lifetime interest trust.

Should be incorporated in the will ?

Triggaaar · Nov 2, 2024

happypig said:
General consensus is to halve your age and put that much as a % into your "pot" (so if you're 40, then 20% of your salary into it).

That sounds sensible, but I'm way to old to start that. I did put some extra money in when I was young, but then I started putting any extra money into property instead.

I'm assuming that if you can afford it, you should always take the 25% tax free withdrawal when you start your pension - if you'd like your pot to be higher, then get money by hook or by crook, put it into your pension just before you retire (govt will add 25%), then take it back at as a tax free withdrawal - so if you get hold of £100k, put it in, retire, then take out £125k. Is that what people do? I know the amount you put in each year (with HMRC adding 25%) is limited to your salary, so £100k could take a few years.

happypig said:
Personally I'd say put as much as you can into it if you want to go before state pension age.

I'm wondering whether I should consolidate my (small) pensions first, and make sure I'm in a good one before adding more to it?

happypig said:
Also, pension advisors may set up your pension income as "£x for life" but in reality there will be phases to your retired life and you will need more money at the start (if going before SPA).
As a rough guide (and there are many other schools of thought) say you retire at 60 and you need/want £30k a year, you will need your pension to fund all of this until you're 67/68, after that the state pension means you only need to take £23k. After a certain age (I'm thinking 75) you won't want to do big holidays, you may give up your car (free bus pass, remember), probably go out less etc so your needs reduce to around £25k, which will be £16k from private pension and £9k from SP. After about 85 you wan't need nearly as much, say £20k
Adding it all up:
8 years @ 30k = 240k
8 years @ 23k = 184k
10 years @ 16k = 160k
10 years at 11k = 110k

So you're looking at a "pot" of around 700k.

Really helpful, thanks.

happypig said:
Obviously everyone's different and if you're married then your spouse's pension(s) count too

Mrs H (59) and I(61) have a combined income of £26k from our pensions and we live comfortably on that (no mortgage/rent) but we have to dip in to our savings from time to time to pay for holidays etc. We take about £3-4k a year out which is pretty much what we planned for.
We have enough put by to cover things like replacing the car and house repairs.

Thanks

happypig · Nov 2, 2024

Triggaaar said:
That sounds sensible, but I'm way to old to start that. I did put some extra money in when I was young, but then I started putting any extra money into property instead.

I'm assuming that if you can afford it, you should always take the 25% tax free withdrawal when you start your pension - if you'd like your pot to be higher, then get money by hook or by crook, put it into your pension just before you retire (govt will add 25%), then take it back at as a tax free withdrawal - so if you get hold of £100k, put it in, retire, then take out £125k. Is that what people do? I know the amount you put in each year (with HMRC adding 25%) is limited to your salary, so £100k could take a few years.

As I understand it, pension contributions are from pre-tax salary so if you put an extra £100 in it's actually cost you £80. However if you're a higher rate tax payer it only costs you £60. I was lucky enough to earn a bit over the 40% threshold for a while so I stuck £500 a month extra into it for a few years (I'd only have wasted it).

There are caveats though, I worked with a feller who was in the lucky position that his wife earned enough for them both to live on so he tried to put all his salary into his pension as AVCs (additional voluntary contributions) but couldn't because he would be earning less than minimum wage.

chip · Nov 2, 2024

happypig said:
There are caveats though, I worked with a feller who was in the lucky position that his wife earned enough for them both to live on so he tried to put all his salary into his pension as AVCs (additional voluntary contributions) but couldn't because he would be earning less than minimum wage.

I'd not realised that was the case, I thought it was just up to the annual allowance and applied to salary scarifice. Thank you for enlightening me. Did they end up sharing the distribution of pension contributions, his partner paying in more?

Triggaaar · Nov 2, 2024

happypig said:
As I understand it, pension contributions are from pre-tax salary so if you put an extra £100 in it's actually cost you £80. However if you're a higher rate tax payer it only costs you £60.

I think there was a limit of £40k in 22/23, but that went up to £60k, or 100% of your salary (whichever is lower).

If you earn £30k, you get the first £12.57k tax free, then you 20% on the rest, and NI. Your take home would be £25,121.
If you put £25,121, HMRC will add 25%, so you'll get £31,401 in your pension - more than you earned!

Because you're getting tax relief on even the first £12.57k you earned, which you didn't pay tax on in the first place.

happypig said:
There are caveats though, I worked with a feller who was in the lucky position that his wife earned enough for them both to live on so he tried to put all his salary into his pension as AVCs (additional voluntary contributions) but couldn't because he would be earning less than minimum wage.

Was he trying to put his salary in via his PAYE, or afterwards? Because can't you just transfer a lump sum? Something sounds wrong there.

Paulie Gualtieri · Nov 2, 2024

Triggaaar said:
I think there was a limit of £40k in 22/23, but that went up to £60k, or 100% of your salary (whichever is lower).

If you earn £30k, you get the first £12.57k tax free, then you 20% on the rest, and NI. Your take home would be £25,121.
If you put £25,121, HMRC will add 25%, so you'll get £31,401 in your pension - more than you earned!

Because you're getting tax relief on even the first £12.57k you earned, which you didn't pay tax on in the first place.

Was he trying to put his salary in via his PAYE, or afterwards? Because can't you just transfer a lump sum? Something sounds wrong there.

All be it a couple of decades away, I had planned to do something similar if the rules stayed the same. Assuming the mortgage is paid off, would look to significantly reduce salary and put as much as possible from the higher tax element (up to £60k) into a pension for the final 5 years of working, tax free then to take 25% tax free and draw down the remainder at a lower tax rate than I would have paid if I hadn’t done this.

Is there a flaw to this approach?

A mex eyecan · Nov 2, 2024

Paulie Gualtieri said:
All be it a couple of decades away, I had planned to do something similar if the rules stayed the same. Assuming the mortgage is paid off, would look to significantly reduce salary and put as much as possible from the higher tax element (up to £60k) into a pension for the final 5 years of working, tax free then to take 25% tax free and draw down the remainder at a lower tax rate than I would have paid if I hadn’t done this.

Is there a flaw to this approach?

you can plan as much as you like, but 20 years time will have seen a minimum of 4 governments, most probably 4 or 5 COE’s, countless shifts of policies and as such what looks like a master plan today can be on a completely different track come your retirement. The rules you play by today can and most probably will be altered.

North of Robertsbridge · Nov 2, 2024

Paulie Gualtieri said:
All be it a couple of decades away, I had planned to do something similar if the rules stayed the same. Assuming the mortgage is paid off, would look to significantly reduce salary and put as much as possible from the higher tax element (up to £60k) into a pension for the final 5 years of working, tax free then to take 25% tax free and draw down the remainder at a lower tax rate than I would have paid if I hadn’t done this.

Is there a flaw to this approach?

It’s effectively what I’ve done in the few years up to retirement, although the limit was £40K not £60K. You can also still go back up to three years of unused allowances, so over four years stuff in a total of £40K + £40K + £60K + £60K (which answers another question above about contributing £100K), if earnings permit that

I’ve liked the earlier suggestion to build up both pension pot and ISAs. That gives flexibility and may be useful if the rules on either of them change dramatically

Paulie Gualtieri · Nov 2, 2024

North of Robertsbridge said:
It’s effectively what I’ve done in the few years up to retirement, although the limit was £40K not £60K. You can also still go back up to three years of unused allowances, so over four years stuff in a total of £40K + £40K + £60K + £60K (which answers another question above about contributing £100K), if earnings permit that

I’ve liked the earlier suggestion to build up both pension pot and ISAs. That gives flexibility and may be useful if the rules on either of them change dramatically

Thanks for confirming

Paulie Gualtieri · Nov 2, 2024

A mex eyecan said:
you can plan as much as you like, but 20 years time will have seen a minimum of 4 governments, most probably 4 or 5 COE’s, countless shifts of policies and as such what looks like a master plan today can be on a completely different track come your retirement. The rules you play by today can and most probably will be altered.

Agree, which is why I’m putting what I can into ideas now whilst it’s still viable

Triggaaar · Nov 2, 2024

chip · Nov 2, 2024

Paulie Gualtieri said:
All be it a couple of decades away, I had planned to do something similar if the rules stayed the same. Assuming the mortgage is paid off, would look to significantly reduce salary and put as much as possible from the higher tax element (up to £60k) into a pension for the final 5 years of working, tax free then to take 25% tax free and draw down the remainder at a lower tax rate than I would have paid if I hadn’t done this.

Is there a flaw to this approach?

That's roughly what I have been doing. You have to account for your emploers contributions to not go over the annual allowance. You are at the mercy of what any goverment might decide to do. After a couple of years of living on about half my salary I've come to the conclusion that I don't need as much money as I would have thought five years ago. What it probably means is I will retire earlier. Each to their own though, many people have different plans to me. You aren't going to go really wrong with long-term savings.

happypig · Nov 2, 2024

chip said:
I'd not realised that was the case, I thought it was just up to the annual allowance and applied to salary scarifice. Thank you for enlightening me. Did they end up sharing the distribution of pension contributions, his partner paying in more?

I don't know if they shared contributions.

Triggaaar said:
I think there was a limit of £40k in 22/23, but that went up to £60k, or 100% of your salary (whichever is lower).

If you earn £30k, you get the first £12.57k tax free, then you 20% on the rest, and NI. Your take home would be £25,121.
If you put £25,121, HMRC will add 25%, so you'll get £31,401 in your pension - more than you earned!

Because you're getting tax relief on even the first £12.57k you earned, which you didn't pay tax on in the first place.

Was he trying to put his salary in via his PAYE, or afterwards? Because can't you just transfer a lump sum? Something sounds wrong there.

It was via payroll but this was a final salary scheme and the rules were different I think.

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